U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
£
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _______ to __________
Commission File Number 333-83375
HONG KONG WINALITE
GROUP, INC.
(Name of small business issuer
in its charter)
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NEVADA
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87-0575571
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation or organization)
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606, 6/F
Ginza Plaza, 2A Sai Yeung Choi Street South
Mongkok, Kowloon, Hong Kong
(Address of principal executive offices) (Zip Code)
Issuer's telephone number:
(852) 2388-3928
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $0.0001 par value
Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
x
No
£
Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
x
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
x
The issuer’s revenues for its most
recent fiscal year ended December 31, 2007 were $0.
As of March 26, 2008, the aggregate
market value of shares of the issuer’s common stock held by non-affiliates was
approximately $45.5 million. Shares of common stock held by each officer and
director and by each person who owns 10 percent or more of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates of the issuer. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of the issuer’s
common stock as of March 26, 2008 is 49,740,933.
Documents Incorporated by
Reference:
None
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TABLE OF
CONTENTS
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PART I
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ITEM 1.
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DESCRIPTION OF BUSINESS
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1
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ITEM 2.
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DESCRIPTION OF PROPERTY
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6
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ITEM 3.
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LEGAL PROCEEDINGS
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6
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ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
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6
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PART II
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ITEM 5.
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MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
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6
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ITEM 6.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
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7
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ITEM 7.
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FINANCIAL STATEMENTS
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19
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ITEM 8.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND
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FINANCIAL DISCLOSURE
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19
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ITEM 8A(T)
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CONTROLS AND PROCEDURES
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20
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ITEM 8B.
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OTHER INFORMATION
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20
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PART III
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ITEM 9.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
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21
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ITEM 10.
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EXECUTIVE COMPENSATION
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23
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ITEM 11.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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ITEM 12.
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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24
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ITEM 13.
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EXHIBITS
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25
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ITEM 14.
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RINCIPAL ACCOUNTANT FEES AND SERVICES
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26
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB, including the following
"Management’s Discussion and Analysis of Financial Condition and Results of
Operations," contains forward-looking statements that are based on the beliefs
of our management, and involve risks and uncertainties, as well as assumptions,
that, if they ever materialize or prove incorrect, could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. The words "believe," "expect," "anticipate," "project," "targets,"
"optimistic," "intend," "aim," "will" or similar expressions are intended to
identify forward-looking statements. All statements, other than statements of
historical fact, are statements that could be deemed forward-looking statements,
including statements regarding new and existing products, technologies and
opportunities; statements regarding market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; any statements of belief or intention;
any of the factors mentioned in the "Risk Factors" section of this Form 10-KSB,
and any statements of assumptions underlying any of the foregoing. All
forward-looking statements included in this report are based on information
available to us on the date of this report. We assume no obligation and do not
intend to update these forward-looking statements, except as required by law.
USE OF CERTAIN DEFINED TERMS AND TREATMENT OF STOCK SPLIT
Except as otherwise indicated by the context, references to
"we," "us," "our," or "the Company" are references to the combined business of
Hong Kong Winalite Group, Inc., a Nevada corporation, and its wholly-owned Hong
Kong operating subsidiary, The Hong Kong Winalite Group Limited, or Winalite.
Unless the context otherwise requires, all references to (i) "PRC" and "China"
are to the People’s Republic of China; (ii) "U.S. dollar," "$" and "US$" are to
United States dollars; (iii) "RMB" are to Renminbi, the legal currency of China
(iv) "Securities Act" are to the Securities Act of 1933, as amended; and (v)
"Exchange Act" are to the Securities Exchange Act of 1934, as amended.
Effective January 7, 2008, we implemented a 1-for-7.352380958
reverse stock split in issued and outstanding shares of our common stock which
reduced the number of our issued and outstanding shares from 365,714,286 to
49,740,933 shares. Unless otherwise indicated, all share and per share
information contained herein has been adjusted to give effect to such reverse
stock split.
PART I
ITEM 1.
DESCRIPTION OF BUSINESS.
History
We were incorporated under the laws of Nevada on January 22,
1998 under the name Gourmet Herb Growers, Inc. From our inception in 1998 until
December 31, 2002, we engaged in the business of growing gourmet herbs and
specialty vegetables for sale to, and use by, restaurants and delicatessens.
From that point until December 28, 2007, when we acquired Winalite in a reverse
acquisition transaction, we were a blank check company and did not engage in
active business operations other than our search for, and evaluation of,
potential business opportunities for acquisition or participation. During this
time, we incurred limited operating expenses necessary to maintain our status as
a corporation in good standing and conduct search for and evaluation of
potential business opportunities.
On December 28, 2007, we acquired Winalite in a reverse
acquisition transaction. In that transaction, we issued to the shareholders of
Winalite 48,000,000 shares of our common stock in exchange for all of the issued
and outstanding capital stock of Winalite. Winalite thereby became our wholly
owned subsidiary and the former shareholders of Winalite became our controlling
stockholders. Winalite was incorporated on September 10, 2007. We amended our
articles of incorporation on January 7, 2008 and changed our name from Gourmet
Herb Growers, Inc. to Hong Kong Winalite Group, Inc.
In connection with our acquisition of Winalite, we assumed
the rights and obligations of Winalite under certain restricted stock purchase
agreements, or Purchase Agreements, that Winalite had entered into with several
purchasers, or Purchasers, including four members of its
management team and 160 expected service providers, distributors and
sub-distributors of its products. All of the Purchase Agreements are in
substantially the same form. Under the Purchase Agreements, the Purchasers
bought a number of shares of Winalite at par value, a nominal amount. All the
shares are subject to a gradually declining right of repurchase by Winalite at
the same price per share paid by the Purchasers, according to a vesting schedule
attached to each of the Purchase Agreements.
Upon the closing of the reverse acquisition, Richard Crimmins,
our former sole director and executive officer, resigned from all offices that
he held and from his position as our director effective immediately. At the same
time, Jingjun Hu, Xijian Zhou and Kelvin G. Zheng became our directors and our
executive officers were replaced by the executive officers of Winalite.
Business Overview
We are a holding company that only operates through our
direct, wholly-owned Hong Kong subsidiary, Winalite. Through Winalite, we plan
to market and sell personal health and hygiene products internationally.
Initially, these products will consist of sanitary pads and pantiliners. We plan
to procure all of the goods that we sell from one or more independent
manufacturers in mainland China and sell them to consumers internationally
through our contracted direct-selling distributors and wholesale and retail
establishments. We also plan to add other health and hygiene products to our
product offerings within the coming months and years. We expect to generate our
revenues in three principal ways: from the resale at a profit of products
manufactured to our specifications, from the delivery of consulting, management,
technical, marketing, financial and/or other services to our distributors, and
from the license of the Winalite mark and brand to the manufacturers and
distributors of our products.
Our products will initially be manufactured for us by an
independent manufacturer, Shenzhen Winalite Technology Co., Ltd., or SWT, under
a master purchase and supply agreement, or MPSA, which we expect to sign in the
second quarter of 2008. We have prepared a draft of the MPSA and have begun
negotiating the terms of the MPSA with SWT, but have not yet executed the MPSA
with SWT. The prices we expect to pay for the products will be set by the MPSA
and once the MPSA is signed may only be changed by agreement of the parties. SWT
will be responsible for marking and labeling the products and their packaging,
and for quality control according to our specifications and subject to our
inspection. With the exception of the PRC market, we expect that SWT will supply
exclusively to us and will not be permitted to manufacture or sell the same or
functionally equivalent products to any other party. We expect that the MPSA
will have an indefinite term but may be terminated on six months’ notice by
either party or upon specified events, such as the insolvency of either party.
We expect to begin purchasing products from SWT in the second quarter of 2008.
We also expect to enter into exclusive international
distribution agreements, or Distribution Agreements, with eight third party
distributors in the second quarter of 2008. We have prepared a form of
Distribution Agreement and delivered the form to the eight distributors, but we
have not yet negotiated the terms of the Distribution Agreements, nor have we
signed any of the Distribution Agreements. We expect that the distributors will
purchase from us the products we expect to buy from SWT, and resell those
products through direct marketing and/or other channels in their defined,
exclusive territories. The distributors will be responsible to us for promoting
sales of our products in their territories, maintaining adequate sales forces,
and other customary functions. The distributors will have the right to appoint
sub-distributors and will be required to report periodically to us on their
activities. As we expand, we anticipate appointing additional distributors for
new territories.
In addition to selling our products to our distributors, we
will provide certain consulting, management, technical, marketing, financial
and/or other services to our distributors pursuant to separate consulting and
management services agreements, or Consulting Agreements, that we plan to enter
into with our distributors. We expect that we will be paid a fee by our
distributors for these services.
Finally, we plan to enter into separate license agreements,
or License Agreements, with each of our distributors, under which we will
license the Winalite mark and brand, solely for use in their assigned, exclusive
territories, and solely for the purpose of carrying out their activities under
the Distribution Agreements. We expect that we will be paid a fee by our
distributors for this license, based on the volume of their purchases of
products from us.
2
The manufacturer of our products and some or all of the third
parties who will distribute our products have up to now been using the name "Winalite"
and one or more marks incorporating that name. We expect that our agreements
with all these parties will include the transfer to us of all rights to the
word, "Winalite," as well as any trademark, trade name, or copyright to that
word and any representation or design incorporating that word. As described
above, we will then license that word, mark and brand back to the manufacturer
and distributors of our products solely for use in carrying out their
obligations under our agreements with them.
The Products that We Sell
We classify the products that we will initially sell into
three categories: (1) ultra-thin regular anionic sanitary pads; (2) ultra-thin
long anionic sanitary pads; and (3) anionic pantiliners. We expect that the
sanitary pads and pantiliners that we expect to sell will be patented in the PRC
and various other countries where we expect to sell our products. SWT has
applied for patents for these products in these countries, however the
applications are pending approval by the relevant governmental authorities.
These products have been tested by various independent Chinese agencies,
including SGS-CSTC Standards Technical Services Co., Ltd., Shanghai Textile
Industry Technology Intendance, National Paper Product Quality Control
Institution Shanghai Office, and East China Normal University.
We expect that all the sanitary pads and pantiliners will be
sold in combination packages, but will be individually wrapped so that they can
be carried discreetly without being contaminated. Each piece of pad or
pantiliner will incorporate "Anionic Padding," which contains an anionic core
that is able to generate anions by slight body friction. Anions are negatively
charged ions. An ion is an atom or molecule which has lost or gained one or more
electrons, making it positively or negatively charged. Anions are negatively
charged because there are more electrons associated with them than there are
protons in their nuclei. The anionic core may be able to generate up to 6,070
anions per cubic centimeter such that the sanitary pads and pantiliners could be
antibacterial, and could be able to prevent the contraction of certain diseases,
reduce the acidic environment around the vaginal area, and absorb odor.
Our Industry
In 2005, world personal health and hygiene product sales
surpassed $40 billion. Such products included feminine hygiene products,
disposable diapers, adult incontinence products, and other products. See June
18, 2007 report of Fountain Investment, available at
http://www.ftvc.com.cn/show.aspx?id=1175&cid=33
. As China has become
more affluent, its population, especially its female population, has grown more
conscious of the benefits of personal health and hygiene products.
In light of China’s rapid economic development, as well as
high rates of infection and outbreaks of gynecological diseases, we believe that
the market for high-end feminine hygiene as well as other personal care products
has growth potential in China.
Our Intellectual Property
We expect to sign the License Agreements with each of our
eight top-level distributors under which we will license to them, only for so
long as they remain our distributors, the Winalite brand and other intellectual
property necessary to market, sell and distribute our products. We expect that
our distributors will pay us a fee for this license, calculated as a percentage
of the monetary value of their purchases of products from us.
