As filed with the Securities and Exchange Commission on July 31, 2008
Registration No. 333-[ ]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Exact Name of Registrant as Specified in Its Charter)
| | | | | |
| Florida | | 5013 | | 20-4200300 |
(State or other jurisdiction of incorporation or organization) | | (Primary Standard Industrial Classification Code Number) | | (I.R.S. Employer Identification Number) |
President
391 Hua Yu Lane, Dong Xin Street
Xi’an, Shaanxi Province, P.R. China
Telephone No.: (8629) 8826-5109
(Name, Address and Telephone Number
of Principal Executive Offices and Agent for Service)
Copies of communications to:
JPF Securities Law, LLC.
17111 Kenton Drive
Suite 100B
Cornelius, NC 28031
Telephone No.: (704) 897-8334
Facsimile No.: (888) 608-5705
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨
Large Accelerated Filer ¨ Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller reporting Company x
CALCULATION OF REGISTRATION FEE
| | | | | | | | | | | |
Title of Each Class of Securities to be Registered | | Amount to be Registered | | Proposed Maximum Offering Price | | Proposed Maximum Aggregate Offering Price | | Amount of Registration Fee |
Common Stock (1) | | 7,287,097 | | $.20 | | $ | 1,457,419 | | $ | 57.28 |
| Total: | | 7,287,097 | | $.20 | | $ | 1,457,419 | | $ | 57.28 |
| (1) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended (the “Securities Act”), based upon the average of the bid and asked price for the common stock of $.20 as reported on the OTC Bulletin Board on July 30, 2008. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 30, 2008
PROSPECTUS
ENVIRONMENT ECOLOGY HOLDING CO. OF CHINA
7,287,097 Shares of Common Stock
The selling shareholders named in this prospectus are offering all of the shares of common stock offered through this prospectus. Please refer to “Selling Security holders” beginning on page 8.
Our common stock is presently not traded on any market or securities exchange.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The selling shareholders will sell our shares at $0.10 per share until our shares are quoted on the OTC Bulletin Board, and thereafter at prevailing market prices or privately negotiated prices. We determined this offering price based upon the price of the last sale of our common stock to investors.
We are not selling any shares of common stock in this offering and therefore will not receive any proceeds from this offering. All costs associated with this registration will be borne by us.
An investment in our Common Stock involves significant risks. Investors should not buy our Common Stock unless they can afford to lose their entire investment. See “ Risk Factors ” beginning on page 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 30, 2008
TABLE OF CONTENTS
| PART I | | |
| Item No. | | Page |
| | | |
| Prospectus Summary | | 4 |
| Summary Financial Data | | 5 |
| Risk Factors | | 6 |
| Forward-Looking Statements | | 7 |
| Use of Proceeds | | 7 |
| Determination of Offering Price | | 7 |
| Dilution | | 7 |
| Selling Security Holders | | 7 |
| Plan of Distribution | | 8 |
| Description of Capital Stock | | 8 |
| Interest of Named Experts and Counsel | | 10 |
| Description of Business | | 10 |
| Description of Property | | 13 |
| Legal Proceedings | | 13 |
| Market for Common Equity and Related Stockholder Matters | | 13 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 14 |
| Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | | 20 |
| Management | | 20 |
| Executive Compensation | | 21 |
| Security Ownership of Certain Beneficial Owners and Management | | 22 |
| Certain Relationships and Related Transactions | | 22 |
| Disclosure of Commission Position of Indemnification for Securities Act Liabilities | | 23 |
| Where You Can Find More Information | | 23 |
| Transfer Agent | | 23 |
| Index to the Audited Financial Statements | | 24 |
| PART II | | |
| Other Expenses of Issuance and Distribution | | 49 |
| Indemnification of Directors and Officers | | 49 |
| Recent Sales of Unregistered Securities | | 49 |
| Exhibits and Financial Statement Schedules | | 50 |
| Undertakings | | 51 |
| Signatures | | 52 |
This summary highlights important information about our company and business. Because it is a summary, it may not contain all of the information that is important to you. To understand this offering fully, you should read this entire prospectus and the financial statements and related notes included in this prospectus carefully, including the “Risk Factors” section. Unless the context requires otherwise, “we,” “us,” “our”, “ and the “company” and similar terms refer to Environment Ecology Holding Co. of China, and our subsidiaries collectively, while the term “Environment” refers to Environment Ecology Holding Co. of China” in its corporate capacity.
Our Company
We are Environment Ecology Holding Co. of China (the “Company”), a Florida corporation. Environment Ecology Holding Co. of China was formerly known as Dispatch Auto Parts, Inc. The Company’s Board of Directors approved a proposal to amend the corporate charter to change the name of the Company from Dispatch Auto Parts, Inc. to Environment Ecology Holding Co. of China on April 10, 2007. The action was also approved by the written consent of a majority of all shareholders entitled to vote on the record date. The actual affirmative vote was 50.75% of all shares issued and outstanding.
We are experienced in urban landscaping. The Company offers many services including, but not limited to, gardening, landscape architecture and construction, pest management, landscape maintenance, etc. Our target market includes, but is not limited to, public parks, communities, schools, memorials, convention centers, squares, hotels, and highway side views. Our industry experience has allowed us to identify target markets that will be receptive to our proprietary services, and it also acts as a competitive advantage.
About Us
Our principal executive offices are located at 391 Hua Yu Lane, Dong Xin Street, Xi’an, Shaanxi Province, P.R. China. Our telephone number is (8629) 8826-5109.
Our common stock is quoted on the Over-The-Counter Bulletin Board under the symbol EVEH.OB. On July 10, 2008, the reported closing price of our stock there was $0.25 per share. Our common stock is a “penny stock,” and compliance with requirements for dealing in penny stocks may make it difficult for holders of our common stock to resell their shares.
The Offering
This prospectus relates to the sale of up to 7,287,097 currently issued and outstanding shares of our common stock by the selling security holders, consisting of: Trafalgar Capital Specialized Investment Fund, Luxembourg.
We agreed to file a registration statement with the Commission in order to register the resale of the common shares issued to the selling security holders.
As of July 14, 2008, we had 33,162,114 shares of common stock outstanding. This number excludes the 50,000,000 shares of common stock being held as collateral by DZ Bank International S.A. for benefit of Trafalgar Capital Specialized Investment Fund pursuant to a Securities Purchase Agreement, dated as of June 30, 2008, by and among the Company and Trafalgar Capital Specialized Investment Fund, Luxembourg (attached hereto as Exhibit 10.1). The number of shares registered under this prospectus would represent approximately 21.97% of the 33,162,114 shares of common stock outstanding. The number of shares ultimately offered for sale by the selling security holders is dependent on whether, and to what extent, such holders decide to sell their shares.
Shares registered in this prospectus may not be sold until it is declared effective. The common shares offered under this prospectus may not be sold by the selling security holders, except in negotiated transactions with a broker-dealer or market maker as principal or agent, or in privately negotiated transactions not involving a broker or dealer. Information regarding the selling security holders, the common shares they are offering to sell under this prospectus and the times and manner in which they may offer and sell those shares is provided in the sections of this prospectus captioned “Selling Security Holders” and “Plan of Distribution.”
The following selected financial data have been derived from the Company’s and its predecessor’s financial statements which have been audited by Zhong Yi (Hong Kong) C.P.A. Company Limited, an independent registered public accounting firm, as of and for the year ended June 30, 2007 and the related statements of operations, stockholders’ equity and cash flows for the year ended June 30, 2007. The summary financial data as of June 30, 2007 are derived from our audited financial statements, which are included elsewhere in this prospectus. The audited condensed financial statements have been prepared on the same basis as our audited financial statements and include all adjustments, consisting of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the audited periods. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Prospectus and the Financial Statements and notes thereto included in this Prospectus.
ENVIRONMENT ECOLOGY HOLDING CO. OF CHINA
SUMMARY OF STATEMENTS OF OPERATIONS
Unaudited Financial Summary Information for the Nine Months Ended March 31, 2008 and 2007
Statements of Operations (Unaudited) | | For the nine months ended Mar. 31, 2008 | | | For the nine months ended Mar. 31, 2007 | |
| | | | | | | |
| Revenues | | $ | 10,310,433 | | | $ | 2,447,211 | |
| Cost of revenue | | $ | 6,955,578 | | | $ | 1,573,202 | |
| Gross profit | | $ | 3,354,855 | | | $ | 874,009 | |
| Operating expenses | | $ | 1,164,183 | | | $ | 370,992 | |
| Income from operations | | $ | 2,190,672 | | | $ | 503,017 | |
| Other income | | $ | 1,441 | | | $ | 296 | |
| Other expense, net | | $ | 1,101,121 | | | $ | 239,886 | |
| Net income | | $ | 1,090,992 | | | $ | 263,427 | |
| Other comprehensive income | | $ | 299,359 | | | $ | 46,013 | |
| Comprehensive income | | $ | 1,390,351 | | | $ | 309,440 | |
| Net income per common share | | $ | 0.04 | | | $ | 0.01 | |
Balance Sheet (Unaudited) | | As of Mar. 31, 2008 | |
| | | | |
Available cash | | $ | 2,968,254 | |
Total current assets | | $ | 5,407,190 | |
Non-current assets | | $ | 625,875 | |
Total Assets | | $ | 6,033,065 | |
Current liabilities | | $ | 1,334,180 | |
| Minority interest | | $ | 239,290 | |
Stockholders’ equity | | $ | 4,459,595 | |
Total liabilities and stockholders’ equity | | $ | 6,033,065 | |
Audited Financial Summary Information for the Years Ended June 30, 2007 and 2006
Statements of Operations (Audited) | | For the year ended June 30, 2007 | | | For the year ended June 30, 2006 | |
| | | | | | | |
Revenues | | $ | 3,979,748 | | | $ | 2,782,922 | |
Cost of revenue | | $ | 2,559,754 | | | | | |
Gross profit | | $ | 1,419,994 | | | $ | 901,780 | |
Operating expenses | | $ | 632,440 | | | $ | 237,134 | |
| Income from operations | | $ | 787,554 | | | $ | 664,646 | |
| Other income | | $ | 155 | | | $ | 12,573 | |
| Income tax expense | | $ | 430,450 | | | $ | 256,210 | |
| Minority interest | | $ | 43,573 | | | $ | 27,071 | |
| Net income | | $ | 313,686 | | | $ | 393,938 | |
| Other comprehensive income | | $ | 128,797 | | | $ | 42,290 | |
| Comprehensive income | | $ | 442,483 | | | $ | 436,228 | |
Net income per common share | | $ | 0.012 | | | $ | 0.015 | |
Balance Sheet (Audited) | | As of June 30, 2007 | |
| | | | |
Available cash | | $ | 2,775,361 | |
Total current assets | | $ | 3,019,298 | |
Non-current assets | | $ | 470,960 | |
Total Assets | | $ | 3,490,258 | |
Current liabilities | | $ | 674,724 | |
Minority interest in consolidated subsidiaries | | $ | 141,044 | |
Stockholders’ equity | | $ | 2,674,490 | |
Total liabilities and stockholders’ equity | | $ | 3,490,258 | |
We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.
Changes in governmental policies could reduce demand for the Company’s services
Most of the Company’s business is driven by governmental policies and support from the local government. Any changes in governmental policies regarding funding or enforcement would have an adverse impact on the Company’s revenues. Also, reduced spending by governments may increase competition within the Company's industry which may directly affect future revenue and profits.
As a government contractor, the Company is subject to a number of procurement laws and regulations, as well as government agency audits. Any violation of these laws could result in economic harm to the Company’s operations
The Company must comply with certain laws relating to the procurement and administration of government contracts. These laws impact how the Company does business with government clients and can increase the cost of doing business. Government agencies as well as numerous local agencies routinely audit government contractors and their performance under specific contracts to determine if a contractor’s cost structure is compliant with applicable laws and regulations.
The Company depends on government work for a significant portion of its revenues. The Company’s inability to win or renew government contracts during procurement cycles could significantly reduce Company profits
The Company significantly depends on government work for its revenues. An inability to win or renew government contracts would adversely affect operations and significantly reduce profits. Government contracts are typically awarded through a highly regulated procurement process. However, the state-owned companies take the priority in most government projects. In addition, some government contracts are awarded to multiple competitors, causing increased competition and downward pricing pressure. This may lead to increased pressure to control costs. If the Company cannot reduce or control costs on these contracts, losses may occur.
The use of percentage of completion method of accounting could result in a reduction or reversal of previously recorded revenues and profits.
A portion of the Company’s revenues and profits are measured and recognized using the percentage of completion method of accounting which is discussed further in Note 2 of the Audited Consolidated Financial Statements. The use of this method results in the recognition of revenues and profits ratably over the life of a contract. The effect of revisions to revenues and estimated costs is recorded when the amounts are known or can be reasonably estimated. Such revisions could occur in any period and their effects could be material. Although the Company has historically been able to make reasonably accurate estimates of work progress, the uncertainties inherent in the estimating process make it possible for actual costs to vary from estimates in a material amount, including reductions or reversals of previously recorded revenues and profits.
Our assets are located in China, and the Company’s revenues are derived from its operations in China
In terms of industry regulations and policies, the economy of China has been transitioning from a planned economy to a market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China are still owned by the Chinese government. For example, all lands are state owned and are leased to business entities or individuals through the governmental granting of State-owned Land Use Rights. The granting process is typically based on government policies at the time of granting and it could be lengthy and complex. This process may adversely affect our company’s future manufacturing expansions. The Chinese government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise with the changing of governmental policies and measures. At present, our company’s development of research and development technologies and products is subject to approvals from the relevant government authorities in China. Such governmental approval processes are typically lengthy and complex, and never certain to be obtained.
Political and economic risks
China is a developing country with a young market economic system overshadowed by the state. Its political and economic systems are very different from the more developed countries and are still in the stage of change. China also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationship with other countries, including but not limited to the United States. Such shocks, instabilities and crises may in turn significantly and adversely affect our performance.
Risks related to interpretation of Chinese laws and regulations which involve significant uncertainties
China’s legal system is based on written statutes and their interpretation by the Supreme People’s Court. Prior court decisions may be cited for reference but have limited value as precedents. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. In addition, as the Chinese legal system develops, we cannot assure that changes in such laws and regulations, and their interpretation or their enforcement will not have a material adverse effect on our business operations.
Currency conversion and exchange rate volatility could adversely affect our financial condition.
The PRC government imposes control over the conversion of Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.
Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC.
Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still subject to certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.
Enterprises in PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.
Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.
We are a FIE to which the Foreign Exchange Control Regulations are applicable. There can be no assurance that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy other foreign exchange requirements in the future.
Since 1994, the exchange rate for Renminbi against the United States dollar has remained relatively stable, most of the time in the region of approximately RMB8.28 to US$1.00. However, in 2005, the Chinese government announced that it would begin pegging the exchange rate of the Chinese Renminbi against a number of currencies, rather than just the U.S. dollar. As our operations are primarily in China, any significant revaluation of the Chinese Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert United States dollars into Chinese Renminbi for our operations, appreciation of this currency against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert Chinese Renminbi into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the Chinese Renminbi we convert would be reduced.
This Prospectus contains certain forward-looking statements regarding management’s plans and objectives for future operations including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks set forth in this Prospectus include or relate to, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our ability to obtain and retain sufficient capital for future operations, and (e) our anticipated needs for working capital. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Business,” as well as in this Prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur.
The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that we will be able to maintain government support, that there will be no material adverse competitive or technological change in conditions in our business, that demand for our services will significantly increase, that our President and Chief Executive Officer will remain employed as such, that our forecasts accurately anticipate market demand, and that there will be no material adverse change in our operations or business or in governmental regulations affecting us or our manufacturers and/or suppliers. The foregoing assumptions are based on judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in forward-looking statements will be realized. In addition, as disclosed elsewhere in the “Risk Factors” section of this prospectus, there are a number of other risks inherent in our business and operations which could cause our operating results to vary markedly and adversely from prior results or the results contemplated by the forward-looking statements. Growth in absolute and relative amounts of cost of goods sold and selling, general and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause us to alter marketing, capital investment and other expenditures, which may also materially adversely affect our results of operations. In light of significant uncertainties inherent in the forward-looking information included in this prospectus, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
Some of the information in this prospectus contains forward-looking statements that involve substantial risks and uncertainties. Any statement in this prospectus and in the documents incorporated by reference into this prospectus that is not a statement of an historical fact constitutes a “forward-looking statement”. Further, when we use the words “may”, “expect”, “anticipate”, “plan”, “believe”, “seek”, “estimate”, “internal”, and similar words, we intend to identify statements and expressions that may be forward-looking statements. We believe it is important to communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that could cause our future results to differ materially from those expressed in any forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements. Important factors that may cause our actual results to differ from such forward-looking statements include, but are not limited to, the risk factors discussed below. Before you invest in our common stock, you should be aware that the occurrence of any of the events described under “Risk Factors” in this prospectus could have a material adverse effect on our business, financial condition and results of operation. In such a case, the trading price of our common stock could decline and you could lose all or part of your investment.
With respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 (the “ 1933 Act ”), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding the Company so as to make an informed investment decision.
This Prospectus relates to shares of our common stock that may be offered and sold from time to time by certain selling stockholders. There will be no proceeds to us from the sale of shares of common stock in this offering.
| DETERMINATION OF OFFERING PRICE |
The Selling Security Holders will sell their shares at the market price at the time of the sale.
Not applicable.
The following table presents information regarding the selling security holders. Unless otherwise stated below, to our knowledge no selling security holder nor any affiliate of such shareholder has held any position or office with, been employed by or otherwise has had any material relationship with us or our affiliates during the three years prior to the date of this prospectus. None of the selling security holders are members of the National Association of Securities Dealers, Inc. The selling security holders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933. The number and percentage of shares beneficially owned before and after the sales is determined in accordance with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted. The total number of common shares sold under this prospectus may be adjusted to reflect adjustments due to stock dividends, stock distributions, splits, combinations or recapitalizations.
For purposes of calculating the percentage of shares owned after the offering, we assumed the sale of all common shares offered under this prospectus. However, the selling security holders are under no obligation to sell all or any portion of the common shares offered for sale under this prospectus. Accordingly, no estimate can be given as to the amount or percentage of our common shares that will ultimately be held by the selling security holders upon termination of sales pursuant to this prospectus. The percentage of outstanding shares is based on 33,162,114 shares of common stock outstanding as of July 14, 2008. This number excludes the 50,000,000 shares of common stock being held as collateral by DZ Bank International S.A. for benefit of Trafalgar Capital Specialized Investment Fund pursuant to a Securities Purchase Agreement, dated as of June 30, 2008, by and among the Company and Trafalgar Capital Specialized Investment Fund, Luxembourg (attached hereto as Exhibit 10.2).
| | | | | | | | | | | | | | | | |
| | Shares of common Stock owned prior to offering | | | Percent of Common Stock owned prior to offering (1) | | | Shares of common stock to be sold | | | Shares of common Stock owned After offering | | | Percentage of Shares Owned Upon Completion | |
(2) Trafalgar Capital Specialized Investment Fund, Luxembourg | | | 7,287,097 | | | | 18 | % | | | 7,287,097 | | | | 0 | | | | 0 | % |
| Totals | | | 7,287,097 | | | | 18 | % | | | 7,287,097 | | | | 0 | | | | 0 | % |
| (1) | Applicable percentage of ownership is based on 33,162,114 shares as of July 14, 2008 (there are no securities exercisable or convertible into shares of common stock). Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Note that affiliates are subject to Rule 144 and Insider trading regulations – percentage computation is for form purposes only. |
| (2) | Trafalgar Capital Specialized Investment Fund ("Trafalgar") is an offshore investment fund that provides capital to small to medium sized companies. The fund is managed by Robert Press. The Company is registering the underlying convertible debenture of $2,500,000 issued to Trafalgar on or about June 30, 2008. A copy of the debenture and related documents are attached as exhibits to this filing. |
PLAN OF DISTRIBUTION
Sales By Selling Security Holders
The selling stockholders have advised that the sale or distribution of our common stock owned by the selling stockholders may be effected directly to purchasers by the selling stockholders as principals or through one or more underwriters, brokers, dealers or agents from time to time in one or more transactions (which may involve crosses or block transactions) (i) on the Over-The-Counter market or in any other market on which the price of our shares of common stock are quoted or (ii) in transactions otherwise than on the Over-The-Counter market or in any other market on which the price of our shares of common stock are quoted. Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at varying prices determined at the time of sale or at negotiated or fixed prices, in each case as determined by the selling stockholders or by agreement between the selling stockholders and underwriters, brokers, dealers or agents, or purchasers. If the selling stockholders effect such transactions by selling their shares of common stock to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of common stock for whom they may act as agent (which discounts, concessions or commissions as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved).
Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. The selling stockholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the selling stockholders are registered to sell securities in all fifty states. In addition, in certain states the shares of common stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
We will pay the entire expenses incident to this registration, offering and sale of the shares of common stock to the public hereunder, excluding the commissions, fees and discounts of brokers, dealers and agents for the selling stockholders.
The selling stockholders should be aware that the anti-manipulation provisions of Regulation M under the Exchange Act will apply to purchases and sales of common stock by the selling stockholders, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Regulation M, the selling stockholders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while such selling stockholders are distributing shares covered by this prospectus. Accordingly, except as noted below, the selling stockholders are not permitted to cover short sales by purchase shares while the distribution is taking place. The selling stockholders are advised that if a particular offer of common stock is to be made on terms constituting a material change from the information set forth above with respect to the Plan of Distribution, then, to the extent required, a post-effective amendment to the accompanying registration must be filed with the Securities and Exchange Commission.
General
The Company is authorized to issue 100,000,000 shares of common stock, par value of $0.001 per share and 100,000 shares of preferred stock, par value $0.001 per share. As of July 14, 2008, there were 33,162,114 shares of common stock issued and outstanding. This number excludes the 50,000,000 shares of common stock being held as collateral by DZ Bank International S.A. for benefit of Trafalgar Capital Specialized Investment Fund pursuant to a Securities Purchase Agreement, dated as of June 30, 2008, by and among the Company and Trafalgar Capital Specialized Investment Fund, Luxembourg (attached hereto as Exhibit 10.2). As of July 14, 2008, there were 100,000 shares of preferred stock issued and outstanding.
Common Stock
The Company currently has 100,000,000 authorized shares of Common Stock, par value $.001. The holders of shares of Common Stock have one vote per share. Except as otherwise provided herein or as otherwise provided by applicable law, all shares of Common Stock shall have identical rights and privileges in every respect. None of the shares have preemptive or cumulative voting rights, have any rights of redemption or are liable for assessments or further calls. The holders of Common Stock are entitled to dividends, in cash, stock or otherwise, when and as declared by the Board of Directors from funds legally available, and upon liquidation of the Company to share pro rata in any distribution to shareholders.
Preferred Stock
The Company currently has 100,000 authorized shares of Preferred Stock, par value $.001. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each series, and to fix the designation, and powers, including voting rights, if any, preferences, and rights of the shares of each series, and any qualifications, limitations, or restrictions thereof.
| (1) | Conversion into Common Stock. |
| (a) | Right to Convert. Each share of Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after one year from the date of issuance (the “Conversion Date”) into fifty (50) shares of fully paid and non-assessable shares of Common Stock (the “Conversion Ration”). |
| (b) | Mechanics of Conversion. Before any holder shall be entitled to convert, he shall surrender the certificate or certificates representing Convertible Preferred Stock to be converted, duly endorsed or the Corporation or of any transfer agent, and shall give written notice to the Corporation at such office that he elects to convert the same. The Corporation shall, as soon as practicable thereafter, issue a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled. The Corporation shall, as soon as practicable after delivery of such certificates, or such agreement and indemnification in the case of a lost, stolen or destroyed certificate, issue and deliver to such holder of Convertible Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder is entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Convertible Preferred Stock to be converted. |
| (c) | Adjustment to Conversion Ratio. |
| (i) | Merger or Reorganization. In case of any consolidation or merger of the Corporation as a result of which holder of Common Stock become entitled to receive other stock or securities or property, or in case of any conveyance of all or substantially all of the assets of the Corporation to another corporation, the Corporation shall mail to each holder of Convertible Preferred Stock at least thirty (30) days prior to the consummation of such event a notice thereof, and each such holder shall have the option to either (i) convert such holder’s shares of Convertible Preferred Stock into shares of Common Stock pursuant to this Section 3 and thereafter receive the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Convertible Preferred Stock would have been entitled upon such consolidation, merger or conveyance, or (ii) exercise such holder’s rights pursuant to Section 4 (a). Unless otherwise set forth by the Board of Directors, the Conversion Ratio shall not be affected by a stock dividend or subdivision (stock split) on the Common Stock of the corporation, or a stock combination (reverse stock split) or stock consolidation by reclassification of the Common Stock. However, once the Convertible Preferred Stock has been converted to Common Stock, it shall be subject to all corporate actions that affect or modify the common stock. |
| (d) | No Impairment. The Corporation will not, by amendment of its Articles of Incorporation, this Certificate of Designation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Convertible Preferred Stock against impairment. |
| (e) | Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Ratio of the Convertible Preferred Stock pursuant to this Section 3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and the calculation on which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment and readjustment, (ii) the Conversion Ratio for the Convertible Preferred Stock at the time in effect and (iii) the number of share of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Convertible Preferred Stock. |
| (f) | Notice of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarter) or other distribution, the Corporation shall mail to each holder of Convertible Preferred Stock at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. |
| (g) | Common Stock Reserve. The corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Convertible Preferred Stock. |
| (2) | Voting Rights. Except as otherwise required by law, the holders of Convertible Preferred Stock and the holders of Common Stock shall be entitled to notice of any stockholders’ meeting and to vote as a single class upon any matter submitted to the stockholders for a vote as follows: (i) the holders of each series of Preferred Stock shall have one vote for each full share of Common Stock into which a share of such series would be convertible on the record date for the vote, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited; and (ii) the holders of Common Stock shall have one vote per share of Common Stock held as of such date. |
| (3) | Reissuance. No share or shares of Convertible Preferred Stock acquired by the Corporation by reason of conversion, all such shares thereafter shall be returned to be the status of unissued shares of Convertible Preferred Stock of the Corporation. |
Limitation of Liability: Indemnification
Our Bylaws provide that the Company shall indemnify its officers, directors, employees and other agents to the maximum extent permitted by Florida law. Our Bylaws also permit it to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Bylaws would permit indemnification.
We believe that the provisions in its Articles of Incorporation and its Bylaws are necessary to attract and retain qualified persons as officers and directors.
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of Company pursuant to the foregoing, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Our financial statements for the year ended June 30, 2007, contained in this prospectus have been audited by Zhong Yi (Hong Kong) C.P.A. Company Limited, registered independent certified public accountants, to the extent set forth in their report, and are set forth in this prospectus in reliance upon such report given upon their authority as experts in auditing and accounting. Zhong Yi (Hong Kong) C.P.A. Company Limited does not own any interest in us.
JPF Securities, LLC passed upon the validity of the issuance of the common shares to be sold by the selling security holders under this prospectus. JPF Securities, LLC does not own any interest in us.
DESCRIPTION OF BUSINESS
History
We were incorporated on September 14, 1989 under the name First New York Investment, Inc. On November 25, 1996, we filed an amendment to the Articles of Incorporation with the Secretary of State of Florida to change the corporate name to Computer Access International, Inc. On or about March 4, 2005, we formed a wholly-owned subsidiary, Dispatch Auto Parts II, Inc. ("Dispatch II") and invested $6,000 to pay for Dispatch II's organizational expenses and funding of the initial operations of Dispatch II. After the incorporation, we changed our corporate name to Dispatch Auto Parts, Inc. and began the wholesale business for automotive parts and accessories. Dispatch II was disposed on February 14, 2007 pursuant to the agreement between us, Dispatch II and Daniel Slocum, our former president. On May 8, 2007, we filed an amendment to the Articles of Incorporation with the Secretary of State of Florida to change the corporate name to Environment Ecology Holding Company of China for more accurate description of our current operations and to be consistent with our marketing efforts in the landscaping construction and design industry.
On November 8, 2006, the Company entered a stock exchange transaction with Shaanxi Lv Bao Environmental Eco Industry Management Ltd. (“Lv Bao”), and the transaction was effectively completed on February 6, 2007. Lv Bao was registered as a limited liability company in the People’s Republic of China (the “PRC”) on August 11, 2006 with its principal place of business in Xian City, Shaanxi Province, the PRC. Its registered capital is Renminbi Yuan (“RMB”) 5,000,000 (equivalent to $628,773). Its principal activity was investment holding in Shaanxi Li Bao Sheng Tai Ke Ji Gu Fen You Xian Gong Si (“Li Bao”).
The stock exchange transaction involved two simultaneous transactions:
| 1) | The majority shareholders of the Company deposited the 844,500 shares of the Company’s common stock into the account of an escrow agent in exchange for $530,000 in cash paid by the owners of Lv Bao. The 844,500 shares will be retired back to the treasury upon closing, and; |
| 2) | The Company issued, to the Lv Bao owners, 26,000,000 new investment shares of common Stock and 100,000 new shares of preferred stock of the Company in exchange for all of the registered capital of Lv Bao. |
Upon completion of the plan of exchange, Lv Bao became a wholly-owned subsidiary of the Company. Accordingly, there has been a change of control of the Company, and the Lv Bao’s owners now control 91% of the voting power of the Company.
On August 30, 2006, the owners of Lv Bao entered into an exchange agreement with the owners of Li Bao. This exchange transaction involved that Li Bao’s equity owners transferred the aggregate equity interest of 93.57% of the registered capital of Li Bao (equivalent to RMB 65,500,000) to Lv Bao. The transaction was an exchange of shares and no cash or other assets were exchanged in the transaction. Upon the completion of the equity transfer, Li Bao became an operating subsidiary of Lv Bao with 93.57% controlling interest.
These transactions have been accounted for as a reverse acquisition and recapitalization of the Company, through a wholly-owned subsidiary, Lv Bao, whereby Li Bao is deemed to be the ultimate accounting acquirer (legal acquiree) and the Company to be the ultimate accounting acquiree (legal acquirer).
The Company, through its subsidiaries, mainly engages in the provision of landscape engineering service in the PRC.
In September 2007, Li Bao acquired the technical know-how on the Walnut Plantation Technology from an independent party, the Research Center in the PRC. Starting from January 1, 2008, the Company has commenced in the operation in Walnut Plantation.
The Company, Lv Bao and Li Bao are hereinafter referred to as the “Company.”
Products and Services
The Company is experienced in urban landscaping industry. The landscaping projects include landscape construction and maintenance for public parks, communities, schools, memorials, convention centers, squares, hotels, highway's side view, and so on, some of which were granted as landmarks in the local cities. The detailed services cover:
| • | gardeners |
| • | landscape contractors |
| • | landscape architects |
| • | irrigation experts |
| • | pest management professionals/applicators |
| • | arborists |
| • | sod growers |
| • | golf course maintenance staff and suppliers |
| • | groundskeepers |
| • | botanical gardens |
Before the commencement of the landscape construction, the Company will provide the clients with floor plans, effect layout, and construction blueprint, and get the approval for their design from the clients. The Company has its own designers experienced in landscaping. The effects from humanism, history and local climate will be integrated in the design. The Company also has self-owned equipment for landscape construction and maintenance projects, including five large tractors, two lawn mowers, three automatic sprinkling irrigators, one compactor, two watering trucks, two separating-sowing machines, drilling machines and various trucks for different functions. Attributing to the Company's competence and reputation, the Company has a 20% market share in Xi An City and an 8% market share in Northwest China, per a comprehensive evaluation from the Shaanxi Construction Bureau in 2006.
Our Business Model
During the fiscal year ended June 30, 2006, the Company had revenues of approximately $2,000,000 from completed contracts, of which approximately 36% from Shaanxi Xi Han Highway Ltd., 20% from Xi An Chan Ba Eco-Landscaping Development Ltd., 18% from Xi An Hua Heng Real Estate Ltd., and 14% from Shaanxi Jing He Development Zone Management Committee. In addition, the company had revenues of approximately $2,000,000 from processing and uncompleted contracts, of which approximately 38% from Zhong Hang Group, 36% Xi An Convention Center and 24% from Xi An High-Tech Industrial Development Zone. The characteristic of the Company's business determines its customers base have to keep changing. In most case, the lifecycle of a project covers two years, including construction in the first year and maintenance in the second year. The Company applies the percentage-of-completion method to recognize revenues for the projects. Therefore, approximately 90% of the contract amount will be recognized in the first year according to the percentage of completion, and approximately 10% of the contract amount will be recognized in the second year of the project reflecting the maintenance services. If the Company fails to bring the new customers after the completion of the current projects, the Company will be unable to maintain profitability. The Company may need to rely on financing from related parties and outside sources through debt or equity transactions. The Company's related parties are under no legal obligation to provide the Company with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition. In addition, the Company's growth potential will be adversely affected and the Company will have to significantly modify its plans. For example, if the Company is unable to raise sufficient capital to develop its business plan, the Company may need to limit the Company's future marketing efforts to areas that the Company believes would be the most profitable.
Marketing Opportunities
Rapid Urbanization in China
The open door policy has triggered China's economic progress and urbanization in the past two decades. According to the "Report on economic and social development between the 16th and 17th National Congress of the Communist Party of China VII: Urban socio-economic development in harmony," (the “Report”) issued by National Bureau of Statistics on September 26, there were a total of 661 cities in China in 2006. There is a gross urban population of 577 million people, accounting for 43.9% of the country's total population. The urbanization ratio in eastern, central and western China was 54.6%, 40.4%, and 35.7%.
With the accelerated pace of industrialization, China's level of urbanization also rose. In 2006, the gross urban population was 577.1 million people, accounting for 43.9% of country's total population. The level of urbanization was 4.8 percentage points higher than in 2002. In regional terms, the urbanization ratio of the eastern, central and western China was 54.6%, 40.4% and 35.7% in 2006. From a regional perspective, Shanghai had the highest urbanization level, with a ratio of 88.7%, followed by Beijing and Tianjin at 84.3% and 75.7%.
In 2006, China had a total of 661 cities, including 287 cities at prefecture level or above – eight more than there were in 2002. The GDP of the cities at prefecture level or above (counties under city administration excluded) increased from RMB 6.4 trillion in 2002 to RMB 13.2 trillion in 2006 - increasing 1.1 times. The proportion to the country's total GDP also rose from 53.4% in 2002 to 63.2% in 2006. A total of 30 cities reported a GDP over RMB 100 billion – 18 more than in 2002. Of these 30, 12 cities reported a GDP greater than RMB 200 billion. Local revenue of cities at prefecture level or above (counties under city administration excluded), in 2006, reached RMB 1.1 trillion, an increase of 1.1 times over 2002; and accounts for 59.3% of the country's total local revenue.
Modernization has swept across China beyond the coastal boomtowns deep into the countryside. As a result, the demand for urban landscape has increased dramatically in China.
City Clusters Leading Development
A system of urban development in China has been gradually taking shape. Apart from the city clusters in the Yangtze River Delta, the Pearl River Delta, and the Bohai Sea region, China has witnessed the establishment of eight new city clusters, one of which is Central Shaaxi province, the location of the Company.
The GDP in Shaaxi province for 2005 was RMB 367.475 billion, up 12.6% from the previous year. The per capita GDP stood at RMB 9,844, up 12.2%. The primary industry yielded a value added of RMB 41.86 billion, 7.9% more than that of the previous year; the secondary industry, RMB 184.897 billion, a growth of 15.9%; the tertiary industry, RMB 140.718 billion, a growth of 10%. The GDP ratio of the three sectors was 11.4 : 50.3 : 38.3. Provincial revenue was RMB 52.86 billion, an increase of 27.2% over the previous year. Provincial expenditure was RMB 64.11 billion, a growth of 24.2%. CPI was up 1.2% from the previous year. Fixed asset investment was valued at RMB 198.052 billion, up 28.3% from the previous year. (source: www.china.gov.cn ) As the city clusters in central Shaaxi province continue to grow, the need for a healthy, growing vegetation and landscaped infrastructure will necessitate an increased urban landscaping industry.
Advocacy for the “Garden City”
Current development forces in China are characterized by steady population growth, an ongoing urbanization of the former agriculturally-based population, aggressive economic growth and rapid motorization. Economic forces continue to become increasingly decisive in the process of urbanization, giving impetus particularly to the growth of the large cities. At the same time, there is no comprehensive regional planning, nor national land development approach. The consequence is a threat of a scattered low-density urbanization in the countryside and fast, uncontrolled and uncoordinated growth of the large city regions. The problem has caught the Chinese government's attention at the highest levels. In order to build a suitable environment for inhabitants, garden city construction is included in local government's agenda. It is also used as one of the measurements to evaluate the local government's performance.
According to the Ministry of Construction, in late 2006, the area of green space and parks in cities at prefecture level or above (counties under administration of cities excluded) totaled 250,000 hectares. Per capita green space exceeded 6.8 square meters. Newly constructed urban green spaces spanned 920,000 hectares; and increased by 321,000 hectares. The coverage rate of green space reached 35.1%, up 4.7 percentage points. By the end of 2006, 45 cities were granted the title of "national garden city" by the Ministry of Construction.
Of the 559 cities monitored by the State Environmental Protection Administration, 24 met grade one air quality standards (4.3%); 325 met grade two standards (58.1%); 160 met grade three standard (28.6%); and 50 were below grade three standards (9.0%). At of the end of 2006, China identified 60 national environmental model cities, and five national environmental protection model districts. Thirteen cities were awarded "Human Habitat Environment Prizes" issued by the State Environmental Protection Administration.
Increase in Urban Landscape Investment
Total investment in urban landscape was approximately $14.8 billion from the Chinese government between 2001 to 2005, increasing by approximately 113% compared to the previous five-year period. (source: Xinhua) The Chinese government also encourages enterprises investing more in urban landscape construction by allowing them to name the invested landscape. In addition, a capital raising system for urban landscape has been formed, and is secured by government funds.
Motivation Related to the 2008 Olympic Games
After China won the Olympic bid for the summer 2008 games, it promised to make Beijing an "ecological city" with "green hills, clear water, grass-covered ground, and blue sky". Since then the city has spent 100 billion yuan (12.5 billion US dollars) planting trees and curbing polluting industries, according to the State Environmental Protection Administration of China. Heavy polluters like the Capital Iron and Steel Group were moved out of the capital and 200 small and medium-sized firms had been shut down. The city has also phased out over 30,000 old taxies and 3,900 old diesel-powered buses that do not meet environmental standards. (source: People Daily Online). Consequentially, the influence of the 2008 Olympic Games will be spread throughout China since the Olympic Games has been widely regarded as an opportunity to showcase China to the world. According to a recent industry survey jointly conducted by the Pacific Asia Travel Association (PATA) and Visa International Asia Pacific, the Beijing 2008 Olympic Games will be a spur to Asia's tourism industry as many people looking to attend the event also plan to spend time exploring other parts of China and Asia. It was reported that almost nine out of 10 people planning to visit Beijing for the Olympics will visit other Chinese cities if time permits.
Marketing Strategy
The Company expects to enhance its market shares in the northwest China by following new marketing strategies. Currently, the development in northwest China concentrates on Central Shaanxi Province, which is considered one of eight new city clusters in China, in addition to the existing city clusters in the Yangtze River Delta, the Pearl River Delta, and the Bohai Sea region.
