================================================================================
Exhibit 99.1
JINAN YINQUAN TECHNOLOGY CO., LTD
FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Balance Sheets 2
Statements of Income 3
Statements of Cash Flows 4
Statements of Stockholders' Equity 5
Notes to Financial Statements 6-14
<page>
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Jinan Yinquan Technology Co., LTD
We have audited the accompanying balance sheets of Jinan Yinquan Technology Co.,
LTD. (the "Company") as of December 31, 2005 and 2004, and the related
statements of income, stockholders' equity, and cash flows for the years ended
December 31, 2005 and 2004. These 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 required that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2005 and 2004, and the results of its operations and its cash flows for the
years ended December 31, 2005 and 2004, in conformity with US generally accepted
accounting principles.
/s/ Kabani & Company, Inc.
Los Angeles, California
October 2, 2006
1
<page>
JINAN YINQUAN TECHNOLOGY CO., LTD.
BALANCE SHEETS
AS OF DECEMBER 31 2005 AND 2004
<table>
<caption>
ASSETS 2005 2004
- ------
<s> <c> <c>
Current Assets
Cash and cash equivalents $ 492,089 $ 229,701
Accounts receivable, net 289,463 93,315
Inventories 99,886 83,578
Advance to suppliers 108,017 44,900
Prepaid expenses and other assets 110,972 37,101
--------------------------- -----------------------
Total Current Assets 1,100,427 488,595
Property & Equipment, net 81,502 49,194
Intangible Asset, net 40,536 56,465
--------------------------- -----------------------
$ 1,222,465 $ 594,254
=========================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 118,701 $ 43,813
Advance from customers 12,765 -
Accrued expenses and other current liabilities 185,044 105,969
--------------------------- -----------------------
Total Current Liabilities 316,510 149,782
Shareholders' Equity
Capital stock 414,154 241,642
Other comprehensive income 17,051 9
Retained earnings 474,750 202,821
--------------------------- -----------------------
Total Shareholders' Equity 905,955 444,472
--------------------------- -----------------------
$ 1,222,465 $ 594,254
=========================== =======================
</table>
The accompanying notes are an integral part of these financial statements.
2
<page>
JINAN YINQUAN TECHNOLOGY CO., LTD.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
<table>
<caption>
2005 2004
<s> <c> <c>
Net sales $ 990,495 $ 267,343
Cost of sales 273,374 89,777
-------------------- ------------------
Gross profit 717,121 177,566
-------------------- ------------------
General and administrative
Selling, general and administrative 481,788 128,787
Depreciation and amortization 23,485 21,496
Impairments and provision 3,671 14,033
-------------------- ------------------
Total operating expenses 508,944 164,316
-------------------- ------------------
Income from operations 208,177 13,250
Other (income) expenses
Interest income 263 98
Other income 63,526 172,413
Other expenses (37) (21)
-------------------- ------------------
Total other income 63,752 172,490
-------------------- ------------------
Net income 271,929 185,740
Other comprehensive item
Foreign currency translation gain 17,042 9
-------------------- ------------------
Net comprehensive income $ 288,971 $ 185,749
==================== ==================
</table>
The accompanying notes are an integral part of these financial statements.
3
<page>
JINAN YINQUAN TECHNOLOGY CO., LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004
<table>
<caption>
2005 2004
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 271,929 $ 185,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 23,485 21,496
Provision on accounts receivable 3,671 14,033
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets and liabilities:
Accounts receivable (199,819) 269
Inventories (16,308) (5,705)
Advances to suppliers (63,117) (38,564)
Prepaid expenses and other receivables (73,871) (11,758)
Accounts payable 74,888 43,813
Deferred revenue 12,765 -
Accrued expenses and other current liabilities 79,075 (41,802)
------------------ -----------------
Total Adjustments (159,231) (18,218)
------------------ -----------------
Net cash provided by operating activities 112,698 167,522
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (39,864) -
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on paid in capital 172,512 -
------------------ -----------------
Effect of exchange rate changes on cash and cash equivalents 17,042 9
------------------ -----------------
Net increase in cash and cash equivalents 262,388 167,531
Cash and cash equivalents, beginning balance 229,701 62,170
------------------ -----------------
Cash and cash equivalents, ending balance 492,089 229,701
================== =================
SUPPLEMENTARY DISCLOSURE:
-------------------------
Interest paid $ - $ -
Income tax paid $ - $ -
</table>
The accompanying notes are an integral part of these financial statements.
