UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C.20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): October 1, 2010
G2 VENTURES,
INC.
(Exact
name of registrant as specified in its charter)
Texas
|
|
333-108715
|
|
98-0221494
|
(State
or other jurisdiction of incorporation)
|
|
(Commission
File
Number)
|
|
(IRS
Employer
Identification
No.)
|
16
th
Floor, Tianjin Global Zhiye Square, 309 Nanjing Road,
Nankai
District, Tianjin, PRC
|
|
300100
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: 86-22-58896888
N/A
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (
see
General Instruction A.2. below):
¨
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
TABLE
OF CONTENTS
Item No.
|
|
Description of Item
|
|
Page
No.
|
|
|
|
|
|
Item
1.01
|
|
Entry
Into a Material Definitive Agreement
|
|
5
|
Item
2.01
|
|
Completion
of Acquisition or Disposition of Assets
|
|
6
|
Item
3.02
|
|
Unregistered
Sales of Equity Securities
|
|
68
|
Item
4.01
|
|
Changes
in Registrant’s Certifying Accountant
|
|
68
|
Item
5.06
|
|
Change
in Shell Company Status
|
|
68
|
Item
9.01
|
|
Financial
Statements and Exhibits
|
|
69
|
CONVENTIONS
THAT APPLY TO THIS CURRENT REPORT ON FORM 8-K
Except
where the context otherwise requires and for purposes of this Current Report on
Form 8-K only:
|
·
|
“we,”
“us,” “our company,” “our,” “the Company” and “G2 Ventures” refer to G2
Ventures, Inc., its consolidated subsidiaries, namely Dynamic Elite
International Limited, a British Virgin Islands limited liability company
(“Dynamic Elite”), Tianjin Junhe Enterprise Management Consulting Co.,
Ltd., a PRC incorporated company (“Junhe Consulting”), and its operating
entities, namely Tianjin JowayShengshi Group Co., Ltd. (“Joway Group”),
Liaoning Joway Technology Engineering Co., Ltd. (“Joway Technology”),
Tianjin Joway Decoration Engineering Co., Ltd. (“Joway Decoration”) and
Tianjin Oriental Shengtang Import & Export Trading Co.,
Ltd.(“Shengtang Trading”), four PRC
companies.
|
|
·
|
references to the “Bulletin
Board,” the “OTC Bulletin Board” are to the Over-the-Counter Bulletin
Board, a securities quotation service, which is accessible at the website
www.otcbb.com.
|
|
·
|
references to PRC Operating
Entities’ “registered capital” are to the equity of PRC Operating
Entities, which under PRC law is measured not in terms of shares owned but
in terms of the amount of capital that has been contributed to a company
by a particular shareholder or all shareholders. The portion of a limited
liability company’s total capital contributed by a particular shareholder
represents that shareholder’s ownership of the company, and the total
amount of capital contributed by all shareholders is the company’s total
equity. Capital contributions are made to a company by deposits into a
dedicated account in the company’s name, which the company may access in
order to meet its financial needs. When a company’s accountant certifies
to PRC authorities that a capital contribution has been made and the
company has received the necessary government permission to increase its
contributed capital, the capital contribution is registered with
regulatory authorities and becomes a part of the company’s “registered
capital.”
|
|
·
|
“China” or “PRC” refers to the
People’s Republic of China, excluding Taiwan and the Special
Administrative Regions of Hong Kong and
Macau;
|
|
·
|
all references to “Renminbi” or
“RMB” are to the legal currency of China;
and
|
|
·
|
all references to “U.S. dollars,”
“dollars,” or “$” are to the legal currency of the United
States.
|
Amounts
may not always add to the totals due to rounding.
Unless
otherwise noted, all translations from Renminbi to U.S. dollars usingthe
exchange rate refers to the exchange rate quoted on http://www.xe.com on October
6, 2010, being $1.00=RMB 6.6928. We make no representation that the RMB amounts
referred to in this Current Report on Form 8-K could have been or could be
converted into U.S. dollars at any particular rate or at all.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Current Report on Form 8-K or Form 8-K and other reports filed by us from time
to time with the Securities and Exchange Commission (collectively the “
Filings
”) contain or
may contain forward-looking statements and information that are based upon
beliefs of, and information currently available to, our management as well as
estimates and assumptions made by our management. When used in the filings the
words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”
or the negative of these terms and similar expressions as they relate to us or
our management identify forward looking statements. Such statements reflect the
current view of our management with respect to future events and are subject to
risks, uncertainties, assumptions and other factors (including the risks
contained in the section of this report entitled “Risk Factors”) as they relate
to our industry, our operations and results of operations, and any businesses
that we may acquire. Should one or more of the events described in these risk
factors materialize, or should our underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed,
estimated, expected, intended or planned.
Although
we believe that the expectations reflected in the forward looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the U.S.
federal securities laws, we do not intend to update any of the forward-looking
statements to conform them to actual results. The following discussion should be
read in conjunction with our pro forma financial statements and the related
notes that will be filed herein.
Item
1.01. Entry into a Material Definitive
Agreement
On
October 1, 2010, we entered into and consummated a Share Exchange Agreement with
Crystal Globe Limited (“Crystal Globe”), the sole shareholder of Dynamic Elite
International Limited (“Dynamic Elite”) and Dynamic Elite to acquire all the
issued and outstanding capital stock of Dynamic Elite, a British Virgin Islands
company, in exchange for the issuance to Crystal Globe 15,215,426
restricted shares of our common stock (the “Reverse
Merger”).
Immediately
after the closing of the Reverse Merger, we have a total of 20,000,000 issued
and outstanding shares of common stock. As a result of the Reverse
Merger, Dynamic Elite is now our wholly-owned
subsidiary. Dynamic Elite is the holding company of all the
equity interest of Tianjin Junhe Management Consulting Co., Ltd. (“Junhe
Consulting”), a PRC incorporated company.
On
September 16, 2010, prior to the Reverse Merger, Junhe Consulting and Tianjin
JowayShengshi Group Co., Ltd. (“Joway Group”), a PRC company, entered into a
series of agreements known as variable interest agreements (the “VIE
Agreements”) pursuant to which Joway Group became Junhe Consulting’s
contractually controlled affiliate.
Through
Junhe Consulting, we effectively and substantially control Joway Group and its
three wholly owned subsidiaries, namely Liaoning Joway Technology Engineering
Co., Ltd. (“Joway Technology”), Tianjin Oriental Shengtang Import & Export
Trading Co., Ltd.(“Shengtang Trading”) and Tianjin Joway Decoration
Engineering Co., Ltd.(“Joway Decoration”)
See “Our
PRC Operating Entities” under Item 2.01 for further information on Joway Group
and its subsidiaries.
The VIE
Agreements are a common structure used to control PRC corporations in certain
circumstances, particularly when it is not feasible to use cash to acquire such
companies. The VIE Agreements include:
|
·
|
a
Consulting Services Agreement through which Junhe Consulting has the right
to advise, consult, manage and operate Joway Group and collect and own all
of the net profits of Joway Group;
|
|
·
|
an
Operating Agreement through which Junhe Consulting has the right to
recommend director candidates and appoint the senior executives of Joway
Group, approve any transactions that may materially affect the assets,
liabilities, rights or operations of Joway Group, and guarantee the
contractual performance by Joway Group of any agreements with third
parties, in exchange for a pledge by Joway Group of its accounts
receivable and assets;
|
|
·
|
a
Proxy Agreement under which the two owners of Joway Group have vested
their collective voting control over Joway Group to Junhe Consulting and
will only transfer their respective equity interests in Joway Group to
Junhe Consulting or its
designee(s);
|
|
·
|
an
Option Agreement under which the owners of Joway Group have granted to
Junhe Consulting the irrevocable right and option to acquire all of their
equity interests in Joway Group;
and
|
|
·
|
an
Equity Pledge Agreement under which the owners of Joway Group have pledged
all of their rights, titles and interests in Joway Group to Junhe
Consulting to guarantee Joway Group’s performance of its obligations under
the Consulting Services Agreement.
|
Because
of the common control between Dynamic Elite, Junhe Consulting, Joway Group and
its wholly owned subsidiaries, for accounting purposes, the acquisition of these
entities has been treated as a recapitalization with no adjustment to the
historical basis of their assets and liabilities. The restructuring has been
accounted for using the “as if” pooling method of accounting and the operations
were consolidated as if the restructuring had occurred as of the beginning of
the earliest period presented in our consolidated financial statements and the
current corporate structure had been in existence throughout the periods covered
by our consolidated financial statements.
As a result of the VIE Agreements and
the Reverse Merger, Dynamic Elite, our wholly owned subsidiary, owns 100% of the
equity of Junhe Consulting, which in turn, through the VIE Agreements,
effectively and substantially controls Joway Group and its subsidiaries. As a
result of the Reverse Merger, we are now engaged in the manufacture and sale of
tourmaline-related healthcare products through Joway Group and its subsidiaries
(collectively, the “PRC Operating Entities”).
We claim
an exemption from the registration requirements of the Securities Act of 1933,
as amended (the “Act”) for the private placement of the shares of our
common stock to Crystal Globe pursuant to Section 4(2) of the Act and/or
Regulation D promulgated thereunder since, among other things, the transaction
did not involve a public offering, the recipient is an accredited
investor and had access to information about our company and their
investment, the recipient took the securities for investment and not resale, and
our company took appropriate measures to restrict the transfer of the
securities.
Item
2.01 Completion of Acquisition or
Disposition of Assets
As
described in Item 1.01 above, on October 1, 2010, we acquired all the issued and
outstanding shares of Dynamic Elite pursuant to the Share Exchange Agreement and
Dynamic Elite became our wholly owned subsidiary. The acquisition was accounted
for as a recapitalization effected by a share exchange, wherein Dynamic Elite is
considered the acquirer for accounting and financial reporting purposes. The
assets and liabilities of Dynamic Elite have been brought forward at their book
value and no goodwill has been recognized.
FORM
10 DISCLOSURE
As
disclosed elsewhere in this report, on October 1, 2010, we acquired Dynamic
Elite in a Reverse Merger acquisition transaction. Item 2.01(f) of Form 8-K
states that if the registrant were a shell company as we were immediately before
the Reverse Merger transaction disclosed under Item 2.01, then the registrant
must disclose the information that would be required if the registrant were
filing a general form for registration of securities under the Exchange Act on
Form 10.
Accordingly,
we are providing below the information that would be included in a Form 10
registration statement. Please note that the information provided below relates
to the combined enterprises after the acquisition of Dynamic Elite, except that
information relating to periods prior to the date of the Reverse Merger only
relate to Dynamic Elite and its subsidiaries unless otherwise specifically
indicated.
CORPORATE
STRUCTURE AND HISTORY
Corporate
Structure
We are a
Texasholding company for our direct and indirect subsidiaries in the BVI and the
PRC. We own all of the issued and outstanding capital stock of Dynamic Elite, a
BVI corporation. Dynamic Elite is a holding company that owns 100% of the
outstanding capital stock of Junhe Consulting, a PRC company.
Because
it was not feasible for us to acquire PRC companies for cash pursuant to PRC
laws and regulations, we, through Junhe Consulting entered into VIE Agreements
on September 16, 2010 with Joway Group pursuant to which Joway Group became
Junhe Consulting’s contractually controlled affiliate.
Joway
Group has three wholly owned subsidiaries, namely Joway Technology,Shengtang
Trading and Joway Decoration, involved in the tourmaline-related healthcare
products business, We control Joway Group, Joway Technology,Shengtang
Trading and Joway Decoration (collectively referred to as the “PRC Operating
Entities”) through the VIE Agreements.These contracts are summarized below.
Please also refer to the full text of the contracts, which are filed as exhibits
to this report.
These VIE
Agreements include:
|
·
|
a
Consulting Services Agreement through which Junhe Consulting has the right
to advise, consult, manage and operate Joway Group and collect and own all
of the net profits of Joway Group;
|
|
·
|
an
Operating Agreement through which Junhe Consulting has the right to
recommend director candidates and appoint the senior executives of Joway
Group, approve any transactions that may materially affect the assets,
liabilities, rights or operations of Joway Group, and guarantee the
contractual performance by Joway Group of any agreements with third
parties, in exchange for a pledge by Joway Group of its accounts
receivable and assets;
|
|
·
|
a
Proxy Agreement under which the two owners of Joway Group have vested
their collective voting control over Joway Group to Junhe Consulting and
will only transfer their respective equity interests in Joway Group to
Junhe Consulting or its
designee(s);
|
|
·
|
an
Option Agreement under which the owners of Joway Group have granted to
Junhe Consulting the irrevocable right and option to acquire all of their
equity interests in Joway Group;
and
|
|
·
|
an
Equity Pledge Agreement under which the owners of Joway Group have pledged
all of their rights, titles and interests in Joway Group to Junhe
Consulting to guarantee Joway Group’s performance of its obligations under
the Consulting Services Agreement.
|
We
believe that the terms of these agreements are no less favorable than the terms
that we could obtain from disinterested third parties. According to our PRC
counsel, AllbrightLaw Offices, our conduct of business through these agreements
complies with existing PRC laws, rules and regulations.
As a
result of these contractual arrangements, Joway Group became our controlled VIE.
A variable interest represents a contractual or ownership interest in another
entity that causes the holder to absorb the changes in fair value of the other
entity’s net assets. Potential variable interests include: holding economic
interests, voting rights, or obligations to an entity; issuing guarantees on
behalf of an entity; transferring assets to an entity; managing the assets of an
entity; leasing assets from an entity; and providing financing to an entity. In
such cases consolidation of the VIE is required by the enterprise that controls
the economic risks and rewards of the entity, regardless of ownership. We have
consolidated the PRC Operating Entities’ historical financial results in our
financial statements as a variable interest entity pursuant to U.S.
GAAP.
All of
our business operations are conducted through our PRC Operating Entities. The
chart below sets forth our corporate structure.
Our
Corporate History and Background
We were
formed as a Texas corporation on March 21, 2003 to acquire most of the assets
and certain liabilities of and succeed the business of G2 Companies, Inc.,
(formerly Hartland Investment, Inc.), as an independent recording company and
artist management company.
On April
1, 2003, we acquired the business, most of the assets and assumed liabilities of
G2 Companies, Inc., a music recording and production company. At the time of
such acquisition, Gust Kepler, our principal shareholder, sole officer, director
and employee, also served as an officer, director and was the sole shareholder
of G2 Companies, Inc., the seller. The acquisition of assets and the assumption
of liabilities from G2 Companies, Inc. were not conducted at “arm’s length” due
to Mr. Kepler’s interest in both companies.
On May
13, 2008, through a registered offering, we offered up to 1,500,000 shares of
our common stock on a self-underwritten basis at a price of $0.10 per share with
a minimum offering of 1,200,000 shares and a maximum offering of 1,500,000
shares (the “Offering”). The shares were offered and sold by the Company
throughour previous Chief Executive Officer, Mr. Gust C. Kepler through December
3, 2008, when we terminated the Offering after subscribing 1,284,574 shares and
raising an aggregate of $128,457, before costs of the Offering.
Our
common stock began trading on the Over-the-Counter Bulletin Board (“OTCBB”)
under the symbol “GTVI” on September 11, 2009.
Prior to
the Reverse Merger, we were a development stage music recording, production and
artist management company that had limited operations, primarily due to our
inability to raise sufficient capital.
On September 21, 2010, Mr. Kepler
entered into a Stock Purchase Agreement to sell to Crystal Globe Limited, a
British Virgin Islands company (“Crystal Globe”) all his 3,300,000 shares of
common stock in the Company, representing approximately 68.97% of the issued and
outstanding capital stock of the Company. The transaction closed on September
28, 2010. In connection with the sale, Mr. Kepler resigned as our
sole officer and director and appointed Crystal Globe’s nominees, Mr. Jinghe
Zhang as our new President ,Chief Executive Officer and sole director and Mr.
Yuan Huang as our new Chief Financial Officer, Secretary and Treasurer on that
date. As a result, on September 28, 2010, there was a change in
control of the Company.
Acquisition
of Dynamic Elite
On
October 1, 2010, we entered into and consummated a Share Exchange Agreement with
Crystal Globe, the sole shareholder of Dynamic Elite and Dynamic Elite to
acquire all the issued and outstanding capital stock of Dynamic Elite, a British
Virgin Islands company, in exchange for the issuance to Crystal Globe
of 15,215,426 restricted shares of our common stock. As of result of
this Reverse Merger, Crystal Globe owns a total of 18,515,426 shares of our
common stock or approximately 92.58% of our total and issued shares of common
stock and is our single largest shareholder.
As
described above, because of our acquisition of Dynamic Elite, we now control,
through Junhe Consulting, the PRC Operating Entities under the VIE Agreements
and are now involved in the manufacture and sale of tourmaline-related
healthcare products.
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
Junhe
Consulting was established in the PRC on September 15, 2010. Dynamic
Elite currently owns 100% of Junhe Consulting. On September 9, 2010,
the local government of the PRC issued a certificate of approval regarding the
foreign ownership of Junhe Consulting by Dynamic Elite, a British Virgin Islands
entity. Jinghe Zhang serves as the executive director of Junhe
Consulting.
Our
PRC Operating Entities
Joway
Group, our primary operating entity, was incorporated on May 17, 2007 in the PRC
as a limited liability company under the name of “Tianjin Joway Textile Co.,
Ltd.” It changed its name to Tianjin Joway Shengshi Group Co., Ltd. on November
24, 2009. Its original registered capital was RMB 5,000,000, which was increased
to RMB 50,000,000 on March 16, 2009.Its term of operation is from May 17, 2007
to May 16, 2022. Mr. Jinghe Zhang serves as the Executive Directors and General
Manager of Joway Group and owns 99% of the equity interest in Joway
Group. Baogang Song owns the remaining 1% of the equity interest of
Joway Group. Joway Group owns 100% equity interest in each of Joway
Technology, Joway Decoration, and Shengtang Trading.
Joway
Technology was incorporated under the PRC laws on March 28, 2007, with a
registered capital of RMB 1,100,000. Its term of operation is from March 28,
2007 to March 27, 2017. Its business scope is intelligent engineering design and
construction; development and sales of electronics, water filters, sales of
groceries and decoration project.
Joway
Decoration was incorporated under the PRC laws on April 22, 2009, with a
registered capital of RMB 2,000,000. Its term of operation is from April 22,
2009 to April 21, 2019. Its business scope is decoration projects, intelligent
electric heating project design and construction, development and sales of
electronics technology, sales of groceries, water filters, manufacture and sales
of wood products.
Shengtang
Trading was incorporated under the PRC laws on September 18, 2009, with a
registered capital of RMB 2,000,000. Its term of operation is from September 18,
2009 to September 17, 2029. Its scope of business is the import and export of
merchandise and technology; knitwear, groceries, biochemistry (excluding toxic
chemicals and drugs that are easily manufactured), and wholesale and retail of
hardware.
Overview
We are
through our PRC Operating Entities, engaged in the manufacture and sales of
tourmaline-related healthcare products.
As of
October 6, 2010, we have approximately 128 employees.
Our
principal executive offices are located at16th Floor, Tianjin Global Zhiye
Square, 309 Nanjing Road, Nankai District, Tianjin, PRC 300100.
Introduction
to Tourmaline
Tourmaline
is the most important raw material we use in the manufacture of our healthcare
products. It is a crystalsilicate mineral compounded with elements such as
aluminum, iron, magnesium, sodium, lithium, or potassium. Tourmaline is
classified as a semi-precious stone and the gem comes in a wide variety of
colors. (Source: http://en.wikipedia.org/wiki/Tourmaline)
Tourmaline
hasthe ability to become its own source of electric charge, as it is both
pyroelectric, as well as piezoelectric. When it is put under greater amounts of
pressure or when it is dramatically heated or cooled, tourmaline creates an
electrical charge capable of emitting far infrared rays (“FIR”) and negative
ions. (Source: http://www.globalhealingcenter.com/tourmaline.html)
FIRs are
invisible waves of energy capable of penetrating deep into the human body, where
they gently elevate the body's surface temperature and activate major bodily
functions. Negative ions are atoms that have a negative electric charge. It is
believed that FIRs and negative ions gently heal, soothe, stimulate and detox
the physical body, as well as the mind. (Source:
http://www.globalhealingcenter.com/tourmaline.html)
Because
it is a permanent source of FIRs and negative ions, tourmaline is believed to
have the advantage of improving human body circulation, relieving stress,
increasing mental alertness and strengthening the immune system function
(Source: Niwa Institute for Immunology, Japan. Int J. Biometeorol 1993 Sep;
37(3) 133-8). In view of its powerful health benefits, tourmaline has been used
to manufacture a wide range of healthcare products, including apparel, bedding,
water purifiers, sauna rooms, and personal care products.
We
purchase liquid tourmaline from domestic companies which, in turn, import it
from South Korea. Liquid tourmaline is readily available and its price has
remained relatively stable. We have not experienced any shortage in tourmaline
but as a precaution, we closely monitor its price and have several back-up
suppliers.
Manufacture
Process
In order
to take advantage of Tourmaline’s health benefits, we coat or infuse liquid
tourmaline or granular tourmaline into our products using the following
methods:
The
Spray Method
We use
special high-pressure nozzle to spray liquid tourmaline onto the surface of the
products. Through this process, the tourmaline particles attach onto the surface
of the product. We then use a high-temperature ironing machine to embed the
tourmaline particles into the fibresof the product so that the powdered
tourmaline will not fall off. This method is used in the manufacture of single
large piece of textile products, such as mattresses.
The
Dip Method
We
completely immerse fabrics into liquid tourmaline. We then stir the fabrics in
the liquid tourmaline to ensure the tourmaline particles attach to the surface
of the fabrics. Finally, we embed the tourmaline particles into the fibres of
our products by applying heat with our special high-temperature ironing
machine. This method is used in the manufacture of smaller products,
such as underwear, scarves, and shirts.
The
Filling Method
We fill
the tourmaline particles directly into components of our products. This method
is used to make activated water machine and other water treatment
products.
The three
methods mentioned above are key to our manufacturing process. We protect our
manufacturing methods via confidentiality agreements entered into between us and
our employees.Pursuant to the confidentiality agreement, the employee is
prohibited from unlawfully revealing and using our confidential technology
during his term of employment and ten years after the termination of employment.
We also plan to submit patent application for the dipmethod in the
PRC.
Our
Products and Services
We
primarily manufacture the following three series of tourmaline-related
healthcare products:
1.
|
Healthcare
Knit Goods Series
|
For the
fiscal years ended December 31, 2008 and 2009, our healthcare knit goods series
products accounted for approximately 3.5% and 55.4% of our annual sales revenue,
respectively. This series comprises tourmaline treated mattress, bed linen,
underwear, and shirt products. We use either the spray or dip method to embed
tourmaline particles into the fabric of this series of products. The
tourmaline-treated apparel and bedding provide an electrical stimulus to the
wearer's or user’s body and improve their health.
Set forth
below is a list of products in the Healthcare Knit Goods Series, the trademarks
or marks under which they are marketed and the manufacturing method
employed:
No.
|
|
Products
|
|
Trademark/Mark
|
|
Manufacturing
Method
|
1
|
|
Golden
Mattress
|
|
|
|
Spray
Method
|
2
|
|
Tourmaline
Mattress
|
|
|
|
Spray
Method
|
3
|
|
Tourmaline
Undergarment
|
|
|
|
Dip
Method
|
4
|
|
Tourmaline
Bed Linens
|
|
|
|
Spray
Method
|
5
|
|
Tourmaline
Male Shirts
|
|
|
|
Dip
Method
|
2.
|
Daily
Healthcare and Personal Care Series
|
For the
fiscal years ended December 31, 2008 and 2009, our daily healthcare and personal
care series products accounted for approximately 0% and 16% of our annual sales
revenue, respectively. This series comprises tourmaline-treated wrist
protectors,knee protector, scarves, shampoo and soap products. We use
the spray or dip or filling methods to embed the tourmaline particles into the
products in this series. We believe these tourmaline-treated daily
healthcare products and personal care products produce FIRs and negative ions
which stimulate blood circulation in capillary vessels and deliver incredible
benefits to users both physically and mentally.
Set forth
below is a list of our products in the Daily Healthcare and Personal Care
Series, the trademarks or marks under which they are marketed and the
manufacturing method employed:
No.
|
|
Products
|
|
Trademark/Mark
|
|
Manufacture
Method
|
1
|
|
Tourmaline
Wrist Protector
|
|
|
|
Spray
Method
|
2
|
|
Tourmaline
Knee Protector
|
|
|
|
Spray
Method
|
3
|
|
Tourmaline
Scarves
|
|
|
|
Dip
Method
|
4
|
|
Tourmaline
Shampoo
|
|
|
|
Filling
Method
|
5
|
|
Tourmaline
Soap
|
|
|
|
Filling
Method
|
6
|
|
Tourmaline
Socks
|
|
|
|
Dip
Method
|
3.
|
Wellness
House and Activated Water Machine
|
For the
years ended December 31, 2008 and 2009, our wellness house and activated water
machine series products accounted for approximately 96.5% and 28.5% of our
annual sales revenue, respectively. This series mainly includes tourmaline
wellness houses, tourmaline wellness house materials, tourmaline activated water
machines and drinking mugs. Our tourmaline wellness house resembles a regular
sauna room in which users experience heat sessions. However, the inner layer of
our wellness house is coated with tourmaline, which emits FIRs and negative
icons when heated. Tourmaline wellness housesare currently employed for the
purpose of stimulating perspiration of users to improve their health.It is
believed that the user will feel more rejuvenated after using our tourmaline
wellness house.We mainly manufacture two types of wellness houses: one for
family use, which is designed to be installed in the corner of a room and can
seat one to eight people depending on its size; the other is customized and
constructed on site for commercial bathrooms or spas in according to their
specifications.
Below is
a list of different models of our Wellness House for family use:
Model
|
|
Trademark/Mark
|
|
Material
|
|
Dimension
|
|
Capacity
|
|
Manufacturing
Method
|
Classic
Mini Wellness House
|
|
|
|
Hemlock
|
|
1.0mX1.0mX1.9m
|
|
1-2
persons
|
|
Spray
Method
|
Classic
Twin Wellness House I
|
|
|
|
Hemlock
|
|
1.2mX1.05MX1.9m
|
|
2-3
persons
|
|
Spray
Method
|
Classic
Twin Wellness House II
|
|
|
|
Snow
Pine
|
|
1.2mX1.05mX1.9m
|
|
2-3
persons
|
|
Spray
Method
|
Elegant
Multi-Person Wellness House
|
|
|
|
Hemlock
|
|
1.5mX0.53mX1.37mX1.9m
|
|
4-5
persons
|
|
Spray
Method
|
Classic
Multi-Person Wellness House
|
|
|
|
Hemlock
|
|
1.75mX1.6mX1.9m
|
|
6-7
persons
|
|
Spray
Method
|
Our
tourmaline water machines or water mugs purify, mineralize and activate the
water in them because we infuse tourmaline particles into the filter of the
water machine or water mug. It is believed that the purified, mineralized and
activated water will promote the drinker’s metabolism and prevent
oxidation.
Below is a list of our water
treatment products:
No.
|
|
Products
|
|
Trademark/Mark
|
|
Manufacturing
Method
|
1
|
|
Tourmaline
Water Machine
|
|
|
|
Filling
Method
|
2
|
|
Tourmaline
Water Mug
|
|
|
|
Filling
Method
|
Return
policy
We accept
returns of defective products (excluding wellness houses) within seven days of
purchase and exchanges of defective products within 15 days of purchase.
Customers may also request a free repair of defective products within 15 days of
purchase. For products purchased more than 15 days ago, we will
charge a service fee of 110% of the cost of repaired or replaced
parts.
Services:
Wellness House Maintenance
Our
wellness house products generally carry a one-year warranty. When the warranty
expires, we provide our customers the option to engage us to service and
maintain their wellness houses for a fee equal to 200% of the cost of the
repaired or replaced parts.
Except
for the fiscal year 2007 where the maintenance contributed to 62.8% of our then
annual revenue, there has been very little demand of our wellness house
maintenance services.