The GDP in Shaaxi province for 2005 was RMB 367.475 billion, up 12.6% from the previous year. The per capita GDP stood at RMB 9,844, up 12.2%. The primary industry yielded a value added of RMB 41.86 billion, 7.9% more than that of the previous year; the secondary industry, RMB 184.897 billion, a growth of 15.9%; the tertiary industry, RMB 140.718 billion, a growth of 10%. The GDP ratio of the three sectors was 11.4 : 50.3 : 38.3. Provincial revenue was RMB 52.86 billion, an increase of 27.2% over the previous year. Provincial expenditure was RMB 64.11 billion, a growth of 24.2%. CPI was up 1.2% from the previous year. Fixed asset investment was valued at RMB 198.052 billion, up 28.3% from the previous year. (source: www.china.gov.cn ) As the city clusters in central Shaaxi province to grow, the need for a healthy, growing green infrastructure will necessitate an urban landscape Industry. The urban landscape Industry creates this huge economic impact while providing a tremendous environmental benefit, mitigating the effects of intensive urban living.
| | Improving technologies. Technology application and improvement is the key for our company in marketing. In order to maintain the leading position in landscaping industry in Northwest China, that is 20% market shares in Xi An City and 8% market shares in Northwest China, per the comprehensive evaluation from Shaanxi Construction Bureau in 2006, the Company keeps a long-term relationship with local research institutes and universities, such as Northwest University, Northwest Science and Agriculture University, Technical Advice Unit of Shaanxi Forestry Bureau. The cooperation between the Company and these research institutes and universities includes technical training, exchange of expertise, projects for ecological forest study. The Company also retains foreign experts for short-term supervision. The expenses in research and development every year are approximately 6% of revenues. |
| | Seeking for support from local government. The local government in Xi An, the city where the Company is located, targets to turn Xi An into a garden city within three years. In order to reach this goal, the government encourages enterprises to invest in urban landscape and support competent companies to engage in the urban landscaping industry. In addition, the government plans to build up approximately 175 small-size squares all over the city. Our Company is expected to be supported by the local government due to its high reputation, professional design, quality control and management. More than 10 projects constructed and managed by the Company have been awarded and termed as an "Excellent Model" by the city government, which include Landscaping for Yin Chuan Ming Cui Lake Eco Resorts, Landscaping for South Campus of Northwest University, Landscaping for Shaanxi Jing He Development Zone, and so on. |
| | Seeking strategic partners. In order to lower the construction cost of urban landscaping projects and ensure the diversity of plant species, the Company intends to enter into collaborative arrangements with local farmers. The Company will introduce good species to the farmers and send technicians for the training at the farms. The Company owns the techniques for walnut transplanting and seed renovation, which will increase the success rate for walnut transplanting by more than 94%. In order to popularize these techniques, the Company cooperates with local farmer cooperatives, through which the farmers are educated and encouraged to try the new technology. The cooperation with local farmers provides the Company with an opportunity to multiply our channels and diversify suppliers. During the fiscal year ended June 30, 2007, the Company purchased raw materials of approximately $2,200,000, or 87% of total purchase, from two major suppliers, Shaanxi Bai He Hui Gardening Co. Ltd., representing 49% of total purchase, and Shaanxi Feng Mao Trading Co., representing 38% of total purchase. The most raw materials are saplings and small trees for landscaping purpose. The Company believes that the direct cooperation with local farmer cooperatives will reduce the concentration risk due to the current small suppliers base. |
The Company is subject to intensive competition in urban landscaping industry. No entity, including the Company, currently dominates the urban landscaping industry and the Company does not believe that one organization has the capability to serve the entire market. Many competitors possess greater financial, managerial and technical resources and high reputations, all of which put the Company at a competitive disadvantage. The competitors may be in a position to devote greater resources in the sales, marketing, and projects management and therefore considerably impact the Company's ability to successfully in marketing.
Government Regulation
Our landscape design, construction and maintenance projects are subject to many federal, state and local requirements relating to the protection of the environment and we use environmentally sensitive materials in our maintenance processes. For example, we employ chemical materials to treat some of our products. We believe that we operate our business in material compliance with all environmental laws and regulations, do not anticipate any material expenditure in order to meet environmental requirements and do not believe that future compliance with such laws and regulations will have a material adverse effect on our financial condition or results of operations. However, we could incur operating costs or capital expenditures in complying with more stringent environmental requirements in the future or with current requirements if they are applied to our facilities in a way we do not anticipate.
Our operations are also governed by many other laws and regulations covering our labor relationships, the zoning of our facilities, our general business practices and other matters. We believe that we are in material compliance with these laws and regulations and do not believe that future compliance with such laws and regulations will have a material adverse effect on our financial condition or results of operations.
Employees
Currently, the Company has 68 employees, of which 7 persons are senior management and 23 persons perform landscape construction. 38.2% of total employees have bachelor degrees or above.
Our corporate headquarters are located at 391 Hua Yu Lane, Dong Xin Street, Xi’an, Shaanxi Province, P.R. China. Our lease for this space has a term of 3 years. The space is 4,300 square feet and is located at 4th/Fl, Block A, 12 Xiang Zi Miao Street, Bei Lin Qu, Xi An, P. R. China. Pursuant to the terms of the lease, the annual rental payment is $25,000 paid semi-annually. This space is adequate for our present and planned future operations. No other businesses operate from this office space.
We are not a party to any pending litigation and none is contemplated or threatened.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol EVEH. The following table sets forth the range of closing bid prices of our common stock as quoted on the OTCBB during the periods indicated. The prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions.
| | | | High | | | Low | |
Fiscal Year Ending June 30, 2008 | Fourth Quarter | | $ | 0.34 | | | $ | 0.08 | |
| | Third Quarter | | $ | 1.30 | | | $ | 0.08 | |
| | Second Quarter | | $ | 1.50 | | | $ | 0.26 | |
| | First Quarter | | $ | 0.51 | | | $ | 0.51 | |
Fiscal Year Ending June 30, 2007 | Fourth Quarter | | $ | 1.00 | | | $ | 0.51 | |
| | Third Quarter | | $ | 0.91 | | | $ | 0.25 | |
| | Second Quarter | | $ | 0.51 | | | $ | 0.15 | |
| | First Quarter | | $ | 0.20 | | | $ | 0.20 | |
Holders
We have approximately 3,355 record holders of our common stock as of July 14, 2008.
Dividend Policy
The Company does not anticipate paying any cash dividends on its common stock in the foreseeable future because it intends to retain its earnings to finance the expansion of its business. Thereafter, declaration of dividends will be determined by the Board of Directors in light of conditions then existing, including without limitation the Company’s financial condition, capital requirements and business condition.
Issuance of Common Stock and Preferred Stock for Acquisition
Pursuant to the Agreement, dated November 8, 2006, on February 6, 2007, the Majority Shareholder of the Company and a related shareholder returned 844,500 shares of the Company’s common stock to the treasury of the Company in exchange for total payments of $530,000 in cash and the Company issued to the Lv Bao Shareholders an amount equal to 26,000,000 new investment shares of Common Stock and 100,000 new shares of Preferred Stock of the Company pursuant to Regulation S under the Securities Act of 1933, as amended, in exchange for all of the shares of registered capital of Lv Bao. Upon completion of the exchange, Lv Bao became a wholly-owned subsidiary of the Company.
Equity Compensation and Stock Option Plan Information
On July 13, 2007, the Company approved the 2007 Benefit Plan (“2007 Plan”). Pursuant to the 2007 plan, the Company would grant a maximum of 5,000,000 share options to employees and non-employee eligible individuals, either as non-statutory stock option or incentive stock option.
On August 13, 2007, the Company authorized to grant a total of 2,000,000 options to 3 consultants for service to be rendered under the 2007 Plan. All of the options were exercisable at 75% of the market price at the time of exercise for a period of 1 year from grant date and have a life of 1 year. All options will vest immediately upon the exercise hereof..
A schedule of the options as of March 31, 2008 is as follows:
| | | No. of options | | | Weighted average exercise price | |
| | | | | | | |
| Options outstanding as of July 1, 2007 | | | - | | | $ | - | |
| Granted in August 2007 | | | 2,000,000 | | | | 0.3825 | |
| Exercised in August 2007 | | | (2,000,000 | ) | | | 0.3825 | |
| | | | | | | | | |
| Options outstanding as of March 31, 2008 | | | - | | | $ | - | |
| | | | | | | | | |
| Options exercisable as of March 31, 2008 | | | - | | | $ | - | |
The weighted-average grant-date fair value of options granted during the period ended March 31, 2008 were $0.129 per share. These options were valued at an aggregate of $258,020 at the weighted average exercise price of $0.3825 and to be amortized over a weighted average service period of 2.2 years. The fair value for the options granted was estimated at the date of grant using the Black-Scholes Option Pricing model with the following assumptions:
| Risk-free interest rate (per annum) | | | 4.75 | % |
| Expected life (in years) | | | 0.08 | |
| Expected volatility | | | 0 | % |
| Expected dividend yield | | | 0 | % |
The Company recognized $183,841 of stock-based compensation to operations for the nine months ended March 31, 2008 by applying the fair value method in accordance with SFAS No. 123(R).
As of March 31, 2008, there was $74,179 of unrecognized non-cash compensation cost related to services to be rendered in future periods, which will be recognized on a straight-line basis, over a weighted average period of 1.7 years.
On August 30, 2007, the aggregate amount of 2,000,000 options was exercised at $0.3825, which represented 75% of the market price as of August 31, 2007. During the period ended March 31, 2008, 2,000,000 shares were issued with a fair value of $765,000 in exchange for services rendered. $2,000 was recorded as an increase in common stock for par value and $763,000 in additional paid-in capital. As of March 31, 2008, the cash receipt from stock subscription was not received and recorded $760,000 as stock subscriptions receivables in the equity section of the consolidated balance sheet.
Penny Stock Characterization
The shares of our common stock are “penny stocks” within the definition of that term as contained in the Exchange Act, which are generally equity securities with a price of less than $5.00. Our shares of common stock will then be subject to rules that impose sales practice and disclosure requirements on certain broker-dealers who engage in certain transactions involving a penny stock. These will impose restrictions on the marketability of our common stock.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $5,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, unless the broker-dealer or the transaction is otherwise exempt, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the Registered Representative and current bid and offer quotations for the securities. In addition a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks. As a result of these regulations, the ability of broker-dealers to sell our stock may affect the selling stockholders or other or other holders seeking to sell their shares in the secondary market. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be adversely affected, with concomitant adverse affects on the price of our securities.
Registration Rights Agreements
On June 30, 2008, a Registration Rights Agreement was executed by us conferring upon Trafalgar Capital Specialized Investment Fund, Luxembourg demand registration rights for (i) 2,500,000 shares of our common stock, and (ii) a two year warrant to purchase up to $6,000,000 of our common stock, inclusive of the first 2,500,000 shares. Upon written demand, we shall register the shares, the warrants and the shares issuable upon exercise of the warrants as soon as practicable and in no event later than 90 days from the notice. In addition, we must maintain the registration statement until all of the securities are sold or otherwise become freely tradable.
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis contains various “forward looking statements” regarding future events or the future financial performance of the Company, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Certain statements included in this S-1, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.
Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the financial statements included herein.
BUSINESS MODEL
The Company is experienced in urban landscaping industry. The landscaping projects include landscape construction and maintenance for public parks, communities, schools, memorials, convention centers, squares, hotels, highway's side view, and so on, some of which were granted as landmarks in the local cities. The detailed services cover:
| • | gardeners |
| • | landscape contractors |
| • | landscape architects |
| • | irrigation experts |
| • | pest management professionals/applicators |
| • | arborists |
| • | sod growers |
| • | golf course maintenance staff and suppliers |
| • | groundskeepers |
| • | botanical gardens |
Before the commencement of the landscape construction, the Company will provide the clients with floor plans, effect layout, and construction blueprint, and get the approval for their design from the clients. The Company has its own designers experienced in landscaping. The effects from humanism, history and local climate will be integrated in the design. The Company also has self-owned equipment for landscape construction and maintenance projects, including five large tractors, two lawn mowers, three automatic sprinkling irrigators, one compactor, two watering trucks, two separating-sowing machines, drilling machines and various trucks for different functions. Attributing to the Company's competence and reputation, the Company has a 20% market share in Xi An City and an 8% market share in Northwest China, per a comprehensive evaluation from the Shaanxi Construction Bureau in 2006.
During the fiscal year ended June 30, 2006, the Company had revenues of approximately $2,000,000 from completed contracts, of which approximately 36% from Shaanxi Xi Han Highway Ltd., 20% from Xi An Chan Ba Eco-Landscaping Development Ltd., 18% from Xi An Hua Heng Real Estate Ltd., and 14% from Shaanxi Jing He Development Zone Management Committee. In addition, the company had revenues of approximately $2,000,000 from processing contracts, of which approximately 38% from Zhong Hang Group, 36% Xi An Convention Center and 24% from Xi An High-Tech Industrial Development Zone. The characteristic of the Company's business determines its customers base have to keep changing. In most case, the lifecycle of a project covers two years, including construction in the first year and maintenance in the second year. The Company applies the percentage-of-completion method to recognize revenues for the projects. Therefore, approximately 90% of the contract amount will be recognized in the first year according to the percentage of completion, and approximately 10% of the contract amount will be recognized in the second year of the project reflecting the maintenance services. If the Company fails to bring the new customers after the completion of the current projects, the Company will be unable to maintain profitability. The Company may need to rely on financing from related parties and outside sources through debt or equity transactions. The Company's related parties are under no legal obligation to provide the Company with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition. In addition, the Company's growth potential will be adversely affected and the Company will have to significantly modify its plans. For example, if the Company is unable to raise sufficient capital to develop its business plan, the Company may need to limit the Company's future marketing efforts to areas that the Company believes would be the most profitable
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)
Revenues
Net revenues for the three and nine months ended March 31, 2008 were $7,124,411 and $10,310,433, respectively, consisting of the revenues from landscaping projects, which were $5,807,891 and $8,993,913 for the three and nine ended March 31, 2008, respectively, and the revenues from sales of products, which were $1,316,520 for both periods ended March 31, 2008, including the sales of walnut tree, representing 32% of total product sales, and the sales of other plants, representing 68% of total product sales. The increase in revenues from landscaping projects by $5,421,925 and $6,546,702 for the three and nine months ended March 31, 2008, respectively, compared to net revenues of $385,966 and $2,447,211 for the three and nine months ended March 31, 2007, respectively, primarily attributable to the new contracts with total contract amount of approximately $10,000,000 signed within the current fiscal year starting from June 30, 2007. The revenues were recognized based on the percentage of completion. We did not have the sales of products in previous quarters because our walnut project was commenced in January 2008, and the sales of other plants were to Beijing Jian Gong Group Olympics National Park occurring in the third quarter ended March 31, 2008.
| | | Percentage of Revenues | | | | | | |
| Name of Customers | | For the three months ended March 31, 2008 | | | For the nine months ended March 31, 2008 | | Projects | | Contract Amount | | Contract Period |
| Xi An High-Tech Industrial Development Zone | | | 7 | % | | | 25 | % | Landscaping Construction | | $ | 2,782,630 | | April 7, 2007 - December 30, 2008 |
| Shaanxi Truck Manufacture Co. Ltd. | | | 31 | % | | | 25 | % | Landscaping Construction | | $ | 1,973,510 | | December 1, 2007 - April 1, 2009 |
| Shaanxi Chi-Yu River Resorts | | | 19 | % | | | 15 | % | Landscaping Construction | | $ | 3,237,332 | | December 1, 2007 - April 30, 2009 |
| Beijing Jian Gong Group Olympics National Park | | | 18 | % | | | 10 | % | Sales of plants | | | N/A | | N/A |
All the projects were protected by the enforceable contracts. The Company usually provides the clients with full services including design, construction and maintenance. The Company has its own designers experienced in landscaping. The effects from humanism, history and local climate will be integrated in the design. The documents provided by the Company include the floor plan, effect layout, construction blueprint. The profit margin due to the project design ranges from 1% to 5%, which was included in the contract price without separate charge. The construction will be conducted by the Company after the construction blueprint is approved by the clients. The profit margin due to the project construction is approximately 30%.
The lifecycle of a project is determined by the project's magnitude, which would be clearly described in the contracts case by case. In most cases, the construction periods could cover two years, including construction in the first year and maintenance in the second year. The Company applies the percentage-of-completion method to recognize revenues for the projects. Therefore, approximately 90% of the contract amount will be recognized in the first year according to the percentage of completion, and approximately 10% of the contract amount will be recognized in the second year of the project reflecting the maintenance services.
As shown in the table, most of the projects will not be completed within the next twelve months, providing the Company with sufficient cash flows from operation based on the contracts on hand. The Company believes the more projects completed, the more new customers obtained in the future due to the growth of the Company's experiences and reputation. However, if the Company fails to bring the new customers after the completion of the current projects, the Company will be unable to maintain profitability. The Company may need to rely on financing from related parties and outside sources through debt or equity transactions. The Company's related parties are under no legal obligation to provide the Company with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition. In addition, the Company's growth potential will be adversely affected and the Company will have to significantly modify its plans. For example, if the Company is unable to raise sufficient capital to develop its business plan, the Company may need to limit the Company's future marketing efforts to areas that the Company believes would be the most profitable.
Cost of Revenue
The Cost of revenue primarily includes purchase of raw materials, sub-contracting charges and direct overhead. Cost of plants and direct labor would be examples of cost of revenue. In addition, cost of revenue will be affected by the amendment of initially approved proposals due to either the clients' request or overages encountered during the construction process. Such overages will include additional underground construction, the complexity of the environment, and the survival rate of the plants. During the three and nine months ended March 31, 2008, we had $4,814,217 and $6,955,578 in cost of revenues, respectively, of which the cost of landscaping projects were $3,990,155, or 68.7% of the corresponding revenues, and $6,131,516, or 68.2% of the corresponding revenues, respectively. The cost of revenues from the sales of products was $824,062, or 62.6% of revenues, for both three and nine months ended March 31, 2008. Comparatively, for the three and nine months ended March 31, 2007, we had $241,609 and $1,573,202 in cost of revenues, respectively, which were approximately 62.6% or 64.3% of revenues in the corresponding periods. The cost of revenue as a percentage of landscaping projects revenue was slightly increased during the three and nine months ended March 31, 2008, compared to the same periods ended March 31, 2007, primarily attributable to more government projects taken during the three and nine months ended March 31, 2008, which have smaller profit margin than those of non-government projects. The Company does not expect such increasing trend to continue in the future because the Company expects to lower the cost of revenue by diversifying the raw materials to different suppliers, controlling the charges of sub-contracting, and devoting more time to consulting services.
Income/Loss
The Company had net incomes of $766,298 and $1,090,992 for the three and nine months ended March 31, 2008, respectively, compared to the net loss of $48,155 and net income of $263,427 for the same periods ended March 31, 2007. The net incomes for both three and nine months ended March 31, 2008 were due primarily to the increase in revenues, resulting sufficient gross profit to cover the operating expenses. The net loss for the three months ended March 31, 2007 due primarily to the non-cash consulting expenses, which were $60,000 for the three months ended March 31, 2007. The non-cash consulting expenses were the result of the issuance of 1,000,000 shares of common stock for services. The shares were valued based on the market price on the date of the stock grant, resulting in total expenses of $510,000 for services rendered, which was booked pro rata within the relative service periods. The net income for the nine months ended March 31, 2007 was primarily attributable to sufficient gross profits to cover the operating expenses in this period.
Other Expenses
Selling, general and administrative expenses for the three and nine months ended March 31, 2008 were $681,182 and $1,164,183, respectively, increased by $573,881 and $793,191, compared to operating expenses of $107,301 and $370,992 for the same periods ended March 31, 2007, respectively. The increases in operating expenses in the three and nine months ended March 31, 2008 were primarily attributable to the non-cash compensation, which were $375,091 for the nine months ended March 31, 2008, of which $191,250 resulting from the issuance of 1,000,000 shares of common stock for business advisory services in a term of 2 years effective from July 1, 2006 ending June 30, 2008, which are in connection with general management consulting and advisory services including, but not limited to, the following:
| - | Advise on matters relating to our structure, management, operation and subsidiaries; |
| - | Advise on and assistance with preparation of a new business plan and a future growth strategy; |
| |
| - | Assistance with preparation of applicable filings with the SEC, such as Forms 10-Q, 10-K, 8-K, and Schedule 14C, etc. and answering comments from the SEC, if any; |
| - | EDGAR services; |
| - | Assistance with preparation of applicable filings with the SEC, such as Forms 10-Q, 10-K, 8-K, and Schedule 14C, etc. and answering comments from the SEC, if any; |
| - | EDGAR services; |
| - | Provide necessary professional services and support as an international liaison for Company to third-party service providers, including coordination amongst the Company and their related attorneys and CPAs; |
- Advise on procedures, regulations, and compliance of a public listed company;
The shares were valued based on the market price on the date of the stock issued and booked pro rata within the relative service periods. The other non-cash compensation of $183,841 resulted from a total of 2,000,000 options granted to 3 consultants for services to be rendered under the 2007 Benefit Plan, which were valued at the date of grant using the Black-Scholes option pricing model and booked pro rata within the relative service periods. In addition, the Company recorded allowance for doubtful accounts of $475,801 and $369,685 for the three and nine months ended March 31, 2008, respectively, after the evaluation for the uncollectibility of specifically identified amounts.