4
<page>
JINAN YINQUAN TECHNOLOGY CO., LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004
<table>
<caption>
Total
Capital stockholders'
stock Comprehensive
Retained equity
amount income earnings
<s> <c> <c> <c> <c>
Balance December 31, 2003 $ 241,642 $ - $ 17,081 $ 258,723
Foreign currency translation - 9 - 9
Net profit - - 185,740 185,740
------------ --------------- --------------- ----------------
Balance December 31, 2004 241,642 9 202,821 444,472
Contributed capital 172,512 - - 172,512
Foreign currency translation - 17,042 - 17,042
Net profit - - 271,929 271,929
------------ --------------- --------------- ----------------
Balance December 31, 2005 $ 414,154 $ 17,051 $ 474,750 $ 905,955
============ =============== =============== ================
</table>
The accompanying notes are an integral part of these financial statements.
5
<page>
JINAN QINQUAN TECHNOLOGY CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - ORGANIZATION
------------
Jinan YinQuan Technology Co., Ltd. ("the Company") is established in
JiNan in the People's Republic of China ("the PRC"). The Company
obtained the business license from State Administration of Industry
and Commerce of JiNan on 13 August 2001. The Company's registered
office is located in Hi-tech Develop Zone on the city of JiNan. The
registered capital is RMB 3,410,000 equivalent to $414,154
approximately.
The Company's principal activities are developing and sales of computer
software and hardware, digital video pictures system; developing and
sales of computer network and network audio devices, parts, low value
consumables and etc (exclusive of the business not obtained the
license). Currently, the Company is focused on the Voice Over Internet
Phone ("VOIP") technology related business.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America. Our functional currency is the Chinese Renminbi; however the
accompanying financial statements have been translated and presented in
United States Dollars ($).
Foreign Currency Translation
----------------------------
The Company uses the United States dollar ("U.S. dollars") for
financial reporting purposes. The Company maintains books and records
in their functional currency, being the primary currency of the
economic environment in which the operations are conducted. In general,
the Company translates the assets and liabilities into U.S. dollars
using the applicable exchange rates prevailing at the balance sheet
date, and the statement of income is translated at average exchange
rates during the reporting period. Gain or loss on foreign currency
transactions are reflected on the income statement. Gain or loss on
financial statement translation from foreign currency are recorded as a
separate component in the equity section of the balance sheet, as
component of comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income" as a component of shareholders' equity
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
6
<page>
Risks and Uncertainties
-----------------------
The Company is subject to substantial risks from, among other things,
intense competition associated with the industry in general, other
risks associated with financing, liquidity requirements, rapidly
changing customer requirements, limited operating history, foreign
currency exchange rates and the volatility of public markets.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash in hand and cash in time
deposits, certificates of deposit and all highly liquid debt
instruments with original maturities of three months or less.
Accounts Receivable
-------------------
The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer
credit worthiness, current economic trends and changes in customer
payment patterns to evaluate the adequacy of these reserves. Reserves
are recorded primarily on a specific identification basis.
Advances to suppliers
---------------------
The Company advances to certain vendors for purchase of its material.
The advances to suppliers are interest free and unsecured.
Inventories
-----------
Inventories are valued at the lower of cost (determined on a weighted
average basis) or market. The Management compares the cost of
inventories with the market value and allowance is made for writing
down the inventories to their market value, if lower. As of December
31, 2005 and 2004, the management determined that there was no need of
reserves for inventories.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over useful lives of 5 to 10 years. The
cost of assets sold or retired and the related amounts of accumulated
depreciation are removed from the accounts in the year of disposal. Any
resulting gain or loss is reflected in current operations. Assets held
under capital leases are recorded at the lesser of the present value of
the future minimum lease payments or the fair value of the leased
property. Expenditures for maintenance and repairs are charged to
operations as incurred.