We currently do not possess any patents or trademarks
registered with any governmental authorities. However, SWT has applied for
patents for some of the products that we initially plan to sell and we expect
that the MPSA will license those patents to us for use internationally, except
in the PRC market.
Our Research and Development Efforts
Currently we do not have an internal research and development
program. We plan to work with external research and development organizations to
identify new marketing opportunities.
3
Our Sales and Marketing Efforts – How We Will Sell Our
Products
Product Sales and Strategy
Our business will be to engage in global network marketing of
personal hygiene products. Beginning in the second quarter of 2008, we expect to
sell branded, fast-moving consumer goods to distributors worldwide, who in turn
will sell such products to consumers through direct selling, except in mainland
China, where we expect that our contract distributors will sell through
wholesaling and retailing distributorships.
Marketing Strategy
Our marketing objective is to expand our distributor base and
geographic presence, and help our distributors to increase net sales through
management training and consulting. We believe the following marketing
initiatives will grow our business:
We plan for our distributors outside
mainland China to employ a direct-selling model that we design for them. We
expect that with our consulting and training services and the products we
re-sell to them, our direct-selling distributors will become steady sources of
profit. In mainland China, due to certain regulations, we plan for our
distributors to sell the products through wholesaling and retailing
distributorships. We expect that this business model will prove profitable and
competitive with other retail and wholesale business models because of the
superior training, expertise, and motivation that we intend to promote in our
distributors.
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We believe that the products that we will
sell will be patent-protected and of superior quality. Therefore, we plan to
target upscale customers in well-developed countries and regions and wealthy
segments in developing countries, where there is increasing demand for quality
fast moving consumer goods.
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We expect to have distributor networks in 15
to 20 countries in Southeastern Asia and regions located in Australasia, North
Asia, Europe, America and Africa by the end of 2009. Before entering a new
market, we plan to find experienced distributors. We also plan to register the
products that we sell in prospective countries and regions. This process would
average 3 months to register each product. We plan to assist distributors in
designing a sales launch plan. Management estimates that the entire new market
launch process to be 6-8 months in length, depending on various market
factors, including the economic environment and governmental regulation.
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We plan to develop new product lines in line
with market demand based on distributor feedback and our own market research.
On an ongoing basis, we plan to launch 2-4 new products each quarter to be
available in all existing markets in addition to our core product portfolio.
In that regard, we plan to leverage our existing resources to reduce costs.
4
Our Competition
The personal health and hygiene industry both within China
and globally is highly fragmented and intensely competitive. Many of our
competitors, both domestic and international, have significant research and
development capabilities and financial, scientific, manufacturing, marketing and
sales resources. In China, we compete principally with Fujian Hengan Group,
Ltd., Fujian Hengli Group, Ltd. and Procter & Gamble Co. Internationally, we
compete principally with Procter & Gamble Co. and Johnson & Johnson.
We compete with our competitors based upon the price and
quality of the products that we sell, brand awareness, ability to produce a
diverse range of products, and customer service.
Our Competitive Strengths
We believe that our competitive strengths include:
An
Experienced Management Team
. Our senior management is equipped with
extensive direct sales and other marketing experience. For instance, our
executive management team is led by Mr. Percy Chin, a well-known expert in the
direct sales business who has more than 10 years management experience in the
direct sales business, including as a member of senior management of China
based teams for Revlon, Herbalife and Amway. Our Chief Marketing Office, Mr.
Xijian Zhou, has several years of network marketing experience, including as a
member of the China based management team of Nu Skin Enterprises Inc. and
Amway.
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New product
development
. We believe that new products are a key driver of customer
traffic and purchases. Our distributors and internal marketing forces,
complemented by relationships that we expect to develop with experts at
outside research institutions, will spur innovation in our product offerings
and ongoing development of untapped markets.
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Favorable direct
sale model
. We believe that our vertically integrated network marketing
structure will be able to support a higher sales volume without adding
significant costs. Through the network marketing arrangements we plan to
build, we anticipate that our distributors will be able to grow business
without employing internal sales forces. We believe that most marketing
expenses will be borne by distributors.
Regulation
There are no specific rules or regulations applicable to a
company engaged in direct selling in countries where we expect to sell our
products. In China, companies may not re-sell through a direct marketing
arrangement without being licensed to do so by the relevant governmental
authorities. Therefore, our distributors will not initially be engaged in direct
selling inside China and will instead be selling through wholesale and retail
distribution. Wholesale and retail selling of personal health and hygiene
products is not highly regulated in China. Only the general rules of commerce,
both in China and in the other countries our products will be sold, are
applicable.
Our Employees
As of December 31, 2007, we did not have any employees, other
than our 4 officers, who constituted our senior management team. We expect to
hire a total of 14 full-time employees over the next twelve months and we expect
these employees to be allocated among job functions conducted at the company as
follows:
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Department
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Number of Employees
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Domestic Sales
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3
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Human Resources
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1
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International Sales
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7
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Finance
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3
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Total
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14
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5
ITEM 2.
DESCRIPTION OF
PROPERTY.
As of December 31, 2007, we sub-leased our office space under
a verbal sublease with Hong Kong Yuelang International Electronic Commerce Co.,
Limited, or Yuelang, for an indefinite term. We paid Yuelang HK$21,503
(approximately $2,756) per month. We expect to either enter into a written lease
agreement with Yuelang’s landlord, World Gold Limited, or enter into a lease
agreement for a different office space, in the near future. Currently, we do not
own or lease any other properties or facilities.
ITEM 3.
LEGAL
PROCEEDINGS.
From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties and an adverse result in these
or other matters may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.
ITEM 4.
SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 10, 2007, our board of directors and Halter
Financial Investments, L.P., the holder of approximately 87.5% of our issued and
outstanding capital stock at such time, approved by a written consent in lieu of
a meeting an amendment of our Articles of Incorporation to increase our total
authorized common stock from 100 million to 500 million shares. For more
information, please see our current report on Form 8-K filed on December 17,
2007.
On December 28, 2007, our board of directors and Halter
Financial Investments, L.P., the holder of approximately 87.5% of our issued and
outstanding capital stock at such time, approved by a written consent in lieu of
a meeting an amendment and restatement of our Articles of Incorporation to,
among other things (1) change our name to "Hong Kong Winalite Group, Inc." and
(2) effect a 7.352380958 for one reverse split of our outstanding common stock.
For more information, please see our current report on Form 8-K filed on January
11, 2008.
PART II
ITEM 5.
MARKET FOR
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY SECURITIES.
Market Information
Our common stock is quoted under the symbol "HKWO.OB" on the
Electronic Bulletin Board maintained by the National Association of Securities
Dealers, Inc., but had not been traded in the Over-The-Counter market except on
a limited and sporadic basis. The CUSIP number is 43858D 104.
The following table sets forth, for the periods indicated,
the high and low closing prices of our common stock. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions. These prices have been adjusted to give
retroactive effect to the 1-for-7.352380958 reverse split of our common stock
that occurred on January 7, 2008.
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Closing
Prices
(1)
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High
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Low
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Year Ended December 31, 2007
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1
st
Quarter
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$1.02
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$1.02
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2
nd
Quarter
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$1.02
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$1.02
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3
rd
Quarter
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$1.03
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$1.02
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4
th
Quarter
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$1.50
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$1.03
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6
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Closing Prices
(1)
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High
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Low
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Year Ended December 31, 2006
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1
st
Quarter
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N/A
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N/A
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2
nd
Quarter
(2)
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$3.50
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$2.85
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3
rd
Quarter
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$2.85
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$2.30
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4
th
Quarter
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$2.60
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$1.02
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(1) The above tables set forth the range of high and low
closing prices per share of our common stock as reported by www.quotemedia.com
for the periods indicated, as adjusted for January 2008 reverse stock split.
(2) Market prices were only available from June 26, 2006.
Approximate Number of Holders of Our Common Stock
As of March 26, 2008, there were approximately 179
stockholders of record of our common stock, as reported by our transfer agent.
In computing the number of holders of record, each broker-dealer and clearing
corporation holding shares on behalf of its customers is counted as a single
shareholder.
Dividends
On October 12, 2007, we paid a cash dividend of $1.80133 (on
a post-split basis) per share of common stock to our stockholders of record as
of October 10, 2007 holding 217,617 shares of our common stock, which resulted
in a total dividend distribution of $392,000. Except for such dividend, we have
never declared or paid cash dividends. Any future decisions regarding dividends
will be made by our board of directors. We currently intend to retain and use
any future earnings for the development and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
Equity Compensation Plans
We do not have in effect any compensation plans under which
our equity securities are authorized for issuance and we do not have any
outstanding stock options.
Recent Sales of Unregistered Securities
We have not sold any equity securities during the fiscal year
ended December 31, 2007 that were not previously disclosed in a quarterly report
on Form 10-QSB or a current report on Form 8-K that was filed during the 2007
fiscal year.
ITEM 6.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Plan of Operation
We are a development stage company. From December 31, 2002
until December 28, 2007, when we completed a reverse acquisition transaction
with Winalite, we were a blank check company and did not engage in any active
business operations other than our search for, and evaluation of, potential
business opportunities for acquisition or participation.
As a result of the acquisition of Winalite, we changed our
business plan to market and sell personal health and hygiene products and our
plan of operations for the next twelve months is to proceed with the
implementation of this business plan. We will strive to launch all aspects of
our operations.
We expect to generate revenues from the sale of personal
hygiene products, including the initial products that we plan to sell which are
sanitary napkins and pantiliners. We plan to acquire these products from SWT
after we enter
into the MPSA with SWT and we will re-sell these
products to certain distributors with whom we expect to have contractual
relationships. We expect to begin operations some time in the second quarter of
2008. We expect to eventually generate revenues in three principal ways: from
the resale at a profit of products manufactured to our specifications, from the
delivery of consulting, management, technical, marketing, financial and/or other
services to our distributors, and from the license of the Winalite mark and
brand to the manufacturer and distributors of our products.
7
Eventually, we hope to develop relationships with other
manufacturers and other distributors for the sale of other personal hygiene
products.
We believe that our business has opportunities for growth
through the following growth strategies:
Focus on Brand Development
.
With intense price competition among many similar or identical products in the
industry, we believe that building brand awareness is the primary means to
generate and sustain profitable growth in the future. We believe that to
develop close cooperative relationships with research centers of well-know
universities in China and worldwide is key to building brand equity. We also
plan to market our products through an integrated marketing program that
includes customer flyers, brochures and promotional pieces. A number of
merchandising techniques will be used, including information on new products,
the use of combination offers, the use of trial sizes and samples and the
promotion of products packaged as gift items. We also plan to publish sales
and marketing magazines quarterly, with health care tips and product
information.
-
Market Expansion
. We are committed to
marketing and selling the products that we expect to acquire from SWT by
growing our sales network. We plan to sell some of these products through a
combination of direct selling and distributorship stores. We expect that our
future distributors’ sales in China will be made through approximately 100
wholesale and retail stores throughout China in our first year of operation.
We intend to add 800 more such distributorship store in China over the next
five years. At the same time, we expect to expand our employee numbers to
approximately 100 people over the next five years. In addition, we seek to
motivate our direct-selling and other distributor representatives through the
adoption of special incentive programs that reward superior sales performance.
Periodical sales meetings with sales representatives are expected to be
conducted at our headquarters in order to keep sales representatives updated
on product line changes, explain sales techniques and provide recognition for
sales performance.
-
International Growth
. In addition to
China, we plan to effectuate sales into other countries and our overseas sales
are expected to account for a significant percentage of our revenue in the
future. We expect to become present in 15 to 20 countries in Asia, Europe,
North America and Africa by the end of 2009. In these countries and regions,
we plan to sell goods to distributors who will in turn sell though contract
direct sellers to end consumers.