The other selling, general and administrative expenses during the three and nine months ended March 31, 2008 were $93,553 and $271,521, respectively, including salaries, traveling and office expenses, bank charges in both periods. The Company also had research and development expense of $21,503 and $114,683 accrued in connection with the application of the Walnut plantation technology for the three and nine months ended March 31, 2008, respectively.
Impact of Inflation
The Company believes that inflation has had a negligible effect on operations during these periods. The Company believes that the Company can offset inflationary increases in the cost of revenue by increasing revenue and improving operating efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $95,693 for the nine months ended March 31, 2008, compared to cash flows of $516,773 from operation for the nine months ended March 31, 2008. Cash flows used in operations during the nine months ended March 31, 2008 were due primarily to the increases in billed and unbilled accounts receivable by $739,370 and $1,757,815, respectively, the decrease in accounts payable by $409,641, partially offset by the net income of $1,090,992.
Billed accounts receivable as of March 31, 2008 increased from $103,953 to $498,419. The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the allowance for doubtful accounts was $369,685 for the nine months ended March 31, 2008.
The Company applies the percentage-of-completion method under SOP81-1 to recognize revenues for landscape design and construction projects. There were six major contracts with total contract value of approximately $7,487,545 completed during nine months ended March 31, 2008 on which $1,761,331 of invoices were unbilled, which will be billed as soon as the clients agree with the progress of the projects.
For these contracts, contract costs of completed contracts have been fully incurred and the extent of progress toward completion was almost finished. Therefore, the total contract amount had been fully recognized in accordance with the percentage-of-completion method. Unbilled accounts receivable as of March 31, 2008 comprised principally amounts of revenue recognized on contracts for which invoices have not been issued.
During the nine months ended March 31, 2007, cash flows from operations were due primarily to the net income of $263,427, the collection of billed accounts receivable by $260,856, less an increase in unbilled accounts receivable of $671,991 and the increase in other payables and accrued liabilities by $421,735, partially offset by the increase in unbilled accounts receivable by $671,991 during the nine months ended March 31, 2007.
Cash flows used in investing activities for the nine months ended March 31, 2008 and 2007 were $10,532 and $163,958, respectively, due primarily to the purchase of property and equipment during both periods.
Cash flows provided by financing activities were $62,881 and $749,668 for the nine months ended March 31, 2008 and 2007, respectively, due primarily to advance from a shareholder for both periods. In addition, during the nine months ended March 31, 2008, the Company had cash of $628,773 received from reverse acquisition.
The Company projects that the Company will need additional capital to fund operations over the next 12 months. The Company anticipates the Company will need approximately $2,000,000 for the two years thereafter.
Overall, the Company has funded its cash needs during the nine months ended March 31, 2008 from the receipt of revenues. If the Company is unable to maintain profitability, the Company may need to rely on financing from related parties and outside sources through debt or equity transactions. The Company's related parties are under no legal obligation to provide the Company with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.
The Company had cash of $2,968,254 on hand and a working capital of $4,073,010 as of March 31, 2008. Currently, the Company has enough cash to fund its operations for about six months. This is based on the projected revenues and working capital. However, if the projected revenues fall short of needed capital the Company may not be able to sustain its capital needs. The Company will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. The Company's current level of operations would require capital of approximately $2,000,000 per year thereafter. Modifications to the Company's business plans may require additional capital to operate. For example, if the Company is unable to raise additional capital in the future, the Company may need to curtail is number of projects offers or limit its marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for the Company. In addition, there can be no assurance that additional capital will be available to the Company when needed or available on terms favorable.
On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. The Company's current capital and revenues are insufficient to fund such expansion. If the Company chooses to launch such an expansion campaign, the Company will require substantially more capital. The funds raised from this offering will also be used to market the Company's products and services as well as expand operations and contribute to working capital. However, there can be no assurance that the Company will be able to obtain additional equity or debt financing in the future, if at all. If the Company is unable to raise additional capital, the Company's growth potential will be adversely affected and the Company will have to significantly modify its plans. For example, if the Company is unable to raise sufficient capital to develop its business plan, the Company may need to limit the Company's future marketing efforts to areas that the Company believes would be the most profitable.
Demand for the products and services will be dependent on, among other things, market acceptance of the Company's products, landscaping market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of the Company's activities is the receipt of revenues from the landscape design and engineering projects, the Company's business operations may be adversely affected by the Company's competitors and prolonged recession periods.
The Company's success will be dependent upon implementing its plan of operations and the risks associated with its business plans. The Company was engaged in landscape construction and design industry. The Company plans to strengthen its position in landscaping markets. The Company also plans to expand its operations through aggressively marketing its projects.
RESULTS OF OPERATIONS - YEARS ENDED JUNE 30, 2007 AND 2006 (AUDITED)
Revenues
Net revenues were $3,979,748 for the year ended June 30, 2007, compared to net revenues of $2,782,922 for the year ended June 30, 2006. The sales revenues were due primarily to the landscaping construction and maintenance projects. The Company usually provides the clients with full services including design, construction and maintenance. The Company has its own designers experienced in landscaping. The effects from humanism, history and local climate will be integrated in the design. The documents provided by the Company include the floor plan, effect layout, construction blueprint. The profit margin due to the project design ranges from 1% to 5%, which was included in the contract price without separate charge. The construction will be conducted by the Company after the construction blueprint is approved by the clients. The profit margin due to the project construction is approximately 30%.
The lifecycle of a project is determined by the project's magnitude, which would be clearly described in the contracts case by case. In most cases, the construction periods could cover two years, including construction in the first year and maintenance in the second year. The Company applies the percentage-of-completion method to recognize revenues for the projects. Therefore, approximately 90% of the contract amount will be recognized in the first year according to the percentage of completion, and approximately 10% of the contract amount will be recognized in the second year of the project reflecting the maintenance services. During the year ended June 30, 2007, approximately 85% of annual revenues were due to eight landscape construction projects signed during the fiscal year ended June 30, 2007, three of which were completed and the other five projects were expected to be completed during the fiscal year ended June 30, 2008. The Company expects sales to increase during the fiscal year of 2007 as the Company has another three new projects with total contract price of approximately $4,600,000 signed in March and April 2007, which are expected to be completed by March 2008.
Cost of Revenue
Cost of revenue primarily includes purchase of raw materials, sub-contracting charges and direct overhead. Cost of plants and direct labor would be examples of cost of revenue. In addition, cost of revenue will be affected by the amendment of initially approved proposals due to either the clients' request or the unexpectation encountered during the construction process. Such unexpectation will include additional underground construction, the complexity of the environment, and the survival rate of the plants. During the year ended June 30, 2007, we had $2,559,754 in cost of revenues, which was approximately 64% of revenues, compared to $1,881,142 in cost of revenues during the year ended June 30, 2006, or approximately 68% of revenues in the year. The cost of revenue as a percentage of revenue was constant during these two years due to the stable price in the cost components. The Company expects to lower the cost of revenue by devoting more time to consulting services in the future.
Income/Loss
The Company had net income of $313,686 and $393,938 for the years ended June 30, 2007 and 2006, respectively, primarily attributable to the profitability in landscape construction and maintenance projects. The gross profits sufficiently covered the operating expenses in both years.
The Company expects to maintain profitability during fiscal year 2007 since the contracts signed in March 2007 with total contract price of $2,000,000 will be completed by March 2008. However, the Company has no responsibility to guarantee the profitability, or the growth of any revenue in the future.
Other Expense
Selling, general and administrative expenses for the years ended June 30, 2007 and 2006 were $632,440 and $237,134, respectively. The increase in operating expenses in the fiscal year of 2006 was attributable to consulting and professional fees of $85,294 incurred primarily from the audits and related services, and non-cash compensation of $273,750, which was the result of the issuance of 1,000,000 shares of common stock for services in a term of 2 years effective from July 1, 2006 ending June 30, 2008, which are in connection with general management consulting and advisory services including, but not limited to, the following:
| - | Advise on matters relating to our structure, management, operation and subsidiaries; |
| - | Advise on and assistance with preparation of a new business plan and a future growth strategy; |
| - | Assistance with preparation of applicable filings with the SEC, such as Forms 10-Q, 10-K, 8-K, and Schedule 14C, etc. and answering comments from the SEC, if any; |
| - | EDGAR services; |
| - | Assistance with preparation of applicable filings with the SEC, such as Forms 10-Q, 10-K, 8-K, and Schedule 14C, etc. and answering comments from the SEC, if any; |
| - | EDGAR services; |
| - | Provide necessary professional services and support as an international liaison for Company to third-party service providers, including coordination amongst the Company and their related attorneys and CPAs; |
- Advise on procedures, regulations, and compliance of a public listed company;
The shares were valued based on the market price on the date of the stock grant, resulting in total expenses of $510,000 for services rendered, which was booked pro rata within the relative service periods. The Company did not have such cash and non-cash consulting expenses during the year ended June 30, 2006 because the process of reverse merger did not commence until November 2006.
The other selling, general and administrative expenses during the year ended June 30, 2007 were $273,396, increasing by $36,262 compared to other selling, general and administrative expenses of $237,134 during the year ended June 30, 2006. The increase was due primarily to the bad debt expenses of $101,247 for the year ended June 30, 2007 resulting from the evaluation of collectibility, compared to the bad debt expenses of $0 for the year ended June 30, 2006. According to the Company's credit policy, it was subject to the provision for an allowance for doubtful accounts of 50% of accounts receivable that have been outstanding for more than 6 months. The other components of selling, general and administrative expenses included salaries, traveling and office expenses, bank charges in both years.
Impact of Inflation
The Company believes that inflation has had a negligible effect on operations during these years. The Company believes that the Company can offset inflationary increases in the cost of revenue by increasing revenue and improving operating efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $1,468,311 for the year ended June 30, 2007, compared to cash flows provided by operating activities were $94,123 for the year ended June 30, 2006. Cash flows from operations during the year ended June 30, 2007 were due primarily to the collection of accounts receivable by $279,151, the increase in accounts payables by $383,213 and the increase in income tax payable by $123,168, partially offset by the increase in unbilled accounts receivable by $96,232, and decrease in receipt in advance by $111,996 during the year ended June 30, 2007.
The significant increase in the accounts payable for the year ended June 30, 2007 was due primarily to the cost accrued for raw materials and sub-contracting costs among three contracts, and the liabilities accrued upon the billing of the purchase invoices.
Billed accounts receivable as of June 30, 2007 decreased from $470,942 to $103,953 due primarily to the collection of $279,151 and allowance for doubtful accounts of $101,247. The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the allowance for doubtful accounts was $103,953 and $Nil as of June 30, 2007 and 2006 respectively.
The Company applies the percentage-of-completion method under SOP81-1 to recognize revenues for landscape design and engineering projects. There were four major contracts with total contract value of approximately $2,536,206 completed during the year ended June 30, 2007 on which $98,804 of invoices were unbilled, which will be billed as soon as the clients agree with the progress of the projects.
For these contracts, contract costs of completed contracts have been fully incurred and the extent of progress toward completion was almost finished. Therefore, the total contract amount had been fully recognized in accordance with the percentage-of-completion method. Unbilled accounts receivable as of June 30, 2007 comprised principally amounts of revenue recognized on contracts for which invoices have not been issued.
Cash flows used in investing activities were $140,512 and $121,203 for the years ended June 30, 2007 and 2006, respectively, which were due primarily to the purchase of property and equipment during both years.
Cash flows provided by financing activities were $161,445 for the year ended June 30, 2007 due primarily to advances from shareholders, compared to cash flows of $355,156 used in financing activities for the year ended June 30, 2006 primarily attributable to the repayments of advances from stockholders.
The Company projects that the Company will need additional capital to fund operations over the next 12 months. The Company anticipates the Company will need an additional $1,500,000 in working capital during fiscal year of 2007 and $2,000,000 for the two years thereafter.
Overall, the Company has funded its cash needs during the year ended June 30, 2007 from the receipt of revenues. If the Company is unable to maintain profitability, the Company may need to rely on financing from related parties and outside sources through debt or equity transactions. The Company's related parties are under no legal obligation to provide the Company with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.
The Company had cash of $2,775,361 on hand and a working capital of $2,344,574 as of June 30, 2007. Currently, the Company has enough cash to fund its operations for about six months. This is based on current cash flows from operating activities and projected revenues. Also, if the projected revenues fall short of needed capital the Company may not be able to sustain its capital needs. The Company will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. The Company's current level of operations would require capital of approximately $1,500,000 to sustain operations through fiscal year of 2007 and approximately $2,000,000 per year thereafter. Modifications to the Company's business plans may require additional capital to operate. For example, if the Company is unable to raise additional capital in the future the Company may need to curtail is number of projects offers or limit its marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for the Company. In addition, there can be no assurance that additional capital will be available to the Company when needed or available on terms favorable.
On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. The Company's current capital and revenues are insufficient to fund such expansion. If the Company chooses to launch such an expansion campaign, the Company will require substantially more capital. The funds raised from this offering will also be used to market the Company's products and services as well as expand operations and contribute to working capital. However, there can be no assurance that the Company will be able to obtain additional equity or debt financing in the future, if at all. If the Company is unable to raise additional capital, the Company's growth potential will be adversely affected and the Company will have to significantly modify its plans.. For example, if the Company is unable to raise sufficient capital to develop its business plan, the Company may need to limit the Company's future marketing efforts to areas that the Company believes would be the most profitable.
Demand for the products and services will be dependent on, among other things, market acceptance of the Company's products, landscaping market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of the Company's activities is the receipt of revenues from the landscape design and engineering projects, the Company's business operations may be adversely affected by the Company's competitors and prolonged recession periods.
The Company's success will be dependent upon implementing its plan of operations and the risks associated with its business plans. The Company was engaged in landscape engineering advisory service. The Company plans to strengthen its position in landscaping markets. The Company also plans to expand its operations through aggressively marketing its projects.
CRITICAL ACCOUNTING POLICIES
Revenue recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company assesses collectibility based upon our clients’ financial condition and prior payment history, as well as our performance under the contract. The Company recognizes these revenues in the period that the service is provided.
(a) Contract revenue
The Company applies the percentage-of-completion method under SOP 81-1 “Accounting for Performance of Construction-Type and Production-Type Contracts” , to recognize revenues for landscape design and engineering projects that require significant modification or customization subject to the customers. The Company records a provision in those instances in which the Company believe a contract will probably generate a net loss and the Company can reasonably estimate this loss. If the Company cannot reasonably estimate the loss, the Company limits the amount of revenue that the Company recognizes to the costs the Company has incurred, until the Company can estimate the total loss. Advance payments from customers and amounts billed to clients in excess of revenue recognized are recorded as receipt in advance.
(b) Interest income
Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
Billed and unbilled accounts receivable and allowance for doubtful accounts
The Company generally bills its customers under its long term contracts pursuant to billing schedules contained in the contracts or, upon completion of agreed milestones or deliveries, with each milestone or delivery typically having a value specified in the contract. An allowance, for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. As of June 30, 2007 and 2006, an allowance for doubtful accounts of $101,247 and $Nil was provided, respectively.
Unbilled accounts receivable comprise principally amounts of revenue recognized on contracts for which invoices have not been issued. It is expected that all unbilled accounts receivable balances will be billed in the next twelve months.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| | Depreciable life | | Residual value | |
| | | | | |
| Leasehold improvement | 10 years | | | 5 | % |
| Plant and machinery | 10 years | | | 5 | % |
| Motor vehicles | 10 years | | | 5 | % |
| Office equipment | 5 years | | | 5 | % |
Expenditure for maintenance and repairs is expensed as incurred.
In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT TO SFAS 115. ” SFAS No. 159 allows the measurement of many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option. In addition, SFAS 159 includes an amendment of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities ,” and applies to all entities with available-for-sale and trading securities. SFAS 159 is effective for fiscal years that begin after November 15, 2007. We are currently evaluating the impact, if any, of adopting SFAS 159 on our financial statements.
In December 2007, the FASB issued SFAS No. 160, “NONCONTROLLING INTERESTS IN FINANCIAL STATEMENTS—AN AMENDMENT OF ARB NO.51”. SFAS 160 is intended to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its financial statements by establishing accounting and reporting standards that require; the ownership interests in subsidiaries held by parties other than the parent and the amount of net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, and entities to provide sufficient disclosures to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No.160 affects those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have an effect our financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors. Certain officers and directors of the Company have provided personal guarantees to our various lenders as required for the extension of credit to the Company.
ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When preparing our financial statements, we make estimates and judgments that affect the reported amounts on our balance sheets and income statements, and our related disclosure about contingent assets and liabilities. We continually evaluate our estimates, including those related to revenue, allowance for doubtful accounts, reserves for income taxes, and litigation. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable in order to form the basis for making judgments about the carrying values of assets and liabilities that are not readily ascertained from other sources. Actual results may deviate from these estimates if alternative assumptions or condition are used.
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures with any of our accountants for the year ended June 30, 2007.
Directors are elected at the Company’s annual meeting of Stockholders and serve for one year until the next annual Stockholders’ meeting or until their successors are elected and qualified. Officers are elected by the Board of Directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board. The Company reimburses all Directors for their expenses in connection with their activities as directors of the Company. Directors of the Company who are also employees of the Company will not receive additional compensation for their services as directors.
The following is a biographical summary of the experience of each of the executive officers:
The following table sets forth certain information with respect to our directors, executive officers and key employees.
| | | | | |
| NAME | | AGE | | POSITION |
| Liu, Sheng Li | | | 40 | | President and Chairman |
| Ma, Shun Cheng | | | 45 | | Chief Financial Officer and Director |
| Lu, Wei Sheng | | | 34 | | Director |
| Ding, Hong Mei | | | 36 | | Director |
| Tian, Wei | | | 35 | | Director |
Liu, Sheng Li – President and Chairman
Mr. Liu is appointed as Chairman of the Board of Directors of the Company. Mr. Liu was born in 1968. He has more than 10 years experience in business management. Mr. Li is one of the founders of Shaanxi Li Bao Ecological Technology Holding Co. (“Li Bao Ecological”), a company related to Lv Bao. Prior to the foundation of Li Bao Ecological in 2002, Mr. Liu served as manager of the Xi An Railroad Bureau. In 1998, Mr. Liu founded Shaanxi Heng Da Real Estate Co. Ltd. (“Heng Da”) where he was engaged in various aspects of the real estate business and served as Chairman and General Manager. In 2002, Mr. Liu was in charge of the reorganization of the Zhongshanmen Printing Factor in Xi An, where he facilitates an acquisition of assets of approximately $1,250,000.
Ma, Shun Cheng – Chief Financial Officer and Director
Mr. Ma is appointed as President of the Company. He is also a nominee for Director of the Board. Mr. Ma was born in 1963. He has more than 20 years experience in business management. Mr. Ma is one of the founders of Li Bao Ecological. Prior to the foundation of Li Bao Ecological in 2002, Mr. Ma founded Shaanxi Hong Bao Virescene Engineering Ltd. ("Hong Bao") in 1998, and served as Vice President of Hong Bao, where he was engaged in various engineering projects.
Lu, Wei Sheng – Director
Mr. Lu is nominated as a Director of the Board. Mr. Lu is 33 years old. He graduated from Xi An Highway Construction College with a degree in logistics. Mr. Lu has over 10 years working experience in the auto parts industry. He started his own business in 1998 where he was engaged in retail sales of auto parts, and auto maintenance and shipping. In 2002, Mr. Lu founded Shaan Xi Yong Feng Hang Auto Sales Co. Ltd. where he focused on marketing and refined his marketing skills. As a result of Mr. Lu's leadership, Shaan Xi Yong Hang Auto Sales Co. Ltd. is currently a profitable and viable enterprise.