Intangible Assets
-----------------
The Company evaluates intangible assets for impairment on an annual
basis and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable from its estimated future cash
flows. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the
related projected undiscounted cash flows from these assets,
considering a number of factors including past operating results,
budgets, economic projections, market trends and product development
cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second
test is performed to measure the amount of impairment loss.
7
<page>
Impairment of Long-Lived Assets
-------------------------------
The Company adopted Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), which addresses financial accounting and reporting for
the impairment or disposal of long-lived assets and supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations
for a Disposal of a Segment of a Business." The Company periodically
evaluates the carrying value of long-lived assets to be held and used
in accordance with SFAS 144. SFAS 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts.
In that event, a loss is recognized based on the amount by which the
carrying amount exceeds the fair market value of the long-lived assets.
Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of
disposal. Based on its review, the Company believes that, as of
December 31, 2005 and 2004, there were no significant impairments of
its long-lived assets used in operations.
Fair Value of Financial Instruments
------------------------------------
Statement of Financial Accounting Standard No. 107, "Disclosures
about Fair Value of Financial Instruments", requires that the Company
disclose estimated fair values of financial instruments.
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts receivable, other receivables, advances to
suppliers, accounts payable, other payable, tax payable, and related
party advances and borrowings.
As of the balance sheet dates, the estimated fair values of the
financial instruments were not materially different from their carrying
values as presented on the balance sheet. This is attributed to the
short maturities of the instruments and that interest rates on the
borrowings approximate those that would have been available for loans
of similar remaining maturity and risk profile at respective balance
sheet dates
Revenue Recognition
-------------------
Sale of goods
Revenue is recognized at the date of shipment to customers when a
formal arrangement exists, the price is fixed or determinable, the
delivery is completed, no other significant obligations of the Company
exist and collectibility is reasonably assured. Payments received
before all of the relevant criteria for revenue recognition are
satisfied are recorded as advances from customers.
Rendering of services
When the provision of services is started and completed within the same
accounting year, revenue is recognized at the time of completion of the
services.
When the provision of services is started and completed in different
accounting year, revenue is recognized using the percentage of
completion method.
Release of the Assets' Usufruct
-------------------------------
The revenue from releasing the usufruct of intangible assets (such as
trademark right, patent, franchise, software, copyright, etc.) and
other assets, is recognized in accordance with time and method
prescribed in the relevant contract or agreement, with the precondition
that economic profits involving transaction can be obtained by the
company and the amount of revenue can be measured reliably.
8
<page>
Income Taxes
-------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes,"
which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
The Company is approved as hi-tech software company, the company is
completely exempt of income tax for the first 2 years and is 50% exempt
of income tax for the next 3 years pursuant to State Tax notice no.
[2003] 82.
Statement of Cash Flows
-----------------------
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations is
calculated based upon the local currencies. As a result, amounts
related to assets and liabilities reported on the statement of cash
flows will not necessarily agree with changes in the corresponding
balances on the balance sheet.
Segment Reporting
-----------------
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosure about Segments of an Enterprise and Related Information"
requires use of the "management approach" model for segment reporting.
The management approach model is based on the way a company's
management organizes segments within the company for making operating
decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company. SFAS 131 has no effect on the Company's financial statements
as the Company consists of one reportable business segment. All revenue
is from customers in People's Republic of China. All of the Company's
assets are located in People's Republic of China.
Recently Issued Accounting Standards
-------------------------------------
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R").
FAS No. 123R requires companies to recognize in the statement of
operations the grant- date fair value of stock options and other equity
based compensation issued to employees. FAS No. 123R is effective
beginning in the Company's first quarter of fiscal 2006. Management
believes that this statement will not have a significant impact on the
financial statement.
9
<page>
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections." This statement applies to all voluntary changes in
accounting principle and requires retrospective application to prior
periods' financial statements of changes in accounting principle,
unless this would be impracticable. This statement also makes a
distinction between "retrospective application" of an accounting
principle and the "restatement" of financial statements to reflect the
correction of an error. This statement is effective for accounting
changes and corrections of errors made in fiscal years beginning after
December 15, 2005. Management believes that this statement will not
have a significant impact on the financial statement.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining
the Amortization Period for Leasehold Improvements ("EITF 05-6"). EITF
05-6 provides guidance on determining the amortization period for
leasehold improvements acquired in a business combination or acquired
subsequent to lease inception. The guidance in EITF 05-6 will be
applied prospectively and is effective for periods beginning after June
29, 2005. EITF 05-6 is not expected to have a material effect on the
Company's financial position or results of operations.