-
Introducing New Products
. We will
endeavor to expand our market presence by introducing additional competitive
personal health and hygiene products to our product offerings, including
cosmetics, skin care products, and nutritional supplements. Our new product
development starts with the identification of potential market opportunities
by our distributors and internal marketing forces, as well as from our
assessment of our competitors. We plan for this information to be analyzed by
experts at outside institutions and research centers to help us determine
which new products to sell.
8
Sales campaigns
. We believe
that maintaining good public relations is key to our business success and
organizing or participating in the public undertakings is undoubtedly the best
means to promote public relations. The public activities of a company reflect
key values it appreciates. We plan to sponsor and organize many important
social activities, such as sales rallies, motivational events, and sales and
training seminars for our distributors, sub-distributors, and their sales
forces. These activities are expected not only to reflect our high-level
social responsibility, but also make us unique in the industry in China. We
believe that this kind of operation will continue to effectively promote our
company reputation and our brand name.
Liquidity and Capital Resources
As of December 31, 2007, we had cash and cash equivalents
(including restricted cash) of approximately $60,000. In addition, in January
2008 our Chairperson, Ms. Hu, provided approximately 4.3 million HK Dollars as
working capital to the Company. We believe that our current cash on hand and
expected revenue from operations will be sufficient to implement our plan of
operations. As part of our plan, we will enter into sales agreements with our
distributors and purchasing agreements with our suppliers. We will ask our
suppliers to offer us a two-month open account credit period and we will offer
our distributors a credit period of one month or less. In addition, Ms. Hu is
expected to provide working capital as needed for the second quarter of 2008.
However, the Company has incurred losses since its inception
and has current liabilities in excess of current assets. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern.
Obligations Under Material Contracts
We expect to sign the MPSA with SWT under which we will
purchase the products we sell to our distributors from SWT. We do not expect
that the MPSA will commit us to any specific volume of purchases, and we expect
that all our purchases will be on the terms and conditions contained in our
standard purchase order form. We expect to purchase products from SWT on open
account, and we expect to have the right to return any non-conforming goods for
replacement at SWT’s cost.
Seasonality of our Sales
Our results of operations are not materially affected by
seasonality and we do not expect seasonality to cause any material impact on our
operations in the future.
Inflation
Inflation does not materially affect our business or the
results of our operations.
Critical Accounting Policies
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires our
management to make assumptions, estimates and judgments that affect the amounts
reported in the financial statements, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We consider our critical
accounting policies to be those that require the more significant judgments and
estimates in the preparation of financial statements, including the following:
Cash and cash equivalents:
Cash
equivalents comprise highly liquid investments with initial maturities of three
months or less to be cash equivalents.
Basic and diluted earnings per share:
The Company reports basic earnings per share in accordance with SFAS No.
128, "Earnings Per Share". Basic earnings per share is computed using the
weighted average
number of shares
outstanding during the period presented. The weighted average number of shares
of the Company represents the common stock outstanding during the reporting
period.
9
During the reporting period, the
Company had no dilutive instruments. Accordingly, the basic and diluted earnings
per share are the same.
Income taxes:
The Company uses
the asset and liability method of accounting for income taxes pursuant to SFAS
No. 109 "Accounting for Income Taxes". Under the asset and liability method of
SFAS 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and loss
carryforwards and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Foreign currency translation:
The
functional currency of the Company is Hong Kong dollars ("HKD"). The Company
maintains its financial statements in the functional currency. Monetary assets
and liabilities denominated in currencies other than the functional currency are
translated into the functional currency at rates of exchange prevailing at the
balance sheet date. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or losses
arising from foreign currency transactions are included in the determination of
net income for the period.
For financial reporting purposes, the
financial statements of the Company which are prepared using the functional
currency have been translated into United States dollars ("US dollars"). Assets
and liabilities are translated at the exchange rates at the balance sheet dates
and revenue and expenses are translated at the average exchange rates and
stockholders’ equity is translated at historical exchange rates. Any translation
adjustments resulting are not included in determining net income but are
included in foreign exchange adjustment to other comprehensive income, a
component of stockholders’ equity. The exchange rate in effect at December 31,
2007 was HKD1.00 for $0.1281. There is no significant fluctuation in exchange
rate for the conversion of HKD to US dollars after the balance sheet date.
Fair value of financial instruments:
The carrying values of the Company’s financial instruments, including
accrued expenses and amount due to a director approximate their fair values due
to the short-term maturity of such instruments.
It is management’s opinion that the
Company is not exposed to significant interest, price or credit risks arising
from these financial instruments.
Recently issued accounting pronouncements
In September 2006, the FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 157 "Fair Value
Measurement" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements.
This Statement shall be effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. Earlier application is encouraged, provided that the reporting entity has
not yet issued financial statements for that fiscal year, including any
financial statements for an interim period within that fiscal year. The
provisions of this statement should be applied prospectively as of the beginning
of the fiscal year in which this Statement is initially applied, except in some
circumstances where the statement shall be applied retrospectively. The early
adoption of SFAS 157 has no material effect on our financial statements.
10
In February 2007, the FASB issued
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS 159").
SFAS 159 permits entities to choose to measure many financial instruments and
certain other items at fair value. Entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option may be elected on an instrument-by-instrument basis,
with few exceptions. SFAS 159 also establishes presentation and disclosure
requirements to facilitate comparisons between companies that choose different
measurement attributes for similar assets and liabilities. The requirements of
SFAS 159 are effective for our fiscal year beginning January 1, 2008. We are in
the process of evaluating this guidance and therefore have not yet determined
the impact that SFAS 159 will have on our financial statements upon adoption.
In December 2007, the FASB issued
SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51". SFAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The guidance will become effective for the
fiscal year beginning after December 15, 2008. The management is in the process
of evaluating the impact that SFAS 160 will have on the Company’s financial
statements upon adoption.
In December 2007, the FASB issued
SFAS No. 141 (Revised) "Business Combinations". SFAS 141 (Revised) establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The guidance will become effective for the
fiscal year beginning after December 15, 2008. The management is in the process
of evaluating the impact that SFAS 141 (Revised) will have on the Company’s
financial statements upon adoption.
Off-Balance Sheet Arrangements
We do not have 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 that is material to investors.
RISK FACTORS
You should carefully consider the risks described below,
which constitute the material risks facing us. If any of the following risks
actually occur, our business could be harmed. You should also refer to the other
information about us contained in this Form 10-KSB, including our financial
statements and related notes.
RISKS RELATED TO OUR BUSINESS
11
We are an early stage development company and we have no
operating history. We have not earned any revenues and it is uncertain whether
we will earn any revenues in the future or whether we will ultimately be
profitable.
We are in the development stage and our future operations are
subject to all of the risks inherent in the establishment of a new business
enterprise. The likelihood of our success must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the development of a new company engaged in the
business of selling personal care and hygiene products. We may not be able to
effectuate our business plan in the future and we may not have sufficient funds
available to complete our marketing and development programs or to market any
products. In addition, as a result of our limited operating history, we expect
to incur substantial operating losses until we can generate sufficient revenues
from the sales of the products that we acquire to cover our operating costs. We
currently have limited sources of potential operating revenue and there can be
no assurance that we will be able to develop revenue sources or that our
operations will ever become profitable.
Third-party suppliers and distributors are expected to
provide and sell all of our products, and the loss of them or a disruption or
interruption in the supply or distribution chain may adversely affect our
business.
We expect to sign the MPSA with SWT for the acquisition from
SWT of all of the products we will initially sell. We also expect enter into
Distribution Agreements with eight third party distributors in the second
quarter of 2008 for the sale of the products acquired from SWT. We expect to
enter into similar agreements in the future with other manufacturers and
distributors relating to the sale of different products. All of our products
will be purchased from these various suppliers and will be sold by these various
distributors. The inability to enter into a manufacturing agreement with SWT or,
if we do enter into such an agreement in the future, the loss of SWT as our
supplier or, in the future, the inability to enter into agreements with other
suppliers, or if we do enter into such agreements, the loss of any other
suppliers that we may have a relationship with, or a significant disruption or
interruption in the supply chain could have a material adverse effect on our
ability to acquire the products that we plan to sell. By the same token, the
inability to enter into Distribution Agreements with these eight third party
distributors or, if we do enter into such agreements in the future, the loss of
these four third party distributors as our distributors or, in the future, the
inability to enter into agreements with other distributors, or if we do enter
into such agreements, the loss of any other distributors that we may have a
relationship with, or a significant disruption or interruption in the
distribution chain could have a material adverse effect on our ability to
distribute the products that we plan to sell. We expect to charge a certain
percentage markup over our procurement prices. Any fluctuation in production
costs or other expenses associated with direct selling to customers would not
affect the premium we would obtain on our products. However, increases in the
costs of procuring or distributing our products may adversely affect our profit
margins if we are unable to pass along any higher costs in the form of price
increases or otherwise achieve cost efficiencies in distribution.
There is substantial doubt about our ability to continue as a
going concern due to our accumulated deficit and lack of proven revenues.
There is substantial doubt about our ability to continue as a
going concern due to our accumulated deficit and lack of proven revenues, all of
which means that we may not be able to continue operations unless we obtain
additional funding. Management’s plans may include raising capital through the
equity markets to fund future operations and generating of revenue through its
business. Failure to raise adequate capital and generate adequate sales revenues
could result in our having to curtail or cease operations. Additionally, even if
we do raise sufficient capital to support our operating expenses and generate
adequate revenues, there can be no assurances that the revenue will be
sufficient to enable us to develop business to a level where we will generate
profits and cash flows from operations.
We operate in an extremely competitive industry and are
subject to continual pricing pressure that could negatively affect our financial
results.
We believe we will compete either directly or indirectly with
a number of major domestic and international manufacturers and distributors of
personal care and hygiene products, as well as a large number of smaller,
regional competitors. Several of our competitors have strong technical,
marketing, sales, manufacturing, distribution and other resources, as well as
significant name recognition, established positions in the market and
long-standing relationships with manufacturers and customers. In addition, some
of our competitors own raw materials facilities which, during periods of raw
materials cost increases or price volatility, may provide a competitive pricing
advantage and reduce their exposure to volatile raw material costs. Although we
anticipate that our operational costs will be relatively low due to our position
as an intermediary, our ability to maintain and improve our operating margins
may depend in part on our ability to control and reduce our costs. We cannot
assure you that we will be able to control or reduce our operating expenses, to
raise or maintain our prices or increase our unit volume, in order to maintain
or improve our operating results.
12
In addition, we face competition from competing network
marketing companies. We compete against products sold directly to consumers by
other direct-selling and direct sales companies and through the Internet, and
against products sold through the mass market and prestige retail channels. The
number of competitors and degree of competition that we face in our industries
varies widely from country to country. There are a number of direct-selling and
retail and wholesale companies that sell product lines similar to ours, some of
which also have worldwide operations and compete with us globally.
If our advertising, promotional, merchandising or other
marketing strategies are not successful, if we are unable to deliver new
products that represent technological breakthroughs; if we do not successfully
manage the timing of new product introductions or the profitability of these
efforts; or if for other reasons our distributors or end customers perceive
competitors’ products as having greater appeal, then our sales and financial
results may suffer.
We are also subject to significant competition for the
recruitment of distributors from other direct selling or network marketing
organizations, including those that market personal care and hygiene products.
As a result, it may be continually necessary to recruit and retain new
distributors and if we are unable to do so our business may be adversely
affected.
Cyclical industry conditions may adversely affect the results
of our operations.
Our operating results are affected by the general cyclical
pattern of the industries in which our major customer groups (our distributors)
operate, and the overall economic conditions in which we and our customers
operate. All of our target client segments are heavily dependent on the end-user
markets they serve, especially up-scale and female markets. A weak capital
expenditure environment in these markets can be expected to have a material
adverse effect on the results of our operations.