Ding, Hong Mei – Director
Ms. Ding is nominated as a Director of the Board. Ms. Ding is 35 years old. She graduated from Shaan Xi Financial & Economic College with a degree in business administration. >From the year 2000 to the present, Ms. Ding has been employed with the Shaan Xi Heng Li Da Group ("Heng Li Da Group"). She began her career with the Heng Li Da Group as a manager of Heng Li Da Business Services Ltd., one of the subsidiaries of the Heng Li Da Group engaged in office rental services. Ms. Ding is skilled in communication and customer service. While Ms. Ding served in her capacity as manager, the vacancy rate of the rental office was approximately 2%. Ms. Ding is currently in charge of public relations for the company. As a result of Ms. Ding's outstanding performance at Heng Li Da Business Services Ltd., she was appointed as the assistant to the Chairman of Heng Li Da Group and participated in the incorporation of Shan Xi Lv Bao Environmental Eco Industry Management Ltd. ("Lv Bao"). Lv Bao entered a Plan of Exchange with Registrant on November 8, 2006, which was reported on Form 8-k on November 8, 2006. Ms. Ding currently serves as the Chairman of Lv Bao.
Tian, Wei – Director
Mr. Tian is appointed as Chief Financial Officer of the Company. He is also a nominee for Director of the Board. Mr. Tian was born in 1973. He has experience in the accounting and banking industries. From 1991 to 2002, Mr. Tian worked in the Chinese State Commercial Bank, Xi An Branch. He began his employment at Li Bao Ecological in 2002. In addition, Mr. Tian works as a coordinator and assistant to the General Manager of Li Bao Ecological..
Compensation of Directors
We do not pay our Directors any fees in connection with their role as members of our Board. Directors are not paid for meetings attended at our corporate headquarters or for telephonic meetings Our Directors are reimbursed for travel and out-of-pocket expenses in connection with attendance at Board meetings. Each board member serves for a one year term until elections are held at each annual meeting.
Directors are elected at the Company’s annual meeting of Stockholders and serve for one year until the next annual Stockholders’ meeting or until their successors are elected and qualified. Officers are elected by the Board of Directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board. The Company reimburses all Directors for their expenses in connection with their activities as directors of the Company. Directors of the Company who are also employees of the Company will not receive additional compensation for their services as directors.
Family Relationships
None.
Involvement In Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Commission or the commodities futures trading commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
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 Schedule 14C, any failure to comply therewith during the fiscal year ended June 30, 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..
Code of Ethics
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer or controller or persons performing similar functions. Such Code of Ethics is filed as Exhibit 14.1 hereto.
The following table sets forth for the fiscal year ended June 30, 2008, the compensation awarded to, paid to, or earned by, our executive officers:
| SUMMARY COMPENSATION TABLE | |
Name and principal position (a) | Year (b) | | Salary ($) (c) | | | Bonus ($) (d) | | Stock Awards ($) (e) | | Option Awards ($) (f) | | | Non-Equity Incentive Plan Compensation ($) (g) | | | Nonqualified Deferred Compensation Earnings ($) (h) | | | All Other Compensation ($) (i) | | | Total ($) (j) | |
| Liu, Shengli | July 2007 to June 2008 | | | 8,746 | | | | - | | | | | - | | | | - | | | | - | | | | 2,623 | | | | 11,369 | |
| Ma, Shuncheng | July 2007 to June 2008 | | | 8,000 | | | | - | | | | | - | | | | - | | | | - | | | | 1,749 | | | | 9,749 | |
| Wang, Lijian | July 2007 to June 2008 | | | 3,498 | | | | - | | | | | - | | | | - | | | | - | | | | 1,574 | | | | 5,072 | |
| Wu, Yong | July 2007 to June 2008 | | | 3,498 | | | | - | | | | | - | | | | - | | | | - | | | | 1,574 | | | | 5,072 | |
| Li, Chunli | July 2007 to June 2008 | | | 4,373 | | | | - | | | | | - | | | | - | | | | - | | | | 1,574 | | | | 5,947 | |
Outstanding Equity Awards At Fiscal Year-End Table
None.
Option Exercises And Stock Vested Table
None.
Pension Benefits Table
None.
Nonqualified Deferred Compensation Table
None.
All Other Compensation Table
None.
Perquisites Table
None.
Potential Payments Upon Termination Or Change In Control Table
None.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year, whether such performance is measured by reference to our financial performance, our stock price, or any other measure.
Compensation of Directors
The directors did not receive any other compensation for serving as members of the board of directors. The Board has not implemented a plan to award options. There are no contractual arrangements with any member of the board of directors.
We do not intend to pay any additional compensation to our directors. As of the date hereof, we have not entered into employment contracts with any of our officers and we do not intend to enter into any employment contracts until such time as it profitable to do so.
The classes of equity securities of the Company issued and outstanding are Common Stock, $.001 par value, and Preferred Stock, $.001 par value. The following table sets forth certain information regarding beneficial ownership of the common stock as of July 14, 2008, by (i) each person who is known by the Company to own beneficially more than 5% of any classes of outstanding Stock, (ii) each director of the Company, (iii) each officer and (iv) all directors and executive officers of the Company as a group. The percentage of shares beneficially owned is based on there having been 33,162,114 shares of Common Stock outstanding and 100,000 shares of Preferred Stock as of July 14, 2008. The 33,162,114 shares of Common Stock outstanding excludes the 50,000,000 shares of common stock being held as collateral by DZ Bank International S.A. for benefit of Trafalgar Capital Specialized Investment Fund pursuant to a Securities Purchase Agreement, dated as of June 30, 2008, by and among the Company and Trafalgar Capital Specialized Investment Fund, Luxembourg (attached hereto as Exhibit 10.2).
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted.
| | | | | | | | |
| Title of Class | Name and Address of Beneficial Owner | | Amount & Nature of Beneficial Owner | | | Percent of Class | |
| Common Stock, $.001 Par Value | Liu, Sheng Li No. 13, Rows 3, No. 1 Railway Village Xincheng Dist., Shaanxi, P.R. China | | | 8,580,000 | | | | 25.87 | % |
| Common Stock, $.001 Par Value | Shun Cheng Ma Xin Cheng Yard, Xian P.R. China | | | 739,760 | | | | 2.23 | % |
| Common Stock, $.001 Par Value | Wei Sheng Lu | | | - | | | | - | % |
| Common Stock, $.001 Par Value | Hong Mei Ding | | | - | | | | - | % |
| | Wei Tian No. 12, Xiangzi Miao Street Beilin Dist., P.R. China | | | 3,431 | | | | 0.01 | % |
| Common Stock, $.001 Par Value | DZ Bank International S.A. FBO Trafalgar Capital Specialized Investment Fund 18851 NE 29th Ave Ste 306 Aventura, FL 33180 | | | 2,500,000 | | | | 7.54 | % |
| Common Stock, $.001 Par Value | All directors and executive officers as a group (five persons) | | | 9,323,191 | | | | 28.11 | % |
| Preferred Stock, $.001 Par Value | Liu, Sheng Li No. 13 Rows 3, No. 1 Railway Village Xincheng Dist., Shaanxi, P.R. China | | | 100,000 | | | | 100.00 | % |
| Preferred Stock, $.001 Par Value | All directors and executive officers as a group (four persons) | | | 100,000 | | | | 100.00 | % |
On November 8, 2006, the Company and predecessor of the Company executed a Plan of Exchange (the “Agreement”) between and among the Company, Shan Xi Lv Bao Enviornmental Eco Industry Management Ltd., a corporation organized and existing under the laws of the Peoples’ Republic of China (“Lv Bao”), the shareholders of Lv Bao (the “Lv Bao Shareholders”) and the Majority Shareholder of the Company (the “Majority Shareholder”).
Pursuant to the Agreement, on February 6, 2007, the Majority Shareholder of the Company and a related shareholder returned 844,500 shares of the Company’s common stock to the treasury of the Company in exchange for total payments of $530,000 in cash and the Company issued to the Lv Bao Shareholders an amount equal to 26,000,000 new investment shares of Common Stock and 100,000 new shares of Preferred Stock of the Company pursuant to Regulation S under the Securities Act of 1933, as amended, in exchange for all of the shares of registered capital of Lv Bao. Upon completion of the exchange, Lv Bao became a wholly-owned subsidiary of the Company.
In addition, on February 14, 2007, pursuant to a Purchase Agreement, the Majority Shareholder of the Company tendered a cash purchase price of $10 and assumed certain liabilities in exchange for all outstanding shares of Dispatch Auto Parts II, Inc. (“Dispatch II”), a Florida subsidiary held by the Company. As a result of the transactions consummated at the closing, the purchase and issuance gave the Majority Shareholder a ‘controlling interest’ in Dispatch II, and Dispatch II was no longer a wholly-owned subsidiary of the Registrant.
No pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.
The Florida Business Corporation Act (the “Florida Act”) permits a Florida corporation to indemnify a present or former director or officer of the corporation (and certain other persons serving at the request of the corporation in related capacities) for liabilities, including legal expenses, arising by reason of service in such capacity if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe his conduct was unlawful. However, in the case of actions brought by or in the right of the corporation, no indemnification may be made with respect to any matter as to which such director or officer shall have been adjudged liable, except in certain limited circumstances. The Company’s Articles of Incorporation provide that the Company shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by the Florida Act. The indemnification provided by the Florida Act and the Company’s Articles of Incorporation is not exclusive of any other rights to which a director or officer may be entitled. The general effect of the foregoing provisions may be to reduce the circumstances which an officer or director may be required to bear the economic burden of the foregoing liabilities and expense. The Company may also purchase and maintain insurance for the benefit of any director or officer that may cover claims for which we could not indemnify such person.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-1 under the 1933 Act with respect to the securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of the Commission. For further information with respect to us and the securities offered by this prospectus, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the to the exhibits for a complete statement of their terms and conditions. The registration statement and other information may be read and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.
GUARDIAN REGISTRAR & TRANSFER INC.
7951 S.W. 6th Street
Suite 216
Plantation, FL 33324
Tel: (954) 915-0105
Fax: (954) 449-0582
(FORMERLY DISPATCH AUTO PARTS, INC.)
THREE AND NINE MONTHS ENDED MARCH 31, 2008 and 2007 INDEX TO FINANCIAL STATEMENTS
| | Page |
| Financial statements: | |
| | |
| Balance sheet | 25 |
| | |
| Statements of operations and comprehensive income | 26 |
| | |
| Statements of cash flows | 27 |
| | |
| Statement of stockholders' equity | 28 |
| | |
| Notes to financial statements | 29 |
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2008 AND JUNE 30, 2007
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| | | March 31, 2008 | | | June 30, 2007 | |
| | | (unaudited) | | | (audited) | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 2,968,254 | | | $ | 2,775,361 | |
| Billed accounts receivable, net | | | 498,419 | | | | 103,953 | |
| Unbilled accounts receivable | | | 1,940,517 | | | | 98,804 | |
| Amount due from stockholders | | | - | | | | 39,080 | |
| Other receivables and prepayments | | | - | | | | 2,100 | |
| | | | | | | | | |
| Total current assets | | | 5,407,190 | | | | 3,019,298 | |
| | | | | | | | | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 454,988 | | | | 470,960 | |
| Intangible asset | | | 170,887 | | | | - | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 6,033,065 | | | $ | 3,490,258 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | - | | | $ | 393,455 | |
| Deferred tax liabilities | | | 590,958 | | | | - | |
| Income tax payable | | | 349,366 | | | | 201,545 | |
| Amount due to stockholders | | | 35,264 | | | | - | |
| Other payables and accrued liabilities | | | 358,592 | | | | 79,724 | |
| | | | | | | | | |
| Total current liabilities | | | 1,334,180 | | | | 674,724 | |
| | | | | | | | | |
| | | | | | | | | |
| MINORITY INTEREST | | | 239,290 | | | | 141,044 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock, $0.001 par value; 100,000 shares authorized; 100,000 shares issued and outstanding | | | 100 | | | | 100 | |
| Common stock, $0.001 par value; 100,000,000 shares authorized; 30,662,114 and 28,662,114 shares issued as of March 31, 2008 and June 30, 2007 | | | 30,662 | | | | 28,662 | |
| Additional paid-in capital | | | 2,191,732 | | | | 1,151,049 | |
| Deferred compensation | | | (119,179 | ) | | | (236,250 | ) |
| Stock subscription receivables | | | (765,000 | ) | | | - | |
| Accumulated other comprehensive income | | | 467,731 | | | | 168,372 | |
| Statutory reserves | | | 239,955 | | | | 155,661 | |
| Retained earnings | | | 2,413,594 | | | | 1,406,896 | |
| | | | | | | | | |
| Total stockholders’ equity | | | 4,459,595 | | | | 2,674,490 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 6,033,065 | | | $ | 3,490,258 | |
See accompanying notes to condensed consolidated financial statements.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
| | | Three months ended March 31, | | | Nine months ended March 31, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
| REVENUES, NET: | | | | | | | | | | | | |
Projects | | $ | 5,807,891 | | | $ | 385,966 | | | $ | 8,993,913 | | | $ | 2,447,211 | |
Products | | | 1,316,520 | | | | - | | | | 1,316,520 | | | | - | |
| | | | 7,124,411 | | | | 385,966 | | | | 10,310,433 | | | | 2,447,211 | |
| | | | | | | | | | | | | | | | | |
| COST OF REVENUE: | | | | | | | | | | | | | | | | |
| Projects | | | 3,990,155 | | | | 241,609 | | | | 6,131,516 | | | | 1,573,202 | |
| Products | | | 824,062 | | | | - | | | | 824,062 | | | | - | |
| | | | 4,814,217 | | | | 241,609 | | | | 6,955,578 | | | | 1,573,202 | |
| | | | | | | | | | | | | | | | | |
| GROSS PROFIT | | | 2,310,194 | | | | 144,357 | | | | 3,354,855 | | | | 874,009 | |
| | | | | | | | | | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | | | | | | | | | |
| Consulting and professional fees | | | 90,325 | | | | 13,200 | | | | 408,294 | | | | 56,150 | |
| Research and development | | | 21,503 | | | | - | | | | 114,683 | | | | - | |
| Allowance for doubtful accounts | | | 475,801 | | | | - | | | | 369,685 | | | | - | |
| General and administrative | | | 93,553 | | | | 94,101 | | | | 271,521 | | | | 314,842 | |
| Total operating expenses | | | 681,182 | | | | 107,301 | | | | 1,164,183 | | | | 370,992 | |
| | | | | | | | | | | | | | | | | |
| INCOME FROM OPERATIONS | | | 1,629,012 | | | | 37,056 | | | | 2,190,672 | | | | 503,017 | |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME: | | | | | | | | | | | | | | | | |
| Interest income | | | 622 | | | | 50 | | | | 1,441 | | | | 296 | |
| | | | | | | | | | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | | 1,629,634 | | | | 37,106 | | | | 2,192,113 | | | | 503,313 | |
| | | | | | | | | | | | | | | | | |
| Income tax expenses | | | (810,231 | ) | | | (80,038 | ) | | | (1,002,875 | ) | | | (212,999 | ) |
| Minority interest | | | (53,105 | ) | | | (5,223 | ) | | | (98,246 | ) | | | (26,887 | ) |
| | | | | | | | | | | | | | | | | |
| NET INCOME (LOSS) | | $ | 766,298 | | | $ | (48,155 | ) | | $ | 1,090,992 | | | $ | 263,427 | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income: | | | | | | | | | | | | | | | | |
| - Foreign currency translation gain | | | 177,954 | | | | 39,766 | | | | 299,359 | | | | 46,013 | |
| | | | | | | | | | | | | | | | | |
| COMPREHENSIVE INCOME | | $ | 944,252 | | | $ | (8,389 | ) | | $ | 1,390,351 | | | $ | 309,440 | |
| | | | | | | | | | | | | | | | | |
| Net income per share – Basic and diluted | | $ | 0.02 | | | $ | (0.00 | ) | | $ | 0.04 | | | $ | 0.01 | |
| | | | | | | | | | | | | | | | | |
| Weighted average number of shares outstanding during the period – Basic and diluted | | | 30,662,114 | | | | 27,438,128 | | | | 30,225,750 | | | | 26,308,025 | |
See accompanying notes to condensed consolidated financial statements.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
| | | Nine months ended March 31, | |
| | | 2008 | | | 2007 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 1,090,992 | | | $ | 263,427 | |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | | | |
| Minority interest | | | 98,246 | | | | 26,887 | |
| Depreciation | | | 64,597 | | | | 78,909 | |
| Allowance for doubtful accounts | | | 369,685 | | | | - | |
| Rent expense, non-cash | | | 19,663 | | | | - | |
| Stock-based compensation | | | 375,091 | | | | 210,000 | |
| Deferred tax expense | | | 532,700 | | | | 74,360 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Billed accounts receivable | | | (739,370 | ) | | | 260,856 | |
| Unbilled accounts receivable | | | (1,757,815 | ) | | | (671,991 | ) |
| Other receivables and prepayments | | | 2,100 | | | | - | |
| Accounts payable | | | (409,641 | ) | | | - | |
| Income tax payable | | | 159,103 | | | | (147,410 | ) |
| Other payables and accrued liabilities | | | 98,956 | | | | 421,735 | |
| | | | | | | | | |
| Net cash (used in) provided by operating activities | | | (95,693 | ) | | | 516,773 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property, plant and equipment | | | (10,532 | ) | | | (163,958 | ) |
| Net cash used in investing activities | | | (10,532 | ) | | | (163,958 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Cash received from reverse acquisition | | | - | | | | 628,773 | |
Repayments of advances from stockholders | | | 62,881 | | | | 120,895 | |
| Net cash provided by financing activities | | | 62,881 | | | | 749,668 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 236,237 | | | | 46,013 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | | | 192,893 | | | | 1,148,496 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 2,775,361 | | | | 563,374 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 2,968,254 | | | $ | 1,711,870 | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid for interest expenses | | $ | - | | | $ | - | |
| Cash paid for income taxes | | $ | 843,772 | | | $ | 286,049 | |
See accompanying notes to condensed consolidated financial statements.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(unaudited)
| | | Series “A” Preferred Stock | | | Common stock | | | | | | | | | | | | | | | | | | | | | | |
| | | No. of shares | | | Amount | | | No. of shares | | | Amount | | | Additional paid-in capital | | | Deferred compensation | | | Stock subscription receivable | | | Accumulated other comprehensive income | | | Statutory reserve | | | Retained earnings | | | Total equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of July 1, 2007 | | | 100,000 | | | $ | 100 | | | | 28,662,114 | | | $ | 28,662 | | | $ | 1,151,049 | | | $ | (236,250 | ) | | $ | - | | | $ | 168,372 | | | $ | 155,661 | | | $ | 1,406,896 | | | $ | 2,674,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair value of stock options issued for services, non-cash | | | - | | | | - | | | | - | | | | - | | | | 258,020 | | | | (106,433 | ) | | | - | | | | - | | | | - | | | | - | | | | 151,587 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for options exercised | | | - | | | | - | | | | 2,000,000 | | | | 2,000 | | | | 763,000 | | | | - | | | | (765,000 | ) | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rent expenses for office maintained by shareholder, non-cash | | | - | | | | - | | | | - | | | | - | | | | 19,663 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 19,663 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recognition of stock-based compensation expenses for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | 223,504 | | | | - | | | | - | | | | - | | | | - | | | | 223,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 84,294 | | | | 1,006,698 | | | | 1,090,992 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 299,359 | | | | - | | | | - | | | | 299,359 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of March 31, 2008 | | $ | $ 100,000 | | | $ | 100 | | | $ | 30,662,114 | | | $ | 30,662 | | | $ | 2,191,732 | | | $ | (119,179 | ) | | $ | (765,000 | ) | | $ | 467,731 | | | $ | 239,955 | | | $ | 2,413,594 | | | $ | 4,459,595 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
NOTE－1 | BASIS OF PRESENTATION |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Rule 10-01of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to our annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto contained in the Annual Report on Form 10-KSB for the year ended June 30, 2007.