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments". SFAS No. 155 amends SFAS No 133,
"Accounting for Derivative Instruments and Hedging Activities", and
SFAF No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". SFAS No. 155, permits fair
value remeasurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not
subject to the requirements of SFAS No. 133, establishes a requirement
to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in the form
of subordination are not embedded derivatives, and amends SFAS No. 140
to eliminate the prohibition on the qualifying special-purpose entity
from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument.
This statement is effective for all financial instruments acquired or
issued after the beginning of the Company's first fiscal year that
begins after September 15, 2006. Management believes that this
statement will not have a significant impact on the financial
statement.
In March 2006 FASB issued SFAS 156 `Accounting for Servicing of
Financial Assets' this Statement amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities. This
Statement:
1. Requires an entity to recognize a servicing asset or
servicing liability each time it undertakes an obligation to
service a financial asset by entering into a servicing
contract.
2. Requires all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value,
if practicable.
3. Permits an entity to choose `Amortization method' or
Fair value measurement method' for each class of separately
recognized servicing assets and servicing liabilities:
4. At its initial adoption, permits a one-time
reclassification of available-for-sale securities to trading
securities by entities with recognized servicing rights,
without calling into question the treatment of other
available-for-sale securities under Statement 115, provided
that the available-for-sale securities are identified in some
manner as offsetting the entity's exposure to changes in fair
value of servicing assets or servicing liabilities that a
servicer elects to subsequently measure at fair value.
5. Requires separate presentation of servicing assets and
servicing liabilities subsequently measured at fair value in
the statement of financial position and additional disclosures
for all separately recognized servicing assets and servicing
liabilities.
An entity should adopt this Statement as of the beginning of its first
fiscal year that begins after September 15, 2006. Management believes
that this statement will not have a significant impact on the financial
statement.
10
<page>
In September 2006, FASB issued SFAS 157 `Fair Value Measurements'. This
Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this Statement does not require any new fair
value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. The management
is currently evaluating the effect of this pronouncement on financial
statements.
In September 2006, FASB issued SFAS 158 `Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans--an amendment of
FASB Statements No. 87, 88, 106, and 132(R)' This Statement improves
financial reporting by requiring an employer to recognize the
overfunded or under funded status of a defined benefit postretirement
plan (other than a multiemployer plan) as an asset or liability in its
statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial
reporting by requiring an employer to measure the funded status of a
plan as of the date of its year-end statement of financial position,
with limited exceptions. An employer with publicly traded equity
securities is required to initially recognize the funded status of a
defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15,
2006. An employer without publicly traded equity securities is required
to recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal
year ending after June 15, 2007. However, an employer without publicly
traded equity securities is required to disclose the following
information in the notes to financial statements for a fiscal year
ending after December 15, 2006, but before June 16, 2007, unless it has
applied the recognition provisions of this Statement in preparing those
financial statements:
a. A brief description of the provisions of this Statement
b. The date that adoption is required
c. The date the employer plans to adopt the recognition provisions
of this Statement, if earlier.
The requirement to measure plan assets and benefit obligations as of
the date of the employer's fiscal year-end statement of financial
position is effective for fiscal years ending after December 15, 2008.
The management is currently evaluating the effect of this pronouncement
on financial statements.
NOTE 3 CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company's operations are carried out in the PRC. Accordingly, the
Company's business, financial condition and results of operations may
be influenced by the political, economic and legal environments in the
PRC, by the general state of the PRC's economy. The Company's business
may be influenced by changes in governmental policies with respect to
laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other
things.
11
<page>
NOTE 4 ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 2005 and 2004 consisted of the
following:
2005 2004
----- -----
Accounts receivables $ 290,387 $ 93,315
Less: allowance for doubtful accounts (924) -
------------------- --------------
Net $ 289,463 $ 93,315
=================== ==============
NOTE 5 ADVANCES TO SUPPLIERS
The Company made prepayments to suppliers to purchase inventory. This
amount represents the advances paid by the Company to suppliers of
$108,017 and $44,900 at December 31, 2005 and 2004 respectively.