We may not be able to adequately protect the proprietary
intellectual property and technology associated with our initial products, which
may harm our competitive position and result in increased expenses incurred to
enforce our rights.
We expect to rely on a combination of copyright, trademark,
patent and trade secret laws, non-disclosure agreements and other
confidentiality procedures and contractual provisions to establish, protect and
maintain the proprietary intellectual property and technology and other
confidential information associated with the sanitary pad and pantiliner
products that we will sell. Some of these technologies are important to our
business and are not protected by patents. Despite our efforts, the steps we
will take to protect the proprietary intellectual property and technology and
other confidential information associated with the products that we will sell
may not be adequate to preclude misappropriation of this proprietary information
or infringement of the intellectual property rights associated with these
products. Protecting against the unauthorized use of the products, trademarks
and other proprietary rights is also expensive, difficult and, in some cases,
impossible. Litigation may be necessary in the future to enforce or defend
intellectual property rights, to protect trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of management resources, either of
which could harm our business, operating results and financial condition.
A significant portion of our sales are expected to be derived
from a limited number of distributors, at least in our initial stages of
operations, and results from operations could be adversely affected and
stockholder value harmed if we lose these distributors.
We anticipate that a significant portion of our revenues will
be derived from a limited number of distributors, at least in our initial stages
of operations. For example, approximately 75% of our revenues are expected to
derive from
eight distributors in fiscal year 2008. The loss of
any of these significant distributors that is not accompanied by the retention
of new business in similar volume would adversely affect our revenues and
stockholder value.
13
The products that we will sell could be subject to product
liability claims by consumers, which would adversely affect our profit margins,
results from operations and stockholder value.
We are exposed to risks inherent in the packaging and
distribution of personal care and hygiene products, such as with respect to
adequacy of warnings, mislabeling and contamination. As a result, there is a
risk that someone using the products that we will sell may experience
significant negative side effects which may permanently harm them and we could
be subject to claims for damages based on theories of product liability and
other legal theories. The costs and resources to defend such claims could be
substantial and, if such claims are successful, we could be responsible for
paying some or all of the damages. Also, our reputation could be adversely
affected, regardless of whether such claims are successful. We currently intend
to obtain product liability insurance at the appropriate time; however, there
can be no assurance that we will be able to obtain or maintain insurance on
acceptable terms for the products that we will sell or that such insurance would
be sufficient to cover any potential product liability claim or recall. Any of
these results would adversely affect our future profit margins, results from
operations and stockholder value.
Expansion of our business may put added pressure on our
management and operational infrastructure impeding our ability to meet any
potential increased demand for the personal care and hygiene products that we
will sell and possibly hurting our future operating results.
Our business plan is to significantly grow our operations to
meet anticipated growth in demand for the products that we will sell, and by the
introduction of new product offerings. Growth in our business may place a
significant strain on our personnel, management, financial systems and other
resources. The evolution of our business also presents numerous risks and
challenges, including:
our ability to successfully and
rapidly expand sales to potential new distributors in response to potentially
increasing demand;
To accommodate any such growth and compete effectively, we
may need to obtain additional funding to improve information systems, procedures
and controls and expand, train, motivate and manage our employees, and such
funding may not be available in sufficient quantities, if at all. If we are not
able to manage these activities and implement these strategies successfully to
expand to meet any increased demand, our operating results could suffer.
We depend heavily on key personnel, and turnover of key
employees and senior management could harm our business.
Our future business and results of operations depend in
significant part upon the continued contributions of our key technical and
senior management personnel, including Jingjun Hu, our Chairperson, Percy K.
Chin, our Chief Executive Officer, Chi Keung Cheng, our Chief Financial Officer,
Xijian Zhou, our Chief Marketing Officer, and Kelvin G. Zheng, our Chief
Information Officer. They also depend in significant part upon our ability to
attract and retain additional qualified management, technical, marketing and
sales and support personnel for our operations. If we lose a key employee or if
a key employee fails to perform in his or her current position, or if we are not
able to attract and retain skilled employees as needed, our business could
suffer. Significant turnover in our senior management could significantly
deplete our institutional knowledge held by our existing senior management team.
We depend on the skills and abilities of these key employees in managing the
technical, marketing and sales aspects of our business, any part of which could
be harmed by further turnover.
We may be exposed to potential risks relating to our internal
controls over financial reporting and our ability to have those controls
attested to by our independent auditors.
14
As directed by Section 404 of the Sarbanes-Oxley Act of 2002,
or SOX 404, the SEC adopted rules requiring public companies to include a report
of management on the company’s internal controls over financial reporting in
their annual reports, including Form 10-KSB. We are subject to this requirement
commencing with our fiscal year ending December 31, 2007 and a report of our
management is included under Item 8A(T) of this Annual Report on Form 10-KSB. In
addition, the independent registered public accounting firm auditing a company’s
financial statements must also attest to and report on the operating
effectiveness of the company’s internal controls over financial reporting. Our
management may conclude that our internal controls over our financial reporting
are not effective due to the identification of one or more material weaknesses.
Our independent registered public accounting firm may issue an adverse opinion
on our internal control over financial reporting if one or more material
weaknesses are identified.
We can provide no assurance that we will be in compliance
with all of the requirements imposed by SOX 404 or that we will receive a
positive attestation from our independent auditors. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner or we are unable to receive a positive
attestation from our independent auditors with respect to our internal controls,
investors and others may lose confidence in the reliability of our financial
statements.
Our ability to anticipate and respond to market trends and
changes in consumer preferences could affect our financial results.
Our success depends on our ability to anticipate, gauge and
react in a timely and effective manner to changes in consumer spending patterns
and product preferences. We must continually work to develop, produce and market
new products, maintain and enhance the recognition of our brands, achieve a
favorable mix of products, and refine our approach as to how and where we market
and sell our products. While we plan to devote considerable effort and resources
to shape, analyze and respond to consumer preferences, consumer spending
patterns and preferences cannot be predicted with certainty and can change
rapidly. If we are unable to anticipate and respond to trends in the market for
our products and changing consumer demands, our financial results will suffer.
Furthermore, material shifts or decreases in market demand
for our products, including as a result of changes in consumer spending patterns
and preferences, could result in us carrying inventory that cannot be sold at
anticipated prices or increased product returns by our distributors. Failure to
maintain proper inventory levels or increased product returns by our
distributors could result in a material adverse effect on our business, results
of operations and financial condition.
A general economic downturn or sudden disruption in business
conditions may affect consumer purchases of discretionary items, including the
personal care and hygiene products that we currently plan to sell, which could
adversely affect our business.
Consumer spending is generally affected by a number of
factors, including general economic conditions, inflation, interest rates,
energy costs, and consumer confidence generally, all of which are beyond our
control. Consumer purchases of discretionary items tend to decline during
recessionary periods, when disposable income is lower, and may impact sales of
the products that we sell. In addition, sudden disruptions in business
conditions as a result of a terrorist attack similar to the events of September
11, 2001, including further attacks, retaliation and the threat of further
attacks or retaliation, war, adverse weather conditions or other natural
disasters, such as Hurricane Katrina, pandemic situations or large scale power
outages can have a short or, sometimes, long-term impact on consumer spending. A
downturn in the economies in which we the products that we acquire are re-sold
or a sudden disruption of business conditions in those economies could adversely
affect our sales.
Our information technology systems may be susceptible to
disruptions.
We plan to employ information technology systems to support
our business, including systems to support financial reporting, and an internal
communication and data transfer network. We also plan to employ information
technology systems to support distributors in many of our markets, including
electronic order collection and invoicing systems and on-line training. We plan
to have Internet sites in many of our markets, including business-to-business
sites to support distributors. Any of these systems may be susceptible to
outages due to fire, floods, power loss, telecommunications failures, break-ins
and similar events. Despite the implementation of network security measures, our
systems may also be vulnerable to computer viruses, break-ins and similar
disruptions from
unauthorized tampering with these systems. The
occurrence of these or other events could disrupt our information technology
systems and adversely affect our operation.
15
RISKS RELATED TO DOING BUSINESS IN CHINA
Changes in China’s political or economic situation could harm
us and our operational results.
Economic reforms adopted by the Chinese government have had a
positive effect on the economic development of the country, but the government
could change these economic reforms or its legal system at any time. This
potentiality could either benefit or damage our ability to operate in China and
our overall profitability. Some of the things that could have this effect are:
level of government involvement in
the economy;
The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in many ways. As a result of these differences, we may not
develop in the same way or at the same rate as might be expected if the Chinese
economy were similar to those of the OECD member countries.
A substantial amount of our materials sourcing originates in
China. We may be unable to enforce our legal rights due to policies regarding
the regulation of foreign investments in China as well as other aspects of the
Chinese legal system.
Unlike the common law system prevalent in the United States,
the PRC’s legal system is a civil law system based on written statutes, in which
system decided legal cases have little value as precedents. The PRC does not
have a well-developed, consolidated body of laws governing foreign investment
enterprises. As a result, the administration of laws and regulations by
government agencies are subject to considerable discretion and variation on the
part of the PRC government, including its courts, and may be subject to
influence by external forces unrelated to the legal merits of a particular
matter. China’s regulations and policies with respect to foreign investments are
evolving. Definitive regulations and policies with respect to such matters as
the permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published. As a result, we may not be aware of any
violations of these policies and rules until some time after the violation.
Statements regarding these evolving policies have been conflicting and any such
policies, as administered, are likely to be subject to broad interpretation and
discretion and to be modified, perhaps on a case-by-case basis. The
uncertainties regarding such regulations and policies present risks that may
affect our ability to achieve our business objectives. If we are unable to
enforce any legal rights we may have under our contracts or otherwise, our
ability to compete with other companies in our industry could be materially and
negatively affected. In addition, any litigation in China may be protracted and
result in substantial cost and diversion of resources and management attention.
The relative inexperience of China’s judiciary in many cases creates additional
uncertainty as to the outcome of any litigation. It may also be difficult to
obtain enforcement of a judgment by a court of another jurisdiction in China.
The Chinese government exerts substantial influence over the
manner in which we must conduct our business activities.
China only recently has permitted provincial and local
economic autonomy and private economic activities. The Chinese government has
exercised and continues to exercise substantial control over virtually every
sector of the Chinese economy through regulation and state ownership. Our
ability to operate in China may be harmed by changes in its laws and
regulations, including those relating to taxation, import and export tariffs,
environmental
regulations, land use
rights, property and other matters. We believe that our operations in China are
in material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of these jurisdictions may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.
16
Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the
implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof, and could require us to
divest ourselves of any interest we then hold in Chinese properties or joint
ventures.
Future inflation in China may inhibit our ability to conduct
business profitably in China.
In recent years, the Chinese economy has experienced periods
of rapid expansion and high rates of inflation. During the past ten years, the
rate of inflation in China has been as high as 20.7% and as low as -2.2%. These
factors have led to the adoption by the Chinese government, from time to time,
of various corrective measures designed to restrict the availability of credit
or regulate growth and contain inflation. High inflation may in the future cause
the Chinese government to impose controls on credit and/or prices, or to take
other action, which could inhibit economic activity in China, and thereby harm
the market for our products.
Any recurrence of severe acute respiratory syndrome, or SARS,
or another widespread public health problem, could harm our operations.
A renewed outbreak of SARS or another widespread public
health problem in China, where we anticipate that much of our operations will be
conducted, could have a negative effect on our operations.
Our operations may be impacted by a number of health-related
factors, including the following:
Any of the foregoing events or other unforeseen consequences
of public health problems could damage our operations.
Restrictions on currency exchange may limit our ability to
receive and use our revenues effectively.
The majority of our revenues will be settled in RMB and U.S.