Manufacturing
Facilities
Our manufacturing facilities are
located in Baodi District, Tianjin, PRC, with an area of approximately 2,500
square meters. The major equipment we use in the manufacture our products
include three ironing machines, three driers, three washing machines, three
cutting machines, 43 sewing machines, six chainsaws, six impact drills and six
air nailers. We have 33 employees engaged in the manufacture as of October 6,
2010. We have our own design team comprising four designers who are responsible
for designing new styles for our products every quarter. They are also
responsible for the product packaging design.
Customers
and Suppliers
Customers
Below is
a list of our top ten customers for the years 2007, 2008 and 2009,
respectively.
Top Ten Customers in 2007
|
|
No.
|
|
Name
|
|
Amount
(RMB)
|
|
|
Amount
(US$)
|
|
Products Sold
|
|
Percentage
of Sales
|
|
1
|
|
Shenyang
Xike Quartz Co., Ltd.
|
|
|
26,047
|
|
|
|
3,836
|
|
Wellness
House maintenance
|
|
|
62.8
|
%
|
2
|
|
Fengrong
Bo
|
|
|
7,115
|
|
|
|
1,048
|
|
Wellness
House materials
|
|
|
17.2
|
%
|
3
|
|
Xinhua
Insurance Company
|
|
|
4,089
|
|
|
|
602
|
|
Wellness
House materials
|
|
|
9.9
|
%
|
4
|
|
Anshan
City Tiedong District Aiming Law Firm
|
|
|
3,438
|
|
|
|
506
|
|
Wellness
House materials
|
|
|
8.3
|
%
|
5
|
|
Beijing
Luhang Machinery Factory
|
|
|
763
|
|
|
|
112
|
|
Wellness
House materials
|
|
|
1.8
|
%
|
Total
|
|
|
|
|
41,453
|
|
|
|
6,104
|
|
|
|
|
100.0
|
%
|
Top Ten Customers in 2008
|
|
No.
|
|
Name
|
|
Amount
(RMB)
|
|
|
Amount
(US$)
|
|
Products Sold
|
|
Percentage of
Sales
|
|
1
|
|
ShenyangNew
CityRiversideHealthCenter
|
|
|
270,419
|
|
|
|
39,826
|
|
Wellness
House
|
|
|
6.80
|
%
|
2
|
|
Chenghong
Wei
|
|
|
168,600
|
|
|
|
24,831
|
|
Wellness
House
|
|
|
6.48
|
%
|
3
|
|
Xiaoyun
Zhu
|
|
|
165,000
|
|
|
|
24,300
|
|
Wellness
House
|
|
|
6.40
|
%
|
4
|
|
Yanmei
Feng
|
|
|
165,000
|
|
|
|
24,300
|
|
Wellness
House
|
|
|
6.19
|
%
|
5
|
|
Youfeng
Lu
|
|
|
162,620
|
|
|
|
23,950
|
|
Wellness
House
|
|
|
5.30
|
%
|
6
|
|
Shenyang
Shifa Special Rubber Co., Ltd.
|
|
|
157,000
|
|
|
|
23,122
|
|
Wellness
House
|
|
|
5.06
|
%
|
7
|
|
Weichun
Zhou
|
|
|
156,000
|
|
|
|
22,975
|
|
Wellness
House
|
|
|
4.83
|
%
|
8
|
|
Lijuan
Gu
|
|
|
140,000
|
|
|
|
20,619
|
|
Wellness
House
|
|
|
2.12
|
%
|
9
|
|
Xudong
Wang
|
|
|
137,500
|
|
|
|
20,250
|
|
Wellness
House
|
|
|
1.20
|
%
|
10
|
|
Runmei
Zhang
|
|
|
133,430
|
|
|
|
19,651
|
|
Wellness
House
|
|
|
1.09
|
%
|
Total
|
|
|
|
|
1,656,139
|
|
|
|
243,824
|
|
|
|
|
45.47
|
%
|
Top Ten Customers in 2009
|
|
No.
|
|
Name
|
|
Amount
(RMB)
|
|
|
Amount
(US$)
|
|
Products Sold
|
|
Percentage
of Sales
|
|
1
|
|
Shandong
Jingbo Holdings Development Co., Ltd.
|
|
|
523,223
|
|
|
|
77,058
|
|
Wellness
House materials
|
|
|
2.5
|
%
|
2
|
|
Beijing
No. 9 Urban Construction Engineering Company Limited
|
|
|
397,087
|
|
|
|
58,481
|
|
Wellness
House materials
|
|
|
1.9
|
%
|
3
|
|
Baocong
Yang Joining Franchise Store
|
|
|
380,788
|
|
|
|
56,080
|
|
Tourmaline
mattress and underwear
|
|
|
1.8
|
%
|
4
|
|
Jinbao
Liu Joining Franchise Store
|
|
|
369,461
|
|
|
|
54,412
|
|
Tourmaline
mattress, pillowcases and soap
|
|
|
1.7
|
%
|
5
|
|
Xiuchun
Jia Joining Franchise Store
|
|
|
357,615
|
|
|
|
52,668
|
|
Tourmaline
mattress, mugs and scarves
|
|
|
1.7
|
%
|
6
|
|
Fengqi
Wu
|
|
|
349,628
|
|
|
|
51,492
|
|
Tourmaline
Wellness House
|
|
|
1.6
|
%
|
7
|
|
Zhuoguan
Joining Franchise Store
|
|
|
330,795
|
|
|
|
48,718
|
|
Tourmaline
mattress, pillowcases and soap
|
|
|
1.6
|
%
|
8
|
|
Zhengyi
Qiao Joining Franchise Store
|
|
|
290,334
|
|
|
|
42,759
|
|
Tourmaline
mattress, pillowcases and soap
|
|
|
1.4
|
%
|
9
|
|
Ning
Fang Joining Franchise Store
|
|
|
289,004
|
|
|
|
42,563
|
|
Tourmaline
mattress, pillowcases and soap
|
|
|
1.4
|
%
|
10
|
|
Liang
Ping Joining Franchise Store
|
|
|
288,362
|
|
|
|
42,469
|
|
Tourmaline
mattress, pillowcases and soap
|
|
|
1.4
|
%
|
Total
|
|
|
|
|
3,576,308
|
|
|
|
526,700
|
|
|
|
|
16.8
|
%
|
Our main
customers are franchise stores that are authorized to sell our products
exclusively. Two customers made up more than 10% of our sales in 2007. However,
none of our customers have accounted for more than 10% of our annual sales
revenue for the fiscal years 2008 and 2009.
In the
past three fiscal years, our products have been primarily sold to the
northeasternpart of China, which includes Liaoning province, Jilin province and
Heilongjiang province. Set forth below is a geographical breakdown of our sales
for the fiscal years 2008 and 2009 and six months ended June 30,
2010:
Region
|
|
Percentage of Sale
|
Northeast
China (Liaoning, Jilin, Heilongjiang)
|
|
40%
|
North
China(Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia)
|
|
23%
|
East
China (Shanghai, Jiangsu, Zhejiang, Anhui, Fujian,
Jiangxi)
|
|
20%
|
Central
China (Henan, Hubei, Hunan)
|
|
6%
|
Southwest
China (Chongqing, Sichuan, Guizhou, Yunnan, Tibet)
|
|
6%
|
South
China (Guangdong, Hainan, Guangxi)
|
|
5%
|
Suppliers
Below is
a list of our top ten suppliers for the years 2008 and 2009,
respectively.
Top Ten Suppliers in 2008
|
|
No.
|
|
Name
|
|
Amount (RMB)
|
|
|
Amount (US$)
|
|
Product Purchased
|
|
Percentage of
Purchase
|
|
1
|
|
Shenyang
Joway Industrial Development Co., Ltd.
|
|
|
784,990
|
|
|
|
115,609
|
|
Water
machine, bedding, underwear, waist protector and kneepad
|
|
|
31.3
|
%
|
2
|
|
Liaoning
Jiadebao Home Building Materials Supermarket Co., Ltd.
|
|
|
445,568
|
|
|
|
65,621
|
|
Wellness
House materials
|
|
|
17.8
|
%
|
3
|
|
Tianjin
Daxing Import & Export Trading Co., Ltd.
|
|
|
245,020
|
|
|
|
36,086
|
|
Silk
cloth and mugs
|
|
|
9.8
|
%
|
4
|
|
Guangdong
Hongjie Underwear Industrial Co., Ltd.
|
|
|
235,842
|
|
|
|
34,734
|
|
Underwear
|
|
|
9.4
|
%
|
5
|
|
Daekjeng
Medicare
|
|
|
100,000
|
|
|
|
14,727
|
|
Tourmaline
|
|
|
3.84
|
%
|
6
|
|
Shenyang
Hongguangyuan Wood Co., Ltd.
|
|
|
52,171
|
|
|
|
7,684
|
|
Wellness
House materials
|
|
|
2.1
|
%
|
7
|
|
Shenyang
Yuzhi Foam Factory
|
|
|
43,040
|
|
|
|
6,339
|
|
Wellness
House materials
|
|
|
1.7
|
%
|
8
|
|
Shenyang
Heyi Polyurethane Co., Ltd.
|
|
|
39,600
|
|
|
|
5,832
|
|
Wellness
House materials
|
|
|
1.6
|
%
|
9
|
|
Shenyang
Hongyu Villa
|
|
|
33,623
|
|
|
|
4,952
|
|
Wellness
House materials
|
|
|
1.3
|
%
|
10
|
|
Shenyang
Xinxin Taiyang Electronic Technology Co., Ltd.
|
|
|
30,248
|
|
|
|
4,455
|
|
Wellness
House materials
|
|
|
1.2
|
%
|
Total
|
|
|
|
|
1,940,071
|
|
|
|
285,726
|
|
|
|
|
80.04
|
%
|
Top Ten Suppliers in 2009
|
|
No.
|
|
Name
|
|
Amount (RMB)
|
|
|
Amount (US$)
|
|
Product Purchased
|
|
Percentage of
Purchase
|
|
1
|
|
Tianjin
Daxing Import & Export Trade Co., Ltd.
|
|
|
2,278,539
|
|
|
|
335,573
|
|
Cloth,
cotton, fabrics and underwear
|
|
|
18.2
|
%
|
2
|
|
Shenyang
Joway Industrial Development Co., Ltd.
|
|
|
2,227,718
|
|
|
|
328,088
|
|
Cloth,
cotton, underpants and hats
|
|
|
17.8
|
%
|
3
|
|
Haining
Futianrun Silk Co., Ltd.
|
|
|
604,125
|
|
|
|
88,973
|
|
Cloth
and Cotton,
|
|
|
4.8
|
%
|
4
|
|
Hangzhou
Chufan Textile Co., Ltd.
|
|
|
603,752
|
|
|
|
88,918
|
|
Cloth,
cotton and mattress
|
|
|
4.8
|
%
|
5
|
|
Beijing
Quanfu Wood Products Co., Ltd.
|
|
|
598,560
|
|
|
|
88,153
|
|
Wellness
House materials
|
|
|
4.8
|
%
|
6
|
|
Shenyang
Hongguangyuan Wood Co., Ltd.
|
|
|
413,318
|
|
|
|
60,871
|
|
Wellness
House materials
|
|
|
3.3
|
%
|
7
|
|
Shenzhen
Maskcare Biological Technology Co., Ltd.
|
|
|
354,265
|
|
|
|
52,174
|
|
Soap,
shampoo and shower gel
|
|
|
2.8
|
%
|
8
|
|
Tianjin
Tielingjiacai Wood Co., Ltd.
|
|
|
347,849
|
|
|
|
51,230
|
|
Wellness
House
|
|
|
2.8
|
%
|
9
|
|
Beijing
Chenjiehao Paint Debug Ltd.
|
|
|
331,250
|
|
|
|
48,785
|
|
Wellness
House materials
|
|
|
2.6
|
%
|
10
|
|
Tianjin
Sunflower Packaging and Printing Co., Ltd.
|
|
|
238,035
|
|
|
|
35,057
|
|
Packaging
materials and product manuals
|
|
|
1.9
|
%
|
Total
|
|
|
|
|
7,997,411
|
|
|
|
1,088,849
|
|
|
|
|
63.8
|
%
|
We had
two major suppliers that accounted for 18.2% and 17.8% of our annual purchase of
raw materials in 2009 and two major suppliers that accounted for 31.3% and 17.8%
of our annual purchase of raw materials in 2008.We do not have long term
contracts with any of our suppliers since the materials we use in our
manufacture are readily available on the market and their prices are generally
stable.
Franchise
Stores
Approximately
72% of our annual sales were made through the operation of franchise stores in
2009. For the six months ended June 30, 2010, approximately 86.78% of our sales
were made through franchise stores.
As of the
date of this Report, there are approximately 219 franchise stores across the PRC
that are authorized to sell our products exclusively. Set forth below is a
geographical breakdown of the franchise stores:
Region
|
|
Number
of Franchise Stores
|
Northeastern
China (Liaoning, Jilin, Heilongjiang)
|
|
52
|
Northern
China (Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia)
|
|
48
|
Eastern
China (Shanghai, Jiangsu, Zhejiang, Anhui, Fujian,
Jiangxi)
|
|
31
|
Southern
China (Guangdong, Hainan, Guangxi)
|
|
27
|
Central
China (Henan, Hubei, Hunan)
|
|
30
|
Southwestern
China (Chongqing, Sichuan, Guizhou, Yunnan, Tibet)
|
|
31
|
Total
|
|
219
|
We use
multiple criteria to select our franchise stores, including reviewing each
potential franchisee’s financial conditions, sales network, sales personnel, and
faculties. Generally the potential franchise store submits an application to
become our franchise store; we will review the overall conditions of the
applicant and authorize the applicant to sell our products if the applicant
meets the minimum working capital requirement of RMB 40,000 and has the
requisite business facilities.
We
typically enter into a standard franchising agreement with the applicant.
Pursuant to the agreement, the franchisee is authorized to sell our products
exclusively at a predetermined retail price. In exchange we provide them with
productsat a discounted price, geographical exclusivity, and marketing, training
and technological support. The franchisee is also required to adhere to certain
standards of product merchandising, promotion and presentment. No initial
franchise fees are required from the franchisee, nor does the franchisee need to
pay any continuing royalties. The agreement is generally for a term of three
years and is renewable at the mutual agreement of both parties.
Compared
with the large volume of sales from franchise stores, sales to individual
consumers are relatively small. Sales to individual consumers accounted for
approximately 28% of our annual sales in 2009. For the six months
ended June 30, 2010, sales to individual consumers only accounted for 13.22%.
The individual consumers typically make orders at product meetings or via
telephone and we deliver the products upon receipt of the payment. We ship for
free if the purchase per order exceeds RMB 80,000 (approximately $11,
764.71).
Marketing
and Sales
The
success of our business largely depends on our marketing and sales
efforts.
We market
and advertise our products primarily in two ways. First, we organize, along with
the franchise stores, product seminars and meetings where our franchise stores
familiarize themselves with our products. The franchise stores are responsible
for the cost of organizing the seminars and meetings and we are responsible for
the travelling expenses of our employees who will travel to these meetings and
seminars to explain and promote our various product lines. There are on average
15 such seminars and meetings each month nationwide and we have budgeted
travelling expenses of approximately RMB30,000 (approximately $4,400) each
month. Generally, we choose the venue for the product seminars and meetings
based on market prospects, sales volume and the extent of meeting preparation.
As of October 6, 2010, we have held product seminars and meetings in
approximately 105 cities in the PRC.
We also organize an annual conference
to promote our products and brand names. While the product meeting is often
regional and held very frequently throughout the year, the annual conference is
nationwide, has more participants and it also serves as a celebration and reward
ceremony. The primary participants for the annual conference are our franchise
stores. Generally we are responsible for the cost of annual conferencesand the
cost of the annual conference for 2008 and 2009 was approximately RMB1,000,000
(approximately $147,000) and RMB 7,096,147 (approximately $ 1,043,551.03),
respectively.
Below is
a breakdown of our marketing expenses in the fiscal years 2008 and
2009.
|
|
2008
|
|
|
2009
|
|
Expenses
|
|
RMB
|
|
|
US$
(approx.)
|
|
|
RMB
|
|
|
US$
(approx.)
|
|
Promotion
|
|
|
325,588.00
|
|
|
|
46,764.77
|
|
|
|
7,065,743.60
|
|
|
|
1,032,870.57
|
|
Printing
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
268,808.51
|
|
|
|
39,294.43
|
|
Travelling
|
|
|
9,788.60
|
|
|
|
1,405.95
|
|
|
|
353,189.20
|
|
|
|
51,629.21
|
|
Training
|
|
|
31,416.48
|
|
|
|
4,512.40
|
|
|
|
137,145.80
|
|
|
|
20,047.98
|
|
Salaries
|
|
|
8,820.00
|
|
|
|
1,266.83
|
|
|
|
272,740.00
|
|
|
|
39,869.14
|
|
Total
|
|
|
375,613.08
|
|
|
|
53,949.96
|
|
|
|
8,097,627.11
|
|
|
|
1,183,711.32
|
|
In 2009,
we spent RMB 7.1 million on the annual conference and had revenue of
approximately RMB 6.0 million from ticket sales. The net expense was contained
in selling expenses in consolidated operation statements.
For the
fiscal year 2010, we have a marketing and sales budget of RMB 4,500,000
(approximately, $662,000), among which, approximately RMB2,600,000
(approximately $382, 352.94) will be spent on our annual conference, RMB
1,000,000 (approximately $147,058.82) on salaries of sales personnel, RMB
400,000 (approximately $58,823.53) on training, RMB 200,000 (approximately
$29,411.76) on travelling and RMB 300,000 (approximately $ 44,117.65) on daily
operation of the marketing and sales department.
Because
our products are for daily use, our business is not subject to seasonal
variations in demand.
Industry
We are
operating in the large and rapidly growing healthcare industry in the PRC. The
healthcare industry in the PRC is supported by a combination of socio-economic
factors, such as the growth of the PRC’s economy, size of its overall population
and the proportion of its population over the age of 60, living standards,
health consciousness, lifestyle related disorders and active PRC government
support.
China
Healthcare Industry—Generally
According
to the PRC Statistical Yearbook 2009 (the “Yearbook”), from 2005 to 2009, the
average per capita annual disposable income of the PRC‘s urban residents
increased from approximately RMB 3,225 (approximately $474) to RMB5, 153
(approximately $1,356). According to the Yearbook, the PRC’s Gross Domestic
Product (“GDP”) grew at a compound annual growth rate (“CAGR”) of 16.4% from
2005 to 2009, and its per capita GDP grew from RMB18, 494 (approximately $2,719)
in 2005 to approximately RMB33, 535 (approximately $4,931) in 2009. During this
period, national income and disposable income levels increased
significantly.
With
rising living standards and increasing disposable income, people in the PRC have
naturally become more health conscious. These developments have resulted in both
urban and rural residents spending more on healthcare. According to the PRC
National Bureau of Statistics, consumer expenditure on healthcare in the PRC’s
urban and rural areas increased from approximately RMB476 (approximately $70)
and RMB118 (approximately $17) per person in 2003, respectively, to
approximately RMB786 (approximately $115) and RMB246 (approximately $36) per
person in 2007, respectively.
As part
of its Eleventh Five-Year Plan (2006-2010), the PRC Government has actively
supported the PRC healthcare industry by creating a number of incentives and
enacting programs, including increased funding for building additional
hospitals, research centers and other healthcare facilities, enacting healthcare
reforms and standards and subsidizing healthcare services for its citizens. The
PRC Government has announced it will spend an additional RMB850 billion on
healthcare programs from 2009 to 2011, which will significantly bolster the PRC
healthcare market.
China’s
Tourmaline Health Products Market
The main
industrial applicationof tourmaline has been in the healthcare industry. In
1970s and 1980s, more developed nations such as Japan and the United Stateshave
used the tourmaline as an important industrial mineral. (Source: 2010-2012
China's tourmaline market and investment prospects research report, Institute of
China Uniway Economics, Aug, 2010).
By
contrast, the Chinese had been using tourmaline as gemstones in jewelry until
around 2001, with the steady improvement of living standards and higher health
consciousness, the Chinese began to realize the health benefits of
tourmaline.
More
companies began producing tourmaline related health products. China’s tourmaline
health products industry is still in its infancy and highly fragmented. (Source:
2010-2012 China's tourmaline market and investment prospects research report,
Institute of China Uniway Economics, Aug, 2010). We are not aware of any
research reports on the size and scope of the tourmaline healthcare industry in
the PRC although we believe that we are one of the first few Chinese tourmaline
health products companies who possess leading tourmaline particle attachment
technology.
Users of
tourmaline health product are typically middle-aged and elderly people.
Currently, there are numerous kinds of tourmaline health products in the market
such as tourmaline clothes, tourmaline mattresses, tourmaline water machines,
etc. Demand for these products is still relatively low compared to
the size of the Chinese population.
We
believe that the main challenge for the tourmaline health product companies is
market development rather than competition.With rising living standards,
increasing disposable income, higher health consciousness and the greater
awareness of health benefit produced by tourmaline health products, we believe
that the tourmaline health products market will grow rapidly in the next few
years.
Competition
Competitive
Environment
China’s
tourmaline health products market is highly segmented and is still at its
infancy. No market leader has emerged in China just yet. Currently, Japanese and
Korean companies are leaders in tourmaline technology. However, they have not
yet developed a sizeable market share for their products in the PRC (Source:
2010-2012 China's tourmaline market and investment prospects research report,
Institute of China Uniway Economics, Aug, 2010).Therefore, we believe that there
is a great opportunity for us to create demand and market share and establish
ourselves as leaders in the tourmaline-related healthcare products
field.
Our
Competitors
We believe our major competitors in the
PRC are:
|
·
|
Heilongjiang
Xingfuren Technology Development Co., Ltd.operates in PRC. They mainly
focus on producing far-infrared health products and tourmaline health
products.
|
|
·
|
Harbin
Jiuguang Daily Health Products Co., Ltd.operates in PRC.They mainly focus
on tourmaline sauna room and tourmaline health products
manufacture.
|
|
·
|
Ihanya
Nano Technology Co., Ltd.operates inChangsha, Hunan province, PRC. They
mainly focus on tourmaline sauna room and tourmaline health products
manufacture.
|
|
·
|
Harbin
Handu Tourmaline Nano Technology Development Co., Ltd. operates in PRC.
They mainly focus on tourmaline sauna room and tourmaline health products
manufacture.
|
|
·
|
Harbin
Wanshou Nano Science and Technology Co., Ltd.operates in PRC.They mainly
focus on new Nano technology research and development, tourmaline health
products and tourmaline sauna room
manufacture.
|
Our
Competitive Advantages
We
believe that by leveraging the following strengths, we can effectively compete
and enhance our market position:
|
·
|
Brand
Advantage: We are one of the first tourmaline health products
manufacturers in the PRC. We believe we have established a well-known
brand (“Joway”) in the PRC tourmaline health products
market.
|
|
·
|
Technology
Advantage: We possess several tourmaline healthcare products patents. We
also have six technicians engaged in research and development activities
to develop new tourmaline products.. We believe that we have the most
matured tourmaline particle attachment technology in the
PRC.
|
|
·
|
Sales
Channels Advantage: We have approximately 219 franchise stores covering
most of the big cities in the PRC. We are still expanding our sales
networks. We believe our extensive sales networks will assure our products
sales growing continuously.
|
Business
Strategy
We
believe the market for tourmaline healthcare products in the PRC will grow
rapidly. In order to benefit from the market opportunities, we plan to implement
the following strategies:
|
·
|
We
will focus on expanding the sales network for our tourmaline health
products in the PRC. Meanwhile we also plan to develop our sales network
in India, Indonesia, Russia, Ukraine, Eastern Europe, Africa, South
America and other foreign markets.
|
|
·
|
We
will seek to optimize our product portfolio to include more products with
higher profit margins and expand our product offerings.We believe that
tourmaline daily healthcare products
,
water treatment products, tourmaline home accessories and
tourmaline environmentally friendly paint have more profit potential. We
will spend more money on Research and Development (“R&D”) of these
products.
|
|
·
|
We
intend to improve our operations, exploit our competitive strengths, and
expand our operations by acquiring other existing businesses.
|
Research
and Development
As
of October 6, 2010, we have six technicians engaged in research and
developmentactivities. Our research and development focus ison
developing new tourmaline productssuch as, tourmaline wool blankets, tourmaline
laundry balls, tourmaline washing powder and tourmaline foot spa
basins.
During
the fiscal years ended December 31, 2008 and 2009, we spent RMB 7,800
(approximately $1,120.33) and RMB 59,010.15(approximately $8,626.09),
respectively, on R&D. Set forth below are a breakdown of our R&D expense
for the fiscal years 2008 and 2009, respectively and a breakdown of
R&D budget for the fiscal years 2010 and 2011, respectively:
|
|
2008
|
|
|
2009
|
|
|
2010 (Budget)
|
|
|
2011 (Budget)
|
|
Item
|
|
RMB
|
|
|
US$ (approx.)
|
|
|
RMB
|
|
|
US$ (approx.)
|
|
|
RMB
|
|
|
US$ (approx.)
|
|
|
RMB
|
|
|
US$ (approx.)
|
|
R
& D Equipment
|
|
|
1,300
|
|
|
|
186.72
|
|
|
|
11,865.05
|
|
|
|
1,734.43
|
|
|
|
30,000
|
|
|
|
4,389
|
|
|
|
100,000
|
|
|
|
14,631
|
|
R
& D Sample
|
|
|
0
|
|
|
|
0
|
|
|
|
12,110.10
|
|
|
|
1,770.25
|
|
|
|
15,000
|
|
|
|
2,195
|
|
|
|
80,000
|
|
|
|
11,705
|
|
TravelExpense
|
|
|
0
|
|
|
|
0
|
|
|
|
4,235
|
|
|
|
619.07
|
|
|
|
8,000
|
|
|
|
1,170
|
|
|
|
50,000
|
|
|
|
7,316
|
|
Salary
|
|
|
6,500
|
|
|
|
933.61
|
|
|
|
30,800
|
|
|
|
4,502.34
|
|
|
|
155,000
|
|
|
|
22,678
|
|
|
|
180,000
|
|
|
|
26,336
|
|
Inspection
Fee
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,000
|
|
|
|
2,634
|
|
|
|
60,000
|
|
|
|
8,779
|
|
Total
|
|
|
7,800
|
|
|
|
1,120.33
|
|
|
|
59,010.15
|
|
|
|
8,626.09
|
|
|
|
226,000
|
|
|
|
33,066
|
|
|
|
470,000
|
|
|
|
68,767
|
|
Intellectual
Property
We regard
our trademarks, trade secrets, patents and similar intellectual property as
critical factors to our success. We rely on patent, trademark and trade secret
law, as well as confidentiality and license agreements with certain of our
employees, customers and others to protect our proprietary rights.
The
trademarks we currently use include the “Xi” trademarks and the “Joway”
trademark which are owned by Shenyang Joway Industrial Development Co., Ltd.
(“Shenyang Joway”) and our President, Chief Executive Officer and director,
Jinghe Zhang, respectively. We are licensed to use the “Xi” trademarks pursuant
to a license agreement with Shenyang Joway dated December 1, 2009 for a term of
nine years. We are also permitted to use the “Joway” trademark
pursuant to a license agreement with Jinghe Zhang dated December 1, 2009 for a
term of ten years. The agreements are renewable at the end of their respective
terms. We do not have to pay any license fee to Shenyang Joway and Jinghe Zhang
for the use of the trademarks.
We have
also submitted applications for twelve trademarks which are under review by the
Trademark Office of State Administration of Industry and Commerce of the
PRC.
Set forth
below is a detailed description of the trademarks we use and the trademarks
under application.
Mark
|
|
Registration
/Application
No.
|
|
Class
|
|
Effective
Date
|
|
Expiration
Date
|
|
Owner/
Applicant
|
|
|
6104256
|
|
Class
3:
Cosmetics and Cleaning
Preparations.
Bleaching
preparations and other substances for laundry use; cleaning,
polishing,
scouring and abrasive preparations; soaps; perfumery,
essential
oils, cosmetics, hair lotions; dentifrices.
|
|
March
21, 2010
|
|
March
20, 2020
|
|
Shenyang
Joway Industrial Development Co., Ltd.
|
|
|
6104253
|
|
Class
11:
Environmental control
apparatus.