NOTE－2 | ORGANIZATION AND BUSINESS BACKGROUND |
Environment Ecology Holding Company of China (the “Company”) was incorporated under the laws of the State of Florida on September 14, 1989 as “First New York Investments, Inc.” On November 25, 1996, the Company changed its name to “Computer Access International, Inc.” On March 31, 2005, the Company changed its name to “Dispatch Auto Parts, Inc.” On November 2, 2007, the Company further changed its name to “Environment Ecology Holding Company of China.”
On November 8, 2006, the Company entered a stock exchange transaction with Shaanxi Lv Bao Environmental Eco Industry Management Ltd. (“Lv Bao”) and the transaction was effectively completed on February 6, 2007. Lv Bao was registered as a limited liability company in the People’s Republic of China (the “PRC”) on August 11, 2006 with its principal place of business in Xian City, Shaanxi Province, the PRC. Its registered capital is Renminbi Yuan (“RMB”) 5,000,000 (equivalent to $628,773). Its principal activity was investment holding in Shaanxi Li Bao Sheng Tai Ke Ji Gu Fen You Xian Gong Si (“Li Bao”). Upon completion of the plan of exchange, Lv Bao became a wholly-owned subsidiary of the Company.
On August 30, 2006, the owners of Lv Bao entered into an exchange agreement with the owners of Li Bao. This exchange transaction involved that Li Bao’s equity owners transferred the aggregate equity interest of 93.57% of the registered capital of Li Bao (equivalent to RMB65,500,000) to Lv Bao. The transaction was an exchange of shares and no cash or other assets were exchanged in the transaction was taken place. Upon the completion of the equity transfer, Li Bao became an operating subsidiary of Lv Bao with 93.57% controlling interest.
These transactions have been accounted for as a reverse acquisition and recapitalization of the Company, through a wholly-owned subsidiary, Lv Bao, whereby Li Bao is deemed to be the ultimate accounting acquirer (legal acquiree) and the Company to be the ultimate accounting acquiree (legal acquirer).
The Company, through its subsidiaries, mainly engages in the provision of landscape engineering service in the PRC.
In September 2007, Li Bao acquired the technical know-how on the Walnut Plantation Technology from an independent party, the Research Center in the PRC. Starting from January 1, 2008, the Company has commenced in the operation in Walnut plantation.
The Company, Lv Bao and Li Baoare hereinafter referred to as (the “Company”).
NOTE－3 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.
The condensed consolidated financial statements include the financial statements of the Company, Lv Bao and Li Bao.
All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company assesses collectibility based upon our clients’ financial condition and prior payment history, as well as our performance under the contract. The Company recognizes these revenues in the period that the service is provided.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
(a) Contract revenue
The Company applies the percentage-of-completion method under SOP 81-1 “Accounting for Performance of Construction-Type and Production-Type Contracts”, to recognize revenues for landscape design and engineering projects that require significant modification or customization subject to the customers. The Company records a provision in those instances in which the Company believe a contract will probably generate a net loss and the Company can reasonably estimate this loss. If the Company cannot reasonably estimate the loss, the Company limits the amount of revenue that the Company recognizes to the costs the Company has incurred, until the Company can estimate the total loss. Advance payments from customers and amounts billed to clients in excess of revenue recognized are recorded as receipt in advance.
The Company derives revenues from the sales and production of walnut products. The Company recognizes its revenues net of value added taxes(“VAT”). The Company is subject to VAT at the rate of 6% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales while input VAT is not allowed for deduction from the invoiced value of purchases.
Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
Cost of revenue primarily includes purchase of raw materials for landscape design and engineering projects, manufacturing cost of walnut products, sub-contracting charges and direct overhead.
| l | Cash and cash equivalents |
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
| l | Billed and unbilled accounts receivable and allowance for doubtful accounts |
The Company generally bills its customers under its long term contracts pursuant to billing schedules contained in the contracts or, upon completion of agreed milestones or deliveries, with each milestone or delivery typically having a value specified in the contract. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. As of March 31, 2008, the Company has determined an allowance$498,419 for doubtful accounts.
Unbilled accounts receivable comprise principally amounts of revenue recognized on contracts for which invoices have not been issued. It is expected that all unbilled accounts receivable balances will be billed in the next twelve months.
| l | Property, plant and equipment |
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| | Depreciable life | | Residual value | |
| Leasehold improvement | 10 years | | | 5 | % |
| Plant and machinery | 10 years | | | 5 | % |
| Motor vehicles | 10 years | | | 5 | % |
| Office equipment | 5 years | | | 5 | % |
Expenditure for maintenance and repairs is expensed as incurred.
Intangible asset refers to the purchased technical know-how in the Walnut plantation technology acquired from the Research Center in the PRC, an independent party at its historical cost. Purchased technical know-how includes secret formulas, manufacturing processes, technical and procedural manuals, with an indefinite useful life. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, if an intangible asset is determined to have an indefinite useful life, it should not be amortized until its useful life is determined to be no longer indefinite. The asset’s remaining useful life should be reviewed each reporting period. If such an asset is later determined to have a finite useful life, the asset should be tested for impairment. That asset should then be amortized prospectively over its estimated remaining useful life and accounted for in the same way as intangible assets subject to amortization. An intangible asset that is not subject to amortization should be tested for impairment at least annually.
The Company evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
| l | Valuation of long-lived assets |
Long-lived assets primarily include property, plant and equipment and intangible asset. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results. There has been no impairment as of March 31, 2008.
SFAS No. 130, “Reporting Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying condensed consolidated statement of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
The Company accounts for income taxes in interim periods as required by Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” and as interpreted by FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods.” The Company has determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company’s fiscal year to the Company’s best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income at the end of the interim period.
The Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the condensed consolidated statement of operations and comprehensive income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
The Company also adopts the provisions of the Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“FIN 48”). FIN 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company adopted FIN 48 and has determined that the adoption did not have an impact on the Company’s financial position, results of operations, or cash flows.
| l | Net income (loss) per share |
The Company calculates net income (loss) per share in accordance with SFAS No. 128,“Earnings per Share”. Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
| l | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the condensed consolidated statement of operations.
The reporting currency of the Company is the United States dollar ("US$").The Company's subsidiaries in the PRC, Li Bao and Lv Bao maintain their books and records in the local currency, the Renminbi (“RMB”), which is functional currency as being the primary currency of the economic environment in which these entities operate.
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with SFAS No 52, “Foreign Currency Translation”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective period:
| | | 2008 | | | 2007 | |
| | | | | | | |
| Months end RMB:US$ exchange rate | | | 7.0222 | | | | 7.6248 | |
| Average monthly RMB:US$ exchange rate | | | 7.3222 | | | | 7.8285 | |
| l | Stock-based compensation |
The Company adopts SFAS No. 123(R),“Share-Based Payment” using the fair value method. Under SFAS No. 123(R), the stock-based compensation is measured using the Black-Scholes Option-Pricing model on the date of grant. The fair value of stock-based compensation that is expected to vest is recognized using the straight-line method over the requisite service period.
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. As of March31, 2008, the Company operates one reportable segment. Starting from January 1, 2008, the Company has commenced the business in the Walnut plantation in the PRC.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
| l | Fair value of financial instruments |
The Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of amounts that the Company could realize in a current market exchange.
The Company’s financial instruments primarily include cash and cash equivalents, billed accounts receivable, unbilled accounts receivable, other receivable, amount due to stockholders, income tax payable, deferred tax liabilities, other payables and accrued liabilities.
As of the balance sheet date, the estimated fair values of financial instruments were not materially different from their carrying values as presented due to short maturities of these instruments.
| l | Recently issued accounting standards |
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Company believes that SFAS 159 should not have a material impact on the consolidated financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations" ("SFAS No. 141R"). SFAS No. 141R will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, any business combinations the Company engages in will be recorded and disclosed following existing GAAP until January 1, 2009. The Company expects SFAS No. 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions atthat time. The Company is still assessing the impact of this pronouncement.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160" ("SFAS No. 160"). SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company believes that SFASNo.160 should not have a material impact on the consolidated financial position or results of operations.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.
NOTE－4 | BILLED ACCOUNTS RECEIVABLE |
The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required.
| | | March 31, 2008 | | | June 30, 2007 | |
| | | | | | (audited) | |
| | | | | | | |
| Billed accounts receivable, gross | | $ | 996,838 | | | $ | 207,906 | |
| | | | | | | | | |
| Less: allowance for doubtful accounts | | | (498,419 | ) | | | (103,953 | ) |
| Billed accounts receivable, net | | $ | 498,419 | | | $ | 103,953 | |
For the nine months ended March 31, 2008, the Company has recorded an allowance of $369,685 for doubtful accounts.
During the nine months ended March 31, 2008, the Company collected the long overdue balance of $207,906 from the customer and reversed an allowance for doubtful accounts accordingly.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
NOTE－5 | PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment, net consisted of the following:
| | | March 31, 2008 | | | June 30, 2007 | |
| | | | | | (audited) | |
| | | | | | | |
| Leasehold improvement | | $ | 167,062 | | | $ | 157,348 | |
| Plant and machinery | | | 442,712 | | | | 442,713 | |
| Office equipment | | | 189,488 | | | | 188,670 | |
| Motor vehicles | | | 40,467 | | | | 40,467 | |
| Foreign translation difference | | | 113,116 | | | | 38,232 | |
| | | | 952,845 | | | | 867,430 | |
| | | | | | | | | |
| Less: accumulated depreciation | | | (461,066 | ) | | | (379,780 | ) |
| Less: foreign translation difference | | | (36,791 | ) | | | (16,690 | ) |
| Property, plant and equipment, net | | $ | 454,988 | | | $ | 470,960 | |
Depreciation expense for the three months ended March 31, 2008 and 2007 were $11,861 and $18,208, respectively.
Depreciation expense for the nine months ended March 31, 2008 and 2007 were $64,597 and $65,593, respectively.
It represented the Walnut plantation technology acquired from an independent party, the Research Center in the PRC. This technical know-how is stated at the historical cost of $170,887 (approximately RMB1,200,000) with an indefinite useful life.
NOTE－7 | AMOUNT DUE TO A STOCKHOLDER |
NOTE－8 | OTHER PAYABLES AND ACCRUED LIABILITIES |
Other payables and accrued liabilities consisted of the following:
| | | March 31, 2008 | | | June 30, 2007 | |
| | | | | | (audited) | |
| | | | | | | |
| Government levy payables | | $ | 9,592 | | | $ | 29,257 | |
| Accrued payments to vendors and contract related accruals | | | 148,559 | | | | 13,863 | |
| Welfare payables | | | 14,454 | | | | 3,604 | |
| Payable for technical know-how | | | 170,887 | | | | - | |
| Accrued expenses | | | 15,100 | | | | 33,000 | |
| Other payables and accrued liabilities | | $ | 358,592 | | | $ | 79,724 | |
The accrued payments to vendors and contract related accruals are primarily the accrual for the uncompleted contracts as of March 31, 2008. These accruals are expected to be paid in the next quarter.
The Company is registered in the United States of America and has operations in 2 tax jurisdictions: the United States of America and the PRC. The operation in the United States of America has incurred net operating losses for income tax purposes. The Company generated substantially its net income from its PRC operation through the subsidiaries in the PRC and has recorded income tax provision for the nine months ended March 31, 2008 and 2007.
The provision for income taxes consists of the following:
| | | Nine months ended March 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Current tax | | $ | 1,558,429 | | | $ | 138,639 | |
| Deferred tax (expenses) benefit | | | (555,554 | ) | | | 74,360 | |
| Income tax expenses | | $ | 1,002,875 | | | $ | 212,999 | |
The components of income before income taxes and minority interest subject to U.S. and PRC tax are as follows:
| | | Nine months ended March 31, | |
| | | 2008 | | | 2007 | |
| Jurisdiction: | | | | | | |
| Loss subject to U.S. tax | | $ | (343,103 | ) | | $ | (223,200 | ) |
| Income subject to from PRC tax | | | 2,615,093 | | | | 726,513 | |
| Income before income taxes and minority interest | | $ | 2,271,990 | | | $ | 503,313 | |
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
United States of America
The Company is registered in the State of Florida and is subject to United States of America tax law.
As of March 31, 2008, the U.S. operation had $343,103 of net operating losses available for federal tax purposes, which are available to offset future taxable income. The net operating loss carry forwards begin to expire in 2028. The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
The PRC
All the Company’s PRC subsidiaries are subject to the Enterprise Income Tax governed by the Income Tax Law of the People’s Republic of China. Under the PRC Income Tax Laws, both companies are generally subject to enterprise income tax (“CIT”) at a statutory rate of 33% (30% national income tax plus 3% local income tax).
On March 16, 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises with effect from January 1, 2008. Starting from January 1, 2008 Li Bao is entitled to the tax rate reduction from 33% to 25% that may impact the carrying value of deferred tax assets as a result of new tax rate. Under the New CIT Law, Lv Bao, as a foreign investment enterprise continues to enjoy the unexpired tax holidays from a full exemption of income tax for the first two profit making years with a 50% exemption of income tax for the next three years.
The reconciliation of income tax rate to the effective income tax rate based on income before income taxes and minority interest of PRC operations for the nine months ended March 31, 2008 and 2007 are as follows:
| | | Nine months ended March 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Income before income taxes and minority interest | | $ | 2,615,093 | | | $ | 726,513 | |
| Statutory income tax rate | | | 25 | % | | | 33 | % |
| | | | 653,773 | | | | 239,749 | |
| Less: items not subject to tax purpose | | | | | | | | |
| - Difference in tax rate | | | 138,600 | | | | - | |
| - Provision and accrued liabilities | | | 210,502 | | | | 26,750 | |
| Income tax expenses | | $ | 1,002,875 | | | $ | 212,999 | |
The following table sets forth the significant components of the aggregate net deferred tax assets and liabilities of the Company as of March 31, 2008:
| | | March 31, 2008 | |
| Deferred tax liabilities: | | | |
| Unbilled accounts receivables | | $ | 590,958 | |
| | | | | |
| Deferred tax asset: | | | | |
| Net operating loss carryforwards | | | 230,355 | |
| Less: valuation allowance | | | (230,355 | ) |
| Net deferred tax liabilities | | $ | 590,958 | |
NOTE－10 | STOCK-BASED COMPENSATION |
(a) Common stock issued for service to be rendered
On January 26, 2007, the Company issued 1,000,000 shares of common stock for business advisory services to be rendered, to Greentree Financial Group, Inc, in a term of 2 years effective from July 1, 2006 ending June 30, 2008, The fair value of this stock issuance was determined using the fair value of the Company’s common stock on the grant date, at a market quoted price of $0.51 per share. The Company calculated the cost of $510,000 at its fair value and amortized over the service period of 2 years. The Company recognized $191,250 to the statements of operations for the nine months ended March 31, 2008. As of March 31, 2008, the unrecognized cost is recorded as deferred compensation amounting to $45,000.
(b) 2007 Benefit Plan
On July 13, 2007, the Company approved the 2007 Benefit Plan (“2007 Plan”). Pursuant to the 2007 plan, the Company would grant a maximum of 5,000,000 share options to employees and non-employee eligible individuals, either as non-statutory stock option or incentive stock option.
On August 13, 2007, the Company authorized to grant a total of 2,000,000 options to 3 consultants for service to be rendered under the 2007 Plan. All of the options were exercisable at 75% of the market price at the time of exercise for a period of 1 year from grant date and have a life of 1 year. All options will vest immediately upon the exercise hereof.
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
A schedule of the options as of March31, 2008is as follows:
| | | No. of options | | | Weighted average exercise price | |
| | | | | | | |
| Options outstanding as of July 1, 2007 | | | - | | | $ | - | |
| Granted in August 2007 | | | 2,000,000 | | | | 0.3825 | |
| Exercised in August 2007 | | | (2,000,000 | ) | | | 0.3825 | |
| | | | | | | | | |
| Options outstanding as of March 31, 2008 | | | - | | | $ | - | |
| | | | | | | | | |
| Options exercisable as of March 31, 2008 | | | - | | | $ | - | |
The weighted-average grant-date fair value of options granted during the period ended March 31, 2008 were $0.129 per share. These options were valued at an aggregate of $258,020 at the weighted average exercise price of $0.3825 and to be amortized over a weighted average service period of 2.2 years. The fair value for the options granted was estimated at the date of grant using the Black-Scholes Option Pricing model with the following assumptions:
| Risk-free interest rate (per annum) | | | 4.75 | % |
| Expected life (in years) | | | 0.08 | |
| Expected volatility | | | 0 | % |
| Expected dividend yield | | | 0 | % |
The Company recognized$183,841 of stock-based compensation to operations for the nine months ended March31, 2008by applying the fair value method in accordance with SFAS No. 123(R).
As of March31, 2008, there was $74,179 of unrecognized non-cash compensation cost related to services to be rendered in future periods, which will be recognized on a straight-line basis, over a weighted average period of 1.7 years.
On August 30, 2007, the aggregate amount of 2,000,000 options was exercised at $0.3825, which represented 75% of the market price as of August 31, 2007. During the period ended March31, 2008, 2,000,000 shares were issued with a fair value of $765,000 in exchange for services rendered. $2,000 was recorded as an increase in common stock for par value and $763,000in additional paid-in capital. As of March 31, 2008, the cash receipt from stock subscription was not received and recorded $760,000 as stock subscriptions receivables in the equity section of the consolidated balance sheet.
NOTE－11 | CONCENTRATION AND RISK |
(a) Major customers and vendors
For the nine months ended March 31, 2008 and 2007, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues and purchases were derived from customers and vendors located in the PRC.