Dollars, and any future restrictions on currency exchanges may limit our ability
to use revenue generated in RMB to fund any future business activities outside
China or to make dividend or other payments in U.S. dollars. Although the
Chinese government introduced regulations in 1996 to allow greater
convertibility of the RMB for current account transactions, significant
restrictions still remain, including primarily the restriction that
foreign-invested enterprises may only buy, sell or remit foreign currencies
after providing valid commercial documents, at those banks in China authorized
to conduct foreign exchange business. In addition, conversion of RMB for capital
account items, including direct investment and loans, is subject to governmental
approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that
the Chinese regulatory authorities will not impose more stringent restrictions
on the convertibility of the RMB.
Recent Chinese merger and acquisition regulations may limit
our ability to acquire assets and equity interests of Chinese companies, which
could hinder our ability to expand in China and adversely affect our long-term
profitability.
On September 8, 2006, the PRC Ministry of Commerce, or MOFCOM,
together with several other government agencies, promulgated a comprehensive set
of regulations governing the approval process by which a Chinese company may
participate in an acquisition of its assets or its equity interests and by which
a Chinese company may obtain public trading of its securities on a securities
exchange outside of the PRC. Depending on the structure of the transaction,
these regulations will require the Chinese parties to make a series of
applications and supplemental applications to the governmental agencies. In some
instances, the application process may require the presentation of economic data
concerning a transaction, including appraisals of the target business and
evaluations of the acquirer, which are designed to allow the government to
assess the transaction. Governmental approvals will have expiration dates by
which a transaction must be completed and reported to the governmental agencies.
Compliance with the new regulations is likely to be more time-consuming and
expensive than in the past and the government now can exert more control over
the combination of two businesses. Accordingly, due to these new regulations,
our ability to engage in business combination transactions with Chinese
companies has become significantly more complicated, time-consuming and
expensive and we may not be able to negotiate a transaction that is acceptable
to our stockholders or sufficiently protect their interests in a transaction.
17
The new regulations allow PRC government agencies to assess
the economic terms of a business combination transaction. Parties to a business
combination transaction may have to submit to MOFCOM and the other government
agencies an appraisal report, an evaluation report and the acquisition
agreement, all of which form part of the application for approval, depending on
the structure of the transaction. The regulations also prohibit a transaction at
an acquisition price obviously lower than the appraised value of the Chinese
business or assets and in certain transaction structures, require that
consideration must be paid within defined periods, generally not in excess of a
year. The regulations also limit our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and liabilities. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, such regulations may impede our ability to negotiate and complete a
business combination transaction with a Chinese company on financial terms,
which satisfy our investors and protect our stockholders’ economic interests and
we may not be able to negotiate a business combination transaction on terms
favorable to our stockholders.
RISKS RELATED TO THE MARKET FOR OUR STOCK
Our common stock is quoted on the OTC Bulletin Board, which
may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted on the OTC Bulletin Board. The OTC
Bulletin Board is a significantly more limited market than the New York Stock
Exchange or Nasdaq system. The quotation of our shares on the OTC Bulletin Board
may result in a less liquid market available for existing and potential
stockholders to trade shares of our common stock, could depress the trading
price of our common stock and could have a long-term adverse impact on our
ability to raise capital in the future.
We may be subject to penny stock regulations and restrictions
which may affect our ability to sell our securities on the secondary market.
The SEC has adopted regulations which generally define
so-called "penny stocks" to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. As of March 26, 2008, the closing bid and asked price for
our common stock was $9.00 per share. However, trading in our common stock is
volatile and our stock price fluctuates. Our stock price has traded under $5.00
per share recently and it may do so again in the future, in which case, it may
be designated a "penny stock." As a "penny stock", our common stock may become
subject to Rule 15g-9 under the Exchange Act, or the "Penny Stock Rule". This
rule imposes additional sales practice requirements on broker-dealers that sell
such securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless exempt,
the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny stock market.
Disclosure is also required to be made about sales commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.
18
There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.
Our largest stockholder, Jingjun Hu, holds a significant
percentage of our outstanding voting securities and accordingly may make
decisions regarding our daily operations, significant corporate transactions and
other matters that other stockholders may believe are not in their best
interests .
Ms. Jingjun Hu, our Chairperson, is the beneficial owner of
approximately 87.9% of our outstanding voting securities. As a result, she
possesses significant influence over the election of our Board of Directors and
significant corporate transactions. Her ownership may also have the effect of
delaying or preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination or discourage a potential
acquirer from making a tender offer. Other stockholders may believe that these
future decisions made by Ms. Hu are not in their best interests.
ITEM 7.
FINANCIAL
STATEMENTS.
Financial statements are being filed with this report and are
located immediately following the signature page.
ITEM 8.
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Prior to our reverse acquisition of Winalite, our independent
registered public accounting firm was Pritchett, Siler & Hardy, P.C., or
Pritchett, while Winalite’s independent registered public accounting firm was
PKF Certified Public Accountants, Hong Kong, or PKF. On December 28, 2007,
concurrent with our reverse acquisition of Winalite, our board of directors
approved the dismissal of Pritchett as our independent auditor and elected to
continue the existing relationship of Winalite with PKF and appointed PKF as our
independent auditor.
Pritchett’s reports on our financial statements as of and for
the fiscal years ended December 31, 2006 and 2005, did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles, except that its reports for
the fiscal years ended December 31, 2006 and 2005 contained a going concern
qualification as to our ability to continue as a going concern.
In connection with the audits of the fiscal years ended
December 31, 2006 and 2005, and during the subsequent interim period through
December 28, 2007, there were (1) no disagreements with Pritchett on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of Pritchett, would have caused Pritchett to make reference to the
subject matter of the disagreements in connection with its reports, and (2) no
events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(iv) of
Regulation S-K.
During our two most recent fiscal years (ended December 31,
2006 and 2005) and from January 1, 2007 to December 28, 2007, we did not consult
PKF with respect to (a) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on our consolidated financial statements, and neither a
written report was provided to us or oral advice was provided that PKF concluded
was an important factor considered by us in reaching a decision as to the
accounting, auditing or financial reporting issue; or (b) any matter that was
either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions to that Item) or a reportable event
(as described in Item 304(a)(1)(iv) of Regulation S-K).
We provided Pritchett with a copy of this disclosure on
January 10, 2008, providing Pritchett with the opportunity to furnish us with a
letter addressed to the SEC stating whether it agrees with the statement made by
us herein in response to Item 304(a) of Regulation S-K and, if not, stating the
respect in which it does not agree. A letter from Pritchett dated January 11,
2008 was filed by us as Exhibit 16.1 our current report on Form 8-K/A filed on
January 11, 2008.
19
ITEM 8A (T).
CONTROLS AND
PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
As required by Rule 13a-15 under the Exchange Act, our
management, including Mr. Percy Chin, our Chief Executive Officer and Mr. Chi
Keung Cheng, our Chief Financial Officer, evaluated the effectiveness of the
design and operation of our disclosure controls and procedures as of December
31, 2007. Based on that evaluation, Mr. Chin and Mr. Cheng concluded that as of
December 31, 2007, and as of the date that the evaluation of the effectiveness
of our disclosure controls and procedures was completed, our disclosure controls
and procedures were effective to satisfy the objectives for which they are
intended.
Internal Controls Over Financial Reporting
Management’s Annual Report on Internal Control over
Financial Reporting.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that
management document and test the Company’s internal control over financial
reporting and include in this Annual Report on Form 10-KSB a report on
management’s assessment of the effectiveness of our internal control over
financial reporting.
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) of the Exchange Act. Management was unable to assess
the effectiveness of our internal control over financial reporting as of
December 31, 2007 in accordance with the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission, or COSO, in Internal
Control – Integrated Framework, because our acquisition of Winalite was
completed on December 28, 2007. It was not possible for management to conduct an
assessment of Winalite's internal control over financial reporting in the period
between the date the combination was completed and the date when management's
assessment was to have been conducted. As a result, management could not
determine whether, as of December 31, 2007, our internal control over financial
reporting was effective based on the COSO criteria.
Management intends to conduct our assessment of the
effectiveness of our internal control over financial reporting in the coming
months.
This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management’s report in this annual report.
Changes in Internal Controls over Financial Reporting.
During the fiscal year ended December 31, 2007, there were no
changes in our internal control over financial reporting identified in
connection with the evaluation performed during the fiscal year covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 8B.
OTHER
INFORMATION.
None.
20
PART III
ITEM 9.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors and Executive Officers
The following table sets forth the name and position of each
of our current executive officers and directors.
|
Name
|
Age
|
Position
|
|
Jingjun Hu
|
40
|
Chairperson
|
|
Percy K. Chin
|
52
|
Chief Executive
Officer and President
|
|
Chi Keung Cheng
|
39
|
Chief Financial
Officer and Treasurer
|
|
Xijian Zhou
|
32
|
Chief Marketing
Officer and Director
|
|
Kelvin G. Zheng
|
43
|
Chief Information
Officer, Secretary, and Director
|
JINGJUN HU
became our Chairperson on December 28, 2007.
Ms. Hu has 13 years of executive experience. Before founding Winalite in
September 2007, Ms. Hu was a Vice President of Guangzhou Yashi Investment
Development Co., Ltd from September 2000 to September 2007. Prior to that, she
was a Vice President of Shenzhen Yashi Clothing and Hats Co., Ltd from March
1996 to August 2000, an Export Manager of Guangzhou Huachuan Silk Co., Ltd from
August 1992 to November 1995 and an Engineer at Guangzhou Silk Dyeing Co., Ltd
from August 1990 to July 1992. Ms. Hu has a Bachelor in Dyeing from Zhejiang
Science-Technology University.
PERCY K. CHIN
became our Chief Executive Officer and
President on December 28, 2007 and has served as Winalite’s Chief Executive
Officer since December 28, 2007. Mr. Chin has been in senior management
positions for 25 years in China, Hong Kong and Canada. He has successful track
record in assuming overall responsibility and consistently delivering corporate
strategic goals and objectives including targeted sales performance in
multinational organizations. Recently, he helped turn around the Revlon
businesses in mainland China, Taiwan and Hong Kong from losses into profits with
sales turnover tripling within 3 years. In addition, he is highly experienced in
the direct selling business and well-known in the industry by holding executive
positions in Herbalife and Amway. Before joining Winalite, he was the Managing
Director of Herbalife China Ltd from November 2004 to August 2007. Prior to
that, he was the Managing Director of Warner Bros China Ltd. from April through
November 2004, the Group CEO in Tianshi Group from September 2003 to April 2004,
the Managing Director of Revlon Ltd. from July 2000 to September 2003, and with
Amway China Co., Ltd for 8 years, with the position of Project Development
Director and Acting General Manager from October 1992 to March 1995 and the
position of the Vice President and General Manager from March 1995 to June 2000.
Mr. Chin holds Bachelors degrees in Commerce and Science from the University of
Saskatchewan, Canada and is a Certified Management Accountant and Registered
Industrial Accountant in British Columbia, Canada.
CHI KEUNG CHENG
became our Chief Financial Officer and
Treasurer on December 28, 2007 and has served as Winalite’s Chief Financial
Officer since December 28, 2007. Mr. Cheng has worked as a chief financial
officer or senior financial manager since 1994. Before joining Winalite, he was
the Chief Financial Officer of Herbalife China Ltd from June through August,
2007, the Chief Financial Officer of Silicon Plaza Ltd. from June 2004 to June
2007, the Finance Director of Tianshi Group from November 2003 to February 2004,
and the Finance Director of Amway China Co., Ltd./Amway Hong Kong from January
1994 to July 1999. Mr. Cheng holds a MBA in Finance from Murdoch University,
Australia. He is a Fellow Member of the National Institute of Accountants in
Australia and The Associate of International Accountants in the UK. He is a
Registered Financial Planner in Hong Kong.