Apparatus
for lighting, heating, steam generating, cooking, refrigerating, drying,
ventilating, water supply and sanitary purposes.
|
|
February
14, 2010
|
|
February
13, 2020
|
|
Shenyang
Joway Industrial Development Co., Ltd.
|
|
|
4794111
|
|
Class
24:
Fabrics.
Textiles
and textile goods, not included in other classes; bed and table
covers.
|
|
February
21, 2009
|
|
February
20, 2019
|
|
Jinghe
Zhang
|
|
|
8467175
|
|
Class
30:
Staple
foods.
Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial
coffee; flour and preparations made from cereals, bread, pastry and
confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard;
vinegar, sauces (condiments); spices; ice.
|
|
Registration
Application
Accepted
on
July 9, 2010
|
|
Tianjin
Joway Group Co., Ltd.
|
|
|
8236587
|
|
Class
5:
Pharmaceuticals.
Pharmaceutical,
veterinary and sanitary preparations; dietetic substances adapted for
medical use, food for babies; plasters, materials for
dressings;
material for stopping teeth, dental wax; disinfectants;
preparations
for destroying vermin; fungicides, herbicides.
|
|
Registration
Application
Accepted
on
April 23, 2010
|
|
|
|
|
8236524
|
|
Class
24:
Fabrics.
Textiles
and textile goods, not included in other classes; bed and table
covers.
|
|
Registration
Application
Accepted
on
April 23, 2010
|
|
|
|
|
8029074
|
|
Class
11:
Environmental control
apparatus.
|
|
|
|
|
|
|
|
|
Apparatus
for lighting, heating, steam generating, cooking, refrigerating, drying,
ventilating, water supply and sanitary purposes.
|
|
|
|
|
|
|
8029052
|
|
Class
5:
Pharmaceuticals.
Pharmaceutical,
veterinary and sanitary preparations; dietetic substances adapted for
medical use, food for babies; plasters, materials for dressings; material
for stopping teeth, dental wax; disinfectants; preparations for destroying
vermin; fungicides, herbicides.
|
|
Registration
Application
Accepted
on
January 27, 2010
|
|
|
|
|
8029009
|
|
CLASS
2:
Paints
Paints,
varnishes, lacquers; preservatives against rust and against deterioration
of wood; colorants; mordants; raw natural resins; metals in foil and
powder form for painters, decorators, printers and
artists.
|
|
|
|
|
|
|
8236733
|
|
Class
30:
Staple
foods.
Coffee,
tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and
preparations made from cereals, bread, pastry and confectionery, ices;
honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces
(condiments); spices; ice.
|
|
Registration
Application
Accepted
on
April 23, 2010
|
|
|
|
|
8236706
|
|
Class
25:
Clothing.
Clothing,
footwear, headgear.
|
|
|
|
|
|
|
8236538
|
|
Class
24:
Fabrics.
Textiles
and textile goods, not included in other classes; bed and
tablecovers.
|
|
|
|
|
|
|
8236684
|
|
Class
11:
Environmental control
apparatus.
Apparatus
for lighting, heating, steam generating, cooking, refrigerating, drying,
ventilating, water supply and sanitary purposes.
|
|
|
|
|
|
|
8236608
|
|
Class
5:
Pharmaceuticals.
Pharmaceutical,
veterinary and sanitary preparations; dietetic substances adapted for
medical use, food for babies; plasters, materials for dressings; material
for stopping teeth, dental wax; disinfectants; preparations for destroying
vermin; fungicides, herbicides.
|
|
|
|
|
|
|
8236641
|
|
Class
3:
Cosmetics and Cleaning
Preparations.
Bleaching
preparations and other substances for laundry use; cleaning, polishing,
scouring and abrasive preparations; soaps; perfumery, essential oils,
cosmetics, hair lotions; dentifrices.
|
|
|
|
|
Currently
we do not own any patent we use. Pursuant to a license agreement with our
President, Chief Executive Officer and director, Jinghe Zhang, we are permitted
to use the following five patents for free from December 1, 2009 to the
expiration date of each patent.
No.
|
|
Product
|
|
Type
|
|
Patent No.
|
|
Application Date
|
|
Effective Date
|
|
Term
|
|
Owner &
Inventor
|
1
|
|
Water
Purifier
|
|
Utility
Model
|
|
ZL200720014571.6
|
|
September
17, 2007
|
|
October
29, 2008
|
|
Ten
years
|
|
Jinghe
Zhang
|
2
|
|
Tourmaline
Undergarment
|
|
Utility
Model
|
|
ZL200720015434.4
|
|
October
22, 2007
|
|
July
16, 2008
|
|
Ten
years
|
|
Jinghe
Zhang
|
3
|
|
Tourmaline
Mattress
|
|
Utility
Model
|
|
ZL200720015435.9
|
|
October
22, 2007
|
|
December
24, 2008
|
|
Ten
years
|
|
Jinghe
Zhang
|
4
|
|
Tourmaline
Wellness Room
|
|
Utility
Model
|
|
ZL200720014570.1
|
|
September
17, 2007
|
|
July
16, 2008
|
|
Ten
years
|
|
Jinghe
Zhang
|
5
|
|
Drinking
Water Purifier
|
|
Design
|
|
ZL200730011189.5
|
|
September
17, 2007
|
|
April
1, 2009
|
|
Ten
years
|
|
Jinghe
Zhang
|
Insurance
We
maintain product liability insurance policies covering our water machine for
claims resulting from personal injury or damage to property caused by our water
machine. We also maintain limited insurance coverage for our vehicles. The total
insurance coverage for our water machine is RMB 1,000,000 (approximately
$14,7275) from November 11, 2009 to November 10, 2010 and we have paid RMB7,375
(approximately $1,086) in insurance premiums for the coverage. In addition, we
do not carry property insurance, and we do not have any business interruption
insurance due to the limited coverage of any business interruption insurance in
the PRC.
Employees
Joway
Group
As of the
date of this report Joway Group has 101 employees, all of whom are
full-time workers and are based in Tianjin city, PRC. There are no collective
bargaining contracts covering any of our employees. We believe our relationship
with our employees is satisfactory.
Below is
a breakdown of Joway Group’s employees:
Departments
|
|
Number
of Employees
|
Management
|
|
8
|
Sales
|
|
13
|
Distribution
|
|
13
|
Design
|
|
4
|
Production
|
|
33
|
Research
and development
|
|
6
|
Franchising
|
|
15
|
Finance
|
|
7
|
Project
|
|
2
|
Joway
Technology
As of the
date of this Report, Joway Technology has 15 employees, all of whom are full
time workers and are based in Tianjin, PRC. There are no collective bargaining
contracts covering any of our employees. We believe our relationship with our
employees is satisfactory.
Joway
Decoration
As of the
date of this Report, Joway Decoration has eight employees, all of whom are full
time workers and are based in Tianjin, PRC. There are no collective bargaining
contracts covering any of our employees. We believe our relationship with our
employees is satisfactory.
Shengtang
Trading
As of the
date of this Report, Shengtang Trading has four employees, all of whom are full
time workers and are based in Tianjin, PRC. There are no collective bargaining
contracts covering any of our employees. We believe our relationship with our
employees is satisfactory.
We are
required to contribute a portion of our employees’ total salaries to the PRC
government’s social insurance funds, including pension insurance, medical
insurance, unemployment insurance, work-related injury insurance, and maternity
insurance, in accordance with relevant regulations. We have purchased work
injury insurance and medical insurance for all our employees.
Effective
January 1, 2008, the PRC introduced a new labor contract law that enhances
rights for the nation's workers, including open-ended work contracts and
severance pay. The legislation requires employers to provide written contracts
to their workers, restricts the use of temporary laborers and makes it harder to
lay off employees. It also requires that employees with fixed-term contracts be
entitled to an indefinite-term contract after a fixed-term contract is renewed
twice. Although the new labor contract law will increase our labor costs, we do
not anticipate there will be any significantly effects on our overall
profitability in the near future since such amount was historically not material
to our operating cost
.
Management anticipates this may be a step toward improving candidate retention
for skilled workers.
Government
Regulations
Below
is a list of agencies which may have a jurisdiction over our
business:
Agency
|
|
Functions
|
|
|
|
State
Food and Drug Administration (“SFDA”)
|
|
Supervise
the entire process from research and development, manufacturing, and
distribution to utilization of drugs; supervise and coordinate the safety
management of food, health food and cosmetics and organize investigations
of serious accidents.
|
|
|
|
National
Development and Reform Commission (“NDRC”)
|
|
Make
strategic and mid- to long-term plans for the PRC healthcare industry;
regulate drug prices; manage disaster relief funds and carry out
healthcare development projects sponsored by the
government.
|
|
|
|
Ministry
of Commerce (“MOFCOM”)
|
|
Formulate
regulations and policies on foreign trade, foreign direct investments,
consumer protection, and market competition; negotiate bilateral and
multilateral trade
agreements.
|
Ministry
of Science and Technology (“MST”)
|
|
Lay
out science and technology development plans and policies; draft relevant
regulations and rules and guarantee implementation of regulations and
rules
|
|
|
|
General
Administration of Quality Supervision, Inspection and Quarantine
(“AQSIQ”)
|
|
Manage
national quality, metrology, entry-exit commodity inspection, entry-exit
health quarantine, entry-exit animal and plant quarantine, import-export
food safety, certification, accreditation, and standardization, as well as
enforce administrative laws
|
|
|
|
State
Administration of Taxation (“SAT”)
|
|
Draft
tax regulations and implementation rules and propose tax
policies.
|
|
|
|
State
Administration of Foreign Exchange (“SAFE”)
|
|
Make
regulations and policies governing foreign exchange market activities and
manage state foreign exchange
reserves.
|
The PRC
government imposes extensive regulations over the healthcare industries. This
section summarizes the principal PRC laws and regulations that are relevant to
our business.
Environmental
Regulations
The major
environmental regulations applicable to us include the PRC Environmental
Protection Law, the PRC Law on the Prevention and Control of Water Pollution and
its Implementation Rules, the PRC Law on the Prevention and Control of Air
Pollution and its Implementation Rules, the PRC Law on the Prevention and
Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control
of Noise Pollution.
We have
not been named as a defendant in any legal proceedings alleging violation of
environmental laws and have no reasonable basis to believe that there is any
threatened claim, action or legal proceedings against us that would have a
material adverse effect on our business, financial condition or results of
operations due to any non-compliance with environmental laws.
Intellectual
Property
Trademark
In the
PRC, the Trademark Office administers the system of trademark law (Trademark
Review and Adjudication Board and the courts administer the appeal function).
The two principal pieces of legislation forming the trademark system are the
Trademark Law and the Unfair Competition Law. The Trademark Law of the PRC
stipulates that goods mark, service mark, collective mark and certification mark
can be registered in the PRC and the holder of the marks can obtain exclusive
trademark rights. Trademarks should be visible marks, including words, device,
letters, digits, 3-D marks and combinations of colors, and combinations of any
of the aforementioned. Sound or smell is not registrable yet in the
PRC.
A
trademark applicant must file an application with the PRC Trademark Office.
Normally, the Trademark Office renders a decision within 18 months after it
receives all supporting documents. If the Trademark Office approves the
application, the mark will be published in the PRC Trademark Gazette. After the
mark is published, there will be a three-month opposition period. If nobody
files opposition within that period, the application will mature into
registration. The Trademark Office will then issue the certificate and the
Trademark Gazette will publish the mark again as a registered
mark.
The term
of trademark protection is ten years from the date the registration is granted.
The registrant may renew the trademark for an additional ten year term within
six months before the expiration date of the mark's present term. Where no such
application could be filed within the stated period, a grace period of six
months may be allowed. If the registrant does not file for renewal within the
grace period, the registered trademark will be canceled. Currently, the
applicant does not need to prove the use of the trademark prior to
renewal.
However,
registration of a mark may be blocked by an unregistered famous mark in the PRC
in accordance with the PRC’s Trademark Law and obligations under the Paris
Convention and the 1995 United States-China Intellectual Property Protection
Agreement ("IP Action Plan"), provided that the owner of the famous mark can
prove that the mark was well-known in the PRC before the filing date of the
similar mark. Owners of unregistered famous mark may also bring oppositions or
cancellations for previously registered marks, based on Articles 13, 30 and 41
of the Trademark Law.
Without
authorization from the trademark owner, no one may use a mark identical or
similar to the registered mark on identical or similar goods as the registered
mark. Infringers will be subject to administrative, civil or criminal
punishment. The damages awarded to the trademark owner will be calculated upon
the illegal profits of the infringer and actual losses to the rights owner. In
the event that the damages from infringement are difficult to calculate, the
statutory maximum compensation will be RMB 500,000 (about US $61,000), which may
be a real deterrent in some cases. In addition, the trademark owner may apply to
a competent court for preliminary injunction against ongoing or threatened
trademark infringement before a lawsuit is initiated.
Patent
Patents
in the PRC are governed by the China Patent Law and its Implementing Regulations
(the “Patent Law”), each of which went into effect in 1985, amended versions of
the Patent Law went into effect in 1992, 1993, 2001 and 2003,
respectively. The latest amended version of the Patent Law was made on
December 7, 2008 and will become effective on October 1, 2009.
The PRC
patent system adopts the principle of first to file. This means that, where more
than one person files a patent application for the same invention, a patent can
only be granted to the person who first filed the application. Consistent with
international practice, the PRC only allows the patenting of inventions or
utility models that possess the characteristics of novelty, inventiveness and
practical applicability. For a design to be patentable, it should not be
identical with or similar to any design which, before the date of filing, has
been publicly disclosed in publications in the country or abroad or has been
publicly used in the country, and should not be in conflict with any prior right
of another.
The PRC
law defines patent infringement as the exploitation of a patent without the
authorization of the patent holder. A patent holder who believes his patent is
being infringed may file a civil suit or file a complaint with a PRC local
Intellectual Property Administrative Authority, which may order the infringer to
stop the infringing acts. Preliminary injunction may be issued by the PRC court
upon the patentee’s or the interested parties’ request before instituting any
legal proceedings or during the proceedings. Damages in the case of patent
infringement is calculated as either the loss suffered by the patent holder
arising from the infringement or the benefit gained by the infringer from the
infringement. If it is difficult to ascertain damages in this manner, damages
may be reasonably determined in an amount ranging from one to three times of the
license fee under a contractual license. In the case of false patents, if
there is no license fee for reference, the damages may be reasonably determined
in an amount ranging from RMB 10,000 to RMB 1,000,000.
Compliance
with Circular 106 and the Revised M&A regulations
On May
29, 2007, SAFE issued an official notice known as “Circular 106”, which requires
the owners of any PRC companies to obtain approval from Ministry of Finance
(“MOFCOM”) before establishing any offshore holding company structure in
so-called “round-trip” investment transactions (a round-trip investment refers
to an investment made by a PRC resident in a PRC enterprise through an offshore
special purpose vehicle) for foreign financing as well as subsequent acquisition
matters in the PRC. Likewise, on August 8, 2006, MOFCOM joined by State-owned
Assets Supervision and Administration Commission, State Administration of
Taxation, SAIC, CSRC and SAFE, released a substantially amended version of the
Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises
(the “Revised M&A Regulations”) which imposed approval requirements from
MOFCOM for “round-trip” investment transactions, including acquisitions in which
equity was used as consideration.
Foreign
Currency Exchange
Under the
PRC foreign currency exchange regulations applicable to us, the RMB is
convertible for current account items, including the distribution of dividends,
interest payments, trade and service-related foreign exchange transactions.
Conversion of RMB for capital account items, such as direct investment, loan,
security investment and repatriation of investment, however, is still subject to
the approval of the PRC State Administration of Foreign Exchange, or SAFE.
Foreign-invested enterprises may only buy, sell and/or remit foreign currencies
at those banks authorized to conduct foreign exchange business after providing
valid commercial documents and, in the case of capital account item
transactions, obtaining approval from the SAFE. Capital investments by
foreign-invested enterprises outside of the PRC are also subject to limitations,
which include approvals by the Ministry of Commerce, the SAFE and the State
Reform and Development Commission.
Dividend
Distributions
Under
applicable PRC regulations, foreign-invested enterprises in the PRC may pay
dividends only out of their accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. In addition, a
foreign-invested enterprise in the PRC are required to set aside at least 10% of
their after-tax profit based on PRC accounting standards each year to its
general reserves until the accumulative amount of such reserves reach 50% of its
registered capital. These reserves are not distributable as cash
dividends.
Approvals,
Licenses and Certificates
We
require a number of approvals, licenses and certificates in order to operate our
business. Our principal approvals, licenses and certificates are set forth
below.
Joway
Group
|
·
|
Business
License (No.120224000028519) issued by Tianjin City Administration of
Industry and Commerce, valid from May 17, 2007 to May 16,
2022.
|
|
·
|
Social
Insurance Register (No. 66033653) issued by Baodi Branch of Tianjin City
Social Security Fund Management Centre, valid from September 2008 to
August 2016.
|
|
·
|
Tax
Registration Certificate (No. 120224660336538) issued by State
Administration of Taxation and local administration of taxation in
2010.
|
|
·
|
Organization
Code Certificate (Code: 66033653-8) issued byTianjin Bureau of Quality and
Technical Supervision,valid from November 30, 2009 to November 29,
2013.
|
Joway
Technology
|
·
|
Business
License (No.210100000007455 (1-1)) issued by Shenyang City
Administration of Industry and Commerce, valid from March 28, 2007 to
March 27, 2017.
|
|
·
|
Tax
Registration Certificate (No. 210114798469376) issued by State
Administration of Taxation and local administration of taxation in
2008.
|
|
·
|
Organization
Code Certificate (Code: 79846937-6) issued by Shenyang Bureau of Quality
and Technical Supervision, valid from August 21, 2007 to August 21,
2011.
|
|
·
|
Social
Insurance Register (No. 210114955931) issued by Ministry of Human
Resources and Social Security of Liaoning
Province.
|
Joway
Decoration
|
·
|
Business
License (No.120224000040629) issued by Baodi Branch City Administration of
Industry and Commerce, valid from April 22, 2009 to April 21,
2019.
|
|
·
|
Tax
Registration Certificate (No. 120224687710841) issued by State
Administration of Taxation and local administration of taxation in
2010.
|
|
·
|
Organization
Code Certificate (Code: 68771084-1) issued by Tianjin Bureau of Quality
and Technical Supervision, valid from April 22, 2009 to April 21,
2013.
|
|
·
|
Social
Insurance Register (No. 68771084) issued by Baodi Branch of Tianjin City
Social Security Fund Management Centre, valid from August 2010 to July
2018.
|
Shengtang
Trading
|
·
|
Business
License (No.120104000125590) issued by Nankai Branch of Tianjin City
Administration of Industry and Commerce, valid from September 18, 2009 to
September 17, 2029.
|
|
·
|
Tax
Registration Certificate (No. 120104694072753) issued by State
Administration of Taxation and local administration of taxation in
2009.
|
|
·
|
Organization
Code Certificate (Code: 69407275-3) issued by Tianjin Bureau of Quality
and Technical Supervision, valid from September 22, 2009 to September 21,
2013.
|
|
·
|
Social
Insurance Register (No. 69407275) issued by Nankai Branch of Tianjin City
Social Security Fund Management Centre, valid from February 2010 to
January 2018.
|
RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this report before deciding to invest in our common stock.
Risks
Related To Our Business
The
purchase of many of our products is discretionary, and may be particularly
affected by adverse trends in the general economy; therefore challenging
economic conditions may make it more difficult for us to generate
revenue.
Our
business is affected by global, national and local economic conditions since
many of the products we sell are discretionary and we depend, to a significant
extent, upon a number of factors relating to discretionary consumer spending in
the PRC. These factors include economic conditions and perceptions of
such conditions by consumers, employment rates, the level of consumers'
disposable income, business conditions, interest rates, consumer debt levels,
availability of credit and levels of taxation in regional and local markets in
the PRC where we sell such products. There can be no assurance that
consumer spending on the products we sell, will not be adversely affected by
changes in general economic conditions in the PRC and globally.
The
success of our business depends on our ability to market and advertise the
products we sell effectively.
Our
ability to establish effective marketing and advertising campaigns is the key to
our success. Our advertisements promote our corporate image, our
merchandise and the pricing of such products. If we are unable to
increase awareness of our brands and our products, we may not be able to attract
new customers. Our marketing activities may not be successful in
promoting the products we sell or pricing strategies or in retaining and
increasing our customer base. We cannot assure you that our marketing
programs will be adequate to support our future growth, which may result in a
material adverse effect on our results of operations.
If
we fail to maintain optimal inventory levels, our inventory holding costs could
increase or cause us to lose sales, either of which could have a material
adverse effect on our business, financial condition and results of
operations.
While we
must maintain sufficient inventory levels to operate our business successfully
and meet our customers' demands, we must be careful to avoid amassing excess
inventory. Changing consumer demands, manufacturer backorders and
uncertainty surrounding new product launches expose us to increased inventory
risks. Demand for products can change rapidly and unexpectedly,
including the time between when the product is ordered from the supplier to the
time it is offered for sale. We carry a wide variety of products and
must maintain sufficient inventory levels of the products we sell. We
may be unable to sell certain products in the event that consumer demand
changes. Our inventory holding costs will increase if we carry excess
inventory. However, if we do not have a sufficient inventory of a
product to fulfill customer orders, we may lose orders or customers, which may
adversely affect our business, financial condition and results of
operations. We cannot assure you that we can accurately predict
consumer demand and events and avoid over-stocking or under-stocking
products.
We
may not be able to optimize the management of our distribution network or be
successful in expanding our distribution network.
We sell
our products to our customers mainly through our franchise stores across the
PRC. Any disruption in the operation of our franchise stores
distribution network could result in higher costs or longer lead times
associated with distributing our products. In addition, as it is difficult to
predict accurate sales volumes in our industry, we may be unable to optimize our
distribution activities, which may result in excess or insufficient inventory,
warehousing, fulfillment of logistics or value-added services, or distribution
capacity. In addition, failure to effectively control product damage or spoilage
during the distribution process could decrease our operating margins and reduce
our profitability.
If all or a significant portion of
our customers with accounts receivables fail to pay all or part of the trade
receivables or delay the repayment, our net income will decrease and our
profitability will be adversely affected
.
We had
accounts receivablesof approximately $57,532 as of December 31, 2009. There
is no assurance that our accounts receivables will be fully repaid on a timely
basis. If all or a significant portion of our customers with accounts
receivables fail to pay all or part of the accounts receivables or delay the
payment due to us for whatever reason, our net profit will decrease and our
profitability will be adversely affected.
Our
operations would be adversely affected if third-party carriers were unable to
transport our products on a timely basis.
Some of
our products are shipped through third party carriers. If a strike or
other event prevented or disrupted these carriers from transporting our
products, other carriers may be unavailable or may not have the capacity to
deliver our products to our customers. If adequate third party
sources to ship our products were unavailable at any time, our business would be
adversely affected.
Certain
disruptions in supply of and changes in the competitive environment for our
products may adversely affect our profitability.
A
significant disruption in the supply of the raw material could decrease
inventory levels and sales, and materially adversely affect our business and
financial results. Shortages of products or interruptions in
transportation systems, labor strikes, work stoppages, war, acts of terrorism or
other interruptions or difficulties in the employment of labor or transportation
in the markets in which we purchase raw materials may adversely affect our
ability to maintain sufficient inventories of our products to meet consumer
demand. If we were to experience a significant or prolonged shortage
of products from any of our suppliers and could not procure the products from
other sources, we would be unable to meet customer demand, which, in turn, would
adversely affect our sales, margins and customer relations.
If
we are unable to renew the leases of any of our property, our operations may be
adversely affected.
We do not
directly own any land use rights over the properties we lease. We may
lose our leases or may not be able to renew them when they are due on terms that
are reasonable or favorable to us. This may have adverse impact on
our operations, including disrupting our operations or increasing our cost of
operations.
Counterfeit
products sold in the PRC could negatively impact our revenues, brand reputation,
business and results of operations.
The products we
sell are also subject to competition from counterfeit products, which are
healthcare products manufactured without proper licenses or approvals and are
fraudulently mislabeled with respect to their content and/or
manufacturer. Counterfeit products are generally sold at lower prices
than authentic products due to their low production costs, and in some cases are
very similar in appearance to authentic products. Although the PRC
government has recently been increasingly active in policing counterfeit
products, including counterfeit healthcare products, there is a lack of
effective counterfeit product regulation control and enforcement systems in the
PRC. The proliferation of counterfeit products has grown in recent
years and may continue to grow in the future. Despite our
implementation of quality controls, we cannot assure you that we would not be
distributing or selling counterfeit products inadvertently. Any
accidental sale or distribution of counterfeit products can subject our company
to fines, administrative penalties, litigation and negative publicity, which
could negatively impact our revenues, brand reputation, business and results of
operations. Moreover, the continued proliferation of counterfeit products
and other products in recent years may reinforce the negative image of retailers
among consumers in the PRC. The continued proliferation of
counterfeit products in the PRC could have a material adverse effect on our
business, financial condition, and results of operation.
The
required certificates, permits, and licenses related to our operations are
subject to governmental control and renewal and failure to obtain renewal will
cause all or part of our operations to be terminated.
We are
subject to various PRC laws and regulations pertaining to our manufacture and
sales of healthcare products. We have attained certificates, permits,
and licenses required for the operation of a healthcare products manufacturer
and distributor. We cannot assure you that we will have all necessary
permits, certificates and authorizations for the operation of our business at
all times. Additionally, our certifications, permits and
authorizations are subject to periodic renewal by the relevant government
authorities. We intend to apply for renewal of these certificates,
permits and authorizations prior to their expiration. During the
renewal process, we will be re-evaluated by the appropriate governmental
authorities and must comply with the then prevailing standards and
regulations which may change from time to time. In the event that we
are not able to renew the certificates, permits and licenses, all or part of our
operations may be terminated. Furthermore, if escalating compliance
costs associated with governmental standards and regulations restrict or
prohibit any part of our operations, it may adversely affect our operations and
profitability.
If
we become subject to product liability claims, personal injury claims or
defective products our business may be harmed.
We will
be exposed to risks inherent in the manufacture and sales of healthcare
products, such as the unintentional distribution of counterfeit healthcare
products. Furthermore, we may sell products which inadvertently have an adverse
effect on the health of individuals. Product liability claims may be
asserted against us. Any product liability claim, product recall, adverse
side effects caused by improper use of the products we sell or manufacturing
defects may result in adverse publicity regarding us and the products we sell,
which would harm our reputation. If we are found liable for product
liability claims, we could be required to pay substantial monetary
damages. Furthermore, even if we successfully defend ourselves
against this type of claim, we could be required to spend significant
management, financial and other resources, which could disrupt our business, and
our reputation and our brand name may also suffer. In addition, we do
not have any business interruption insurance due to the limited coverage of any
business interruption insurance in the PRC, and as a result, any business
disruption or natural disaster could severely disrupt our business and
operations and significantly decrease our revenue and
profitability.
The
failure to manage growth effectively could have an adverse effect on our
employee efficiency, product quality, working capital levels, and results of
operations.
Any
significant growth in the market for our products or our entry into new markets
may require an expansion of our employee base for managerial, operational,
financial, and other purposes. As of the date of this Report, we had
approximately 128 full time employees. During any growth, we may face
problems related to our operational and financial systems and controls,
including quality control and delivery and service capacities. We
would also need to continue to expand, train and manage our employee
base. Continued future growth will impose significant added
responsibilities upon the members of management to identify, recruit, maintain,
integrate, and motivate new employees.
Aside
from increased difficulties in the management of human resources, we may also
encounter working capital issues, as we will need increased liquidity to finance
the purchase of raw materials and supplies, development of new products, and the
hiring of additional employees. For effective growth management, we
will be required to continue improving our operations, management, and financial
systems and controls. Our failure to manage growth effectively may
lead to operational and financial inefficiencies that will have a negative
effect on our profitability. We cannot assure investors that we will
be able to timely and effectively meet that demand and maintain the quality
standards required by our existing and potential customers.
If
we need additional capital to fund our growing operations, we may not be able to
obtain sufficient capital and may be forced to limit the scope of our
operations.
If
adequate additional financing is not available on reasonable terms, we may not
be able to undertake our expansion plan, purchase additional equipment for our
operations and we would have to modify our business plans accordingly. There is
no assurance that additional financing will be available to us.