For the three months ended March 31, 2008, customers and vendors who accounted for 10% or more of revenues and purchases are presented as follows:
| Customers | | Revenues | | | Percentage of revenues | | | Accounts receivable, gross | |
| | | | | | | | | | | | |
| Customer A | | | $ | 1,612,689 | | | | 31 | % | | | $ | 406,964 | |
| Customer C | | | | 1,004,443 | | | | 19 | % | | | | 411,399 | |
| Customer D | | | | 921,266 | | | | 18 | % | | | | - | |
| | Total: | | $ | 3,538,398 | | | | 68 | % | Total: | | $ | 818,363 | |
| | | | | | | | | | | | | | | |
| Vendors | | Purchases | | | Percentage of purchases | | | Accounts Payable | |
| | | | | | | | | | | | | | | |
| Vendor A | | | $ | 1,202,000 | | | | 40 | % | | | $ | - | |
| Vendor B | | | | 1,744,670 | | | | 58 | % | | | | - | |
| | Total: | | $ | 2,946,670 | | | | 98 | % | Total: | | $ | - | |
ENVIRONMENT ECOLOGY HOLDING COMPANY OF CHINA
(FORMERLY DISPATCH AUTO PARTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
(Currency expressed in United States Dollars (“US$”))
(unaudited)
For the nine months ended March 31, 2008, customers and vendors who accounted for 10% or more of revenues and purchases are presented as follows:
| Customers | | Revenues | | | Percentage of revenues | | | Accounts receivable, gross | |
| | | | | | | | | | | | |
| Customer A | | | $ | 2,201,133 | | | | 25 | % | | | $ | 406,964 | |
| Customer B | | | | 2,236,444 | | | | 25 | % | | | | 20,231 | |
| Customer C | | | | 1,360,005 | | | | 15 | % | | | | 411,399 | |
| Customer D | | | | 901,724 | | | | 10 | % | | | | - | |
| | Total: | | $ | 6,699,306 | | | | 75 | % | Total: | | $ | 838,594 | |
| | | | | | | | | | | | | | | |
| Vendors | | Purchases | | | Percentage of purchases | | | Accounts payable | |
| | | | | | | | | | | | | | | |
| Vendor A | | | $ | 2,318,015 | | | | 47 | % | | | $ | - | |
| Vendor B | | | | 2,200,238 | | | | 45 | % | | | | - | |
| | Total: | | $ | 4,518,253 | | | | 92 | % | Total: | | $ | - | |
For the three months ended March 31, 2007, customers and vendors who accounted for 10% or more of revenues and purchases are presented as follows:
| Customer | | Revenues | | | Percentage of revenues | | | Accounts receivable, gross | |
| | | | | | | | | | | | |
| Customer A | | | $ | 174,578 | | | | 100 | % | | | $ | - | |
| | Total: | | $ | 174,578 | | | | 100 | % | Total: | | $ | - | |
| | | | | | | | | | | | | | | |
| Vendors | | Purchases | | | Percentage of purchases | | | Accounts payable | |
| | | | | | | | | | | | | | | |
| Vendor A | | | $ | 111,140 | | | | 46 | % | | | $ | - | |
| Vendor B | | | | 77,315 | | | | 32 | % | | | | - | |
| | Total: | | $ | 188,455 | | | | 78 | % | Total: | | $ | - | |
For the nine months ended March 31, 2007, customers and vendors who accounted for 10% or more of revenues and purchases are presented as follows:
| Customers | | Revenues | | | Percentage of revenues | | | Accounts receivable, gross | |
| | | | | | | | | | | | |
| Customer A | | | $ | 708,203 | | | | 29 | % | | | $ | - | |
| Customer B | | | | 410,771 | | | | 17 | % | | | | - | |
| Customer C | | | | 388,852 | | | | 16 | % | | | | - | |
| Customer D | | | | 300,608 | | | | 12 | % | | | | - | |
| Customer E | | | | 283,993 | | | | 12 | % | | | | - | |
| | Total: | | $ | 2,092,427 | | | | 86 | % | Total: | | $ | - | |
| | | | | | | | | | | | | | | |
| Vendors | | Purchases | | | Percentage of purchases | | | Accounts Payable | |
| | | | | | | | | | | | | | | |
| Vendor A | | | $ | 883,469 | | | | 56 | % | | | $ | - | |
| Vendor B | | | | 495,561 | | | | 32 | % | | | | - | |
| | Total: | | $ | 1,379,030 | | | | 88 | % | Total: | | $ | - | |
(b) Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
(c) Exchange rate risk
The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
NOTE－12 COMMITMENTS
The Company currently does not have any formal rent agreements. Mr. Liu, Sheng Li, the major shareholder of the Company maintained the office premises and provided office services without charge to the Company. The Company recorded rent expense of $19,663 and $0 as a non-cash transaction at its current market fair value for the nine months ended March 31, 2008 and 2007 and credited to additional paid-in capital, respectively.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | Page | | |
| | | | | |
| Report of Independent Registered Public Accounting Firm | | 38 | | |
| Consolidated Balance Sheets | | 39 | | |
| Consolidated Statements of Operations And Comprehensive Income | | 40 | | |
| Consolidated Statements of Cash Flows | | 41 | | |
| Consolidated Statements of Stockholders’ Equity | | 42 | | |
| Notes to Consolidated Financial Statements | | 43 | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Dispatch Auto Parts, Inc.
We have audited the accompanying consolidated balance sheets of Dispatch Auto Parts, Inc. and its subsidiaries (“the Company”) as of June 30, 2007 and 2006 and the related consolidated statements of operations and comprehensive income, cash flows and stockholders’ equity for the years ended June 30, 2007 and 2006. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2007 and 2006 and the results of operations and cash flows for the years ended June 30, 2007 and 2006 and in conformity with accounting principles generally accepted in the United States of America.
/s/ Zhong Yi (Hong Kong) C.P.A. Company Limited
Zhong Yi (Hong Kong) C.P.A. Company Limited
Certified Public Accountants
Hong Kong, China
October 11, 2007
DISPATCH AUTO PARTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| | | As of June 30, | |
| | | 2007 | | | 2006 | |
| | | | | | (restated) | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 2,775,361 | | | $ | 1,186,921 | |
| Billed accounts receivable, net | | | 103,953 | | | | 470,942 | |
| Unbilled accounts receivable | | | 98,804 | | | | - | |
| Amount due from stockholders | | | 39,080 | | | | 186,702 | |
| Other receivables and prepayments | | | 2,100 | | | | - | |
| Total current assets | | | 3,019,298 | | | | 1,844,565 | |
| | | | | | | | | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 470,960 | | | | 408,427 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 3,490,258 | | | $ | 2,252,992 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 393,455 | | | $ | - | |
| Receipt in advance | | | - | | | | 109,507 | |
| Income tax payable | | | 201,545 | | | | 71,506 | |
| Other payables and accrued liabilities | | | 79,724 | | | | 40,777 | |
| Total liabilities | | | 674,724 | | | | 221,790 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Minority interest in consolidated subsidiaries | | | 141,044 | | | | 97,471 | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock, $0.001 par value; 100,000 shares authorized; 100,000 shares issued and outstanding | | | 100 | | | | 100 | |
| Common stock, $0.001 par value; 100,000,000 shares authorized; 28,662,114 and 26,000,000 shares issued and outstanding as of June 30, 2007 and 2006 | | | 28,662 | | | | 26,000 | |
| Additional paid-in capital | | | 1,151,049 | | | | 619,185 | |
| Deferred compensation | | | (236,250 | ) | | | - | |
| Accumulated other comprehensive income | | | 168,372 | | | | 39,575 | |
| Statutory reserve | | | 155,661 | | | | 100,167 | |
| Retained earnings | | | 1,406,896 | | | | 1,148,704 | |
| | | | | | | | | |
| Total stockholders’ equity | | | 2,674,490 | | | | 1,933,731 | |
| | | | | | | | | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 3,490,258 | | | $ | 2,252,992 | |
See accompanying notes to consolidated financial statements.
DISPATCH AUTO PARTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| | | Years ended June 30, | |
| | | 2007 | | | 2006 | |
| | | | | | (restated) | |
| | | | | | | |
| Revenues, net | | $ | 3,979,748 | | | $ | 2,782,922 | |
| | | | | | | | | |
| Cost of revenue | | | 2,559,754 | | | | 1,881,142 | |
| | | | | | | | | |
| Gross profit | | | 1,419,994 | | | | 901,780 | |
| | | | | | | | | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Consulting and professional fees | | | 359,044 | | | | - | |
| General and administrative | | | 273,396 | | | | 237,134 | |
| Total operating expenses | | | 632,440 | | | | 237,134 | |
| | | | | | | | | |
| | | | | | | | | |
| Income from operations | | | 787,554 | | | | 664,646 | |
| | | | | | | | | |
| Other income: | | | | | | | | |
| Other income | | | - | | | | 12,375 | |
| Interest income | | | 155 | | | | 198 | |
| Total other income | | | 155 | | | | 12,573 | |
| | | | | | | | | |
| | | | | | | | | |
| Income before income taxes and minority interest | | | 787,709 | | | | 677,219 | |
| | | | | | | | | |
| Income tax expense | | | (430,450 | ) | | | (256,210 | ) |
| Income before minority interest | | | 357,259 | | | | 421,009 | |
| | | | | | | | | |
| Minority interest | | | (43,573 | ) | | | (27,071 | ) |
| | | | | | | | | |
| NET INCOME | | $ | 313,686 | | | $ | 393,938 | |
| | | | | | | | | |
| Other comprehensive income: | | | | | | | | |
| - Foreign currency translation gain | | | 128,797 | | | | 42,290 | |
| | | | | | | | | |
| COMPREHENSIVE INCOME | | $ | 442,483 | | | $ | 436,228 | |
| | | | | | | | | |
| Net income per share – basic and diluted | | $ | 0.012 | | | $ | 0.015 | |
| | | | | | | | | |
| Weighted average number of shares outstanding during the year – basic and diluted | | | 26,896,548 | | | | 26,000,000 | |
See accompanying notes to consolidated financial statements.
DISPATCH AUTO PARTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
| | | | Years ended June 30, | |
| | | | 2007 | | | | 2006 | |
| Cash Flows from operating activities: | | | | | | | | |
| Net income | | $ | 313,686 | | | $ | 393,938 | |
| Adjustments to reconcile net income to net cash provided by operating activities: |
| Depreciation | | | 99,521 | | | | 79,764 | |
| Rent expense, non-cash | | | 24,526 | | | | 20,790 | |
| Allowance for doubtful accounts | | | 101,247 | | | | - | |
| Common stock issued for services rendered | | | 273,750 | | | | - | |
| Minority interest | | | 43,573 | | | | 27,071 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Billed accounts receivable, trade | | | 279,151 | | | | (385,210 | ) |
| Unbilled accounts receivable | | | (96,232 | ) | | | 19,847 | |
| Other receivables and prepayments | | | (2,100 | ) | | | - | |
| Accounts payable | | | 383,213 | | | | - | |
| Receipt in advance | | | (111,996 | ) | | | 108,500 | |
| Income tax payable | | | 123,168 | | | | 64,300 | |
| Other payables and accrued liabilities | | | 36,804 | | | | (234,877 | ) |
| Net cash provided by operating activities | | | 1,468,311 | | | | 94,123 | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of plant and equipment | | | (140,512 | ) | | | (121,203 | ) |
| Net cash used in investing activities | | | (140,512 | ) | | | (121,203 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Advances from stockholders | | | 161,445 | | | | - | |
| Repayments of advances from stockholders | | | - | | | | (355,156 | ) |
| Net cash provided by (used in) financing activities | | | 161,445 | | | | (355,156 | ) |
| | | | | | | | | |
| Foreign currency translation adjustment | | | 99,196 | | | | 49,603 | |
| | | | | | | | | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | | | 1,588,440 | | | | (332,633 | ) |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | 1,186,921 | | | | 1,519,554 | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | 2,775,361 | | | $ | 1,186,921 | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
| Cash paid for income taxes | | $ | 307,282 | | | $ | 191,910 | |
| Cash paid for interest expenses | | $ | - | | | $ | - | |
See accompanying notes to consolidated financial statements.
DISPATCH AUTO PARTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| | Series “A” Preferred Stock | | Common stock | Additional paid-in capital | Deferred compensation | Accumulated other comprehensive (loss) income | Statutory reserve | Retained earnings | Total stockholders’ equity |
| | No. of shares | | Amount | | No. of shares | Amount |
| | | | | | | | | | | | | | | | | | | | | |
Balance as of July 1, 2005 (restated) | 100,000 | | $ | 100 | | 26,000,000 | $ | 26,000 | $ | 598,395 | $ | - | $ | (2,715) | $ | 18,775 | $ | 836,158 | $ | 1,476,713 |
| | | | | | | | | | | | | | | | | | | | | |
| Rent expense for office maintained by shareholder, non-cash | - | | | - | | - | | - | | 20,790 | | - | | - | | - | | - | | 20,790 |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year | - | | | - | | - | | - | | - | | - | | - | | - | | 393,938 | | 393,938 |
| | | | | | | | | | | | | | | | | | | | | |
| Transfer of retained earning to statutory reserves | - | | | - | | - | | - | | - | | - | | - | | 81,392 | | (81,392) | | - |
| | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | - | | | - | | - | | - | | - | | - | | 42,290 | | - | | - | | 42,290 |
| | | | | | | | | | | | | | | | | | | | | |
| Balance as of June 30, 2006 | 100,000 | | $ | 100 | | 26,000,000 | $ | 26,000 | $ | 619,185 | $ | - | $ | 39,575 | $ | 100,167 | $ | 1,148,704 | $ | 1,933,731 |
| | | | | | | | | | | | | | | | | | | | | |
| Retirement of common stock to treasury | - | | | - | | (845,000) | | (845) | | 845 | | - | | - | | - | | - | | - |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued to complete reverse acquisition | - | | | - | | 2,507,114 | | 2,507 | | (2,507) | | - | | - | | - | | - | | - |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services rendered, non-cash | - | | | - | | 1,000,000 | | 1,000 | | 509,000 | | (236,250) | | - | | - | | - | | 273,750 |
| | | | | | | | | | | | | | | | | | | | | |
| Rent expense for office maintained by shareholder, non-cash | - | | | - | | - | | - | | 24,526 | | - | | - | | - | | - | | 24,526 |
| | | | | | | | | | | | | | | | | | | | | |
| Net income for the year | - | | | - | | - | | - | | - | | - | | - | | - | | 313,686 | | 313,686 |
| | | | | | | | | | | | | | | | | | | | | |
| Transfer of retained earning to statutory reserves | - | | | - | | - | | - | | - | | - | | - | | 55,494 | | (55,494) | | - |
| | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | - | | | - | | - | | - | | - | | - | | 128,797 | | - | | - | | 128,797 |
| Balance as of June 30, 2007 | 100,000 | | $ | 100 | | 28,662,114 | $ | 28,662 | $ | 1,151,049 | $ | (236,250) | $ | 168,372 | $ | 155,661 | $ | 1,406,896 | $ | 2,674,490 |
| | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
DISPATCH AUTO PARTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
1. ORGANIZATION AND BUSINESS BACKGROUND
Dispatch Auto Parts, Inc(the “Company” or “DPPT”) was incorporated under the laws of the State of Florida on September 14, 1989 as “First New York Investments, Inc.” On November 25, 1996, the Company changed its name to “Computer Access International, Inc.” On March 31, 2005, the Company further changed its name to “Dispatch Auto Parts, Inc.”
The Company, through its subsidiaries, mainly engages in the provision of landscape engineering service in the PRC.
On November 8, 2006, DPPT entered a stock exchange transaction with Shaanxi Lv Bao Environmental Eco Industry Management Ltd. (“Lv Bao”) and the transaction was effectively completed on February 6, 2007. Lv Bao was registered as a limited liability company in the People’s Republic of China (the “PRC”) on August 11, 2006 with its principal place of business in Xian City, Shaanxi Province, the PRC. Its registered capital is Renminbi Yuan (“RMB”) 5,000,000 (equivalent to $628,773). Its principal activity was investment holding in Shaanxi Li Bao Sheng Tai Ke Ji Gu Fen You Xian Gong Si (“Li Bao”).
The stock exchange transaction involved two simultaneous transactions:
| 1) | The majority shareholders of DPPT deposited the 844,500 shares of the common stock of DPPT into the account of escrow agent in exchange for $530,000 in cash paid by the owners of Lv Bao. The 844,500 shares will be retired back to the treasury upon closing, and; |
| 2) | DPPT issued to the Lv Bao owners26,000,000 new investment shares of common Stock and 100,000 new shares of preferred stock of DPPT in exchange for all of the registered capital of Lv Bao. |
Upon completion of the plan of exchange, Lv Bao became a wholly-owned subsidiary of DPPT. Accordingly, there has been a change of control of DPPT and the Lv Bao’s owners now control 91% of the voting power of DPPT.
On August 30, 2006, the owners of Lv Bao entered into an exchange agreement with the owners of Li Bao. This exchange transaction involved that Li Bao’s equity owners transferred the aggregate equity interest of 93.57% of the registered capital of Li Bao (equivalent to RMB65,500,000) to Lv Bao. The transaction was an exchange of shares and no cash or other assets were exchanged in the transaction was taken place. Upon the completion of the equity transfer, Li Bao became an operating subsidiary of Lv Bao with 93.57% controlling interest.
Li Bao was formed to engage in the trees and grasses plantation for outdoor decoration and provision of landscape engineering advisory service. In January 2004, Li Bao spun off its trees and grasses plantation business and since then, Li Bao only engages in landscape engineering advisory service.
The transaction has been accounted for as a reverse acquisition and recapitalization of DPPT, through a wholly-owned subsidiary, Lv Bao, whereby Li Bao is deemed to be the ultimate accounting acquirer (legal acquiree) and DPPT to be the ultimate accounting acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of Li Bao, with the assets and liabilities, and revenues and expenses, of DPPT and Lv Bao being included effective from the date of stock exchange transaction. DPPT is deemed to be a continuation of the business of Li Bao. Accordingly, the accompanying consolidated financial statements include the following:
| (1) | the balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost; |
| (2) | the financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction. |
DPPT, Lv Bao and Li Bao are hereinafter referred to as (the “Company”).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the yearsreported. Actual results may differ from these estimates.
The consolidated financial statements include the financial statements of DPPT, Lv Bao and Li Bao.
All significant inter-company balances and transactions among DPPT, Lv Bao and Li Bao have been eliminated upon consolidation.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company assesses collectibility based upon our clients’ financial condition and prior payment history, as well as our performance under the contract. The Company recognizes these revenues in the period that the service is provided.
(a) Contract revenue
The Company applies the percentage-of-completion method under SOP 81-1 “Accounting for Performance of Construction-Type and Production-Type Contracts”, to recognize revenues for landscape design and engineering projects that require significant modification or customization subject to the customers. The Company records a provision in those instances in which the Company believe a contract will probably generate a net loss and the Company can reasonably estimate this loss. If the Company cannot reasonably estimate the loss, the Company limits the amount of revenue that the Company recognizes to the costs the Company has incurred, until the Company can estimate the total loss. Advance payments from customers and amounts billed to clients in excess of revenue recognized are recorded as receipt in advance.
DISPATCH AUTO PARTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
(b) Interest income
Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
Cost of revenue primarily includes purchase of raw materials, sub-contracting charges and direct overhead.
| l | Cash and cash equivalents |
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
| l | Billed and unbilled accounts receivable and allowance for doubtful accounts |
The Company generally bills its customers under its long term contracts pursuant to billing schedules contained in the contracts or, upon completion of agreed milestones or deliveries, with each milestone or delivery typically having a value specified in the contract. An allowance, for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. As of June 30, 2007and 2006, an allowance for doubtful accounts was$103,953 and $Nil, respectively.
Unbilled accounts receivable comprise principally amounts of revenue recognized on contracts for which invoices have not been issued. It is expected that all unbilled accounts receivable balances will be billed in the next twelve months.
| l | Property, plant and equipment |
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| | Depreciable life | | Residual value |
| | | | |
| Leasehold improvement | 10 years | | 5% |
| Plant and machinery | 10 years | | 5% |
| Motor vehicles | 10 years | | 5% |
| Office equipment | 5 years | | 5% |
Expenditure for maintenance and repairs is expensed as incurred.
| l | Valuation of long-lived assets |
Long-lived assets primarily include property and equipment. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results. There has been no impairment as of June 30, 2007 or 2006.
The Company expenses advertising costs as incurred in accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position 93-7, “Reporting for Advertising Costs”. Advertising expenses totaled $Nil and $11,476during the years ended June 30, 2007and 2006, respectively.
SFAS No. 130, “Reporting Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the year from non-owner sources. Accumulated comprehensive income, as presented in the accompanying consolidated statement of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
The Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the consolidated statement of operations and comprehensive income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
The Company calculates net income (loss) per share in accordance with SFAS No. 128,“Earnings per Share”.. Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the year. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
| l | Foreign currencies translation |
The reporting currency of the Company is the United States dollar (“U.S. dollars”). Transactions denominated in currencies other than U.S. dollar are calculated at the average rate for the period. Monetary assets and liabilities denominated in currencies other than U.S. dollar are translated into U.S. dollar at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are recorded in other expenses in the consolidated statement of operations and comprehensive income.
The Company’s subsidiaries, Lv Bao and Li Bao maintains its books and records in its local currency, the Renminbi Yuan (“RMB”), which is functional currency as being the primary currency of the economic environment in which its operations are conducted. In general, for consolidation purposes, the Company translates the subsidiaries’ assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of operations is translated at average exchange rates during the reporting period. Adjustments resulting from the translation of the subsidiaries’ financial statements are recorded as accumulated other comprehensive income.
DISPATCH AUTO PARTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the consolidated statements of income and comprehensive income as and when the related employee service is provided.
| l | Stock-based compensation |
The Company adopts SFAS No. 123R,“Accounting for Stock-Based Compensation” using the fair value method. Under SFAS No. 123R, stock-based compensation expense is measured at the grant date based on the value of the option or restricted stock and is recognized as expense, less expected forfeitures, over the requisite service period, which is generally the vesting period.
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates one reportable segment.
| l | Fair value of financial instruments |
The Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of amounts that the Company could realize in a current market exchange.
The Company’s financial instruments primarily include cash and cash equivalents, billed accounts receivable, unbilled accounts receivable, prepayments and deposits, due from stockholders, accounts payable, receipt in advance, income tax payable, other payables and accrued liabilities.