XIJIAN ZHOU
became our Chief Marketing Officer and a
Director on December 28, 2007 and has served in the same positions at Winalite
since December 28, 2007. Mr. Zhou was awarded as "Asia Top 10 Influential People
in Direct Selling" by Asia Brand Summit committee in 2007. Before joining
Winalite, he worked for Nu Skin Enterprises Inc. (NYSE:NUS) from January 2003 to
October 2006 and achieved the "China No.1 Sales Performance" Award. Prior to
that, he was the Senior Operating Manager of Amway China Co., Ltd. from May 1996
to January 2003. Mr. Zhou has College Degree in Business Administration from
Haining Technology College.
21
KELVIN G. ZHENG
became our Chief Information Officer,
Secretary, and a Director on December 28, 2007 and has served as the Chief
Information Officer and a Director of Winalite since December 28, 2007. Mr.
Zheng has 18 years of experience in manufacturing, logistics planning, system
development and software development environments in the U.S. and Asia. Before
joining Winalite, he was Chief Operating Officer of Etonenet, Inc, a leading
wireless technology service provider in China, from March 2000 to August 2007,
and the Senior Director of Manufacturing and Distribution Operation of Amway
Corporation from January 1994 to March 2000. Mr. Zheng has a Ph.D. in Mechanical
Engineering from University of Illinois at Chicago.
Directors are elected until their successors are duly elected
and qualified. Our current directors hold no directorships in any other
reporting companies.
Family Relationships
There are no family relationships among our directors or
officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or
executive officers has been convicted in a criminal proceeding, excluding
traffic violations or similar misdemeanors, or has been a party to any judicial
or administrative proceeding during the past five years that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws (except
where not subsequently dismissed without sanction or settlement), or from
engaging in any type of business practice, or a finding of any violation of
federal or state securities laws. To the best of our knowledge, no petition
under the federal bankruptcy laws or any state insolvency law was filed by or
against, or a receiver, fiscal agent or similar officer was appointed by a court
for the business or property of any of our directors or officers, or any
partnership in which any of our directors or officers was a general partner at
or within two years before the time of such filing, or any corporation or
business association of which any of our directors or officers was an executive
officer at or within two years before the time of such filing. Except as set
forth in our discussion below in "Certain Relationships and Related
Transactions, and Director Independence," none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the SEC.
Section 16(A) Beneficial Ownership Reporting Compliance
We are not subject to Section 16(A) of the Exchange Act.
Code of Ethics
On March 12, 2004, our board of directors adopted a code of
ethics that applies to members of our board of directors, officers, managers,
supervisors, secretaries reporting to officers or mangers, and other employees
who may be selected from time to time. The code of ethics addresses, among other
things, ethical conduct, conflicts of interest, compliance with laws,
regulations and policies, including disclosure requirements under the federal
securities laws, confidentiality, trading on inside information, and reporting
of violations of the code. A copy of the code of ethics has been filed as
Exhibit 14.1 to our Current Report on Form 8-K filed on January 4, 2008. We are
in the process of building up the Company website. Once our website is
available, we will make the code of ethics available on the website. Thereafter,
any amendments or waivers to the code of ethics will be posted on our website
within four business days of such amendment or waiver. Until such time, however,
any amendments or waivers to our code of ethics will be filed with the SEC in a
Current Report on Form 8-K.
Nominating Committee
We do not have a standing nominating committee and our entire
board of directors currently is responsible for the functions that would
otherwise be handled by a nominating committee. However, we intend to establish
a nominating committee of the board of directors as soon as practicable. We
envision that the nominating committee would be primarily responsible for
nominating directors and setting policies and procedures for the nomination of
directors. The nominating committee would also be responsible for overseeing the
creation and implementation of our corporate governance policies and procedures.
22
Audit Committee and Audit Committee Financial Expert
We do not have an audit committee or an audit committee
financial expert serving on the audit committee. Our entire board of directors
currently is responsible for the functions that would otherwise be handled by an
audit committee. However, we intend to establish an audit committee of the board
of directors as soon as practicable. We envision that the audit committee will
be primarily responsible for reviewing the services performed by our independent
auditors, evaluating our accounting policies and our system of internal
controls. Upon the establishment of an audit committee, the board will determine
whether any of the directors qualify as an audit committee financial expert.
ITEM 10.
EXECUTIVE
COMPENSATION.
Summary Compensation Table – 2006 and 2007
There has been no compensation awarded to, earned by, or paid
to any of our named executive officers or directors during 2006 or 2007 because
we were not operating at that time.
Employment Agreements
We have verbal agreements with each of Mr. Percy K. Chin, Mr.
Chi Keung Cheng, Mr. Kelvin G. Zheng, and Mr. Xijian Zhou, who, on December 28,
2007, became our Chief Executive Officer and President, Chief Financial Officer
and Treasurer, Chief Information Officer and Secretary, and Chief Marketing
Officer, respectively. Under these verbal agreements, effective January 1, 2008,
we will pay Mr. Chin an annual salary of RMB 3,600,000, or approximately
$488,270; Mr. Cheng will be paid an annual salary of RMB 960,000, or
approximately $130,355; Mr. Zheng will be paid an annual salary of RMB 804,000,
or approximately $109,170; and Mr. Zhou will be paid an annual salary of RMB
960,000, or approximately $130,355. Under our verbal agreements, each of the
aforesaid persons will be employed in his position for one year ending December
31, 2008. In addition, each of the aforesaid persons will also be eligible for
certain medical, insurance, and pension benefits; certain variable year-end
bonuses and other cash compensation; and stock options. Mr. Zheng will also be
eligible for a housing allowance.
Outstanding Equity Awards at Fiscal Year End
None of our executive officers received any equity awards,
including, options, restricted stock or other equity incentives during the
fiscal year ended December 31, 2007.
Compensation of Directors
There have been no fees earned or paid in cash for services
to our directors. No stock or stock options or other equity incentives were
awarded to our directors during the fiscal year ended December 31, 2007. We do
not have non-equity incentive or deferred compensation plans that our directors
may participate in.
ITEM 11.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth information regarding
beneficial ownership of our common stock as of March 26, 2008 (i) by each person
who is known by us to beneficially own more than 5% of our common stock; (ii) by
each of our officers and directors; and (iii) by all of our officers and
directors as a group.
Unless otherwise specified, the address of each of the
persons set forth below is in care of The Hong Kong Winalite Group Limited, 606,
6/F, Ginza Plaza, 2A Sai Yeung Choi Street South, Mongkok, Kowloon, Hong Kong.
23
|
|
|
|
Amount and
|
|
|
|
|
|
Nature of
|
Percent
|
|
Name & Address of Beneficial
|
|
|
Beneficial
|
of
|
|
Owner
|
Office, If Any
|
Title of Class
|
Ownership
(1)
|
Class
(2)
|
|
Officers and Directors
|
|
Jingjun Hu
|
Chairperson
|
Common stock
|
43,705,000
|
87.87%
|
|
|
|
$0.001 par value
|
|
|
|
Percy K. Chin
|
Chief Executive
|
Common stock
|
400,000
|
*
|
|
|
Officer and President
|
$0.001 par value
|
|
|
|
Chi Keung Cheng
|
Chief Financial Officer
|
Common stock
|
180,000
|
*
|
|
|
and Treasurer
|
$0.001 par value
|
|
|
|
Xijian Zhou
|
Chief Marketing
|
Common stock
|
400,000
|
*
|
|
|
Officer and Director
|
$0.001 par value
|
|
|
|
Kelvin G. Zheng
|
Chief Information
|
Common stock
|
0
|
*
|
|
|
Officer, Secretary and
|
$0.001 par value
|
|
|
|
|
Director
|
|
|
|
|
All officers and directors as a
|
|
Common stock
|
44,685,000
|
89.84%
|
|
group (5 persons named above)
|
|
$0.001 par value
|
|
|
|
5% Securities Holder
|
|
Jingjun Hu
|
Chairperson
|
Common stock
|
43,705,000
|
87.87%
|
|
|
|
$0.001 par value
|
|
|
|
Total Shares Owned By Persons Named Above
|
|
|
|
Common stock
|
44,685,000
|
89.84%
|
|
|
|
$0.001 par value
|
|
|
|
* Less than 1%
|
|
|
|
|
1
Beneficial Ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power with
respect to securities. Each of the beneficial owners listed above has direct
ownership of and sole voting power and investment power with respect to the
shares of our common stock.
2
As of March 26, 2008, a total of 49,740,933 shares of
our common stock are considered to be outstanding pursuant to SEC Rule
13d-3(d)(1). For each Beneficial Owner above, any options exercisable within 60
days have been included in the denominator.
Changes in Control
There are currently no arrangements which may result in a
change in control of the Company.
Securities Authorized for Issuance under Equity Compensation
Plans
None.
ITEM 12.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
The following includes a summary of transactions since the
beginning of the 2007 fiscal year, or any currently proposed transaction, in
which we were or are to be a participant and the amount involved exceeded or
exceeds $120,000 or one percent of the average of the Company's total assets at
year end of 2006 and 2007. We believe the terms obtained or consideration that we
paid or received, as applicable, in connection with the
transactions described below were comparable to terms available or the amounts
that would be paid or received, as applicable, in arm’s-length transactions.
24
On December 28, 2007, we consummated
the transactions contemplated by a share exchange agreement, or Exchange
Agreement, with Winalite and the owners of the issued and outstanding capital
stock of Winalite, including Jingjun Hu, our Chairperson and largest
stockholder and certain of our other officers and stockholders. Pursuant to
the Exchange Agreement, we acquired 100 percent of the outstanding capital
stock of Winalite in exchange for 48,000,000 shares of our common stock. As a
result of this transaction, Ms. Hu became the beneficial owner of
approximately 87.9% of our outstanding capital stock.
-
On October 30, 2007, Winalite entered into a
financial advisory agreement, or FAA, with HFG International, Limited, a Hong
Kong corporation. Under the FAA, HFG International, Limited agreed to provide
Winalite with financial advisory and consulting services in implementing a
restructuring plan, facilitating Winalite’s going public transaction, and
advising Winalite on matters related to Winalite’s
post-going-public-transaction period. In consideration for these services, HFG
International, Limited was paid a fee of $80,000 after completion of a due
diligence investigation of Winalite and a fee of $400,000 upon the closing of
the going public transaction. Winalite also granted HFG International, Limited
certain registration rights. Timothy P. Halter, who immediately prior to
consummation of the transactions contemplated by the Exchange Agreement
beneficially owned approximately 87.5% of our issued and outstanding capital
stock, is the principal stockholder and Chief Financial Officer of HFG
International, Limited.
-
We sub-lease our current office space from
Yuelang pursuant to a verbal agreement for an indefinite term. We pay Yuelang
HK$21,503 (approximately $2,756) per month. Our Chairperson, Ms. Jingjun Hu,
was also a director of Yuelang at the time we entered into this verbal
agreement. Ms. Hu resigned as a director of Yuelang in December 2007.
-
From time to time since Winalite’s inception
in September 2007, our Chairperson, Ms. Jingjun Hu, has made loans to Winalite
in order to pay Winalite’s general and administrative expenses. As of December
31, 2007, such loans totaled approximately $121,888. The loans are short term
and non-interest bearing.
Except as set forth in our discussion above, none of our
directors, director nominees or executive officers has been involved in any
transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.
Promoters and Certain Control Persons
We did not have any promoters at any time during the past
five fiscal years.
Director Independence
We currently do not have any independent directors, as the
term "independent" is defined by the rules of the Nasdaq Stock Market.
ITEM 13.
EXHIBITS.