In
connection with our growth strategies, we may experience increased capital needs
and accordingly, we may not have sufficient capital to fund our future
operations without additional capital investments. Our capital needs will depend
on numerous factors, including (i) our profitability; (ii) the release of
competitive products by our competitors; (iii) the level of our investment in
research and development; and (iv) the amount of our capital expenditures,
including acquisitions. We cannot assure you that we will be able to obtain
capital in the future to meet our needs.
If we
cannot obtain additional funding, we may be required to: (i) limit our
investments in research and development; (ii) limit our marketing efforts; and
(iii) decrease or eliminate capital expenditures. Such reductions could
materially adversely affect our business and our ability to
compete.
Even if
we do find a source of additional capital, we may not be able to negotiate terms
and conditions for receiving the additional capital that are acceptable to us.
Any future capital investments could dilute or otherwise materially and
adversely affect the holdings or rights of our existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our common
stock. We cannot give you any assurance that any additional financing will be
available to us, or if available, will be on terms favorable to us.
We
are dependent on certain key personnel and loss of these key personnel could
have a material adverse effect on our business, financial condition and results
of operations.
Our
success is, to a certain extent, attributable to the management, sales and
marketing, and operational and technical expertise of certain key
personnel. In addition, we will require an increasing number of
experienced and competent executives and other members of senior management to
implement our growth plans. We do not maintain key-man insurance for
members of our management team because it is not a customary practice in the
PRC. If we lose the services of any member of our senior
management, we may not be able to locate suitable or qualified replacements, and
may incur additional expenses to recruit and train new personnel, which could
severely disrupt our business and prospects.
We
are dependent on a trained workforce and any inability to retain or effectively
recruit such employees, particularly distribution personnel and regional retail
managers for our business, could have a material adverse effect on our business,
financial condition and results of operations.
We must
attract, recruit and retain a sizeable workforce of qualified and trained staff
to operate our business. Our ability to implement effectively our
business strategy and expand our operations will depend upon, among other
factors, the successful recruitment and retention of highly skilled and
experienced distribution personnel, regional retail managers and other technical
and marketing personnel. There is significant competition for
qualified personnel in our business and we may not be successful in recruiting
or retaining sufficient qualified personnel consistent with our current and
future operational needs.
Our
financial results may fluctuate because of many factors and, as a result,
investors should not rely on our historical financial data as indicative of
future results.
Fluctuations
in operating results or the failure of operating results to meet the
expectations of public market analysts and investors may negatively impact the
market price of our securities. Operating results may fluctuate in
the future due to a variety of factors that could affect revenues or expenses in
any particular quarter. Fluctuations in operating results could cause
the value of our securities to decline. Investors should not rely on
comparisons of results of operations as an indication of future
performance. As result of the factors listed below, it is possible
that in future periods results of operations may be below the expectations of
public market analysts and investors. This could cause the market
price of our securities to decline. Factors that may affect our quarterly
results include:
|
·
|
vulnerability of our business to
a general economic downturn in the
PRC;
|
|
·
|
fluctuation and unpredictability
of the prices of the products we
sell;
|
|
·
|
changes in the laws of the PRC
that affect our operations;
|
|
·
|
competition from other healthcare
products manufacturers and distributors;
and
|
|
·
|
our ability to obtain necessary
government certifications and/or licenses to conduct our
business.
|
We
are dependent of certain suppliers and a failure to continue to obtain our
supplies from such suppliers may adversely affect our business.
We do not
have any long-term supply contracts with our raw materials suppliers. Any
significant fluctuation in price of our raw materials could have a material
adverse effect on the manufacturing cost of our products. We are subject to
market conditions and although raw materials are generally available and we have
not experienced any raw materials shortage in the past, we cannot assure you
that the necessary materials will continue to be available to us at prices
currently in effect or acceptable to us.
We may
have limited options in the short-term for alternative supplies if our suppliers
fail for any reason, including their business failure or financial difficulties,
to continue the supply of raw materials. Moreover, identifying and accessing
alternative sources may increase our costs.
We
do not own any trademarks we currently use in our business. Any
failure to continue using these trademarks may affect our business in that any
goodwill and brand recognition may be lost.
We do not
own any trademarks we use. The trademarks we use currently are “Joway” and “Xi”
trademarks which are owned by our President, Chief Executive Officer and
director, Jinghe Zhang and Shenyang Joway, respectively.Pursuant to a license
agreement between our Company and Jinghe Zhang dated December 1, 2009, the term
of using the “Joway” trademark is from December 1, 2009 to November 30, 2019.
Pursuant to a license agreement between our company and Shenyang Joway dated
December 1, 2009, the term of using the “Xi” trademark is from December 1, 2009
to November 30, 2018. We do not have to pay any license fee to Jinghe Zhang and
Shenyang Joway for the use of the trademarks. There is no assurance that we may
continue using these trademarks on the expiration of the license agreement or
that we will be allowed to use in on terms favorable to use. Any
failure to continue using this trademark may affect our business in that any
brand recognition may be lost.
Risks
Related to Conducting Business in the PRC
Our
operations are subject to PRC laws and regulations that are sometimes vague and
uncertain. Any changes in such PRC laws and regulations, or the
interpretations thereof, may have a material and adverse effect on our
business.
The PRC's
legal system is a civil law system based on written statutes. Unlike the common
law system prevalent in the United States, decided legal cases have little value
as precedent in the PRC. There are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including but not
limited to, the laws and regulations governing our business, or the enforcement
and performance of our arrangements with customers in the event of the
imposition of statutory liens, death, bankruptcy or criminal proceedings. The
PRC government has been developing a comprehensive system of commercial laws,
and considerable progress has been made in introducing laws and regulations
dealing with economic matters such as foreign investment, corporate organization
and governance, commerce, taxation and trade. However, because these
laws and regulations are relatively new, and because of the limited volume
of published cases and judicial interpretation and their lack of authority as
precedents, interpretation and enforcement of these laws and regulations involve
significant uncertainties. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively.
Our
principal operating subsidiaries are regarded as foreign invested enterprises
(“FIE”s) under PRC laws, and as a result are required to comply with PRC laws
and regulations, including laws and regulations specifically governing the
activities and conduct of FIEs. We cannot predict what effect the
interpretation of existing or new PRC laws or regulations may have on our
businesses. If the relevant authorities find us in violation of PRC
laws or regulations, they would have broad discretion in dealing with such a
violation, including, without limitation:
|
·
|
revoking our business license,
other licenses or
authorities;
|
|
·
|
requiring that we restructure our
ownership or operations; and
|
|
·
|
requiring that we discontinue any
portion or all of our
business.
|
New
labor law in the PRC may adversely affect our results of
operations.
On
January 1, 2008, the PRC government promulgated the Labor Contract Law of
the PRC, or the New Labor Contract Law. The New Labor Contract Law
imposes greater liabilities on employers and significantly impacts the cost of
an employer’s decision to reduce its workforce. Further, it may
require certain terminations to be based upon seniority and not
merit. In the event we decide to significantly change or decrease our
workforce, the New Labor Contract Law could adversely affect our ability to
enact such changes in a manner that is most advantageous to our business or in a
timely and cost effective manner, thus materially and adversely affecting our
financial condition and results of operations.
We
may not be able to comply with applicable Good Manufacture Practice (“GMP”)
requirements and other regulatory requirements, which could have a material
adverse effect on our business, financial condition and results of
operations.
We are
required to comply with applicable GMP regulations, which include requirements
relating to quality control and quality assurance as well as corresponding
maintenance, record-keeping and documentation standards. Manufacturing
facilities must be approved by governmental authorities before we use them to
commercially manufacture our products and are subject to inspection by
regulatory agencies. If we fail to comply with applicable regulatory
requirements, including following any product approval, we may be subject to
sanctions, including:
|
·
|
product recalls or
seizure;
|
|
·
|
refusal of regulatory agencies to
review pending market approval applications or supplements to approval
applications;
|
|
·
|
total or partial suspension of
production;
|
|
·
|
withdrawals of previously
approved marketing applications;
or
|
If
we fail to protect our intellectual property rights, it could harm our business
and competitive position.
Our
business relies in part on intellectual properties to stay competitive in the
market place. We rely on a combination of trademark laws, patent law, trade
secrets, confidentiality procedures and contractual provisions to protect our
intellectual property rights and the obligations we have to third parties from
whom we license intellectual property rights. Nevertheless, these afford only
limited protection and policing unauthorized use of proprietary technology can
be difficult and expensive. In addition, intellectual property rights
historically have not been enforced in the PRC to the same extent as in the
United States, and intellectual property theft presents a serious risk in doing
business in the PRC. We may not be able to detect unauthorized use of, or take
appropriate steps to enforce our intellectual property rights and this could
have a material adverse effect on our business, operating results and financial
condition.
Under
the new EIT Law, we may be classified a “resident enterprise” for PRC tax
purposes, which may subject us to PRC enterprise income tax for any dividends we
receive from our PRC Operating Entities and to PRC income tax withholding for
any dividends we pay to our non-PRC shareholders.
On March
16, 2007, the National People’s Congress (“NPC”) promulgated the Law of the
People’s Republic of China on Enterprise Income Tax, or the new EIT Law,
which became effective on January 1, 2008. In accordance with the new EIT
Law, the corporate income tax rate is set at 25% for all enterprises. However,
certain industries and projects, such as FIEs, may enjoy favorable tax treatment
pursuant to the new EIT Law and its implementing rules.
Under the
new EIT Law, an enterprise established outside of the PRC whose “de facto
management bodies” are located in the PRC is considered a “resident enterprise”
and is subject to the 25% enterprise income tax rate on its worldwide income.
The new EIT Law and its implementing rules are relatively new, and currently, no
official interpretation or application of this new “resident enterprise”
classification is available. Therefore, it is unclear how tax authorities will
determine the tax residency of enterprises established outside of the
PRC.
Most of
our management is currently based in the PRC. If the PRC tax authorities
determine that our U.S. holding company is a “resident enterprise” for PRC
enterprise income tax purposes, we may be subject to an enterprise income tax
rate of 25% on our worldwide taxable income. The “resident enterprise”
classification also could subject us to a 10% withholding tax on any dividends
we pay to our non-PRC shareholders if the relevant PRC authorities determine
that such income is PRC-sourced income. In addition to the uncertainties
regarding the interpretation and application of the new “resident enterprise”
classification, the new EIT Law may change in the future, possibly with
retroactive effect. If we are classified as a “resident enterprise” and we incur
these tax liabilities, our net income will decrease accordingly.
Our
ability to pay dividends is restricted by PRC laws.
Our
ability to pay dividends is primarily dependent on receiving distributions of
funds from our PRC Operating Entities. Relevant PRC statutory laws and
regulations permit payments of dividends by our PRC Operating Entities only out
of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. The results of operations reflected in the
financial statements prepared in accordance with United States Generally
Accepted Accounting Principles (“GAAP”) differ from those reflected in the
statutory financial statements of our PRC Operating Entities.
The
principal laws, rules and regulations governing dividends paid by our PRC
Operating Entities include the Company Law of the PRC, Wholly Foreign Owned
Enterprise Law and its Implementation Rules. Under these laws and regulations,
our PRC Operating Entities are required to set aside at least 10% of their
after-tax profit based on PRC accounting standards each year to its statutory
surplus reserve fund until the accumulative amount of such reserve reaches 50%
of their respective registered capital. These reserve funds are recorded as part
of shareholders' equity but are not available for distribution to shareholders
other than in the case of liquidation. As a result of this requirement, the
amount of net income available for distribution to shareholders will be
limited.
Our
business is subject to a variety of environmental laws and regulations. Our
failure to comply with environmental laws and regulations may have a material
adverse effect on our business and results of operations.
Since the
beginning of the 1980s, the PRC has formulated and implemented a series of
environmental protection laws and regulations. Our operations are subject to
these environmental protection laws and regulations in the PRC. These laws and
regulations impose fees for the discharge of waste substances, permit the levy
of fines and claims for damages for serious environmental offences and allow the
PRC government, at its discretion, to close any facility that fails to comply
with orders requiring it to correct or stop operations causing environmental
damage. Our operations are in compliance with PRC environmental regulations in
all material aspects. The PRC government has taken steps and may take additional
steps towards more rigorous enforcement of applicable environmental laws, and
towards the adoption of more stringent environmental standards. If the PRC
national or local authorities enact additional regulations or enforce current or
new regulations in a more rigorous manner, we may be required to make additional
expenditures on environmental matters, which could have an adverse impact on our
financial condition and results of operations. In addition, environmental
liability insurance is not common in the PRC. Therefore, any significant
environmental liability claims successfully brought against us would adversely
affect our business, financial condition and results of operations.
PRC regulations
relating to acquisitions of PRC companies by foreign entities may create
regulatory uncertainties that could restrict or limit our ability to operate,
including our ability to pay dividends.
On August
8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned
Assets Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce,
the China Securities Regulatory Commission (“CSRC”) and the State Administration
of Foreign Exchange (“SAFE”), released a substantially amended version of the
Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises
(the "Revised M&A Regulations"), which took effect on September 8,
2006. These new rules significantly revised the PRC's regulatory
framework governing onshore-to-offshore restructurings and foreign acquisitions
of domestic enterprises. These new rules signify greater PRC
government attention to cross-border merger, acquisition and other investment
activities, by confirming MOFCOM as a key regulator for issues related to
mergers and acquisitions in the PRC and requiring MOFCOM approval of a broad
range of merger, acquisition and investment transactions. Further,
the new rules establish reporting requirements for acquisition of control by
foreigners of companies in key industries, and reinforce the ability of the PRC
government to monitor and prohibit foreign control transactions in key
industries.
These
rules may significantly affect the means by which offshore-onshore
restructurings are undertaken in the PRC in connection with offshore private
equity and venture capital financings, mergers and acquisitions. It
is expected that such transactional activity in the PRC in the near future will
require significant case-by-case guidance from MOFCOM and other government
authorities as appropriate. It is anticipated that application of the
new rules will be subject to significant administrative interpretation, and we
will need to closely monitor how MOFCOM and other ministries apply the rules to
ensure its domestic and offshore activities continue to comply with PRC laws.
Given the uncertainties regarding interpretation and application of the new
rules, we may need to expend significant time and resources to maintain
compliance. It is uncertain how our business operations or future
strategy will be affected by the interpretations and implementation of the SAFE
notices and new rules. Our business operations or future strategy could be
adversely affected by the SAFE notices and the new rules. For
example, we may be subject to more stringent review and approval processes with
respect to our foreign exchange activities.
The
foreign currency exchange rate between U.S. dollars and Renminbi (“RMB”) could
adversely affect our reported financial results and condition.
To the
extent that we need to convert U.S. dollars into RMB for our operational needs,
our financial position and the price of our common stock may be adversely
affected should RMB appreciate against U.S. dollar at that
time. Conversely, if we decide to convert our RMB into U.S. dollars for the
operational needs or paying dividends on our common stock, the dollar equivalent
of our earnings from our subsidiaries in the PRC would be reduced should U.S.
dollar appreciate against RMB.
Until
1994, RMB experienced a gradual but significant devaluation against most major
currencies, including dollars, and there was a significant devaluation of RMB on
January 1, 1994 in connection with the replacement of the dual exchange rate
system with a unified managed floating rate foreign exchange
system. Since 1994, the value of RMB relative to U.S. dollar has
remained stable and has appreciated slightly against U.S. dollar. Countries,
including the United States, have argued that RMB is artificially undervalued
due to the PRC's current monetary policies and have pressured the PRC to allow
RMB to float freely in world markets. In July 2005, the PRC
government changed its policy of pegging the value of RMB to the U.S.
dollar. Under the new policy, RMB is permitted to fluctuate within a
narrow and managed band against a basket of designated foreign
currencies. While the international reaction to RMB revaluation has
generally been positive, there remains significant international pressure on the
PRC government to adopt an even more flexible currency policy, which could
result in further and more significant appreciation of RMB against the
dollar.
Restrictions on
currency exchange may limit our ability to utilize our revenues effectively and
the ability of our PRC Operating Entities to obtain
financing.
Substantially
all of our revenues and operating expenses are denominated in RMB. Restrictions
on currency exchange imposed by the PRC government may limit our ability to
utilize revenues generated in RMB to fund our business activities outside the
PRC, if any, or expenditures denominated in foreign currencies. Under current
PRC regulations, RMB may be freely converted into foreign currency for payments
relating to “current account transactions,” which include among other things
dividend payments and payments for the import of goods and services, by
complying with certain procedural requirements. Our PRC Operating Entities may
also retain foreign exchange in their respective current account bank accounts,
subject to a cap set by SAFE or its local counterpart, for use in payment of
international current account transactions.
However,
conversion of RMB into foreign currencies and of foreign currencies into RMB,
for payments relating to “capital account transactions,” which principally
includes investments and loans, generally requires the approval of SAFE and
other relevant PRC governmental authorities. Restrictions on the convertibility
of the RMB for capital account transactions could affect the ability of our PRC
Subsidiary to make investments overseas or to obtain foreign exchange through
debt or equity financing, including by means of loans or capital contributions
from us.
In August
2008, SAFE promulgated Circular 142, a notice regulating the conversion by FIEs
of foreign currencies into RMB by restricting how the converted RMB may be used.
Circular 142 requires that RMB converted from the foreign currency-denominated
capital of a FIE may only be used for purposes within the business scope
approved by the applicable government authority and may not be used for equity
investments within the PRC unless specifically provided for otherwise. In
addition, SAFE strengthened its oversight over the flow and use of RMB funds
converted from the foreign currency-denominated capital of a FIE. The use of
such RMB may not be changed without approval from SAFE, and may not be used to
repay RMB loans if the proceeds of such loans have not yet been used. Violations
of Circular 142 may result in severe penalties, including substantial fines as
set forth in the SAFE rules.
Any
existing and future restrictions on currency exchange may affect the ability of
our PRC Subsidiary or affiliated entity to obtain foreign currencies, limit our
ability to utilize revenues generated in RMB to fund our business activities
outside the PRC that are denominated in foreign currencies, or otherwise
materially and adversely affect our business.
We
may be exposed to liabilities under the Foreign Corrupt Practices Act and
Chinese anti-corruption laws, and any determination that we violated these laws
could have a material adverse effect on our business.
We are
subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and
their officials and political parties by U.S. persons and issuers as defined by
the statute, for the purpose of obtaining or retaining business. We have
operations, agreements with third parties and we make all of our sales in China.
The PRC also strictly prohibits bribery of government officials. Our activities
in China create the risk of unauthorized payments or offers of payments by the
employees, consultants, sales agents or distributors of our company and its
affiliate, even though they may not always be subject to our control. It is our
policy to implement safeguards to discourage these practices by our employees,
and we have implemented a policy to comply specifically with the FCPA. In spite
of these efforts, our existing safeguards and any future improvements may prove
to be less than effective, and the employees, consultants, sales agents or
distributors of our company and its affiliate may engage in conduct for which we
might be held responsible. Violations of the FCPA or Chinese anti-corruption
laws may result in severe criminal or civil sanctions, and we may be subject to
other liabilities, which could negatively affect our business, operating results
and financial condition. In addition, the U.S. government may seek to hold our
company liable for successor liability FCPA violations committed by companies in
which we invest or that we acquire.
If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with SAFE. We may also face regulatory
uncertainties that could restrict our ability to adopt an equity compensation
plan for our directors and employees and other parties under PRC
law.
On April
6, 2007, SAFE issued the Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also known as Circular 78. It is not clear
whether Circular 78 covers all forms of equity compensation plans or only
those which provide for the granting of stock options. For any plans
which are so covered and are adopted by a non-PRC listed company after April 6,
2007, Circular 78 requires all participants who are PRC citizens to register
with and obtain approvals from SAFE prior to their participation in the
plan. In addition, Circular 78 also requires PRC citizens to register
with SAFE and make the necessary applications and filings if they participated
in an overseas listed company's covered equity compensation plan prior to April
6, 2007. We intend to adopt an equity compensation plan in the future
and make option grants to our officers and directors, most of whom are PRC
citizens. Circular 78 may require our officers and directors who receive
option grants and are PRC citizens to register with SAFE. We believe that
the registration and approval requirements contemplated in Circular 78 will be
burdensome and time consuming. If it is determined that any of our
equity compensation plans is subject to Circular 78, failure to comply with such
provisions may subject us and participants of our equity incentive plan who are
PRC citizens to fines and legal sanctions and prevent us from being able to
grant equity compensation to our PRC employees. In that case, our
ability to compensate our employees and directors through equity compensation
would be hindered and our business operations may be adversely
affected.
Any
recurrence of severe acute respiratory syndrome (“SARS”), Avian Flu, or another
widespread public health problem in the PRC could adversely affect our
operations.
A renewed
outbreak of SARS, Avian Flu or another widespread public health problem in the
PRC, where all of our businesses are located and where all of our sales occur,
could have a negative effect on our operations. Our businesses are
dependent upon our ability to continue to efficiently distribute and sell our
products. Such an outbreak could have an impact on our operations as a result
of:
|
·
|
quarantines or closure of our
distribution center, which would severely disrupt our
operations,
|
|
·
|
the sickness or death of our key
officers and employees, and
|
|
·
|
a general slowdown in the PRC
economy.
|
Any of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.
Adverse
changes in political, economic and other policies of the PRC government could
have a material adverse effect on the overall economic growth of the PRC, which
could reduce the demand for our products and materially and adversely affect our
competitive position.
All of
our business operations are conducted in the PRC, and all of our sales are
currently made in the PRC. Accordingly, our business, financial condition,
results of operations and prospects are affected significantly by economic,
political and legal developments in the PRC. The PRC economy differs from the
economies of most developed countries in many respects, including:
|
·
|
the extent of government
involvement;
|
|
·
|
the level of
development;
|
|
·
|
the control of foreign
exchange;
|
|
·
|
the allocation of
resources;
|
|
·
|
an evolving regulatory system;
and
|
|
·
|
lack of sufficient transparency
in the regulatory process.
|
While the
PRC economy has experienced significant growth in the past 20 years, growth has
been uneven, both geographically and among various sectors of the economy. The
PRC government has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit the overall
PRC economy, but may also have a negative effect on us. For example, our
financial condition and results of operations may be adversely affected by
government control over capital investments or changes in tax regulations that
are applicable to us.
The PRC
economy has been transitioning from a planned economy to a more market-oriented
economy. Although in recent years the PRC government has implemented measures
emphasizing the utilization of market forces for economic reform, the reduction
of state ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of the productive
assets in the PRC are still owned by the PRC government. The continued control
of these assets and other aspects of the national economy by the PRC government
could materially and adversely affect our business. The PRC government also
exercises significant control over PRC economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies. Efforts by the PRC government to slow the pace of
growth of the PRC economy could result in decreased expenditures by the users of
our products, which in turn could reduce demand for our products.
Moreover,
the political relationship between the United States, Europe, or other Asian
nations and the PRC is subject to sudden fluctuation and periodic tension.
Changes in political conditions in the PRC and changes in the state of foreign
relations are difficult to predict and could adversely affect our operations or
cause our products to become less attractive. This could lead to a decline in
our profitability.
Any
adverse change in the economic conditions or government policies in the PRC
could have a material adverse effect on overall economic growth and the level of
healthcare investments and expenditures in the PRC, which in turn could lead to
a reduction in demand for our products and consequently have a material adverse
effect on our businesses.
Because
our business is located in the PRC, we may have difficulty establishing adequate
management, legal and financial controls, which are required in order to comply
with United States securities laws.
PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. In addition, we may have difficulty in hiring and retaining
a sufficient number of qualified employees to work in the PRC. As a
result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet Western
standards. Therefore, we may, in turn, experience difficulties in
implementing and maintaining adequate internal controls as required under
Section 404 of the Sarbanes-Oxley Act of 2002. This may result in
significant deficiencies or material weaknesses in our internal controls which
could impact the reliability of its financial statements and prevent us from
complying with the rules and regulations promulgated by the Securities Exchange
Commission (the “SEC”) and the requirements of the Sarbanes-Oxley Act of 2002
(“SOX”). Any such deficiencies, weaknesses or lack of compliance
could have a materially adverse effect on our business.
Investors
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in the PRC based upon
United States laws, including the federal securities laws or other foreign laws
against us or our management.
All of
our current business operations are conducted in the PRC. Moreover,
all of our directors and officers are nationals and residents of the PRC.All the
assets of these persons are located outside the United States and in the PRC.As
a result, it may not be possible to effect service of process within the United
States or elsewhere outside the PRC upon these persons. In addition,
uncertainty exists as to whether the PRC courts would recognize or enforce
judgments of United States courts obtained against us or such officers and/or
directors predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof, or be competent to hear original
actions brought in the PRC against us or such persons predicated upon the
securities laws of the United States or any state thereof.
If
we are found to be in violation of current or future PRC laws, rules or
regulations regarding the legality of foreign investment in the PRC with respect
to our ownership structure, we could be subject to severe
penalties.
We
currently conduct business operations solely in the PRC through our
subsidiaries, in which we hold 100% equity ownership interest. We are
a Texas corporation. As a result, our subsidiaries in the PRC are regarded as
FIEs under PRC law and we are subject to PRC law limitations on foreign
ownership of PRC companies. There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations,
including, but not limited to, the laws and regulations governing our healthcare
products distribution and production businesses.
Accordingly,
it is possible that the relevant PRC authorities could, at any time, assert that
any portion of our existing or future ownership structure and businesses violate
existing or future PRC laws, regulations or policies. It is also
possible that the new laws or regulations governing our business operations in
the PRC that have been adopted or may be adopted in the future will prohibit or
restrict foreign investment in, or other aspects of, any of our PRC Operating
Entities' and our current or proposed businesses and operations. The
effectiveness of newly enacted laws, regulations or amendments may be delayed,
resulting in detrimental reliance by foreign investors. New laws and
regulations that affect existing and proposed future businesses may also be
applied retroactively.
The PRC
government has broad discretion in dealing with violations of laws and
regulations, including:
|
·
|
confiscating our
income;
|
|
·
|
revoking business and other
licenses;
|
|
·
|
requiring us to discontinue any
portion or all of our
business;
|
|
·
|
requiring us to restructure our
ownership structure or operations;
and
|
|
·
|
requiring actions necessary for
compliance.
|
In
particular, licenses and permits issued or granted to us by relevant
governmental bodies may be revoked at a later time by higher regulatory
bodies. We cannot predict the effect of the interpretation of
existing or new PRC laws or regulations on our businesses. We cannot
assure you that our current ownership and operating structure would not be found
in violation of any current or future PRC laws or regulations. As a
result, we may be subject to sanctions, including fines, and could be required
to restructure our operations or cease to provide certain
services. Any of these or similar actions could significantly disrupt
our business operations or restrict us from conducting a substantial portion of
our business operations, which, in turn, could materially and adversely affect
our business, financial condition and results of operations.
Risks
Relating to Investment in Our Securities
An
active public market for our common stock may not develop or be sustained, which
would adversely affect the ability of our investors to sell their securities in
the public market.
We cannot
predict the extent to which an active public market for our common stock will
develop or be sustained.
Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common stock.
Holders
of a significant number of our shares and/or their designees may be eligible to
sell our shares of common stock by means of ordinary brokerage transactions in
the open market pursuant to Rule 144, promulgated under the Securities Act
(“Rule 144”), subject to certain limitations. In general, pursuant to
Rule 144, a non-affiliate stockholder (or stockholders whose shares are
aggregated) who has satisfied a six-month holding period, and provided that
there is current public information available, may sell all of its
securities. Rule 144 also permits the sale of
securities, without any limitations, by a non-affiliate that has satisfied
a one-year holding period. Any substantial sale of common stock pursuant to any
resale prospectus or Rule 144 may have an adverse effect on the market price of
our common stock by creating an excessive supply.
If
we fail to maintain effective internal controls, we may not be able to
accurately report our financial results or prevent fraud, and our business,
financial condition, results of operations and reputation could be materially
and adversely affected.