As of the balance sheet date, the estimated fair values of financial instruments were not materially different from their carrying values as presented due to short maturities of these instruments.
| l | Recently issued accounting standards |
In May 2005, the Financial Accounting Standards Board (FASB)issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3 (SFAS No. 154). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in an existing accounting principle unless it is impracticable. APB Opinion No. 20, Accounting Changes, previously required that most voluntary changes in an existing accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement also provides that when a new accounting pronouncement includes specific transition provision, those requirements shall be followed. This Statement was effective for the Company as of July 1, 2006, and to date has not had an impact on the manner of display of the Company’s results of operations or financial position.
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments-an amendment of FASB Statements 133 and 140”, which is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The statement improves financial reporting by eliminating the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. The Statement also improves financial reporting by allowing a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized have to bifurcated, if the holder elects to account for the whole instrument-by-instrument basis, in cases in which a derivative would otherwise have to bifurcated, if the holder elects to account for the whole instrument on a fair value basis. The Company does not expect that the adoption of this statement would have a material effect on the Company’s financial position or results of operations.
In May 2006, the FASB issued SFAS No. 154,“Accounting Changes and Error Corrections” (“SFAS 154”), which replaces Accounting Principles Board Opinions No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting changes in Interim Financial Statements—An Amendment of APB Opinion No. 28”.. SFAS 154 provides guidance on the accounting for and reporting of accounting changes. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2006. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). This pronouncement prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect of FIN 48 on its consolidated financial statements.
In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force (EITF) Issue No. 06-03, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross Versus Net Presentation)” (EITF 06-03). The EITF reached a consensus that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. EITF 06-03 is effective for our fiscal year beginning June 3, 2007. Sales tax amounts collected from customers have been recorded on a net basis. The adoption of EITF 06-03 will not have any effect on the Company’s financial position or results of operations.
In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109”, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings. The Company believes that FIN 48 should not have a material impact on the Company’s financial position or results of operations.
In September 2006, the FASB’s Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” (“EITF 04-13”). EITF 04-13 requires that two or more legally separate exchange transactions with the same counterparty be combined and considered a single arrangement for purposes of applying APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, when the transactions are entered into in contemplation of one another. EITF 04-13 is effective for new arrangements entered into, or modifications or renewals of existing arrangements, in interim or annual periods beginning after March 15, 2006. The Company does not expect that the adoption of this statement would have a material effect on the Company’s financial position or results of operations.
In September 2006, the SEC released SAB No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provision of SAB 108 is effective for the Company in the current fiscal year ended December 31, 2006. The Company is currently evaluating the impact of SAB 108 but does not believe that the application of SAB 108 would have a material effect on its financial position, cash flows nor results of operations.
DISPATCH AUTO PARTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement" ("SFAS 157") which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands the disclosures about fair value measurement. This Statement was developed to provide guidance for consistency and comparability in fair value measurements and disclosures and applies under other accounting pronouncements that require or permit fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. This Statement is not expected to have a material impact on the Company's consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). This Statement provides companies with an option to report selected financial assets and liabilities at fair value. The Standard's objective is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective as of the beginning of an entity's first fiscal year beginning after November 15, 2007. Early adoption is permitted if the Company makes the choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157. The Company does not expect SFAS 159 to have a material impact on its consolidated financial statements.
3. BILLED ACCOUNTS RECEIVABLE
The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, an allowance for doubtful accounts is $103,953 and $Nil as of June 30, 2007 and 2006, respectively.
| | | As of June 30, | |
| | | 2007 | | 2006 | |
| | | | | (restated) | |
| | | | | | | |
| Billed accounts receivable, gross | | $ | 207,906 | | | $ | 470,942 | |
| | | | | | | | | |
| Less: allowance for doubtful accounts | | | (103,953 | ) | | | - | |
| Billed accounts receivable, net | | $ | 103,953 | | | $ | 470,942 | |
| 4.. | AMOUNT DUE FROM STOCKHOLDERS |
The amount due from stockholders represented unsecured advances which are interest-free and repayable in next twelve months.
| 5. | PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment, net, consisted of the following:
| | | As of June 30, | |
| | | 2007 | | | 2006 | |
| | | | | | (restated) | |
| | | | | | | |
| Leasehold improvement | | $ | 157,348 | | | $ | 152,031 | |
| Plant and machinery | | | 442,713 | | | | 294,998 | |
| Motor vehicles | | | 188,670 | | | | 182,294 | |
| Office equipment | | | 40,467 | | | | 39,100 | |
| Foreign translation adjustment | | | 38,232 | | | | 20,263 | |
| | | | 867,430 | | | | 688,686 | |
| | | | | | | | | |
| Less: accumulated depreciation | | | (379,780 | ) | | | (272,769 | ) |
| Less: foreign translation adjustment | | | (16,690 | ) | | | (7,490 | ) |
| Property, plant and equipment, net | | $ | 470,960 | | | $ | 408,427 | |
Depreciation expense for the years ended June 30, 2007 and 2006 were $99,521 and $79,764, respectively.
6. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consisted of the following:
| | | As of June 30, | |
| | | 2007 | | | 2006 | |
| | | | | | (restated) | |
| | | | | | | |
| Government levy payable | | $ | 29,257 | | | $ | 38,922 | |
| Accrued payments to vendors and contract related accruals | | | 13,863 | | | | - | |
| Welfare payable | | | 3,604 | | | | 1,855 | |
| Accrued expenses | | | 33,000 | | | | - | |
| | | $ | 79,724 | | | $ | 40,777 | |
The accrued payments to vendors and contract related accruals are primarily the accruals for the uncompleted contracts as of June 30, 2007. These accruals are expected to be paid in the next six months.
DISPATCH AUTO PARTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
7. INCOME TAXES
The Company is registered in the United States of America and has operations in two tax jurisdictions: the United States of America and the PRC. The operation in the United States of America has incurred net operating losses for income tax purposes. The Company generated substantially all of its net income from its PRC operation through Li Bao, a subsidiary and has recorded an income tax provision for the years ended June 30, 2007 and 2006.
The components of income before income taxes and minority interest separating U.S. and PRC operations are as follows:
| | | Years ended June 30, | |
| | | 2007 | | 2006 | |
| | | | | (restated) | |
| | | | | | | |
| Loss subject to U.S. operation | | $ | (315,054 | ) | | $ | - | |
| Income subject to PRC operation | | | 1,102,763 | | | | 677,219 | |
| Income before income taxes and minority interest | | $ | 787,709 | | | $ | 677,219 | |
United States of America
The Company is registered in the State of Nevada and is subject to the tax laws of the United States of America.
As of June 30, 2007, the Company’s U.S. operation incurred $315,054 of net operating losses available for federal tax purposes, which are available to offset future taxable income. The net operating loss carry forwards begin to expire in 2027. The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
The PRC
The Company’s PRC subsidiaries, Lv Bao and Li Bao are subject to the Enterprise Income Tax governed by the Income Tax Law of the People’s Republic of China, at a statutory rate of 33%, which is comprised of 30% national income tax and 3% local income tax.
The reconciliation of income tax rate to the effective income tax rate for the years ended June 30, 2007 and 2006 is as follows:
| | | Years ended June 30, | |
| | | 2007 | | | 2006 | |
| | | | | | (restated) | |
| | | | | | | |
| Income before income taxes from PRC operation | | $ | 1,102,763 | | | $ | 677,219 | |
| Statutory income tax rate | | | 33 | % | | | 33 | % |
| | | | 363,912 | | | | 223,482 | |
| Tax effect of expenses not deductible for tax purposes: | | | | | | | | |
| - Provisions and accrued liabilities | | | 64,777 | | | | 32,728 | |
| - Adjusted taxable loss | | | 1,761 | | | | - | |
| Income tax expense | | $ | 430,450 | | | $ | 256,210 | |
The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of June 30, 2007 and 2006:
| | | As of June 30, | |
| | | 2007 | | 2006 | |
| | | | | (restated) | |
| Deferred tax assets: | | | | | | |
| Net operating loss carryforwards | | $ | 112,030 | | | $ | - | |
| Less: valuation allowance | | | (112,030 | ) | | | - | |
| Net deferred tax assets | | $ | - | | | $ | - | |
As of June 30, 2007 and 2006, a valuation allowance of $112,030 and Nil was provided to the deferred tax assets due to the uncertainty surrounding their realization.
8. NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net income per share is computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the year. Pursuant to stock exchange transaction on November 8, 2006, the weighted average number of common shares issued and outstanding was adjusted to account for the effects of the stock exchange transaction as a reverse acquisition as more fully described in Note 1.
The following table sets forth the computation of basic and diluted net income per share for the years ended June 30, 2007 and 2006:
| | | Years ended June 30, | |
| | | 2007 | | | 2006 | |
| Basis and diluted net income per share calculation | | | | | (restated) | |
| Numerator: | | | | | | |
| - Net income in computing basic net income per share | | $ | 313,686 | | | $ | 393,938 | |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| - Weighted average ordinary shares outstanding | | | 26,896,548 | | | | 26,000,000 | |
| Basic and diluted net income per share | | $ | 0.012 | | | $ | 0.015 | |
9. CAPITAL TRANSACTIONS
| 1) | On November 8, 2006, the Company completed a stock exchange transaction with the equity owners of Lv Bao. 26,000,000 shares of common stock were issued in exchange for 100% interest in Lv Bao, representing 91% of DPPT’s outstanding common stock. |
| 2) | As of June 30, 2007, the number of outstanding shares of the Company’s common stock was 28,662,114. |
10. STOCK BASED COMPENSATION
On January 26, 2007, the Company issued 1,000,000 shares of common stock for business advisory services to be rendered, to Greentree Financial Group, Inc, in a term of 2 years effective from July 1, 2006 ending June 30, 2008. The fair value of this stock issuance was determined using the fair value of the Company’s common stock on the grant date, at a market quoted price of $0.51 per share. The Company calculated the cost of $510,000 at its fair value and amortized over the service period of 2 years. The Company recognized $273,750 to the consolidated statements of operations for the year ended June 30, 2007. As of June 30, 2007, the unrecognized cost is recorded as deferred compensation amounting to $236,250.
11. CHINA CONTRIBUTION PLAN
Under the PRC Law, full-time employees of its subsidiaries in the PRC, Lv Bao and Li Bao are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a China government-mandated multi-employer defined contribution plan. Lv Bao and Li Bao are required to accrue for these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $3,339 and $2,170 for the years ended June 30, 2007 and 2006, respectively.
12. STATUTORY RESERVES
Under the PRC Law the Company’s subsidiaries, Lv Bao and Li Bao are required to make appropriations to the statutory reserve based on after-tax net earnings and determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.
For the years ended June 30, 2007 and 2006, the Company’s subsidiary, Li Bao contributed $55,494 and $81,392 to statutory reserve, respectively.
DISPATCH AUTO PARTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(Currency expressed in United States Dollars (“US$”))
13. CONCENTRATION OF RISK
For each of the years ended June 30, 2007 and 2006, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues and purchases were derived from customers and vendors located in the PRC.
(a) Major customers
For the years ended June 30, 2007 and 2006, customers who account for 10% or more of revenues are presented as follows:
| | | | Year ended June 30, 2007 | | | | June 30, 2007 | |
| Customers | | | Revenues | | | Percentage of revenues | | | | Billed Accounts Receivable, trade | |
| Customer A | | | $ | 761,073 | | | | 19 | % | | | $ | - | |
| Customer B | | | | 710,068 | | | | 18 | % | | | | - | |
| Customer C | | | | 708,517 | | | | 18 | % | | | | - | |
| Customer D | | | | 492,804 | | | | 12 | % | | | | - | |
| Customer E | | | | 415,148 | | | | 10 | % | | | | - | |
| | Total: | | $ | 3,087,610 | | | | 77 | % | Total: | | $ | - | |
| | | | Year ended June 30, 2006 | | | | June 30, 2006 | |
| Customers | | | Revenues | | | Percentage of revenues | | | | Billed Accounts Receivable, trade | |
| Customer A | | | $ | 696,691 | | | | 25 | % | | | $ | - | |
| Customer B | | | | 683,289 | | | | 25 | % | | | | - | |
| Customer C | | | | 448,001 | | | | 16 | % | | | | 37,470 | |
| Customer D | | | | 308,709 | | | | 11 | % | | | | - | |
| | Total: | | $ | 2,136,690 | | | | 77 | % | Total: | | $ | 37,470 | |
(b) Major vendors
For the years ended June 30, 2007 and 2006, vendors who account for 10% or more of purchases are presented as follows:
| | | | Year ended June 30, 2007 | | | | June 30, 2007 | |
| Vendors | | | Purchases | | | Percentage of purchases | | | | Accounts payable | |
| | | | | | | | | | | | |
| Vendor A | | | $ | 1,254,571 | | | | 49 | % | | | $ | 78,691 | |
| Vendor B | | | | 964,123 | | | | 38 | % | | | | 314,764 | |
| | Total: | | $ | 2,218,694 | | | | 87 | % | Total: | | $ | 393,455 | |
| | | | Year ended June 30, 2006 | | | | June 30, 2006 | |
| Vendors | | | Purchases | | | Percentage of purchases | | | | Accounts payable | |
| | | | | | | | | | | | |
| Vendor A | | | $ | 645,096 | | | | 34 | % | | | $ | - | |
| Vendor B | | | | 464,879 | | | | 25 | % | | | | - | |
| Vendor C | | | | 330,891 | | | | 18 | % | | | | - | |
| Vendor D | | | | 235,574 | | | | 13 | % | | | | - | |
| | Total: | | $ | 1,676,440 | | | | 90 | % | Total: | | $ | - | |
(c) Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
14. COMMITMENTS
The Company currently does not have any formal rent agreements. Mr. Liu, Sheng Li, the major shareholder of the Company maintained the office premises and provided office services without charge to the Company. The Company recorded rent expense of $24,526 and $20,790 as a non-cash transaction at its current market fair value for the years ended June 30, 2007 and 2006 and credited to additional paid-in capital, respectively.
15. SUBSEQUENT EVENTS
On July 13, 2007, the Company adopted the 2007 Benefit Plan (the “2007 Plan”) under the Form S-8 Registration Statement. Pursuant to the Plan, the Company may issue stock, or grant options to acquire the Company's common stock, par value $0.001 (the "Stock"), with an aggregate amount of 5,000,000 shares of the Stock, from time to time to employees of the Company or its subsidiaries, other individuals, including consultants or advisors, all on the terms and conditions set forth in the Plan.
On August 13, 2007, the Company granted stock options with an aggregate amount of 2,000,000 shares of the Stock to three consultants under the 2007 Plan. The options granted vested immediately and are exercisable during a one year period beginning on the grant date. On August 30, 2007, all of the options granted were exercised at 75% of the market price, which was valued as $0.38 per share. The fair value of all options granted is determined approximately as $317,683, using the Black-Scholes option pricing model.
Environment Ecology Holding Co. of China
7,287,097 Shares of Common Stock
No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.
The delivery of this prospectus shall not, under any circumstances, create any implication that there have been no changes in the affairs of the company since the date of this prospectus. However, in the event of a material change, this prospectus will be amended or supplemented accordingly.
Until July 30, 2008, all dealers that effect transactions in these securities, whether or not participating in the offering, may be required to deliver a prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. The Company will pay all expenses in connection with this offering.
| | | | |
| Commission Registration Fee | | $ | 60.00 |
| Printing and Engraving Expenses | | $ | 1000.00 |
| Accounting Fees and Expenses | | $ | 15,000.00 |
| Legal Fees and Expenses | | $ | 25,000.00 |
| Miscellaneous | | $ | — |
| TOTAL | | $ | 41,060. |
INDEMNIFICATION OF DIRECTORS AND OFFICERS
No pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.
The Florida Business Corporation Act (the “NC Act”) permits a Florida corporation to indemnify a present or former director or officer of the corporation (and certain other persons serving at the request of the corporation in related capacities) for liabilities, including legal expenses, arising by reason of service in such capacity if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe his conduct was unlawful. However, in the case of actions brought by or in the right of the corporation, no indemnification may be made with respect to any matter as to which such director or officer shall have been adjudged liable, except in certain limited circumstances. The Company’s Articles of Incorporation provide that the Company shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by the Florida Act. The indemnification provided by the Florida Act and the Company’s Articles of Incorporation is not exclusive of any other rights to which a director or officer may be entitled. The general effect of the foregoing provisions may be to reduce the circumstances which an officer or director may be required to bear the economic burden of the foregoing liabilities and expense. The Company may also purchase and maintain insurance for the benefit of any director or officer that may cover claims for which we could not indemnify such person.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
Issuances of Unregistered Securities
During the past three years the registrant has issued the following securities without registration under the Securities Act of 1933, as amended:
On June 30, 2008, pursuant to a Securities Purchase Agreement (the “Agreement” attached hereto as Exhibit 10.2) with Trafalgar Capital Specialized Investment Fund, Luxembourg (the “Investor”), the Company’s Board of Directors issued two million five hundred thousand (2,500,000) shares of the Company’s Common Stock to James G. Dodrill, II, P.A as escrow agent for the benefit of and as a fee payable to the Investor in consideration of monies raised. The shares were issued with restrictive legend, pursuant to the Securities Act of 1933, as amended, and applicable state law. Specifically, we relied on section 4(2) of the Securities Act of 1933. We issued these shares based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.
Also pursuant to the Agreement and in a separate issuance on June 30, 2008, the Company’s Board of Directors issued fifty million (50,000,000) shares of the Company’s Common Stock to James G. Dodrill, II, P.A. as escrow agent to be held as collateral to be foreclosed on in the event of default in the convertible debenture transaction. The shares were issued with restrictive legend, pursuant to the Securities Act of 1933, as amended, and applicable state law. Specifically, we relied on section 4(2) of the Securities Act of 1933. We issued these shares based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.
| | | |
3.1 | | Articles of Incorporation. (2) |
| | |
| | 3.2 | Articles of amendment for name change filed November 25, 1996 (3) | |
| | | | |
| | 3.3 | Articles of amendment for change in capitalization filed December 16, 1996 (3) | |
| | | | |
| | 3.4 | Articles of amendment for name change filed March 31, 2005 (3) | |
3.5 | | Articles of amendment for name change filed May 8, 2007 (4) |
| | |
| 3.6 | | Bylaws.(2) |
| | |
| 5.1 | | |
| | |
| 10.1 | | Securities Purchase Agreement with Trafalgar Capital Specialized Investment Fund, Luxembourg (5) |
| | | |
| 14.1 | | |
| | |
| 23.1 | | |
| | |
| 23.2 | | Consent of Legal Counsel (included in Exhibit 5.1 hereto). |
| | |
(1) Filed herewith.
(2) Incorporated by reference in the Registration Statement on Form 10SB filed on February 22, 2006
(3) Incorporated by reference in the Amendment to Registration Statement on Form 10SB/A filed on April 11, 2006
(4) Incorporated by reference in the Information Statement on Schedule 14C filed on October 23, 2007
(5) Incorporated by reference in the Current Report on Form 8-K filed on July 3, 2008
| | a. | The undersigned registrant hereby undertakes: |
| | 1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| | i. | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| | ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
| | iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| | 2. | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| | 3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| | 4. | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| | i. | If the registrant is relying on Rule 430B (230.430B of this chapter): |
| | A. | Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| | B. | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or |
| | ii. | If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| | 5. | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| | i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| | ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| | iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| | iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to our director, officer and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act, and will be governed by the final adjudication of such issue.
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this registration statement to be signed on our behalf by the undersigned, on July 30, 2008
| | | | | |
| | | Environment Ecology Holding Co. of China |
| | | |
| Date: July 30, 2008 | | By: | | /s/ Liu, Sheng Li |
| | | Name: | | Liu, Sheng Li |
| | | Title: | | President |
| | | |
| Date: July 30, 2008 | | By: | | /s/ Ma, Shun Cheng |
| | | Name: | | Ma, Shun Cheng |
| | | Title: | | Chief Financial Officer/Principal Accounting Officer |
In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | |
/s/ Liu, Sheng Li | | Date: July 30, 2008 |
| Liu, Sheng Li | | |
| President | | |