The following exhibits are filed as part of this report or
incorporated by reference:
|
Exhibit No.
|
|
Description
|
|
2.1
|
|
Share Exchange Agreement, dated
December 28, 2007, among the Company, The Hong Kong Winalite Group Limited
and its stockholders [incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed on January 4, 2008].
|
|
3.1
|
|
Amended and Restated Articles of
Incorporation of the Company [incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed on July 11, 2008].
|
25
|
Exhibit No.
|
|
Description
|
|
3.2
|
|
Amended and Restated Bylaws of the
Company adopted on December 28, 2007 [incorporated by reference to Exhibit
3.4 to the Company’s Current Report on Form 8-K filed on January 4, 2008].
|
|
10.1
|
|
Form of Restricted Stock Purchase
Agreement [incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on January 4, 2008].
|
|
10.2
|
|
Financial Advisory Agreement, dated
October 30, 2007, by and between HFG International, Limited and The Hong
Kong Winalite Group Limited [incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on January 4, 2008].
|
|
14.1
|
|
Business Ethics Policy & Code of
Conduct for the Company adopted on March 12, 2004 [incorporated by reference
to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on January
4, 2008].
|
|
21.1
|
|
Subsidiaries of the Company
[incorporated by reference to Exhibit 21.1 to the Company’s Current Report
on Form 8-K filed on January 4, 2008].
|
|
31.1*
|
|
Certification of Principal Executive
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
|
Certification of Principal Financial
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
|
Certifications of Principal Executive
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
|
Certifications of Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
*Filed
herewith.
|
ITEM 14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
Independent Auditor’s Fees
Pritchett, Siler & Hardy, P.C. served as our independent
accountants for the fiscal year ended December 31, 2006 and PKF Certified Public
Accountants, Hong Kong served as our independent accountants for the fiscal year
ended December 31, 2007.
During the fiscal years ended December 31, 2006 and December
31, 2007, fees for services provided by Pritchett, Siler & Hardy, P.C. and PKF
Certified Public Accountants, Hong Kong, respectively were as follows:
|
|
Year Ended December 31,
|
|
|
2006
|
2007
|
|
Audit Fees
|
$5,620
|
$20,142
|
|
Audit-Related Fees
|
$0
|
$0
|
|
Tax Fees
|
$250
|
$0
|
|
All Other Fees
|
$0
|
$0
|
|
Total
|
$5,870
|
$20,142
|
"Audit Fees" consisted of fees billed for professional
services rendered by the principal accountant for the audit of our annual
financial statements and review of the financial statements included in our Form
10-QSB or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements.
"Audit-Related Fees" consisted of fees billed for assurance
and related services by the principal accountant that were reasonably related to
the performance of the audit or review of the our financial statements and are
not reported under the paragraph captioned "Audit Fees" above.
26
"Tax Fees" consisted of fees billed for professional services
rendered by the principal accountant for tax compliance, tax advice, and tax
planning.
"All Other Fees" consisted of fees billed for products and
services provided by the principal accountant, other than the services reported
above under other captions of this Item 14.
Pre-Approval Policies and Procedures
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit
services performed by our auditors must be approved in advance by our Board to
assure that such services do not impair the auditors’ independence from us. In
accordance with its policies and procedures, our Board pre-approved the audit
and non-audit service performed by our auditor for our consolidated financial
statements as of and for the year ended December 31, 2007.
27
SIGNATURES
In accordance with Section 13 or
15(d) of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
HONG KONG WINALITE GROUP, INC.
|
|
|
|
|
|
Dated: March 31, 2008
|
|
|
|
|
|
|
|
|
By:
|
/s/ Percy K. Chin
|
|
|
|
Percy K. Chin
|
|
|
|
Chief Executive Officer
|
In accordance with the 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.
Each person whose signature appears
below hereby authorizes Percy K. Chin as attorneys-in-fact to sign on his or her
behalf, individually, and in each capacity stated below, and to file all
amendments and/or supplements to this annual report on Form 10-KSB.
|
SIGNATURE
|
|
CAPACITY
|
DATE
|
|
|
|
|
|
|
/s/Jingjun Hu
|
|
Chairperson
|
March 31, 2008
|
|
Jingjun Hu
|
|
|
|
|
|
|
|
|
|
/s/Percy K. Chin
|
|
Chief Executive Officer and President
|
March 31, 2008
|
|
Percy K. Chin
|
|
|
|
|
|
|
|
|
|
/s/Chi Keung Cheng
|
|
Chief Financial Officer and Treasurer
|
March 31, 2008
|
|
Chi Keung Cheng
|
|
|
|
|
|
|
|
|
|
/s/Xijian Zhou
|
|
Chief Marketing Officer and Director
|
March 31, 2008
|
|
Xijian Zhou
|
|
|
|
|
|
|
|
|
|
/s/Kelvin G. Zheng
|
|
Chief Information Officer and Secretary
|
March 31, 2008
|
|
Kelvin G. Zheng
|
|
|
|
28
Hong Kong Winalite Group, Inc.
(A development stage company)
Consolidated Financial Statements
For the period from September 10, 2007
(Date of inception) to December 31, 2007
(Stated in US dollars)
Hong Kong Winalite Group, Inc.
(A development stage company)
Consolidated Financial Statements
Index to Consolidated Financial Statements
|
|
Pages
|
|
|
|
|
Report of Independent Registered Public
Accounting Firm
|
F-1
|
|
|
|
|
Consolidated Statement of Loss and Other
Comprehensive Income
|
F-2
|
|
|
|
|
Consolidated Balance Sheet
|
F-3
|
|
|
|
|
Consolidated Statement of Cash Flows
|
F-4
|
|
|
|
|
Consolidated Statement of Stockholders’
(Deficit)
|
F-5
|
|
|
|
|
Notes to Consolidated Financial Statements
|
F-6 – F-11
|
Report of Independent Registered Public Accounting Firm
To the Directors and Stockholders of
Hong Kong Winalite Group, Inc.
(A development stage company)
We have audited the accompanying consolidated balance sheet
of Hong Kong Winalite Group, Inc. (the "Company") as of December 31, 2007, and
the related consolidated statements of loss and other comprehensive income,
stockholders’ (deficit) and cash flows for the period from September 10, 2007
(date of inception) to December 31, 2007. 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 audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiary as of December 31, 2007, and the results of their
operations and their consolidated cash flows for the period from September 10,
2007 (date of inception) to December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As described in Note
5 to the financial statements, the Company is a development stage company and
has an accumulated (deficit) as of December 31, 2007, these factors raise
substantial doubt about its ability to continue as a going concern. Management
plans on the continuation of the Company as a going concern include financing
the Company’s existing and future operations through additional issuance of
common stock and/or advances from the stockholders and seeking for profitable
business opportunities. However, the Company has no assurance with respect to
these plans. These financial statements do not include any adjustments that
might result from the outcome of this uncertainly.
PKF
Certified Public Accountants
Hong Kong, China
March 28, 2008
- F-1 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Consolidated Statement of Loss and Other Comprehensive Income
For the period from September 10, 2007 (date of inception) to December 31, 2007
(Stated in US Dollars)
|
|
|
|
Revenue
|
$-
|
|
|
|
|
Operating expenses
|
|
|
Administrative expenses
|
644,445
|
|
|
|
|
Loss before income taxes
|
644,445
|
|
|
|
|
Income taxes - Note 6
|
-
|
|
|
|
|
Net Loss
|
$(644,445)
|
|
|
|
|
Other comprehensive income
|
|
|
Foreign currency translation adjustments
|
2,092
|
|
|
|
|
Total comprehensive expenses
|
$(642,353)
|
|
|
|
|
Loss per share: basic and diluted - Note 7
|
$(0.01)
|
|
|
|
|
Weighted average number of shares
outstanding:
|
|
|
basic and diluted
|
48,061,626
|
See accompanying Notes to Consolidated Financial Statements
- F-2 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Consolidated Balance Sheet
As of December 31, 2007
(Stated in US Dollars)
|
ASSETS
|
|
|
Current assets
|
|
|
Other receivables
|
$7,175
|
|
Cash and cash equivalents
|
61,500
|
|
|
|
|
|
$68,675
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
|
|
|
|
LIABILITIES
|
|
|
Current liabilities
|
|
|
Accrued expenses
|
$520,320
|
|
Amount due to a director - Note 8
|
121,888
|
|
|
|
|
TOTAL LIABILITIES
|
642,208
|
|
|
|
|
COMMITMENT AND CONTINGENCIES
- Note 9
|
|
|
|
|
|
STOCKHOLDERS’ (DEFICIT)
|
|
|
Preferred stock: par value $0.001 per share;
|
|
|
authorized 1,000,000 shares; none issued and
outstanding
|
|
|
Common stock: par value $0.001 per share - Note
10
|
|
|
authorized 500,000,000 shares; issued and
|
|
|
outstanding 49,740,933 shares
|
49,741
|
|
Additional paid in capital
|
19,079
|
|
Accumulated other comprehensive income
|
2,092
|
|
Accumulated (deficit)
|
(644,445)
|
|
|
|
|
TOTAL STOCKHOLDERS’ (DEFICIT)
|
(573,533)
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
(DEFICIT)
|
$68,675
|
See accompanying Notes to Consolidated Financial Statements
- F-3 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Consolidated Statement of Cash Flows
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
|
Cash flows from
operating activities
|
|
|
Net loss
|
$(644,445)
|
|
Changes in operating assets and liabilities:
|
|
|
Accrued expenses
|
522,133
|
|
Amount due to a director
|
122,312
|
|
|
|
|
Net cash flows used in
operating activities
|
-
|
|
|
|
|
Cash flows from
financing activities
|
|
|
Proceeds from issuance of shares of Winalite
|
61,714
|
|
|
|
|
Net cash flows
provided by financing activities
|
61,714
|
|
|
|
|
Effect of exchange
rate changes on cash
|
(214)
|
|
|
|
|
Net increase in cash
and cash equivalents
|
61,500
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
-
|
|
|
|
|
Cash and cash
equivalents - end of period
|
$61,500
|
|
|
|
|
Cash paid for:
|
|
|
Interest
|
$-
|
|
Income taxes
|
$-
|
See accompanying Notes to Consolidated Financial Statements
- F-4 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Consolidated Statement of Stockholders’ (Deficit)
(Stated in US Dollars)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Common stock
|
|
Additional
|
|
|
|
other
|
|
|
|
|
No. of
|
|
|
|
paid in
|
|
Accumulated
|
|
comprehensive
|
|
|
|
|
shares
|
|
Amount
|
|
capital
|
|
(deficit)
|
|
income
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for RTO
|
48,000,000
|
|
$48,000
|
|
$(48,000)
|
|
$-
|
|
$-
|
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares of Winalite
|
-
|
|
-
|
|
61,645
|
|
-
|
|
-
|
|
61,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
1,740,933
|
|
1,741
|
|
5,434
|
|
-
|
|
-
|
|
7,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
(644,445)
|
|
-
|
|
(644,445)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
-
|
|
-
|
|
-
|
|
-
|
|
2,092
|
|
2,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
49,740,933
|
|
$49,741
|
|
$19,079
|
|
$(644,445)
|
|
$2,092
|
|
$(573,533)
|
See accompanying Notes to Consolidated Financial Statements
- F-5 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
1.
Change of company name
Effect from January 7, 2008, the company changed its
name from Gourmet Herb Growers, Inc. to Hong Kong Winalite Group Inc. (the
"Company").
2.
Corporate
information
Hong Kong Winalite Group, Inc. (the
"Company") was incorporated in the State of Nevada on January 22, 1998. The
Company’s shares are quoted for trading on the Over-The-Counter Bulletin Board
in the United States of America.
Pursuant to a Share Exchange
Agreement dated December 28, 2007, the Company acquired a 100% ownership
interest in The Hong Kong Winalite Group Limited ("Winalite"), a limited company
incorporated in Hong Kong on September 10, 2007, in consideration for the
issuance of the Company’s 48,000,000 common shares (as adjusted for a
7.352380958-for-1 reverse stock split on January 7, 2008 (the "Reverse Stock
Split")) to the former stockholders of Winalite ("Winalite Former
Shareholders").