We will
become a public company upon completion of the private placement and our
internal control will be essential to the integrity of our business and
financial results. Our public reporting obligations are expected to place a
strain on our management, operational and financial resources and systems in the
foreseeable future. In preparation for this offering, we have implemented
measures to enhance our internal controls, and plan to take steps to further
improve our internal controls. If we encounter difficulties in improving our
internal controls and management information systems, we may incur additional
costs and management time in meeting our improvement goals. We cannot assure you
that the measures taken to improve our internal controls will be effective. If
we fail to maintain effective internal controls in the future, our business,
financial condition, results of operations and reputation may be materially and
adversely affected.
Compliance
with changing regulation of corporate governance and public disclosure will
result in additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including SOX and related SEC regulations, have created uncertainty
for public companies and significantly increased the costs and risks associated
with accessing the public markets and public reporting. Our
management team will need to invest significant management time and financial
resources to comply with both existing and evolving standards for public
companies, which will lead to increased general and administrative expenses and
a diversion of management time and attention from revenue generating activities
to compliance activities.
We
do not foresee paying cash dividends in the near future.
We do not
plan to declare or pay any cash dividends on our shares of common stock in the
foreseeable future and currently intend to retain any future earnings for
funding growth. As a result, investors should not rely on an
investment in our securities if they require the investment to produce dividend
income.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The
following discussion should be read in conjunction with our consolidated
financial statements and notes to those consolidated financial statements,
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results and the
timing of selected events could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including those
set forth under “Risk factors” and elsewhere in this prospectus.
FORWARD-LOOKING
STATEMENTS:
Certain
statements made in this report may constitute “forward-looking statements on our
current expectations and projections about futureevents.” These forward-looking
statements involve known or unknown risks, uncertainties and other factors that
may cause our actual results, performance, or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. In some cases you can identify
forward-looking statements by some words such as “may,” “should,” “potential,”
“continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions. These statements are based on our current
beliefs, expectations, and assumptions and are subject to a number of risks and
uncertainties. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. These forward-looking
statements are made as of the date of this report, and we assume no obligation
to update these forward-looking statements whether as a result of new
information, future events, or otherwise, other than as required by law. In
light of these assumptions, risks, and uncertainties, the forward-looking events
discussed in this report might not occur and actual results and events may vary
significantly from those discussed in the forward-looking
statements.
Overview
We
research, develop, manufacture and market tourmaline products, including
healthcare knitgoods, daily healthcare and personal care products, and activated
water machine and wellness house products. We conduct operations in Tianjin,
China and distribute most of our products to more than 200 franchisees. Our
franchisees, in turn, sell the products to their customers.
Results
of Operations
The
following table sets forth certain information regarding our results of
operations.
|
For the six months ended June 30,
|
|
|
For the year ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
REVENUES
|
|
$
|
2,323,841
|
|
|
$
|
984,456
|
|
|
$
|
3,109,059
|
|
|
$
|
422,612
|
|
COGS
|
|
|
639,488
|
|
|
|
448,437
|
|
|
|
1,164,683
|
|
|
|
303,854
|
|
GROSS
PROFIT
|
|
|
1,684,353
|
|
|
|
536,019
|
|
|
|
1,944,376
|
|
|
|
118,758
|
|
OPERATING
EXPENSES
|
|
|
761,495
|
|
|
|
401,561
|
|
|
|
1,133,249
|
|
|
|
259,532
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
922,858
|
|
|
|
134,458
|
|
|
|
811,127
|
|
|
|
(140,774
|
)
|
OTHER
(EXPENSE) INCOME, NET
|
|
|
(23,840
|
)
|
|
|
3,326
|
|
|
|
(19,344
|
)
|
|
|
(1,131
|
)
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
|
899,018
|
|
|
|
137,784
|
|
|
|
791,783
|
|
|
|
(141,905
|
)
|
INCOME
TAXES
|
|
|
211,233
|
|
|
|
34,592
|
|
|
|
141,248
|
|
|
|
5,083
|
|
NET
INCOME (LOSS)
|
|
$
|
687,785
|
|
|
$
|
103,192
|
|
|
$
|
650,535
|
|
|
$
|
(146,988
|
)
|
The
following tables provide information on revenues, cost of sales and gross profit
for each of our reporting segments.
For the
six months ended June 30, 2010 (Unaudited)
|
|
Healthcare
Knitgoods
Series
|
|
|
%
of
Total
|
|
|
Daily
Healthcare
and
Personal
Care
Series
|
|
|
%
of
Total
|
|
|
Wellness
House
and
Activated
Water
Machine
Series
|
|
|
%
of
Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
1,440,617
|
|
|
|
62.0
|
%
|
|
$
|
478,320
|
|
|
|
20.6
|
%
|
|
$
|
404,904
|
|
|
|
17.4
|
%
|
|
$
|
2,323,841
|
|
COGS
|
|
|
305,383
|
|
|
|
47.8
|
%
|
|
|
140,370
|
|
|
|
22.0
|
%
|
|
|
193,735
|
|
|
|
30.3
|
%
|
|
|
639,488
|
|
GROSS
PROFIT
|
|
|
1,135,234
|
|
|
|
67.4
|
%
|
|
|
337,950
|
|
|
|
20.1
|
%
|
|
|
211,169
|
|
|
|
12.5
|
%
|
|
|
1,684,353
|
|
GROSS
MARGIN
|
|
|
78.8
|
%
|
|
|
|
|
|
|
70.7
|
%
|
|
|
|
|
|
|
52.2
|
%
|
|
|
|
|
|
|
72.5
|
%
|
OPERATING
EXPENSES
|
|
|
486,739
|
|
|
|
63.9
|
%
|
|
|
161,609
|
|
|
|
21.2
|
%
|
|
|
113,147
|
|
|
|
14.9
|
%
|
|
|
761,495
|
|
INCOME
FROM OPERATIONS
|
|
$
|
648,495
|
|
|
|
70.3
|
%
|
|
$
|
176,341
|
|
|
|
19.1
|
%
|
|
$
|
98,022
|
|
|
|
10.6
|
%
|
|
$
|
922,858
|
|
For the
six months ended June 30, 2009 (Unaudited)
|
|
Healthcare
Knitgoods
Series
|
|
|
%
of
Total
|
|
|
Daily
Healthcare
and
Personal
Care
Series
|
|
|
%
of
Total
|
|
|
Wellness
House
and
Activated
Water
Machine
Series
|
|
|
%
of
Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
446,112
|
|
|
|
45.3
|
%
|
|
$
|
250,409
|
|
|
|
25.4
|
%
|
|
$
|
287,935
|
|
|
|
29.2
|
%
|
|
$
|
984,456
|
|
COGS
|
|
|
123,487
|
|
|
|
27.5
|
%
|
|
|
82,463
|
|
|
|
18.4
|
%
|
|
|
242,487
|
|
|
|
54.1
|
%
|
|
|
448,437
|
|
GROSS
PROFIT
|
|
|
322,625
|
|
|
|
60.2
|
%
|
|
|
167,946
|
|
|
|
31.3
|
%
|
|
|
45,448
|
|
|
|
8.5
|
%
|
|
|
536,019
|
|
GROSS
MARGIN
|
|
|
72.3
|
%
|
|
|
|
|
|
|
67.1
|
%
|
|
|
|
|
|
|
15.8
|
%
|
|
|
|
|
|
|
54.4
|
%
|
OPERATING
EXPENSES
|
|
|
226,600
|
|
|
|
56.4
|
%
|
|
|
127,193
|
|
|
|
31.7
|
%
|
|
|
47,768
|
|
|
|
11.9
|
%
|
|
|
401,561
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
$
|
96,025
|
|
|
|
71.4
|
%
|
|
$
|
40,753
|
|
|
|
30.3
|
%
|
|
$
|
(2,320
|
)
|
|
|
-1.7
|
%
|
|
$
|
134,458
|
|
For the
year ended December 31, 2009
|
|
Healthcare
Knitgoods
Series
|
|
|
%
of
Total
|
|
|
Daily
Healthcare
and
Personal
Care
Series
|
|
|
%
of
Total
|
|
|
Wellness
House
and
Activated
Water
Machine
Series
|
|
|
%
of
Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
1,723,846
|
|
|
|
55.4
|
%
|
|
$
|
498,341
|
|
|
|
16.0
|
%
|
|
$
|
886,872
|
|
|
|
28.5
|
%
|
|
$
|
3,109,059
|
|
COGS
|
|
|
428,004
|
|
|
|
36.7
|
%
|
|
|
122,891
|
|
|
|
10.6
|
%
|
|
|
613,788
|
|
|
|
52.7
|
%
|
|
|
1,164,683
|
|
GROSS
PROFIT
|
|
|
1,295,842
|
|
|
|
66.6
|
%
|
|
|
375,450
|
|
|
|
19.3
|
%
|
|
|
273,084
|
|
|
|
14.0
|
%
|
|
|
1,944,376
|
|
GROSS
MARGIN
|
|
|
75.2
|
%
|
|
|
|
|
|
|
75.3
|
%
|
|
|
|
|
|
|
30.8
|
%
|
|
|
|
|
|
|
62.5
|
%
|
OPERATING
EXPENSES
|
|
|
709,485
|
|
|
|
62.6
|
%
|
|
|
205,102
|
|
|
|
18.1
|
%
|
|
|
218,662
|
|
|
|
19.3
|
%
|
|
|
1,133,249
|
|
INCOME
FROM OPERATIONS
|
|
$
|
586,357
|
|
|
|
72.3
|
%
|
|
$
|
170,348
|
|
|
|
21.0
|
%
|
|
$
|
54,422
|
|
|
|
6.7
|
%
|
|
$
|
811,127
|
|
For the
year ended December 31, 2008
|
|
Healthcare
Knitgoods
Series
|
|
|
%
of
Total
|
|
|
Daily
Healthcare
and
Personal
Care
Series
|
|
|
%
of
Total
|
|
|
Wellness
House
and
Activated
Water
Machine
Series
|
|
|
%
of
Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
14,761
|
|
|
|
3.5
|
%
|
|
$
|
144
|
|
|
|
0.0
|
%
|
|
$
|
407,707
|
|
|
|
96.5
|
%
|
|
$
|
422,612
|
|
COGS
|
|
|
1,793
|
|
|
|
0.6
|
%
|
|
|
17
|
|
|
|
0.0
|
%
|
|
|
302,044
|
|
|
|
99.4
|
%
|
|
|
303,854
|
|
GROSS
PROFIT
|
|
|
12,968
|
|
|
|
10.9
|
%
|
|
|
127
|
|
|
|
0.1
|
%
|
|
|
105,663
|
|
|
|
89.0
|
%
|
|
|
118,758
|
|
GROSS
MARGIN
|
|
|
87.9
|
%
|
|
|
|
|
|
|
88.2
|
%
|
|
|
|
|
|
|
25.9
|
%
|
|
|
|
|
|
|
28.1
|
%
|
OPERATING
EXPENSES
|
|
|
137,167
|
|
|
|
52.9
|
%
|
|
|
1,338
|
|
|
|
0.5
|
%
|
|
|
121,027
|
|
|
|
46.6
|
%
|
|
|
259,532
|
|
LOSS
FROM OPERATIONS
|
|
$
|
(124,199
|
)
|
|
|
88.2
|
%
|
|
$
|
(1,211
|
)
|
|
|
0.9
|
%
|
|
$
|
(15,364
|
)
|
|
|
10.9
|
%
|
|
$
|
(140,774
|
)
|
For
The Six Months Ended June 30, 2010 Compared to June 30,
2009 (Unaudited)
Revenue.
For the six months
ended June 30, 2010, revenue was $2.3 million compared to $1.0 million for the
six months ended June 30, 2009, an increase of $1.3 million, or
136.1%. This increase was mainly due to the expansion of our market
areas and the increase the number of our franchisees selling our products
exclusively. For the first half of the fiscal year 2009, we had 69 franchisees
and this number of franchisees increased to175 by the end of the first half of
the fiscal year 2010, which resulted in the increase of our sales. More
specifically, revenue from our healthcare knitgoods series increased by $1.0
million, or 222.9% to $1.4 million for the six months ended June 30, 2010 from
$0.4 million for the six months ended June 30, 2009. Our healthcare
knitgoods contributed the most to our revenue increase with the expansion of our
market share.
Cost of Goods
Sold.
For the six months ended June 30, 2010, cost of goods
sold was $0.6 million compared to $0.4 million for the six months ended June 30,
2009, an increase of $0.2 million, or 42.6%. This increase was mainly
due to the increase of sales. Cost of goods sold for healthcare
knitgoods series increased by $0.2 million or 147.3% to $0.3 million for the six
months ended June 30, 2010 from $0.1 million for the six months ended June 30,
2009.
Gross profit.
Our gross profit
increased by $1.2million or 214.2% to $1.7 million for the six months ended June
30, 2010, compared to $0.5million for the six months ended June 30, 2009. This
increase was due to the increase in sales. Our gross margin increased from 54.4%
for the six months ended June 30, 2009 to 72.5% for the six months ended June
30, 2010. This increase was primarily due to the expansion of production. Since
the fixed manufacture expenses were born by more products, the expenses born by
each product decreased, hence the gross profit of each product
increased.
Operatingexpenses.
Our
total operating expenses consist of sales and marketing expenses and general and
administrative expenses. Our total operating expenses increased by $0.4 million,
or 89.6%, from $0.4 million for the six months ended June 30, 2009 to $0.8
million for the six months ended June 30, 2010. This increase was mainly due to
the increase of our market operation and the expansion of our administrative
organization. As an important segment, operating expenses for healthcare
knitgoods series increased by $0.3 million or 114.8% to $0.5 million for the six
months ended June 30, 2010 from $0.2 million for the six months ended June 30,
2009.
Income from
operations.
As a result of the foregoing, our income from
operations increased to $0.9 million for the six months ended June 30, 2010 from
$0.1 million for the six months ended June 30, 2009, an increase of 586.4% due
to the increase of revenue. Our income from operations for health care knitgoods
series increased to $0.6 million for the six months ended June 30, 2010 from
$0.1 million for the six months ended June 30, 2009, an increase of
575.3%.
Income taxes.
Our
income tax expenses increased by $0. 2 million, or 510.6%, from $0.03 million
for the six months ended June 30, 2009 to $0.2 million for the six months ended
June 30, 2010. The increase was primarily due to the increase of
income.
Net income.
Our net
income increased by $0.6 million, or 566.5% to $0.7 million for the six months
ended June 30, 2010 from $0.1 million for the six months ended June 30, 2009.
Our profit margin increased from 10.5% for the six months ended June 30, 2009 to
29.6% for the six months ended June 30, 2010.
For
The Year Ended December 31, 2009 Compared to December 31, 2008
Revenue.
For the year ended
December 31, 2009, revenue was $3.1 million compared to $0.4 million for the
year ended December 31, 2008, an increase of $2.7 million, or 635.7%. This
increase was mainly due to the expansion of our operation. Beginning December
2008, Joway Group became operational as our primary operating company. Revenue
from healthcare knitgoods series increased to $1.7 million for the year ended
December 31, 2009 from $0.01 million for the year ended December 31, 2008. Since
Joway Group became operational from December 2008, healthcare knit goods
produced by Joway Group were sold only in one month of the year of 2008, hence
the significant increase in revenue.
Cost of Goods
Sold.
For the year ended December 31, 2009, cost of goods sold
was $1.2 million compared to $0.3 million for the year ended December 31, 2008,
an increase of $0.9 million, or 283.3%. This increase was mainly due
to the increase of sales. Cost of goods sold for healthcare knitgoods
series increased to $0.4 million for the year ended December 31, 2009 from $0.02
million for the year ended December 31, 2008. This increase was also
due to only one month of sales of healthcare knitgoods in 2008.
Gross profit.
Our gross profit
increased by $1.8 million or 1537.3% to $1.9 million for the year ended December
31, 2009, compared to $0.1 million for the year ended December 31, 2008. This
increase was due to the increase of sales. Our gross margin increased from 28.1%
for the year ended December 31, 2008 to 62.5% for the year ended December 31,
2009. This increase was mainly due to the increase in sales of healthcare
knitgoods which has higher gross profit margin.
Operatingexpenses.
Our total
operating expenses consist of sales and marketing expenses and general and
administrative expenses. Our total operating expenses increased by $0.8 million,
or 336.7%, from $0.3 million for the year ended December 31, 2008 to$1.1 million
for the year ended December 31, 2009. This increase was mainly due to the
increase of our market operation and the expansion of our administrative
organization. Operating expenses for healthcare knitgoods series increased by
$0.5 million or 417.2% to $0.7 million for the year ended December 31, 2009 from
$0.1 million for the year ended December 31, 2008.
Income from
operations.
As a result of the foregoing, our income from
operations was $1.0 million for the year ended December 31, 2009,compared to
loss from operations of$0.1 million for the year ended December 31,
2008, an increase of $1.1 million. This increase was mainly due to Joway Group,
our primarily operating company, expanding operations in 2009 compared to no
sales for the first eleven months in 2008 when it was being
established. For the year ended December 31, 2009,income from
operations for healthcare knitgoods series was $0.6 million from $0.1 million of
loss for the year ended December 31, 2008.
Income taxes.
Our
income tax expenses increased from $0.01 million for the year ended December 31,
2008 to $0.1 million for the year ended December 31, 2009. The increase was
primarily due to the increase of income.
Net income.
For the
year ended December 31, 2009, our net income was $0.6 million, as compared to
net loss of $0.1 millionfor the year ended December 31, 2008.This increase was
primarily brought by Joway Group.
Franchising
We enter
into franchising agreements to develop retail outlets for our products. The
agreements provide that franchisees will sell our products exclusively. In
exchange we provide them with geographic exclusivity, discounted product,
training and support. The agreements also require franchisees to adhere to
certain standards of product merchandising, promotion and presentment. The
agreements do not require any initial franchise fees from the franchisees, nor
do they require the franchisees to pay continuing royalties. The agreements are
generally for terms of threeyears and are renewable at the mutual agreement of
both parties. The Agreements are cancelable at our discretion if franchisees do
not purchase a certain minimum level of product annually.
The
following is a breakdown of revenue between franchise and non-franchise
customers:
|
Six
Months
ended
June
30,
|
|
|
Year
ended
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Sales
to franchise customers
|
|
$
|
2,016,731
|
|
|
$
|
622,592
|
|
|
$
|
2,238,586
|
|
|
$
|
-
|
|
Sales
to non-franchise customers
|
|
|
307,110
|
|
|
|
361,864
|
|
|
|
870,473
|
|
|
|
422,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
|
|
$
|
2,323,841
|
|
|
$
|
984,456
|
|
|
$
|
3,109,059
|
|
|
$
|
422,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in franchise
outlets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of franchise outlets open at beginning of period
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Number
of franchise outlets opened during the period
|
|
|
58
|
|
|
|
69
|
|
|
|
182
|
|
|
|
-
|
|
Number
of franchise outlets closed during the period
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of franchise outlets open at the end of the period
|
|
|
219
|
|
|
|
69
|
|
|
|
175
|
|
|
|
-
|
|
Liquidity
and Capital Resources
Our cash
and cash equivalents at the beginning of the six months ended June 30, 2010 was
$0.9 million and decreased to $0.6 million by the end of the period, a decrease
of $0.3 million. We had net working capital of $2.3 million at June 30, 2010, an
increase of $0.4 million over $1.9 million at December 31, 2009.
Our cash
and cash equivalents at the beginning of the year ended December 31, 2009 was
$0.1 million and increased to $0.9 million by the end of the year, an increase
of $0.8 million. We had net working capital of $1.9 million at December 31,
2009, an increase of $5.6 million from negative $3.7 million at December 31,
2008.
Our cash
flow information summary is as follows:
|
|
For the six months ended June 30,
|
|
|
For the year ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
549,237
|
|
|
$
|
(302,667
|
)
|
|
$
|
629,579
|
|
|
$
|
(251,536
|
)
|
Investing
activities
|
|
|
(114,694
|
)
|
|
|
(2,103,920
|
)
|
|
|
(2,665,012
|
)
|
|
|
(3,600,661
|
)
|
Financing
activities
|
|
$
|
(713,804
|
)
|
|
$
|
2,735,990
|
|
|
$
|
2,845,472
|
|
|
$
|
3,508,862
|
|
Net Cash Provided By (Used
In) Operating Activities
Net cash
provided by operating activities was $0.5 million for the six months ended June
30, 2010 while $0.3 million was used in operating activities for the six months
ended June 30, 2009. This change from net cash used in operating activities to
net cash provided by activities reflects an increase in net income of $0.6
million between the two comparable periods.
Net cash
provided by operating activities was $0.6 million for the year ended December
31, 2009 while $0.3 million was used in operating activities for the year ended
December 31, 2008. This change from net cash used in operating
activities to net cash provided by activities was primarily due to the increase
of net income.
Net Cash Used In Investing
Activities
Net cash
used in investing activities decreased $2.0 million, from $2.1 million for the
six months ended June 30, 2009 to $0.1 million for the six months ended June 30,
2010. For the six months ended June 30, 2009, we paid $1.5 million to Mr. Si
Changlong who was appointed to use the $1.5 million to purchase CITIC trust fund
on behalf of the company. In addition, this increase reflects expenditures of
$0.5 million associated with our construction offactories and administrative
officesin Baodi, Tianjin, which started from the year of 2008 and ended in March
2010.
Net cash
used in investing activities decreased $1.0 million, from $3.6 million for the
year ended December 31, 2008 to $2.6 million for the ended December 31,
2009. In 2008 we started construction of our factories and
andadministrative offices incurred significant construction
expenditures.
Net Cash Provided By(Used
In) Financing Activities
Net cash
provided byfinancing activities was $2.7 million for the six months ended June
30, 2009 while $0.7 million was used in financing activities for the six months
ended June 30, 2010. Between 2007 and 2008, we borrowed a total of $4.6 million
from Jinghe Zhang for the construction of our factories and administrative
offices in Baodi, Tianjin and have to date, repaid a total of $4.2 million. In
addition, we received $6.6 million of capital contribution from Jinghe Zhang in
March 2009 which resulted in a net cash inflow of approximately $2.7 million for
the six months ended June 30, 2009.
From 2007
through 2009, the Company was advanced $0.7 million by Shenyang Joway. The
advances were non-interest bearing and had no specified repayment terms. The
Company repaid $0.5 million of these advances during the period January 1, 2010
through June 30, 2010.
Net cash
provided by financing activities was $2.8 million for the year ended December
31, 2009 and $3.5 million for the year ended December 31, 2008. This decrease
was primarily due to the decrease of financing from Jinghe Zhang. We borrowed
$3.5 million from Jinghe Zhang for construction of our factories and
administrative offices in Baodi, Tianjin in 2008 and paid back $4.0 million of
the loan to Jinghe Zhang in 2009. While in 2009, we also received $6.6 million
capital contribution from Jinghe Zhang.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
We
entered into two agreements to lease the headquarters office for 5 years
starting from November 2009. Since we paid decoration expenses of the office for
the owners, the lease fees of the first year were halved. The future minimum
obligations under the afore mentioned agreements are as follows:
Fiscal
Year
|
|
Minimum
Lease
fees
|
|
2010
|
|
$
|
89,189
|
|
2011
|
|
|
152,895
|
|
2012
|
|
|
152,895
|
|
2013
|
|
|
152,895
|
|
2014
|
|
|
127,413
|
|
Total
|
|
$
|
675,287
|
|
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 or capital
expenditures or capital resources that is material to an investor in our
securities.
Critical
Accounting Policies
Management’s
discussion and analysis of its financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
Our financial statements reflect the selection and application of accounting
policies which require management to make significant estimates and judgments.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. We believe that the following reflect the more critical accounting
policies that currently affect our financial condition and results of
operations.
Basis of
Consolidation
The
accompanying consolidated financial statements include G2 Ventures and its
wholly owned subsidiary and controlled VIEs. All significant inter-company
accounts and transactions have been eliminated in the consolidation. Pursuant to
Accounting Standards Codification Topic 810, “Consolidation”, Joway Group, as a
VIE of Junhe Consulting, have been consolidated in our financial statements.
JowayGroup’s sales are included in our total sales, its income from operations
isconsolidated with ours, and our net income includes all of JowayGroup’s net
income. Based on the various VIE Agreements, we are able to exercise
control over the VIEs, and to obtain in full the economic benefits. Accordingly,
the non–controlling interests have no economic interest in the
VIEs.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the purchase price is fixed or
determinable and collectability is reasonably assured.
We sell
most products to the company’s franchise customers who, in turn, sell the
products to their customers. We are not contractually obligated to accept
returns from our franchise customers. Revenue is recognized upon the shipment of
goods to customers. Sales are presented net of value added tax
(VAT).
For
Tourmaline Wellness House sale, we use the completed contract method. A contract
is considered complete when all significant costs have been incurred and the
project has been accepted by the customer. Contract costs consist primarily of
materials and labor costs.
Accounts
Receivable
Accounts
receivable are carried at net realizable value. We provide reserves for
potential credit losses on accounts receivable. Management reviews the
composition of the accounts receivable and analyzes historical bad debts,
customer concentrations, customers credit worthiness, currents economic trends
and changes in customers payment patterns to evaluate the adequacy of these
reserves.
Inventories
Inventories
are stated at the lower of cost, as determined by the specific identification
method on contract level (For each individual contract, inventories cost flow
are determined by weighted-average method), or the net realizable value, which
is determined on selling prices less any further costs expected to be incurred
for completion and disposal. Management regularly evaluates the composition of
its inventories to identify slow-moving and obsolete inventories to determine
whether a valuation allowance is required.
Property, Plant, and
Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation, and
include expenditure that substantially increase the useful lives of existing
assets.
Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets. Estimated useful lives are as follows:
Building
|
|
20
years
|
Operating
Equipment
|
|
10
years
|
Office
furniture and equipment
|
|
3
or 5 years
|
Vehicles
|
|
10
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts, and any gain or loss is included in the
consolidated statements of income and other comprehensive income. Maintenance,
repairs and minor renewals are charged directly to expenses as incurred.
Significant renewals and betterment to buildings and equipment are
capitalized.Leasehold improvements are depreciated over the lesser of the useful
life or the life of the lease.
Recent
Accounting Pronouncements
In June
2009, the FASB issued Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 105-10 (formerly Statement of Financial
Accounting Standards (“SFAS”) No. 168, the FASB ASC and Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB Statement No.
162). ASC 105-10 establishes the FASB ASC as the source of
authoritative accounting principles recognized by the FASB to be applied in
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America. The adoption of this
topic has no impact on our consolidated financial statements. However, reference
to specific accounting standards have been changed to refer to appropriate
section of the ASC. Subsequent revisions to GAAP by the FASB will be
incorporated into ASC through issuance of Accounting Standards Updates
(“ASU”).
In August
2009, the FASB issued FASB ASU 2009-05, “Measuring Liabilities at Fair
Value”, which provide amendments to FASB ASC 820, “Fair Value
Measurements”. Specifically, FASB ASU 2009-05 clarifies that the quoted price
for an identical liability should be used. However, if such information is not
available, an entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). This ASU also indicates that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. This ASU
is effective October 1, 2009. The adoption of this topic has no material impact
on our consolidated financial statements.
In
October 2009, the FASB issued FASB ASU 2009-13, “Multiple-deliverable Revenue
Arrangements”. FASB ASU 2009-13 provides amendments to the criteria
for separating deliverables, measuring and allocating arrangement consideration
to one or more units of accounting. As a result of these amendments,
multiple-deliverable revenue arrangements will be separated in more
circumstances than under existing U.S. GAAP. The amendments in this ASU also
establish a selling price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific objective evidence nor third-party evidence is
available. The amendments also require providing information about the
significant judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or amount of
revenue recognition. This ASU is effective prospectively for revenue
arrangements entered into or materially modified in the fiscal years beginning
on or after June 15, 2010. The adoption of this topic has no material impact on
our consolidated financial statements.
In
October 2009, the FASB issued ASU 2009-14, “Certain Revenue Arrangements That
Include Software Elements.” FASB ASU 2009-14 changes the accounting model for
revenue arrangements that include both tangible products and software elements
that are “essential to the functionality,” and scopes these products out of
current software revenue guidance. Under the amendments, the following
components would be excluded from the scope of software revenue recognition
guidance: the tangible element of the product, software products bundled with
tangible products where the software components and non-software components
function together to deliver the product’s essential functionality, and
undelivered components that relate to software that is essential to the tangible
product’s functionality. This ASU also provides guidance on how to allocate
transaction consideration when an arrangement contains both deliverables within
the scope of software revenue guidance (software deliverables) and deliverables
not within the scope of that guidance (non-software deliverables). This
amendment will be effective prospectively for revenue arrangements entered into
or materially modified in the fiscal years beginning on or after January 1,
2011. We are currently evaluating the impact that this topic will have on our
consolidated financial statements.