NOTE 6 PREPAID EXPENSES AND OTHER CURRENT ASSETS
The balances of Company prepaid expenses and other current assets as of
December 31, 2005 and 2004 are summarized as follows:
2005 2004
----- -----
Security deposits $ 13,070$ 11,966
Due from employee 1,679 511
Prepayment 7,311 7,128
Due from executives 88,912 17,496
----------------------------------
Total $ 110,972$ 37,101
==================================
Due from executives represent amount due from officer. The amount due
are interest free, due on demand and unsecured.
NOTE 7 PROPERTIES AND EOUIPMENT
The balances of Company property and equipment as of December 31, 2005
and 2004 are summarized as follows:
2005 2004
---- ----
Electronic Equipment $ 5,452 $ 4,251
Vehicles 49,656 48,418
Office Equipment 6,242 4,452
Construction in progress 35,935 -
-------------- ------------
97,285 57,121
Less: Accumulated depreciation -15,783 -7,927
-------------- ------------
Property and equipment, net $ $81,502 $ $49,194
============== ============
12
<page>
NOTE 8 INTANGIBLE ASSET
Intangible asset is the two sets of software acquired from third
parties in 2003. These sets of software are used for the core
technology of the Company's VOIP business. The intangible asset is
being amortized over 5 year period. Accumulated amortization at
December 31, 2005 and 2004 amounted to $46,327 and $28,232
respectively. The annual amortization for next twenty eight months will
be at 17,373 per twelve month.
NOTE 9 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities as of December 31, 2005
and 2004 are summarized as follows:
2005 2004
Accrued expenses $140,963 $39,880
Accrued staff welfare 6,497 663
Security deposits 22,440 59,747
Tax payables 15,144 5,679
------------- ------------
Total $185,044 $105,969
============= ============
NOTE 10 COMMITMENTS
a) Operating Leases
The Company leases its offices and facilities under long-term,
non-cancelable lease agreements expiring at various dates through
December 31, 2006. The non-cancelable operating lease agreements
provide that the Company pays certain operating expenses applicable to
the leased premises according to the Chinese Law.
The future minimum annual lease payments required under the operating
leases are as follows:
Year Ending December Payments
2006 $ 14,870
2007 -
-------------
Total future lease payments $ 14,870
=============
13
<page>
NOTE 11 SHAREHOLDERS' EQUITY
a) Registered capital and paid in capital:
The registered capital is RMB 3,410,000 equivalent to $414,154
approximately.
The registered and paid in capital of the Company as of December 31,
2005 and 2004 are as follows:
2005 2004
==========================================
Wang Qinghua $85,017 $99,680
Li Kunwu 85,017 75,515
Yu Liang 12,083
Xu Yinji 39,472 18,118
Li Zhengying 36,436 12,082
Gao Yao 36,436 12,082
Yan Xinyuan 12,082
Yan Fang 36,436 -
Ping Lixin 15,182 -
Zhang Haiyan 15,182 -
Zhao Furong 15,182 -
Chen Guohua 14,575 -
Yu Ping 12,145 -
Xiong Zhiming 12,145 -
Kong Qingfeng 3,643 -
Liu Bing 3,643 -
Cui Zhenhua 3,643 -
----------------------------------------------------------------------
Total $414,154 $241,642
==================== ====================
NOTE 12 SUBSEQUENT EVENT
On April 11, 2006 the Company entered into a loan agreement with Ji Nan
City Commercial Bank Zhangzhuang Branch, whereby the bank lend RMB
1,000,000 equivalent to $121,000 approximately to the Company.
According to the terms, interest is calculated by 6.045% per month, and
settled monthly. Loan interest is calculated since the date loan being
transferred to the Company. During the loan period, the adjustment of
interest rate shall be in accordance with the regulation of People's
Bank of China. As to the loan principal, interest and other expenses in
the contract, the warrantor of the Company is Jinan Dalu Jidian Co.
Ltd., or Jinan Dalu Jidian Co. Ltd which have provided its property as
loan guaranty. The loan is due on April 11, 2007.
14