The aforesaid transaction was
completed on December 28, 2007 and thereafter Winalite became a wholly owned
subsidiary of the Company and Winalite Former Stockholders became the majority
stockholders of the Company. This transaction constituted a reverse takeover
transaction ("RTO").
3.
Description of business
The Company is a development stage company. Following
the RTO as detailed in note 2, the Company through its subsidiary plans to
market and sell personal health and hygiene products.
4.
Basis of presentation
Pursuant to the Share Exchange
Agreement dated on December 28, 2007, the Company issued 48,000,000 shares as
adjusted for Reverse Stock Split of common stock, par value $0.001 per share, to
the Winalite Former Stockholders, representing 96.5% of the Company
post-exchange issued and outstanding common stock, in exchange for 100% of the
outstanding capital stock of Winalite.
The RTO has been accounted for as a
recapitalization of the Company whereby the historical financial statements and
operations of Winalite become the historical financial statements of the
Company, with no adjustment to the carrying value of the assets and liabilities.
The 1,740,933 shares as adjusted of the Company outstanding prior to the RTO are
accounted for at $7,175 of net book value at the time of the RTO. The
accompanying consolidated financial statements reflect the recapitalization of
the stockholders’ (deficit) as if the transaction occurred as of the beginning
of the period presented.
-F-6 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
5.
Summary of significant accounting
policies
Continuance of operations
These consolidated financial
statements are prepared on a going concern basis, which considers the
realization of assets and satisfaction of liabilities in the normal course of
business. As of December 31, 2007, the Company had working (deficit) of
$573,533, stockholders’ (deficit) of $573,533 and accumulated (deficit) of
$644,445 respectively. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
Management plans on the continuation
of the Company as a going concern include financing the Company’s existing and
future operations through additional issuance of common stock and/or advances
from the stockholders and seeking for profitable business opportunities.
However, the Company has no assurance with respect to these plans. The
accompanying consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Cash and cash equivalents
Cash equivalents comprise highly
liquid investments with initial maturities of three months or less to be cash
equivalents.
Basic and diluted earnings per
share
The Company reports basic earnings
per share in accordance with SFAS No. 128, "Earnings Per Share". Basic earnings
per share is computed using the weighted average number of shares outstanding
during the period presented. The weighted average number of shares of the
Company represents the common stock outstanding during the reporting period.
During the reporting period, the
Company had no dilutive instruments. Accordingly, the basic and diluted earnings
per share are the same.
Income taxes
The Company uses the asset and
liability method of accounting for income taxes pursuant to SFAS No. 109
"Accounting for Income Taxes". Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and loss
carryforwards and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Off-balance sheet arrangements
The Company does not have any
off-balance sheet arrangements.
- F-7 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
5.
Summary of significant accounting
policies (Cont’d)
Foreign
currency translation
The functional currency of the
Company is Hong Kong dollars ("HKD"). The Company maintains its financial
statements in the functional currency. Monetary assets and liabilities
denominated in currencies other than the functional currency are translated into
the functional currency at rates of exchange prevailing at the balance sheet
date. Transactions denominated in currencies other than the functional currency
are translated into the functional currency at the exchanges rates prevailing at
the dates of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income for the
period.
For financial reporting purposes, the
financial statements of the Company which are prepared using the functional
currency have been translated into United States dollars ("US dollars"). Assets
and liabilities are translated at the exchange rates at the balance sheet dates
and revenue and expenses are translated at the average exchange rates and
stockholders’ equity is translated at historical exchange rates. Any translation
adjustments resulting are not included in determining net income but are
included in foreign exchange adjustment to other comprehensive income, a
component of stockholders’ equity. The exchange rate in effect at December 31,
2007 was HKD1.00 for $0.1281. There is no significant fluctuation in exchange
rate for the conversion of HKD to US dollars after the balance sheet date.
Fair value of financial instruments
The carrying values of the Company’s financial
instruments, including accrued expenses and amount due to a director approximate
their fair values due to the short-term maturity of such instruments.
It is management’s opinion that the Company is not
exposed to significant interest, price or credit risks arising from these
financial instruments.
Recently issued accounting pronouncements
In July 2006, the Financial
Accounting Standards Board ("FASB") issued FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"). This interpretation
requires that we recognize in our 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 as of the beginning of our 2007 fiscal year. The adoption of FIN 48
has no material effect on our financial statements.
- F-8 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
5.
Summary of significant
accounting policies (Cont’d)
Recently issued accounting pronouncements (Cont’d)
In September 2006, the FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 157 "Fair Value
Measurement" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements.
This Statement shall be effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. Earlier application is encouraged, provided that the reporting entity has
not yet issued financial statements for that fiscal year, including any
financial statements for an interim period within that fiscal year. The
provisions of this statement should be applied prospectively as of the beginning
of the fiscal year in which this Statement is initially applied, except in some
circumstances where the statement shall be applied retrospectively. The early
adoption of SFAS 157 has no material effect on our financial statements.
In February 2007, the FASB issued
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS 159").
SFAS 159 permits entities to choose to measure many financial instruments and
certain other items at fair value. Entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option may be elected on an instrument-by-instrument basis,
with few exceptions. SFAS 159 also establishes presentation and disclosure
requirements to facilitate comparisons between companies that choose different
measurement attributes for similar assets and liabilities. The requirements of
SFAS 159 are effective for our fiscal year beginning January 1, 2008. We are in
the process of evaluating this guidance and therefore have not yet determined
the impact that SFAS 159 will have on our financial statements upon adoption.
In December 2007, the FASB issued
SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51". SFAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The guidance will become effective for the
fiscal year beginning after December 15, 2008. The management is in the process
of evaluating the impact that SFAS 160 will have on the Company’s financial
statements upon adoption.
In December 2007, the FASB issued
SFAS No. 141 (Revised) "Business Combinations". SFAS 141 (Revised) establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The guidance will become effective for the
fiscal year beginning after December 15, 2008. The management is in the process
of evaluating the impact that SFAS 141 (Revised) will have on the Company’s
financial statements upon adoption.
- F-9 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
6.
Income taxes
|
|
Loss before income taxes
|
$(644,445)
|
|
|
|
|
|
|
Expected benefit at statutory rate of 17.5%
|
$(112,778)
|
|
|
Non-deductible expenses
|
106,865
|
|
|
Valuation allowance
|
5,913
|
|
|
|
|
|
|
|
$-
|
|
|
|
|
|
|
Recognized deferred income tax asset is as
follows :-
|
|
|
|
|
|
|
|
Operating losses available for future periods
|
$5,913
|
|
|
Valuation allowance
|
(5,913)
|
|
|
|
|
|
|
|
-
|
The Company is subject to the United
States of America tax law. No provision for the US federal income tax has been
made as the Company had no taxable income for the reporting period. The
statutory tax rate is 34%.
The Company’s subsidiary operating in Hong Kong is
subject to profits tax rate of 17.5% on the estimated assessable profits during
the reporting period.
As of December 31, 2007, Winalite had
operating losses carried forward of $33,786 that can be utilized for an
unlimited period of time. The management determined that the operating losses
did not meet the realization criteria and thereby full valuation allowance was
made against the deferred tax asset.
7.
Net loss per share
During the reporting period, the Company did not
issue any dilutive instruments. Accordingly, the reported basic and diluted loss
per share is the same.
8.
Amount due to a director
The amount is interest-free, unsecured and repayable
on demand.
9.
Commitment and contingencies
The Company had no commitments or contingent
liabilities as of December 31, 2007.
- F-10 -
Hong Kong Winalite Group, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
For the period from September 10, 2007 (date of incorporation) to December 31,
2007
(Stated in US Dollars)
10.
Common stock and additional
paid-in capital
|
|
|
Common stock
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
shares as
|
|
|
|
|
|
|
|
adjusted for
|
|
|
|
Additional
|
|
|
|
Reverse
|
|
|
|
paid-in
|
|
|
|
Stock Split
|
|
Amount
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for RTO
|
48,000,000
|
|
$48,000
|
|
$(48,000)
|
|
|
Issuance of shares of Winalite
|
-
|
|
-
|
|
61,645
|
|
|
Recapitalization
|
1,740,933
|
|
1,741
|
|
5,434
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
49,740,933
|
|
$49,741
|
|
$19,079
|
(a)
On December 28,
2007, the Company issued 48,000,000 shares as adjusted for Reverse Stock Split
of common stock, par value $0.001 per share, to Winalite Former Stockholders in
exchange for 100% of the outstanding capital stock of Winalite.
(b)
The Company’s
issued and outstanding number of common stock immediately prior to the RTO is
1,740,933 shares as adjusted for Reverse Stock Split are accounted for at $7,175
of net book value at the time of the RTO.
(c)
On January 7,
2008, the Company implemented a 7.352380958-for-1 Reverse Stock Split.
Immediately following the Reverse Stock Split, the Company has 49,740,933 shares
of common stock issued and outstanding. The effect of Reverse Stock Split has
been retroactively reflected in these financial statements. All references to
weighted average shares outstanding and per share amounts included in the
accompanying financial statements and notes reflect the Reverse Stock Split and
its retroactive effects.
11.
Stock incentive
plan
The Company has not established any
stock incentive plan since its incorporation.
12.
Related party
transactions
Apart from the transactions as
disclosed in note 8 to the financial statements, Winalite sub-lease its office
space from Hong Kong Yuelang International Electronic Commerce Co., Limited ("Yuelang")
pursuant to a verbal agreement for an indefinite term with monthly rental at
approximately $2,756. During the reporting period, Winalite paid approximately
$10,137 to Yuelang for above office space. Ms. Jingjun Hu, a director of the
Company, was also a director of Yueland at the time Winalite entered into this
verbal agreement. Ms. Hu Jingjun resigned as a director of Yuelang in December
2007.
13.
Subsequent
events
The directors and stockholders of the
Company have approved a 7.352380958-for-1 Reverse Stock Split and to change the
Company’s name from Gourmet Herb Growers, Inc. to Hong Kong Winalite Group,
Inc., which were effective from January 7, 2008.
- F-11 -
EXHIBIT INDEX
|
Exhibit No.
|
|
Description
|
|
2.1
|
|
Share Exchange Agreement, dated
December 28, 2007, among the Company, The Hong Kong Winalite Group Limited
and its stockholders [incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed on January 4, 2008].
|
|
3.1
|
|
Amended and Restated Articles of
Incorporation of the Company [incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed on July 11, 2008].
|
|
3.2
|
|
Amended and Restated Bylaws of the
Company adopted on December 28, 2007 [incorporated by reference to Exhibit
3.4 to the Company’s Current Report on Form 8-K filed on January 4, 2008].
|
|
10.1
|
|
Form of Restricted Stock Purchase
Agreement [incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on January 4, 2008].
|
|
10.2
|
|
Financial Advisory Agreement, dated
October 30, 2007, by and between HFG International, Limited and The Hong
Kong Winalite Group Limited [incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on January 4, 2008].
|
|
14.1
|
|
Business Ethics Policy & Code of
Conduct for the Company adopted on March 12, 2004 [incorporated by reference
to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on January
4, 2008].
|
|
21.1
|
|
Subsidiaries of the Company
[incorporated by reference to Exhibit 21.1 to the Company’s Current Report
on Form 8-K filed on January 4, 2008].
|
|
31.1*
|
|
Certification of Principal Executive
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
|
Certification of Principal Financial
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
|
Certifications of Principal Executive
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
|
Certifications of Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
*Filed
herewith.
|
Hong Kong Winalite (GM) (USOTC:HKWO)
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