In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair
Value Measurements”, which amends FASB ASC 820, “Fair Value Measures and
Disclosures.” FASB ASU 2010-06 require companies to make new disclosures about
recurring or nonrecurring fair value measurements including significant
transfers into and out of Level 1 and Level 2 fair value hierarchies and
information on purchases, sales, issuance and settlements on a gross basis in
the reconciliation of Level 3 fair value measurements. This ASU is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after December 15, 2009. The adoption of this topic will not
have a material impact on our consolidated financial statements.
In
February 2010, the FASB issued ASU 2010-09, “Amendments to Certain Recognition
and Disclosure Requirements”, which amends FASB ASC 855, “Subsequent Events”.
The update provides that SEC filers, as defined in ASU 2010-09, are no longer
required to disclose the date through which subsequent events have been
evaluated in originally issued and revised financial statements. The update also
requires SEC filers to evaluate subsequent events through the date the financial
statements are issued rather than the date the financial statements are
available to be issued. We adopted ASU 2010-09 upon issuance. The adoption of
this topic has no material impact on our consolidated financial statements.
PROPERTIES
There is
no private land ownership in the PRC. Individuals and companies are permitted to
acquire land use rights for specific purposes.
Our main
offices are located at 16
th
Floor,
Tianjin Global Zhiye Square, 309 Nanjing Road, Nankai District, Tianjin, PRC.
Our manufacturing facilities are located in Baodi District, Tianjin,
PRC.
We have
been issued a Land Use Rights and Property Ownership Certificate for the land
and buildings located in Baodi district, Tianjin, PRC by the People’s Government
of Tianjin City, which expires October 10, 2057.
We
believe that our existing facilities are well maintained and in good operating
condition and sufficient for our present needs.
Below is
a detailed description of the Land Use Rights and Property Ownership
Certificate.
Land
Land
No.
|
1201150240000790000
Zi D-4-7-039
|
Land
Use Right Certificate No.
|
124031002677
|
User
of Land
|
Tianjin
Joway Shengshi Group Co.,Ltd
|
Location
|
Baodi
District, Tianjin, PRC
|
Usage
|
Industrial
|
Area
(Square Meters)
|
27,520.4
|
Form
of Acquisition
|
Grant
from related Land Management Authority
|
Expiration
Date
|
October
10, 2057
|
Buildings
|
Building
1
|
Building
2
|
Building
3
|
Building
4
|
Certificate
No.
|
124031002677
|
Owner
|
Tianjin
Joway Shengshi Group Co.,Ltd
|
Location
|
Baodi
District, Tianjin, PRC
|
Category
|
Private
|
Area
(Square Meters)
|
5,585.31
|
3,389.48
|
2,999.28
|
1,186.79
|
Usage
of Design
|
Nonresidential
|
Structure
|
Mixture
|
|
Building
5
|
Building
6
|
Building
8&9
|
Building
7
|
Certificate
No.
|
124031002677
|
Owner
|
Tianjin
Joway Shengshi Group Co.,Ltd
|
Location
|
Baodi
District, Tianjin, PRC
|
Category
|
Private
|
Area
(Square Meters)
|
95.64
|
202.69
|
4,470.56
|
4,043.91
|
Usage
of Design
|
Nonresidential
|
Residential
|
Structure
|
Mixture
|
Among the
nine buildings, five buildings are used for production, one for employee
accommodation, one for storage, and one for parking.
We also
lease offices from Aiying Wang and Guifen Feng. The terms of the leases are
summarized as follows:
Lessor
|
Lessee
|
Location
|
Term
|
Rent
Per Year
|
Aiying
Wang
|
Tianjin
Joway Shengshi Group Co.,Ltd.
|
Rooms
1601-1603, 16
th
floor, Tianjin Global Zhiye Square, 309 Nanjing Road, Nankai District,
Tianjin, PRC
|
November
1, 2009 – October 31, 2014
|
RMB
216,000 (approximately $31,764.71) for the first year and RMB 432,000
(approximately $63,529.41) per year thereafter.
|
Guifen
Feng
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
Rooms
1604-1606, 16
th
floor, Tianjin Global Zhiye Square, 309 Nanjing Road, Nankai District,
Tianjin, PRC
|
November
1, 2009 – October 31, 2014
|
RMB
306,500 (approximately $ 45,073.53) for the first year and RMB 613,000
(approximately $90,147.06) per year
thereafter.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial
ownership of our voting securities following the completion of the Reverse
Merger described in Items 1.01 and 3.02 of this report by (i) any person or
group owning more than 5% of any class of voting securities, (ii) each director,
(iii) our chief executive officer and (iv) all executive officers and directors
as a group as of October 6, 2010.
Name and Address
|
|
Number of Shares of
Common Stock
Beneficially Owned
(1)
|
|
|
Percentage
Ownership of
Shares of
Common
Stock
|
|
|
|
|
|
|
|
|
Owner
of More than 5% of Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crystal
Globe Limited (4)
P.O.
Box 957, Offshore Incorporations Centre, Road Town,
Tortola,
British Virgin Islands
|
|
|
18,515,426
|
|
|
|
92.58
|
%
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gust
C. Kepler
(2)
1810
ThreeGalleriaTower
13155
Noel Road,
Dallas,
TX75240
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Jinghe
Zhang
(3)
16
th
Floor, 309 Nanjing Road,
Nankai
District, Tianjin, PRC
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Yuan
Huang
(3)
16
th
Floor, 309 Nanjing Road,
Nankai
District, Tianjin, PRC
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers (2 persons)
|
|
|
|
|
|
|
|
|
*Under1%
of the issued and outstanding shares as of October 6, 2010.
(1) In
determining beneficial ownership of our common stock as of a given date, the
number of shares shown includes shares of common stock which may be acquired on
exercise of warrants or options or conversion of convertible securities within
60 days of that date. In determining the percent of common stock owned by a
person or entity on October 6, 2010, (a) the numerator is the number of shares
of the class beneficially owned by such person or entity, including shares which
may be acquired within 60 days on exercise of warrants or options and conversion
of convertible securities, and (b) the denominator is the sum of (i) the total
shares of common stock outstanding on October 6, 2010 (20,000,000), and (ii) the
total number ofshares that the beneficial owner may acquire upon conversion of
the preferred and on exercise of the warrants and options, subject to
limitations on conversion and exercise. Unless otherwise stated, each beneficial
owner has sole power to vote and dispose of its shares.
(2) Gust
C. Kepler was our former President, Chief Executive Officer, Chief Financial
Officer, Secretary and sole director until his resignation on September 28,2010
in connection with the sale of 3,300,000 ofhis shares of common stock to Crystal
Globe Limited.
(3)
Jinghe Zhang was appointed our new President, Chief Executive Officer, and sole
director andYuan Huang was appointed our new Chief Financial Officer
,Secretary and Treasurer with effect from September 28,
2010.
(4)
Lionel Evan Liu is the sole shareholder of Crystal Globe Limited and
accordingly, has the sole investment and voting power of over the shares owned
by Crystal Globe Limited.
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS
AND
CONTROL PERSONS
Our
Directors and Executive Officers
In
connection with the change in control of the Company on September 28, 2010, Gust
Keplerresigned as our sole director and officer and we appointed Jinghe Zhang as
our new President, Chief Executive Officer and sole director, Yuan Huang as our
new Chief Financial Officer, Secretary and Treasurer on September 28,
2010.
As such,
as of the date of this Report, all our officers and sole director are residents
of the PRC.As a result, it may be difficult for investors to effect service of
process within the United States upon any of them or to enforce court judgments
obtained against them in the United States courts.
The
following table sets forth certain information concerning our directors and
executive officers:
Name
|
|
Age
|
|
Position
|
Jinghe
Zhang
|
|
45
|
|
President,
Chief Executive Officer, and sole director
|
Yuan
Huang
|
|
39
|
|
Chief
Financial Officer, Secretary and
Treasurer
|
The
following is a summary of the biographical information of our directors and
officers:
JINGHE ZHANG
, age 45,
is the founder of Tianjin Joway Group. Mr. Zhang has extensive experience in
business management and product marketing. He has served as Chairman of the
Board and CEO for Joway Group since its incorporation in 2007. From January 2005
to May 2007, he was the Chairman and general manager for Shenyang Joway. From
May 2003 to December 2004, he served as Chairman and general manager of Shenyang
Dazhou Healthcare Products Co., Ltd. He headed the marketing department of
Tianjin Tianshi Biological Engineering Co., Ltd. from July 2000 to May
2003. From July 1988 to July 2000, he was employed as sales manager
by Tianjin Hardware Procurement & Supply Station. Mr. Zhang
received his bachelor degree in economics from Tianjin University of Finance and
Economics in July 1988.
YUAN HUANG
, age 39,
has served as Chief Financial Officer for Joway Group since September 2009. He
worked as Senior Financial Manager of Tianjin Tianshi Group Co., Ltd. from
September 2005 to August 2009. He was the financial manager of Herbie (Tianjin)
Electronics Co., Ltd. from November 2003 to July 2005. He served as
Section Chief of the Budget Department of Bridgestone Tires (Tianjin) Co., Ltd
from December 1998 to November 2003. Mr. Huang received his master
degree and bachelor degree in accounting from Tianjin University of Finance and
Economics in July 2009 and July 1993, respectively.
Our
director holds his position until the next annual meeting of shareholders and
until successors are elected and qualified by our shareholders, or until earlier
death, retirement, resignation or removal.
Save as
otherwise reported above, none of our directors hold directorships in other
reporting companies.
There are
no family relationships among our director or officers.
To our
knowledge, during the last ten years, none of our director and executive
officers (including those of our subsidiaries) has:
|
·
|
Had
a bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that
time.
|
|
·
|
Been
convicted in a criminal proceeding or been subject to a pending criminal
proceeding, excluding traffic violations and other minor
offenses.
|
|
·
|
Been
subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking
activities.
|
|
·
|
Been
found by a court of competent jurisdiction (in a civil action), the SEC,
or the Commodities Futures Trading Commission to have violated a federal
or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
|
|
·
|
Been
the subject to, or a party to, any sanction or order, not subsequently
reverse, suspended or vacated, of any self-regulatory organization, any
registered entity, or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or persons
associated with a member.
|
Directors
and Officers of the PRC Operating Entities
Under
each of the PRC Operating Entities’ Articles of Association and PRC law, each
company is managed by one executive director instead of a board of directors.
The executive director is elected and appointed by the shareholders for a term
of three years and can be re-elected for consecutive terms. The
appointment and termination of the CEO (sometimes called the General Manager) is
determined by the executive director.
In
accordance with the PRC Subsidiaries’ Articles of Association and PRC law, each
of the PRC Operating Entities’ executive director is monitored by a supervisor,
appointed by the shareholders for a term of three years.
The
following table sets forth certain information as concerning executive officers
of each of our PRC Operating Entities:
Joway
Group
Name
|
|
Age
|
|
Position
|
Jinghe
Zhang
|
|
45
|
|
General
Manager
|
Yuan
Huang
|
|
39
|
|
Financial
Manager
|
Joway
Technology
Name
|
|
Age
|
|
Position
|
Jingyun
Chen
|
|
46
|
|
General
Manager
|
Yuan
Huang
|
|
39
|
|
Financial
Manager
|
Joway
Decoration
Name
|
|
Age
|
|
Position
|
Jingyun
Chen
|
|
46
|
|
General
Manager
|
Yuan
Huang
|
|
39
|
|
Financial
Manager
|
Shengtang
Trading
Name
|
|
Age
|
|
Position
|
Yanli
Feng
|
|
38
|
|
General
Manager
|
Yuan
Huang
|
|
39
|
|
Financial
Manager
|
Audit
Committee Financial Expert
Our board
of directors currently acts as our audit committee. Because we only
recently executed the Reverse Merger, our board of directors is still in the
process of finding an “audit committee financial expert” as defined in
Regulation S-K and directors that are “independent” as that term is used in
Section 10A of the Securities Exchange Act.
Audit
Committee
We have
not yet appointed an audit committee. At the present time, we believe
that our board of directors is capable of analyzing and evaluating our financial
statements and understanding internal controls and procedures for financial
reporting. We do, however, recognize the importance of good corporate
governance and intend to appoint an audit committee comprised entirely of
independent directors, including at least one financial expert, in the near
future.
Compensation
Committee
We do not
presently have a compensation committee. Our board of directors currently acts
as our compensation committee.
Nominating
Committee
We do not
presently have a nominating committee. Our board of directors currently acts as
our nominating committee.
Code
of Ethics
On
December 31, 2009, our sole director approved a Code of Ethics for Financial
Executives for the calendar year 2010.
Board
Leadership Structure and Role in Risk Oversight
Jinghe
Zhang is currently our sole director, President and Chief Executive Officer. We
do not have any independent directors. We believe Jinghe Zhang is
best situated to serve as chairman of the Board because he is the director most
familiar with our business and industry and the director most capable of
identifying strategic priorities and executing our business strategy. In
addition, having a single leader eliminates the potential for confusion and
provides clear leadership for our company. We believe that this leadership
structure has served our company well.
Our board
of directors has overall responsibility for risk oversight. Because we do not
have a compensation, nominating or audit committee, the board will, for the time
being, function in these capacities.
The
board’s role in the risk oversight of our company includes, among other
things:
|
·
|
appointing,
retaining and overseeing the work of the independent auditors, including
resolving disagreements between the management and the independent
auditors relating to financial
reporting;
|
|
·
|
approving
all auditing and non-auditing services permitted to be performed by the
independent auditors;
|
|
·
|
reviewing
annually the independence and quality control procedures of the
independent auditors;
|
|
·
|
reviewing
and approving all proposed related party
transactions;
|
|
·
|
discussing
the annual audited financial statements with the
management;
|
|
·
|
meeting
separately with the independent auditors to discuss critical accounting
policies, management letters, recommendations on internal controls, the
auditor’s engagement letter and independence letter and other material
written communications between the independent auditors and the
management.
|
Director
Qualifications
Directors
are responsible for overseeing our business consistent with their fiduciary duty
to stockholders. This significant responsibility requires highly-skilled
individuals with various qualities, attributes and professional experience. The
board believes that there are general requirements for service on our board of
directors that are applicable to all directors and that there are other skills
and experience that should be represented on the board as a whole but not
necessarily by each director. The board considers the qualifications of director
and director candidates individually and in the broader context of the board’s
overall composition and our current and future needs.
Qualifications
for All Directors
In its
assessment of each potential candidate, including those recommended by
stockholders, the board considers the nominee’s judgment, integrity, experience,
independence, understanding of our business or other related industries and such
other factors the board determines are pertinent in light of the current needs
of the board. The board also takes into account the ability of a director to
devote the time and effort necessary to fulfill his or her responsibilities to
us.
The board
requires that each director be a recognized person of high integrity with a
proven record of success in his or her field. Each director must demonstrate
innovative thinking, familiarity with and respect for corporate governance
requirements and practices, an appreciation of multiple cultures and a
commitment to sustainability and to dealing responsibly with social issues. In
addition to the qualifications required of all directors, the board conducts
interviews of potential director candidates to assess intangible qualities
including the individual’s ability to ask difficult questions and,
simultaneously, to work collegially. The board does not have a specific
diversity policy, but considers diversity of race, ethnicity, gender, age,
cultural background and professional experiences in evaluating candidates for
board membership. Diversity is important because a variety of points of view
contribute to a more effective decision-making process.
Qualifications,
Attributes, Skills and Experience to be Represented on the Board as a
Whole
The board
has identified particular qualifications, attributes, skills and experience that
are important to be represented on the board as a whole, in light of our current
needs and business priorities. The board believes that it should include some
directors with a high level of financial literacy and some directors who possess
relevant business experience as a Chief Executive Officer or a President or like
position. Marketing is the core focus of our business and we seek to develop and
deploy the world’s most innovative and effective marketing and technology.
Therefore, the board believes that marketing and technology experience should be
represented on the board. We are involved in the healthcare business in the
PRC. Therefore our business also requires compliance with a variety
of regulatory requirements and relationships with various governmental entities.
Therefore, the board believes that governmental, political or diplomatic
expertise should be represented on the board.
Set forth
below are a chart and a narrative disclosure that summarize the specific
qualifications, attributes, skills and experiences described above. An “X” in
the chart below indicates that the item is a specific reason that the director
has been nominated to serve on ourboard.
The lack of an “X” for a particular
qualification does not mean that the director does not possess that
qualification or skill.
Rather, an “X” indicates a specific area of focus
or expertise of a director on which the board currently relies.
|
|
High level of
financial literacy
|
|
Diversity of race,
ethnicity, gender,
age, cultural
background or
professional
experience
|
|
Extensive
knowledge of the
Company’s
business
|
|
Marketing/Marketing
related technology
experience
|
|
Governmental,
political or
diplomatic
expertise
|
Jinghe
Zhang
|
|
|
|
|
X
|
|
X
|
|
|
X
|
|
|
We will
strive to identify and appoint more directors to the board that possess the
qualifications and qualities that will fulfill our current needs and business
priorities.
Mr. Jinghe Zhang,
our
current President, Chief Executive Officer, and sole director possesses many of
the attributes we are looking for in our board membersMr. Zhang has over 20
years of experience in business management and product marketing and 10 years’
experience in the PRC healthcare product industry. He has led healthcare
products companies in a managerial capacity, more recently as general manager of
Shenyang Dazhou Healthcare Products Co., Ltd. and Tianjin Tianshi Biological
Engineering Co., Ltd. He is also the founder of Joway Group and has served as
Chairman of the Board and CEO for Joway Group since its incorporation in
2007. Mr. Zhang received his bachelor degree in economics from
Tianjin University of Finance and Economics in 1988.
EXECUTIVE
COMPENSATION
The
following is a summary of the compensation we paid to our former Chief Executive
Officer, Chief Financial Officer, sole director and Chairman, Gust Kepler, for
the three years ended December 31, 2007, 2008 and 2009. No executive officer
received compensation in excess of $100,000 for any of those years.
|
|
Annual Compensation
|
|
|
Long Term Compensation
|
|
Name and Principal Position
|
|
Fiscal
Year
End
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
All other
and annual
Compensa-
tion and
LTIP
Payouts ($)
|
|
|
Securities
under
Options/
SARS
Granted
(#)
|
|
|
Restricted
Shares or
Restricted
Share
Units
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gust
Kepler
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
President,
Chief Executive Officer,
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Chief
Financial Officer, Secretary, and Sole Director
|
|
2007
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Our
current Chief Executive Officer and Chief Financial Officer assumed their
respective positions in our companyon September 28, 2010. On September 28, 2010,
we entered into an employment agreement with each of the
officers. Under their respective agreements, Jinghe Zhang is employed
as our new Chief Executive Officer, President and director for a term of three
years and a monthly salary of RMB7,000 (approximately $1,044.78), and
Yuan Huang is employed as our Chief Financial Officer, Secretary o and Treasurer
for a term of three years and a monthly salary of RMB 5,000 (approximately
$746.27). Pursuant to these agreements, neither party may terminate the
employment agreementwithout cause.
The
following is a summary of the compensation paid by Joway Group to Jinghe Zhang,
its General Manager, and Yuan Huang, its Finance Manager for the two years ended
December 3, 2009 and 2008, respectively. No other executive officer of Joway
Group received compensation in excess of $100,000 for any of those
years.
Name and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinghe
Zhang
|
|
2008
|
|
|
12,352.94
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,352.94
|
|
General Manager
|
|
2009
|
|
|
12,352.94
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,352.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yuan
Huang
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Finance
Manager
|
|
2009
|
|
|
735.29
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
735.29
|
|
The
following is a summary of the compensation paid by Joway Technology to Jingyun
Chen, its General Manager, and Yuan Huang, its Finance Manager for the two years
ended December 31, 2009 and 2008, respectively. No other executive officer of
Joway Technology received compensation in excess of $100,000 for any of those
years.
Name and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jingyun
Chen
|
|
2008
|
|
|
5,294.12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,294.12
|
|
General Manager
|
|
2009
|
|
|
5,294.12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,294.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yuan
Huang
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Finance
Manager
|
|
2009
|
|
|
735.29
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
735.29
|
|
The
following is a summary of the compensation paid by Joway Decoration to Jingyun
Chen, its General Manager, and Yuan Huang, its Finance Manager for the two years
ended December 31, 2009 and 2008, respectively. No other executive officer of
Joway Decoration received compensation in excess of $100,000 for any of those
years.
Name and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jingyun
Chen
|
|
2008
|
|
|
5,294.12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,294.12
|
|
General Manager
|
|
2009
|
|
|
5,294.12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,294.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yuan
Huang
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Finance
Manager
|
|
2009
|
|
|
735.29
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
735.29
|
|
The
following is a summary of the compensation paid by Shengtang Trading to Yanli
Feng, its General Manager, and Yuan Huang, its Finance Manager for the two years
ended December 31, 2009 and 2008, respectively. No other executive officer of
Shengtang Trading received compensation in excess of $100,000 for any of those
years.
Name and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yanli
Feng
|
|
2008
|
|
|
5,294.12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,294.12
|
|
General
Manager
|
|
2009
|
|
|
5,294.12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,294.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yuan
Huang
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Finance
Manager
|
|
2009
|
|
|
735.29
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
735.29
|
|
Compensation
Discussion and Analysis
We strive
to provide our named executive officers (as defined in Item 402 of Regulation
S-K) with a competitive base salary that is in line with their roles and
responsibilities when compared to peer companies of comparable
size in similar locations.
It is not
uncommon for PRC private companies in China to have base salaries as the sole
form of compensation. The base salary level is established and reviewed based on
the level of responsibilities, the experience and tenure of the individual and
the current and potential contributions of the individual. The base salary is
compared to the list of similar positions within comparable peer companies and
consideration is given to the executive’s relative experience in his or her
position. Base salaries are reviewed periodically and at the time of
promotion or other changes in responsibilities.
We plan
to implement a more comprehensive compensation program, which takes into account
other elements of compensation, including, without limitation, short and long
term compensation, cash and non-cash, and other equity-based compensation such
as stock options. We expect that this compensation program will be comparable to
the programs of our peer companies and aimed to retain and attract talented
individuals.
We will
also consider forming a compensation committee to oversee the compensation of
our named executive officers. The majority of the members of the compensation
committee would be independent directors.
Compensation
of Directors
Directors
are permitted to receive fixed fees and other compensation for their services as
directors. The board of directors has the authority to fix the
compensation of directors. No amounts have been paid to, or accrued
to, directors in such capacity.
As of the
date of this report, our directors have received no compensation for their
service on the board of directors. We plan to implement a compensation program
for our independent directors, as and when they are appointed, which we
anticipate will include such elements as an annual retainer, meeting attendance
fees and stock options. The details of that compensation program will be
negotiated with each independent director.
Option
Grants Table
There
were no individual grants or stock options to purchase our common stock made to
the executive officer named in the Executive Compensation Table through October
6, 2010.
Aggregated
Option Exercises and Fiscal Year-End Option Value Table
There
were no stock options exercised during the fiscal year ended December 31, 2009,
by the executive officer named in the Executive Compensation Table.
Long-Term
Incentive Plan (“LTIP”) Awards Table
There
were no awards made to a named executive officer in the last completed fiscal
year under any LTIP.
Employment
Agreements
On
September 28, 2010, we entered into an employment agreement with each of Jinghe
Zhang and Yuan Huang. Under their respective agreements, Jinghe Zhang
is employed as our President, Chief Executive Officer and director for a term of
three years and a monthly salary of RMB7,000 (approximately
$1,044.78), and Yuan Huang is employed as our Chief Financial
Officer,Secretary and Treasurerfor a term of three years and a monthly salary of
RMB 5,000 (approximately $746.27).Pursuant to these agreements, neither party
may terminate the employment agreementwithout cause.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Except
for the ownership of our securities, and except as set forth below, none of the
directors, executive officers, holders of more than five percent of our
outstanding common stock, or any member of the immediate family of any such
person have, to our knowledge, had a material interest, direct or indirect, in
any transaction or proposed transaction which may materially affect our
company.
|
·
|
On
December 1, 2009, we entered into a license agreement with Jinghe Zhang,
our President, Chief Executive Officer and director. Pursuant to the
license agreement, we are authorized to use for free the trademark “Joway”
for a term of nine years and five patents from December 1, 2009 till the
expiration dates of the patents.
|
|
·
|
On
May 10, 2007, Joway Group entered into a cash advance agreement with
Jinghe Zhang, our President, Chief Executive Officer and director.
Pursuant to the agreement, Jinghe Zhang agreed to lend money foroperating
capital to Joway Group. The advances are interest free, unsecuredand have
no specified repayment terms. The agreement is valid throughout Joway
Group’s term of operation. During the period beginning May 17, 2007
(inception of Joway Group) through June 30, 2010, Joway Group received
cash operating advances in the aggregate principal amount of $4,637,397
from Jinghe Zhang and $ 4,184,273 has been paid off by Joway Group. As of
June 30,2010, the total unpaid principal balance due Jinghe Zhang for
advances was $453,124.
|
|
·
|
On
May 10, 2007, Joway Technology entered into a cash advanceagreement with
Jinghe Zhang, our President, Chief Executive Officer and director.
Pursuant to the loan agreement, Jinghe Zhang agrees to lend money as
operating capital to Joway Technology. The advances are interest free,
unsecuredand have no specified repayment terms. The agreement is valid
throughout Joway Technology’s term of operation. During the period
beginning March 28, 2007 (inception of Joway Technology) through June 30,
2010, Joway Technology received cash operating advances in the aggregate
principal amount of $22,031 from Jinghe Zhang and $ 22,031 has been paid
off by Joway Technology. As of June 30, 2010, the total unpaid principal
balance due Jinghe Zhang for advances was
$0.
|
|
·
|
For
the fiscal years 2008 and 2009, we purchased inventory of $115,619 and
$328,088, respectively, from Shenyang Joway, which is controlled by Jinghe
Zhang, our President, Chief Executive Officer and
director.
|
|
·
|
From
2007 through 2009, the Company was advanced $694,458 by Shenyang Joway.
The advances were non-interest bearing and had no specified repayment
terms. The Company repaid $556,365 of these advances during the period
January 1, 2010 through June 30, 2010. As of June 30, 2010, the total
unpaid principal balance due Shenyang Joway for advances was
$138,093.
|
|
·
|
On
February 20, 2009, Joway Group entered into an entrust agreement with
its cashier (treasurer) Changlong Si. Pursuant to the entrust agreement,
Changlong Si was to receive RMB 10 million (approximately$ 1,465,620) from
Joway Group and to purchase a CITIC(China International Trust and
Investment Company) trust investment product on behalf of Joway Group
under his own name.. This investment product is available for purchase by
individuals only and has a higher interest rate than the standard bank
interest rate. The total amount of RMB10 million was invested
from February 25, 2009 to August 25, 2010. The principal of RMB 10 million
and interest of RMB 408,000 on the investment were returned to Joway Group
on August 26, 2010 by Si Changlong.
|
Except as
disclosed above, no executive officer, director or any member of these
individuals’ immediate families, any corporation or organization with whom any
of these individuals is an affiliate or any trust or estate in which any of
these individuals serve as a trustee or in a similar capacity or has a
substantial beneficial interest in is or has been indebted to us at any time
since the beginning of our last fiscal year.
Procedures
for Approval of Related Party Transactions
Our board
of directors is charged with reviewing and approving all potential related party
transactions. All such related party transactions must then be
reported under applicable SEC rules. We have not adopted other procedures for
review, or standards for approval, of such transactions, but instead review them
on a case-by-case basis.
LEGAL
PROCEEDINGS
We know
of no material, active, pending or threatened proceeding against us or our
subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or
defendant in any material proceeding or pending litigation.
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANTS
COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock has been traded on OTCBB since September 11, 2009 under the
designation “GTVI.” However, to date there has been no trading market for our
common stock.
The
market price of our common stock is subject to significant fluctuations in
response to variations in our quarterly operating results, general trends in the
market, and other factors, over many of which we have little or no
control. In addition, broad market fluctuations, as well as general
economic, business and political conditions, may adversely affect the market for
our common stock, regardless of our actual or projected
performance.
Holders
of Our Common Stock
As of
October 6, 2010, we had 39 shareholders of our common stock, including the
shares held in street name by brokerage firms. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Holders of the common stock have no preemptive rights and
no right to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common
stock
Dividends
We have
not paid dividends on our common stock and do not anticipate paying such
dividends in the foreseeable future. We will rely on dividends from our PRC
Operating Entities for our funds and PRC regulations may limit the amount of
funds distributed to us from our PRC Operating Entities, which will affect our
ability to declare any dividends.
Stock
Option Grants
To date,
we have not granted any stock options.
Registration
Rights
We have
not granted registration rights to the selling shareholders or to any other
persons.
Securities
authorized for issuance under equity compensation plans
As of the
date of this Current Report, we do not have any securities authorized for
issuance under any equity compensation plans and we do not have any equity
compensation plans.
Penny
Stock Regulations
Our
shares of common stock are subject to the "penny stock" rules of the Securities
Exchange Act of 1934 and various rules under this Act. In general terms, "penny
stock" is defined as any equity security that has a market price less than $5.00
per share, subject to certain exceptions. The rules provide that any equity
security is considered to be a penny stock unless that security is registered
and traded on a national securities exchange meeting specified criteria set by
the SEC, issued by a registered investment company, and excluded from the
definition on the basis of price (at least $5.00 per share), or based on the
issuer's net tangible assets or revenues. In the last case, the issuer's net
tangible assets must exceed $3,000,000 if in continuous operation for at least
three years or $5,000,000 if in operation for less than three years, or the
issuer's average revenues for each of the past three years must exceed
$6,000,000.
Trading
in shares of penny stock is subject to additional sales practice requirements
for broker-dealers who sell penny stocks to persons other than established
customers and accredited investors. Accredited investors, in general, include
individuals with assets in excess of $1,000,000 or annual income exceeding
$200,000 (or $300,000 together with their spouse), and certain institutional
investors. For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of the security and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, the rules
require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current quotations for the security. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks. These rules may
restrict the ability of broker-dealers to trade or maintain a market in our
common stock, to the extent it is penny stock, and may affect the ability of
shareholders to sell their shares.
RECENT
SALES OF UNREGISTERED SECURITIES
On
October1, 2010, we entered into and consummated a Share Exchange Agreement with
Crystal Globe, the sole shareholder of Dynamic Elite and Dynamic Elite to
acquire all the issued and outstanding capital stock of Dynamic Elite, a British
Virgin Islands company, in exchange for the issuance to Crystal Globe 15,215,426
restricted shares of our common stock.
We claim
an exemption from the registration requirements of the Act for the private
placement of these securities pursuant to Section 4(2) of the Act and/or
Regulation D promulgated thereunder since, among other things, the transaction
did not involve a public offering, the recipient is an accredited
investor and had access to information about our company and their
investment, the recipient took the securities for investment and not resale, and
our company took appropriate measures to restrict the transfer of the
securities.
DESCRIPTION
OF SECURITIES
The
following is a summary description of our capital stock and certain provisions
of our certificate of incorporation and by-laws, copies of which have been filed
as exhibits to this report. The following discussion is qualified in its
entirety by reference to such exhibits.
General
We are
authorized to issue 200,000,000 shares of Common Stock, par value $0.001 per
share, and 1,000,000 shares of preferred stock, par value $0.001 per
share.
Common
Stock
The
holders of our common stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then up for election. The holders of our common stock
are entitled to receive dividends when, as and if declared by the board of
directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to share ratably in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the common stock.
Holders of shares of our common stock, as such, have no conversion, preemptive
or other subscription rights, and there are no redemption provisions applicable
to the common stock. All of the outstanding shares of common stock are fully
paid and nonassessable.
Preferred
Stock
In
addition to the 200,000,000 shares of common stock, we are authorized to issue
up to 1,000,000 shares of preferred stock. Shares of our preferred stock may be
issued from time to time in one or more classes or series, each of which class
or series shall have such distinctive designation or title as shall be fixed by
the board of directors prior to the issuance any shares thereof.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Limitations
on Liability
Our
Articles of Incorporation provide that we must indemnify and hold harmless
directors, officers, employees, and agents of G2 Ventures, as and to the extent
permitted by the Texas Business Corporation Act. One of our officers or
directors could take the position that this duty on our behalf to indemnify the
director or officer may include the duty to indemnify the officer or director
for the violation of securities laws.
Indemnification
against Public Policy
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to our
Articles of Incorporation, Bylaws, Texas laws or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by one of our directors, officers, or control persons, and the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or control person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item
3.02 Unregistered
Sales of Equity Securities.
On
October 1, 2010, we entered into and consummated a Share Exchange Agreement with
Crystal Globe, the sole shareholder of Dynamic Elite and Dynamic Elite to
acquire all the issued and outstanding capital stock of Dynamic Elite, a British
Virgin Islands company, in exchange for the issuance to Crystal Globe 15,215,426
restricted shares of our common stock.
We claim
an exemption from the registration requirements of the Securities Act of 1933,
as amended (the “Act”) for the private placement of the shares of our
common stock to Crystal Globe pursuant to Section 4(2) of the Act and/or
Regulation D promulgated thereunder since, among other things, the transaction
did not involve a public offering, the recipient is an accredited
investor and had access to information about our company and their
investment, the recipient took the securities for investment and not resale, and
our company took appropriate measures to restrict the transfer of the
securities.
Item
4.01 Changes
in Registrant’s Certifying Accountant.
On
October 5, 2010, we dismissed Turner, Stone & Company, LLP (“TSC”)as our
independent registered public accounting firm. The reports of TSC on
our financial statements for each of the past two fiscal years contained no
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. The decision to change
independent accountants was approved by our board of directors on October 5,
2010.
During
our two most recent fiscal years and through the date of this report, we have
had no disagreements with TSCon any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of TSC, would have caused it
to make reference to the subject matter of such disagreements in its report on
our financial statements for such periods.
During
our two most recent fiscal years and through the date of this report on Form
8-K, there have been no reportable events as defined under Item 304(a)(1)(v) of
Regulation S-K adopted by the SEC.
We
provided TSC with a copy of this disclosure before its filing with the SEC. We
requested that TSC provide us with a letter addressed to the SEC stating whether
or not it agrees with the above statements, and we received a letter from TSC
stating that it agrees with the above statements.
New
Independent Accountant
Our board
of directors appointed Sherb & Co., LLP(“Sherb”) as our new independent
registered public accounting firm effective as of October 5, 2010. During the
two most recent fiscal years and through the date of our engagement, we did not
consult with Sherb regarding either (1) 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 financial statements, or (2) any matter
that was either the subject of a disagreement (as defined in Regulation S-K Item
304(a)(1)(v)), during the two most recent fiscal years.
Prior to
engaging Sherb, Sherb did not provide our company with either written or oral
advice that was an important factor considered by our company in reaching a
decision to change our independent registered public accounting firm from TSC to
Sherb.
Item
5.06 Change
in Shell Company Status
We were a
“shell company” (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) immediately before the Closing of the Reverse
Merger. As a result of the Reverse Merger, Dynamic Elite is now our wholly-owned
subsidiary. Dynamic Elite is the holding company of all the
equity of Junhe Counsulting.
On
September 16, 2010, prior to the Reverse Merger, Junhe Consulting and Joway
Group entered into a series of VIE Agreementspursuant to which Joway Group
became Junhe Consulting’s contractually controlled affiliate. Through Junhe
Consulting, we effectively and substantially control Joway Group and its three
wholly owned subsidiaries.
Consequently,
we are now, through our PRC Operating Entities, namely Joway Group, Joway
Technology, Joway Decoration and Shengtang Trading in the business of research
and development, manufacture and sales of tourmaline-related healthcare products
and as a result of the Reverse Merger on October 1, 2010, have ceased to be a
“shell” company.
Item
9.01 Financial
Statements and Exhibits.
(a)
Financial
statements of businesses acquired
.
The
audited financial statements of Dynamic Elite as of December 31, 2009 and 2008
and unaudited financial statements as for the six months ended June 30, 2010 and
2009 are appended to this report beginning on page F-1.
DYNAMIC
ELITE INTERNATIONAL LIMITED AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Consolidated
Balance Sheets
|
|
As
of June 30, 2010 (unaudited) and,
|
|
As
of December 31, 2009 and 2008(audited)
|
F-2
|
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss)
|
|
For
the Six Months Ended June 30, 2010 and 2009 (unaudited)
and,
|
|
For
the Years Ended December 31, 2009 and 2008 (audited)
|
F-3
|
|
|
Consolidated
Statement of Changes in Stockholders’ Equity
|
|
For
the Six Months Ended June 30, 2010 (unaudited) and,
|
|
For
the Years Ended December 31, 2009 and 2008(audited)
|
F-4
|
|
|
Consolidated
Statements of Cash Flows
|
|
For
the Six Months Ended June 30, 2010 and 2009 (unaudited)
and,
|
|
For
the Years Ended December 31, 2009 and 2008 (audited)
|
F-5
|
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
Consolidated
Financial Statements
DYNAMIC
ELITE INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
As
of June 30,
|
|
|
As
of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent
|
|
$
|
659,316
|
|
|
$
|
935,719
|
|
|
$
|
98,039
|
|
Accounts
receivable, net
|
|
|
16,318
|
|
|
|
57,532
|
|
|
|
18,589
|
|
Other
receivables
|
|
|
395,339
|
|
|
|
389,712
|
|
|
|
21,184
|
|
Due
from related parties
|
|
|
1,468,730
|
|
|
|
1,462,587
|
|
|
|
9,484
|
|
Inventories
|
|
|
1,053,688
|
|
|
|
593,805
|
|
|
|
215,742
|
|
Advances
to suppliers
|
|
|
149,580
|
|
|
|
192,733
|
|
|
|
854,814
|
|
Prepaid
expense
|
|
|
-
|
|
|
|
118,123
|
|
|
|
11,634
|
|
Total
current assets
|
|
|
3,742,971
|
|
|
|
3,750,211
|
|
|
|
1,229,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
|
|
5,718,852
|
|
|
|
3,191,180
|
|
|
|
158,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
-
|
|
|
|
2,215,567
|
|
|
|
3,681,034
|
|
Intangible
assets, net
|
|
|
587,879
|
|
|
|
581,054
|
|
|
|
587,483
|
|
Total
other assets
|
|
|
587,879
|
|
|
|
2,796,621
|
|
|
|
4,268,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,049,702
|
|
|
$
|
9,738,012
|
|
|
$
|
5,656,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
426,293
|
|
|
$
|
141,683
|
|
|
$
|
-
|
|
Advances
from customers
|
|
|
126,759
|
|
|
|
361,993
|
|
|
|
198,213
|
|
Taxes
payable
|
|
|
216,519
|
|
|
|
55,091
|
|
|
|
324
|
|
Other
payables
|
|
|
108,974
|
|
|
|
16,197
|
|
|
|
10,884
|
|
Due
to related parties
|
|
|
583,873
|
|
|
|
1,299,258
|
|
|
|
4,715,086
|
|
Total
current liabilities
|
|
|
1,462,418
|
|
|
|
1,874,222
|
|
|
|
4,924,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $1 par value; 50,000 shares authorized; 10,000 shares issued and
outstandings at June 30, 2010
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
Additional
paid-in-capital
|
|
|
7,272,954
|
|
|
|
7,272,954
|
|
|
|
788,327
|
|
Statutory
reserves
|
|
|
49,788
|
|
|
|
49,788
|
|
|
|
1,600
|
|
Retained
earnings (deficit)
|
|
|
1,133,561
|
|
|
|
445,776
|
|
|
|
(156,571
|
)
|
Accumulated
other comprehensive income
|
|
|
130,981
|
|
|
|
95,272
|
|
|
|
98,429
|
|
Subscription
receivable
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Total
stockholders' equity
|
|
|
8,587,284
|
|
|
|
7,863,790
|
|
|
|
731,785
|
|
Total
liabilities and stockholders' equity
|
|
$
|
10,049,702
|
|
|
$
|
9,738,012
|
|
|
$
|
5,656,292
|
|
The
accompanying notes are an integral part of these financial
statements
DYNAMIC
ELITE INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
For
six months ended June 30,
|
|
|
For
the year ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
REVENUES
|
|
$
|
2,323,841
|
|
|
$
|
984,456
|
|
|
$
|
3,109,059
|
|
|
$
|
422,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
|
639,488
|
|
|
|
448,437
|
|
|
|
1,164,683
|
|
|
|
303,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,684,353
|
|
|
|
536,019
|
|
|
|
1,944,376
|
|
|
|
118,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
235,670
|
|
|
|
1,806
|
|
|
|
165,994
|
|
|
|
30,741
|
|
General
and administrative expenses
|
|
|
525,825
|
|
|
|
399,755
|
|
|
|
967,255
|
|
|
|
228,791
|
|
OPERATING
EXPENSES
|
|
|
761,495
|
|
|
|
401,561
|
|
|
|
1,133,249
|
|
|
|
259,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
922,858
|
|
|
|
134,458
|
|
|
|
811,127
|
|
|
|
(140,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,175
|
|
|
|
450
|
|
|
|
1,952
|
|
|
|
121
|
|
Other
income
|
|
|
1,092
|
|
|
|
2,876
|
|
|
|
2,902
|
|
|
|
-
|
|
Other
expenses
|
|
|
(26,107
|
)
|
|
|
-
|
|
|
|
(24,198
|
)
|
|
|
(1,252
|
)
|
OTHER
(EXPENSE) INCOME, NET
|
|
|
(23,840
|
)
|
|
|
3,326
|
|
|
|
(19,344
|
)
|
|
|
(1,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
899,018
|
|
|
|
137,784
|
|
|
|
791,783
|
|
|
|
(141,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
211,233
|
|
|
|
34,592
|
|
|
|
141,248
|
|
|
|
5,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
687,785
|
|
|
|
103,192
|
|
|
|
650,535
|
|
|
|
(146,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
35,709
|
|
|
|
5,256
|
|
|
|
(3,157
|
)
|
|
|
53,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
$
|
723,494
|
|
|
$
|
108,448
|
|
|
$
|
647,378
|
|
|
$
|
(93,908
|
)
|
The
accompanying notes are an integral part of these financial
statements
DYNAMIC
ELITE INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Common
|
|
|
Additional
|
|
|
Statutory
|
|
|
earnings
|
|
|
comprehensive
|
|
|
Subsription
|
|
|
|
|
|
|
of
shares
|
|
|
stock
|
|
|
paid-in
capital
|
|
|
reserves
|
|
|
(deficit)
|
|
|
income
|
|
|
receivable
|
|
|
Total
equity
|
|
BALANCE,
January 1, 2008
|
|
|
|
|
$
|
|
|
|
$
|
788,327
|
|
|
$
|
|
|
|
$
|
(7,983
|
)
|
|
$
|
45,349
|
|
|
$
|
-
|
|
|
$
|
825,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,988
|
)
|
|
|
|
|
|
|
|
|
|
|
(146,988
|
)
|
Appropriation
to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,080
|
|
|
|
-
|
|
|
|
53,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
788,327
|
|
|
|
1,600
|
|
|
|
(156,571
|
)
|
|
|
98,429
|
|
|
|
-
|
|
|
|
731,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650,535
|
|
|
|
|
|
|
|
|
|
|
|
650,535
|
|
Appropriation
to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,188
|
|
|
|
(48,188
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Capital
contribution
|
|
|
|
|
|
|
|
|
|
|
6,876,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,876,914
|
|
Capital
distribution
|
|
|
|
|
|
|
|
|
|
|
(392,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(392,287
|
)
|
Foreign
currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,157
|
)
|
|
|
|
|
|
|
(3,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
7,272,954
|
|
|
|
49,788
|
|
|
|
445,776
|
|
|
|
95,272
|
|
|
|
-
|
|
|
|
7,863,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687,785
|
|
|
|
|
|
|
|
|
|
|
|
687,785
|
|
Issuance
of Common Stock (Unaudited)
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
-
|
|
Foreign
currency translation gain (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,709
|
|
|
|
|
|
|
|
35,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
June 30, 2010 (Unaudited)
|
|
|
10,000
|
|
|
$
|
10,000
|
|
|
$
|
7,272,954
|
|
|
$
|
49,788
|
|
|
$
|
1,133,561
|
|
|
$
|
130,981
|
|
|
$
|
(10,000
|
)
|
|
$
|
8,587,284
|
|
The
accompanying notes are an integral part of these financial
statements
DYNAMIC
ELITE INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
six months ended June 30,
|
|
|
For
the year ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
687,785
|
|
|
$
|
103,192
|
|
|
$
|
650,535
|
|
|
$
|
(146,988
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
145,649
|
|
|
|
65,173
|
|
|
|
158,248
|
|
|
|
11,366
|
|
Amortization
|
|
|
6,255
|
|
|
|
456
|
|
|
|
12,812
|
|
|
|
11,858
|
|
Changes
in current assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, trade
|
|
|
41,298
|
|
|
|
(84,456
|
)
|
|
|
(38,943
|
)
|
|
|
(18,300
|
)
|
Other
receivables
|
|
|
(3,974
|
)
|
|
|
(145,786
|
)
|
|
|
(368,528
|
)
|
|
|
(20,855
|
)
|
Due
from related parties
|
|
|
(4,281
|
)
|
|
|
67,066
|
|
|
|
65,152
|
|
|
|
85,700
|
|
Inventories
|
|
|
(455,605
|
)
|
|
|
(305,014
|
)
|
|
|
(378,063
|
)
|
|
|
(209,909
|
)
|
Advances
to suppliers
|
|
|
(97,539
|
)
|
|
|
80,072
|
|
|
|
158,465
|
|
|
|
(103,303
|
)
|
Prepaid
expense
|
|
|
-
|
|
|
|
(323
|
)
|
|
|
106,489
|
|
|
|
-
|
|
Accounts
payable
|
|
|
94,397
|
|
|
|
128,164
|
|
|
|
141,683
|
|
|
|
-
|
|
Advance
from customers
|
|
|
(235,849
|
)
|
|
|
(163,783
|
)
|
|
|
163,780
|
|
|
|
147,738
|
|
Other
payable
|
|
|
17,967
|
|
|
|
10,203
|
|
|
|
(4,573
|
)
|
|
|
2,459
|
|
Salary
and welfare payable
|
|
|
33,970
|
|
|
|
(2,592
|
)
|
|
|
(2,874
|
)
|
|
|
-
|
|
Income
tax payable
|
|
|
92,033
|
|
|
|
30,914
|
|
|
|
54,767
|
|
|
|
-
|
|
Other
taxes payable
|
|
|
186,712
|
|
|
|
(85,953
|
)
|
|
|
(102,101
|
)
|
|
|
5,682
|
|
Accrued
expenses
|
|
|
40,419
|
|
|
|
-
|
|
|
|
12,730
|
|
|
|
(16,984
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
549,237
|
|
|
|
(302,667
|
)
|
|
|
629,579
|
|
|
|
(251,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property plant and equipment
|
|
|
(104,073
|
)
|
|
|
(637,697
|
)
|
|
|
(1,052,106
|
)
|
|
|
(110,249
|
)
|
Increase
in construction in progress
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,489,565
|
)
|
Investment
in trust
|
|
|
-
|
|
|
|
(1,461,298
|
)
|
|
|
(1,607,980
|
)
|
|
|
-
|
|
Decrease
in long-term prepaid expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(578
|
)
|
Purchase
of intangible assets
|
|
|
(10,621
|
)
|
|
|
(4,925
|
)
|
|
|
(4,926
|
)
|
|
|
(269
|
)
|
Net
cash used in investing activities
|
|
|
(114,694
|
)
|
|
|
(2,103,920
|
)
|
|
|
(2,665,012
|
)
|
|
|
(3,600,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Contribution
|
|
|
-
|
|
|
|
6,868,140
|
|
|
|
6,876,914
|
|
|
|
-
|
|
Capital
Distribution
|
|
|
-
|
|
|
|
-
|
|
|
|
(392,287
|
)
|
|
|
-
|
|
Due
to related parties
|
|
|
(713,804
|
)
|
|
|
(4,132,150
|
)
|
|
|
(3,639,155
|
)
|
|
|
3,508,862
|
|
Net
cash provided (used) by financing activities
|
|
|
(713,804
|
)
|
|
|
2,735,990
|
|
|
|
2,845,472
|
|
|
|
3,508,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
2,858
|
|
|
|
59
|
|
|
|
27,641
|
|
|
|
28,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(276,403
|
)
|
|
|
329,462
|
|
|
|
837,680
|
|
|
|
(314,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH,
beginning balance
|
|
|
935,719
|
|
|
|
98,039
|
|
|
|
98,039
|
|
|
|
412,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH,
ending balance
|
|
$
|
659,316
|
|
|
$
|
427,501
|
|
|
$
|
935,719
|
|
|
$
|
98,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
119,200
|
|
|
$
|
7,062
|
|
|
$
|
94,981
|
|
|
$
|
-
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
The
consolidated financial statements include the financial statements of Dynamic
Elite International Limited (referred to herein as “Dynamic Elite”), its
subsidiary, and variable interest entities (“VIEs”) where Dynamic Elite is
deemed the primary beneficiary. Dynamic Elite, its subsidiary and VIEs are
collectively referred to herein as the “Company”, “we” and
“us”.
Dynamic Elite
was incorporated under the laws of the British Virgin Islands on June 2,
2010 as a limited liability company (a BVI company). Dynamic Elite engages
in manufacturing and distributing tourmaline products in China. Its wholly
owned subsidiary, Tianjin Junhe Enterprise Management Consulting Co., Ltd.
(referred to herein as “Junhe”) was incorporated on September 15, 2010 in
Tianjin, People Republic of China (“PRC”). Other than the equity interest in
Junhe, Dynamic Elite does not own any assets or conducts any
operations.
Junhe
conducts its business through Tianjin Joway Shengshi Group Co., Ltd. (“Shengshi
Group”) that is consolidated as a variable interest entity.
Shengshi
Group was incorporated in PRC on May 17, 2007. Shengshi Group is
currently owned 99% by Jinghe Zhang, the Company’s current CEO and President and
1% by Song Baogang. Shengshi Group engages in manufacturing and
distributing tourmaline products in China. Liaoning Joway Technology
Engineering Co., Ltd. (“Joway Technology”), Tianjin Joyway Decoration
Engineering Co., Ltd. (“Joyway Decoration”) and Tianjin Oriental Shengtang
Import & Export Trading Co., Ltd. (“Shengtang”) are subsidiaries of
Shengshi Group.
Joway
Technology was incorporated on March 28, 2007 in PRC. It engages in the
distribution of Tourmaline Activated Water Machines and the construction of
Tourmaline Wellness Houses. Prior to July 25, 2010, Shengshi Group owned 90.91%
of Joway Technology. Shengshi Group entered into a share acquisition agreement
with Chen Jingyun, another stockholder of Joway Technology on July 25, 2010
to acquire the remaining 9.09% of the share of Joway Technology. As a result of
the share acquisition, Joway Technology became a wholly-owned subsidiary of
Shengshi Group.
Joway
Decoration was incorporated on April 22, 2009 in PRC. It engages
in the distribution of Tourmaline Activated Water Machines and Tourmaline
Wellness House materials. Prior to July 9, 2010, Shengshi Group owned 90% of
Joway Decoration. Shengshi Group entered into a share
acquisition agreement with Chen Jingyun, another stockholder of Joway
Decoration on July 9, 2010 to acquire the remaining 10% of the shares of Joway
Decoration. As a result of the share acquisition, Joway Decoration became a
wholly-owned subsidiary of Shengshi Group.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Shengtang
was incorporated on September 18, 2009 in the PRC. It engages in purchasing
raw materials which it sells to other companies of the group. Prior to July 28,
2010, Shengshi Group owned 95% of Shengtang. Shengshi Group entered into a share
acquisition agreement with Wang Aiying, another stockholder of
Shengtang on July 28, 2010 to acquire the remaining 5% of the shares of
Shengtang. As a result of the share acquisition, Shengtang became a wholly-owned
subsidiary of Shengshi Group.
Name
|
|
Domicile and
Date of
Incorporation
|
|
Paid in
Capital
|
|
Percentage of
Effective
Ownership
|
|
Principal Activities
|
Dynamic
Elite International Limited
|
|
June
2, 2010,
British
Virgin Islands
|
|
0
|
|
100%
owned by Crystal Globe Limited
|
|
Investment
Holding
|
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
|
|
September
15, 2010, PRC
|
|
USD
20,000
|
|
100%
owned by Dynamic Elite International Limited
|
|
Advisory
|
Tianjin
Joway Shengshi Group Co.,Ltd
|
|
May
17, 2007, PRC
|
|
USD
7,216,140.72
|
|
99%
owned by Jinghe Zhang, and 1% owned by Song
Baogang
|
|
Production
and distribution of tourmaline products
|
Liaoning
Joway Technology Engineering Co., Ltd.
|
|
March
28, 2007, PRC
|
|
USD
142,072.97
|
|
100%
owned by Tianjin Joway Shengshi Group Co., Ltd
|
|
Distribution
of Tourmaline Activated Water Machine and construction of Tourmaline
Wellness House
|
Tianjin
Joyway Decoration Engineering Co., Ltd.
|
|
April
22, 2009, PRC
|
|
USD
292,367.74
|
|
100%
owned by Tianjin Joway Shengshi Group Co., Ltd
|
|
Distribution
of Tourmaline Activated Water Machine and Tourmaline Wellness House
materials
|
Tianjin
Oriental Shengtang Import & Export Trading Co., Ltd.
|
|
September
18, 2009, PRC
|
|
USD
292,463.75
|
|
100%
owned by Tianjin Joway Shengshi Group Co., Ltd
|
|
Distribution
of tourmaline
products
|
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
On September
16, 2010, Junhe entered into a series of contractual agreements (the
“Contractual Agreements”) with Shengshi Group and Shengshi Group’s owners.
The following is a brief description of the Contractual Agreements entered
between Junhe and Shengshi Group or Shengshi Group’s owners
:
1.
Consulting Services
Agreement.
Pursuant to the consulting services agreement between Junhe
and Shengshi Group, Junhe has the right to advise, consult, manage and operate
Shengshi Group, and collect and own all of the net profits of the Operating
Entities.
2.
Operating Agreement.
Under
the operating agreement between Junhe and Shengshi Group, Junhe has
the right to recommend director
candidates and appoint the s
enior executives of
Shengshi
Group
, approve any transactions
that may materially affect the assets, liabilities, rights or operations of
Shengshi Group
, and
guarantee the contractual performance by
Shengshi Group
of any agreements with third parties,
in ex
change for a pledge
by
Shengshi Group
of its
accounts receivable and assets
.
3.
Voting Rights Proxy
Agreement.
Under the voting rights proxy agreement between Shengshi
Group’s owners and Junhe, the owners of Shengshi Group have vested their
collective voting control over Shengshi Group to Junhe and will only transfer
their respective equity interests in Shengshi Group to Junhe or its
designee.
4.
Option Agreement.
Under the
option agreement between Shengshi Group’s owners and Junhe, the owners of
Shengshi Group have granted Junhe the irrevocable right and option to acquire
all of their equity interests in Shengshi Group.
5.
Equity Pledge Agreement.
Under the equity pledge agreement between Shengshi Group’s owners and Junhe, the
owners of Shengshi Group have pledged all of their rights, titles and interests
in Shengshi Group to Junhe to guarantee Shengshi Group’s performance of its
obligations under the Consulting Services Agreement.
As a
result of the Contractual Agreements, Shengshi Group is effectively a variable
interest entity of Junhe. Accordingly, Dynamic Elite through its wholly-owned
subsidiary Junhe consolidates Shengshi Group’s results of operation, assets and
liabilities in its financial statements. Hereafter, Dynamic Elite, Junhe,
Shengshi Group and its subsidiaries are collectively referred to as the
“Company” unless specific reference is made to an individual
entity.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
NOTE
2
–
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“US GAAP”). The Company’s functional currency is the Chinese Renminbi (“RMB”);
however the accompanying consolidated financial statements have been translated
and presented in United States Dollars (“USD”). All significant inter-company
transactions and balances have been eliminated. The consolidated financial
statements include all adjustments that, in the opinion of management, are
necessary to make the financial statements not misleading.
Unaudited
Financial Statements
The
accompanying consolidated financial statements as of June 30, 2010 and for six
months ended June 30, 2010 and 2009 are unaudited. In the opinion of
management, all necessary adjustments (which include only normal recurring
adjustments) have been made to present fairly the financial position,
results of operations and cash flows for the periods presented. Certain
information and footnote disclosure normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. However,
the Company believes that the disclosures are adequate to make
the information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the year ended December
31, 2009 and 2008 financial statements. The results of operations for the six
month period ended June 30, 2010 and 2009 are not necessarily indicative of the
operating results to be expected for the full year ended December 31, 2010,
or that have been achieved in the year ended December 31, 2009.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. Actual results could differ from those
estimates.
Basis
of Consolidation
The
accompanying consolidated financial statements include the Company and its
wholly owned subsidiary and controlled VIEs. All significant inter-company
accounts and transactions have been eliminated in the
consolidation.
Pursuant
to Accounting Standards Codification Topic 810, “Consolidation”, Shengshi
Group, as a VIE of Junhe, have been consolidated in the Company’s financial
statements. Shengshi Group’s sales are included in the Company’s total sales,
its income from operations is consolidated with the Company’s, and the
Company’s net income includes all of Shengshi Group’s net
income.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Based on
the various Contractual Agreements, the Company is able to exercise control over
the VIEs, and to obtain in full the economic benefits. Accordingly, the
non–controlling interests have no economic interest in the VIEs.
Foreign
Currency Translation
The
accompanying consolidated financial statements are presented in USD. The
functional currency of the Company is RMB. The consolidated financial statements
are translated into United States dollars from RMB at year-end exchange rates as
to assets and liabilities and average exchange rates as to revenues and
expenses. Equity accounts are translated at their historical exchange rates when
the equity transactions occurred. The resulting transaction adjustments are
recorded as a component of stockholders’ equity. Gains and losses from foreign
currency transactions are included in net income.
|
|
June 30
,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
20
09
|
|
|
2008
|
|
Year
ended RMB: USD Exchange rate
|
|
|
6.8086
|
|
|
|
6.8448
|
|
|
|
6.8372
|
|
|
|
6.8542
|
|
Average
yearly RMB: USD Exchange rate
|
|
|
6.83474
|
|
|
|
6.84323
|
|
|
|
6.84088
|
|
|
|
6.96225
|
|
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.
For the
years ended December 31, 2009 and 2008, foreign currency translation adjustments
of $ (3,157) and $53,080, respectively, have been reported as comprehensive
(loss) or income in the consolidated financial statements. For the six months
ended June 30, 2010 and 2009, foreign currency translation adjustments of
$35,709 and $5,256, respectively, have been reported as comprehensive income
(unaudited) in the consolidated financial statements.
Other
Comprehensive Income
Other
comprehensive income is defined as the change in equity during the year from
transactions and other events, excluding the changes resulting from investments
by owners and distributions to owners, and is not included in the computation of
income tax expense or benefit. Accumulated other comprehensive income represents
the accumulated balance of foreign currency translation
adjustments.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Concentrations
of Credit Risk
The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced
by the political, economic and legal environment in the PRC, and by the general
state of the PRC's economy. The Company's operations in the PRC are subject
to specific considerations and significant risks not typically associated with
companies in North America. The Company's results may be adversely affected
by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things. Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and trade accounts receivable.
Substantially all of the Company’s cash is maintained with state-owned banks
within the PRC, and no deposits are covered by insurance. The Company has
not experienced any losses in such accounts and believes it is not exposed to
any risks on its cash in bank accounts.
Fair
Value of Financial Instruments
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
820 (formerly Statement of Financial Accounting Standard (“SFAS”) No. 157
Fair Value Measurements) establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
|
•
Level 1—defined as observable inputs such as quoted prices in active
markets
for
identical assets or
liabilities;
|
|
•
Level 2—defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable;
and
|
|
•
Level 3—defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
|
The
carrying amounts reported in the balance sheets for cash, accounts receivable,
other receivable, accounts payable, other payable, and amounts due from related
parties generally approximate their fair market values based on the short-term
maturity of these instruments. The Company has not identified any assets or
liabilities that are required to be presented at fair value in these financial
statements.
ASC
825-10 “ Financial Instruments ” allows entities to voluntarily choose to
measure certain financial assets and liabilities at fair value (fair value
option). The fair value option may be elected on an instrument-by-instrument
basis and is irrevocable, unless a new election date occurs. If the fair value
option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The
Company did not elect to apply the fair value option to any outstanding
instruments.
Cash
and Cash Equivalents
For
financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturity of six months or less to be cash
equivalents. Balances at financial institutions or state-owned banks within the
PRC are not covered by insurance. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant risks on its
cash in bank accounts.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Accounts
Receivable
Accounts
receivable are carried at net realizable value. The Company maintains reserves
for potential credit losses on accounts receivable. Management reviews the
composition of the accounts receivable and analyzes historical bad debts,
customer concentrations, customers credit worthiness, currents economic trends
and changes in customer payment patterns to evaluate the adequacy of these
reserves. As of June 30, 2010 (unaudited), December 31, 2009 and December 31,
2008, respectively, the Company has no allowance for doubtful
accounts.
Inventories
Inventories are
stated at the lower of cost, as determined by the specific identification method
on contract level (for each individual contract, inventories cost flow are
determined by weighted-average method), or the net realizable value, which is
determined on selling prices less any further costs expected to be incurred for
completion and disposal. The Company regularly evaluates the composition of
its inventories to identify slow-moving and obsolete inventories to determine
whether valuation allowance is required. As of June 30, 2010 (unaudited),
December 31, 2009 and December 31, 2008, respectively, the Company has no
reserves for inventories.
Advances
to suppliers
Advances
to suppliers represent the cash paid in advance for inventory items or
construction in progress. The advance payments are meant to ensure preferential
pricing and delivery. The amounts advanced under such arrangements totaled
$192,733 and $854,814 as of December 31, 2009 and 2008, respectively.
The amounts advanced under such arrangements totaled $149,580 as of June 30,
2010 (unaudited).
Property,
Plant, and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation, and
include expenditures that substantially increase the useful lives of existing
assets.
Depreciation
is computed using the straight-line method over the estimated useful
lives of the assets. Estimated useful lives are as follows:
Building
|
|
20
years
|
Operating
Equipment
|
|
10
years
|
Office
furniture and equipment
|
|
3
or 5 years
|
Vehicles
|
|
10
years
|
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts, and any gain or loss is included in the
consolidated statements of operations. Maintenance, repairs and minor renewals
are charged directly to expenses as incurred. Significant renewals and
betterment to buildings and equipment are capitalized. Leasehold improvements
are depreciated over the lesser of the useful life or the life of the
lease.
Construction
in progress
Construction
in progress represents the costs incurred in connection with the construction of
buildings or new additions to the Company's plant facilities. No depreciation is
provided for construction in progress until such time as the related assets
are completed and are ready for their intended use.
Intangible
assets
Intangible
assets mainly consist of land use rights. All land located in the PRC is owned
by the government and cannot be sold to any individual or company. The land use
rights granted to the Company are being amortized using the straight-line method
over the lease term of 50 years. Other intangible assets are software
programs that are amortized over their estimated useful life of 10
years.
Impairment
of Long-Lived Assets
Long-lived
assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to the guidelines established in FASB ASC 360
(formerly SFAS No. 144
Accounting for the Impairment or
Disposal of Long-Lived Assets
). The Company considers assets to be
impaired if the carrying value exceeds the future projected cash flows from the
related operations. The Company also re-evaluates the periods of depreciation
and amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. The Company did not record any
impairment loss for the years ended December 31, 2009 and 2008, and the six
months ended June 30, 2010 and 2009.
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the purchase price is
fixed or determinable and collectability is reasonably assured.
The
Company’s sales to customers are recorded when the product is shipped. The
Company does not sell product to customers with the right of return. Sales are
presented net of value added tax (VAT).
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
For
Tourmaline Wellness House sales, the Company uses the completed contract method.
A contract is considered complete when all significant costs have been incurred
and the project has been accepted by the customer. Contract costs consist
primarily of materials and labor costs. The construction of wellness house
generally does not exceed a period of five days.
Shipping
expense
Shipping
costs are included in selling expenses and totaled $19,573 and $606 for the
years ended December 31, 2009 and 2008, respectively, and $17,273 and
$2,509 for the six months (unaudited) ended June 30, 2010 and 2009,
respectively.
Income Taxes
The
Company is governed by the Income Tax Law and associated legislations of the
PRC. The Company accounts for income taxes in accordance with FASB ASC 740
“Income Taxes”
(formerly
SFAS No. 109
Accounting for
Income Taxes
)
,
which is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. ASC 740 additionally requires the establishment of a valuation
allowance to reflect the likelihood of realization of deferred tax assets.
Realization of deferred tax assets is dependent upon future earnings, if any, of
which the timing and amount are uncertain.
According
to ASC 740, the evaluation of a tax position is a two-step process. The first
step is to determine whether it is more likely than not that a tax position will
be sustained upon examination, including the resolution of any related appeals
or litigation based on the technical merits of that position. The second step is
to measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should
be recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the more-likely-than-not
criteria should be de-recognized in the first subsequent financial reporting
period in which the threshold is no longer met. ASC 740 also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition.
Recently
Issued Accounting Pronouncements
In June
2009, the FASB issued Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 168, the FASB ASC and Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement No.
162). ASC 105-10 establishes the FASB ASC as the source of
authoritative accounting principles recognized by the FASB to be applied in
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America. The adoption of this
topic has no impact on the Company’s consolidated financial statements. However,
references to specific accounting standards have been changed to refer to
appropriate sections of the ASC. Subsequent revisions to GAAP by the FASB will
be incorporated into the ASC through issuance of Accounting Standards Updates
(“ASU”).
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
In August
2009, the FASB issued FASB ASU 2009-05, “Measuring Liabilities at Fair
Value”, which provides amendments to FASB ASC 820, “Fair Value
Measurements”. Specifically, FASB ASU 2009-05 clarifies that the quoted
price for an identical liability should be used. However, if such information is
not available, an entity may use, the quoted price of an identical liability
when traded as an asset, quoted prices for similar liabilities or similar
liabilities traded as assets, or another valuation technique (such as the market
or income approach). This ASU also indicates that when estimating the fair value
of a liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. This
ASU is effective October 1, 2009. The adoption of this topic has no material
impact on the Company’s consolidated financial statements.
In
October 2009, the FASB issued FASB ASU 2009-13, “Multiple-deliverable
Revenue Arrangements”. FASB ASU 2009-13 provides amendments to the
criteria for separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. As a result of these
amendments, multiple-deliverable revenue arrangements will be separated in more
circumstances than under existing U.S. GAAP. The amendments in this ASU
also establish a selling price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific objective evidence nor third-party evidence is
available. The amendments also require providing information about the
significant judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or amount of
revenue recognition. This ASU is effective prospectively for revenue
arrangements entered into or materially modified in the fiscal years beginning
on or after June 15, 2010. The adoption of this topic has no material impact on
the Company’s consolidated financial statements.
In
October 2009, the FASB issued ASU 2009-14, “Certain Revenue Arrangements That
Include Software Elements.” FASB ASU 2009-14 changes the
accounting model for revenue arrangements that include both tangible products
and software elements that are “essential to the functionality,” and scopes
these products out of current software revenue guidance. Under the
amendments, the following components would be excluded from the scope of
software revenue recognition guidance: the tangible element of the product,
software products bundled with tangible products where the software components
and non-software components function together to deliver the product’s essential
functionality, and undelivered components that relate to software that is
essential to the tangible product’s functionality. This ASU also provides
guidance on how to allocate transaction consideration when an arrangement
contains both deliverables within the scope of software revenue guidance
(software deliverables) and deliverables not within the scope of that guidance
(non-software deliverables). This amendment will be effective prospectively for
revenue arrangements entered into or materially modified in the fiscal years
beginning on or after January 1, 2011. The Company is currently evaluating the
impact that this topic will have on its consolidated financial
statements.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair
Value Measurements”, which amends FASB ASC 820, “Fair Value Measures and
Disclosures.” FASB ASU 2010-06 require companies to make new
disclosures about recurring or nonrecurring fair value measurements including
significant transfers into and out of Level 1 and Level 2 fair value hierarchies
and information on purchases, sales, issuance and settlements on a gross basis
in the reconciliation of Level 3 fair value measurements. This ASU is
effective prospectively for financial statements issued for fiscal years and
interim periods beginning after December 15, 2009. The adoption of this
topic will not have a material impact on the Company’s consolidated financial
statements.
In
February 2010, the FASB issued ASU 2010-09, “Amendments to Certain Recognition
and Disclosure Requirements”, which amends FASB ASC 855, “Subsequent Events”.
The update provides that SEC filers, as defined in ASU 2010-09, are no longer
required to disclose the date through which subsequent events have been
evaluated in originally issued and revised financial statements. The update also
requires SEC filers to evaluate subsequent events through the date the financial
statements are issued rather than the date the financial statements are
available to be issued. The Company adopted ASU 2010-09 upon issuance. The
adoption of this topic has no material impact on the Company’s
consolidated financial statements.
NOTE
3
–
ACCOUNTS RECEIVABLE
Accounts
receivable consisted of the following:
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Accounts
receivable
|
|
$
|
16,318
|
|
|
$
|
57,532
|
|
|
$
|
18,589
|
|
Less:
Allowance for bad debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accounts
receivable
|
|
$
|
16,318
|
|
|
$
|
57,532
|
|
|
$
|
18,589
|
|
NOTE
4
–
OTHER RECEIVABLES
Other
receivables are primarily comprised of payments made by the Company under a
cooperative technology development contract with Tianjin Zhong’ao Biology
Technology Co., Ltd. (“Zhong’ao”). The Company entered into this contract in
2009. Pursuant to this agreement, Zhong’ao was to develop a tourmaline solution
suitable for human consumption. The agreement provided that Zhong’ao would
provide research and development services on the product for a period
of five years commencing in January 2009 and ending in December 2014,
The fee for these services was to be RMB 3,000,000 (approximately $441,176). The
Company prepaid RMB 2,600,000 (approximately $382,352) during 2009, and the
remaining balance of RMB 400,000 was to be paid by December 31, 2014. Due to
technical problems encountered by Zhong’ao, the Company and Zhong’ao have agreed
to terminate the contract. The Company has been in negotiations with Zhong’ao
and expects the return of all, or most, of the prepaid fees in October
2010.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Inventories
consisted of the following:
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Raw
materials
|
|
$
|
293,606
|
|
|
$
|
176,042
|
|
|
$
|
114,537
|
|
Packages
|
|
|
11,659
|
|
|
|
13,297
|
|
|
|
-
|
|
Finished
goods
|
|
|
680,109
|
|
|
|
389,573
|
|
|
|
92,894
|
|
Goods
shipped in transit
|
|
|
19,103
|
|
|
|
-
|
|
|
|
-
|
|
Consigned
processing material
|
|
|
31,485
|
|
|
|
-
|
|
|
|
-
|
|
Low
value consumables
|
|
|
17,726
|
|
|
|
14,893
|
|
|
|
8,311
|
|
Total
|
|
$
|
1,053,688
|
|
|
$
|
593,805
|
|
|
$
|
215,742
|
|
Goods
shipped in transit represent goods on the way from the suppliers to the
Company.Consigned processing material represent the materials assigned to the
processing factory by the Company. Low value consumables represent low
priced and easily worn articles and are amortized on equal-split amortization
method. Pursuant to this method, half value of the low value consumable
should be amortized once used and the remaining half value should be amortized
when disposed.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
NOTE
6
–
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Building
|
|
$
|
5,095,033
|
|
|
$
|
2,514,807
|
|
|
$
|
-
|
|
Operating
Equipment
|
|
|
318,530
|
|
|
|
298,543
|
|
|
|
77,592
|
|
Office
furniture and equipment
|
|
|
186,803
|
|
|
|
170,192
|
|
|
|
24,016
|
|
Vehicles
|
|
|
223,671
|
|
|
|
165,900
|
|
|
|
68,226
|
|
Leasehold
improvements
|
|
|
211,644
|
|
|
|
211,644
|
|
|
|
-
|
|
Total
|
|
|
6,035,681
|
|
|
|
3,361,086
|
|
|
|
169,834
|
|
Less:accumulated
depreciation
|
|
|
(316,829
|
)
|
|
|
(169,906
|
)
|
|
|
(11,545
|
)
|
Property,
plant and equipment, net
|
|
$
|
5,718,852
|
|
|
$
|
3,191,180
|
|
|
$
|
158,289
|
|
Depreciation
expense for the years ended December 31, 2009 and 2008 amounted to
$158,248 and $11,366, respectively.
Depreciation
expense for the six months (unaudited) ended June 30, 2010 and 2009 amounted to
$145,649 and $65,173, respectively.
NOTE
7
-
C
ONSTRUCTION
IN PROGRESS
During
2007, the Company began to construct manufacturing and logistic facilities as
well as administrative offices located in Baodi, Tianjin, PRC, a total of nine
buildings. Several of the buildings were completed and occupied during 2009, and
the remaining buildings were completed and occupied in 2010. As of December 31,
2009 and 2008, construction in progress of this project was $2,215,567 and
$3,681,034, respectively.
NOTE
8
–
INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
June
30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Audited)
|
|
Land
use rights
|
$
|
606,302
|
|
$
|
603,764
|
|
$
|
602,267
|
|
Other
intangible assets
|
|
15,887
|
|
|
5,203
|
|
|
273
|
|
Total
|
|
622,189
|
|
|
608,967
|
|
|
602,540
|
|
Less
: accumulated amortization
|
|
(34,310
|
)
|
|
(27,913
|
)
|
|
(15,057
|
)
|
Intangible
assets, net
|
$
|
587,879
|
|
$
|
581,054
|
|
$
|
587,483
|
|
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Amortization
expense of intangible assets for the years ended December 31, 2009 and 2008 was
$12,812 and $11,858, respectively.
Amortization
expense of intangible assets for the six months (unaudited) ended June, 2010 and
2009 was $6,255 and $456, respectively.
The
estimated amortization expense for the next five years is as
follows:
Estimated
amortization expense for
|
|
|
|
the year ending December
31,
|
|
Amount
|
|
2010
|
|
$
|
13,662
|
|
2011
|
|
$
|
13,662
|
|
2012
|
|
$
|
13,662
|
|
2013
|
|
$
|
13,662
|
|
2014
|
|
$
|
13,662
|
|
Thereafter
|
|
$
|
512,744
|
|
NOTE
9
–
RELATED PARTY TRANSACTIONS
Due from
related parties consists of the following:
|
June
30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Audited)
|
|
Si
Chang Long
|
$
|
1,468,730
|
|
$
|
1,462,587
|
|
$
|
-
|
|
Shenyang
Joway Zhiye Co.,Ltd
|
|
-
|
|
|
-
|
|
|
9,484
|
|
Total
|
$
|
1,468,730
|
|
$
|
1,462,587
|
|
$
|
9,484
|
|
Shenyang
Joway Zhiye Co.,Ltd is controlled by Jinghe Zhang, the largest stockholder and
CEO of Shengshi Group.
Mr. Si Changlong is the cashier
(treasurer) of Shengshi Group and was appointed to purchase a CITIC trust
investment on behalf of the Company. This financial product which is available
for purchase by individuals only has a higher interest rate than the standard
bank interest rate. The amount invested was $ 1,465,620 ( RMB 10 million) from
February 25, 2009 to August 25, 2010. Both the principal of RMB 10 million and
interest on the investment of RMB 408,000 were paid off on August 26, 2010 from
Mr. Si Changlong
.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
Due to
related parties consists of the following:
|
June
30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Audited)
|
|
Shenyang
Joway Industrial Development Co., Ltd.
|
$
|
138,093
|
|
$
|
694,458
|
|
$
|
77,689
|
|
Jinghe
Zhang
|
|
445,780
|
|
|
604,800
|
|
|
4,637,397
|
|
Total
|
$
|
583,873
|
|
$
|
1,299,258
|
|
$
|
4,715,086
|
|
Shenyang
Joway Industrial Development Co., Ltd (“Shenyang Joway”) is controlled
by Jinghe Zhang, the largest stockholder and CEO of the Company. The
Company purchased inventory of $115,619 and $328,088 from Shenyang Joway in 2008
and 2009 respectively.
From 2007
through 2009, the Company was advanced $694,458 by Shenyang Joway. The advances
were non-interest bearing and had no specified repayment terms. The Company
repaid $556,365 of these advances during the period January 1, 2010 through June
30, 2010.
On
December 1, 2009, we entered into a license agreement with Jinghe Zhang.
Pursuant to the license agreement, we are authorized to use for free the
trademark “Joway” for a term of nine years and five patents from December 1,
2009 till the expiration dates of the patents.
On May
10, 2007, Shengshi Group entered into a cash advance agreement with Jinghe
Zhang. Pursuant to the agreement, Jinghe Zhang agrees to lend money as daily
operation capital to Shengshi Group. The advances are interest free and
unsecured. The agreement is valid throughout Shengshi Group’s term of operation.
During the period beginning May 17, 2007 (inception of Shengshi Group) through
June 30, 2010, Shengshi Group received cash operating advances in the aggregate
principal amount of $4,637,397 from Jinghe Zhang and $4,184,273 has been paid
off by Shengshi Group. As of June 30, 2010, the total unpaid principal balance
due Jinghe Zhang for advances was $453,124.
On May
10, 2007, Joway Technology entered into a loan agreement with Jinghe Zhang.
Pursuant to the loan agreement, Jinghe Zhang agrees to lend money as daily
operation capital to Joway Technology. The loan is interest free and unsecured.
The loan agreement is valid throughout Joway Technology’s term of operation.
During the period beginning March 28, 2007 (inception of Joway Technology)
through June 30, 2010, Joway Technology received cash operating advances in the
aggregate principal amount of $22,031 from Jinghe Zhang and $22,031 has been
paid off by Joway Technology. As of June 30, 2010 , the total unpaid principal
balance due Jinghe Zhang for advances was $0.
The
amount due to and from related parties are non-interest bearing and have no
specified repayment terms.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
The
Company operates mainly in the People’s Republic of China and is governed by the
Income Tax Law of the People’s Republic of China. Pursuant to the PRC Income Tax
Laws, the Enterprise Income Tax (“EIT”) is at a statutory rate of 25% beginning
January 2008, on income as reported in their statutory financial statements
after appropriate tax adjustments.
Provisions
for income taxes consisted entirely of current income tax expense and for the
years ended December, 2009 and 2008 amounted to $141,248 and $5,083,
respectively. For the six months ended June 30, 2010 and 2009, income taxes were
$211,233 and $34,592, respectively.
NOTE
11
-
STATUTORY RESERVES
Pursuant
to the laws and regulations of the PRC, annual income of the subsidiaries of the
Company are required to be partly allocated to the statutory reserves funds
after the payment of the PRC income taxes. The allocation to the statutory
reserves funds should be at least 10% of income after tax until the reserve
reaches 50% of the entities’ registered capital or members’ equity. The reserve
funds are not transferable to the Company in the form of cash dividends, loans
or advances. Thus the reserve funds are not available for distribution except in
liquidation. For the years ended December 31, 2009 and 2008, the Company had
allocated $48,188 and $1,600, respectively. The Company made no allocation to
the reserve funds for the six months ended June 30, 2010 and 2009.
The
Company entered into two agreements to lease its headquarters office for 5 years
starting from November 2009. The future minimum obligations under the
aforementioned agreements are as follows:
Fiscal Year
|
|
Minimum Lease fees
|
|
2010
|
|
$
|
89,189
|
|
2011
|
|
|
152,895
|
|
2012
|
|
|
152,895
|
|
2013
|
|
|
152,895
|
|
2014
|
|
|
127,413
|
|
Total
|
|
$
|
675,287
|
|
Rent
expense for the year ended December 31, 2009 was $12,730. Rent expense for the
six months (unaudited) ended June 30, 2010 was $38,224.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
For the
year of 2010, 2009 and 2008, the Company operated in three reportable business
segments - (1) Healthcare Knitgoods Series, (2) Daily Healthcare and Personal
Care Series and (3) Wellness House and Activated Water Machine Series. The
Company's reportable segments are strategic business units that offer different
products. They are managed separately based on the fundamental differences in
their operations. Information with respect to these reportable business segments
is as follows:
For the
six months ended June 30, 2010 (unaudited)
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Income from
operations
|
|
|
Depreciation
and
amortization
|
|
|
Assets
|
|
Healthcare
Knitgoods
Series
|
|
$
|
1,440,617
|
|
|
$
|
305,383
|
|
|
$
|
1,135,234
|
|
|
$
|
648,495
|
|
|
$
|
94,164
|
|
|
$
|
424,443
|
|
Daily
Healthcare and Personal Care Series
|
|
|
478,320
|
|
|
|
140,370
|
|
|
|
337,950
|
|
|
|
176,341
|
|
|
|
31,257
|
|
|
|
242,046
|
|
Wellness
House Activated Water Machine Series
|
|
|
404,904
|
|
|
|
193,735
|
|
|
|
211,169
|
|
|
|
98,022
|
|
|
|
26,483
|
|
|
|
443,890
|
|
Segment
Totals
|
|
$
|
2,323,841
|
|
|
$
|
639,488
|
|
|
$
|
1,684,353
|
|
|
|
922,858
|
|
|
$
|
151,904
|
|
|
|
1,110,378
|
|
Other
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,840
|
)
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211,233
|
)
|
|
|
|
|
|
|
|
|
Unallocated
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,939,324
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
687,785
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,049,702
|
|
For the
six months ended June 30, 2009 (unaudited)
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Income (loss)
from
operations
|
|
|
Depreciation
and
amortization
|
|
|
Assets
|
|
Healthcare
Knitgoods
Series
|
|
$
|
446,112
|
|
|
$
|
123,487
|
|
|
$
|
322,625
|
|
|
$
|
96,025
|
|
|
$
|
29,747
|
|
|
$
|
183,370
|
|
Daily
Healthcare and Personal Care Series
|
|
|
250,409
|
|
|
|
82,463
|
|
|
|
167,946
|
|
|
|
40,753
|
|
|
|
16,674
|
|
|
|
33,838
|
|
Wellness
House Activated Water Machine Series
|
|
|
287,935
|
|
|
|
242,487
|
|
|
|
45,448
|
|
|
|
(2,320
|
)
|
|
|
19,208
|
|
|
|
307,721
|
|
Segment
Totals
|
|
$
|
984,456
|
|
|
$
|
448,437
|
|
|
$
|
536,019
|
|
|
|
134,458
|
|
|
$
|
65,629
|
|
|
|
524,929
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,326
|
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,592
|
)
|
|
|
|
|
|
|
|
|
Unallocated
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,099,340
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,192
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,624,269
|
|
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
For the
year ended December 31, 2009
|
|
Sales
|
|
|
COGS
|
|
|
Gross
profit
|
|
|
Income
from
operations
|
|
|
Depreciation
and
amortization
|
|
|
Assets
|
|
Healthcare
Knitgoods
Series
|
|
$
|
1,723,846
|
|
|
$
|
428,004
|
|
|
$
|
1,295,842
|
|
|
$
|
586,357
|
|
|
$
|
94,856
|
|
|
$
|
272,284
|
|
Daily
Healthcare and Personal Care Series
|
|
|
498,341
|
|
|
|
122,891
|
|
|
|
375,450
|
|
|
|
170,348
|
|
|
|
27,400
|
|
|
|
105,213
|
|
Wellness
House Activated Water Machine Series
|
|
|
886,872
|
|
|
|
613,788
|
|
|
|
273,084
|
|
|
|
54,422
|
|
|
|
48,804
|
|
|
|
214,458
|
|
Segment
Totals
|
|
$
|
3,109,059
|
|
|
$
|
1,164,683
|
|
|
$
|
1,944,376
|
|
|
|
811,127
|
|
|
$
|
171,060
|
|
|
|
591,955
|
|
Other
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,344
|
)
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,248
|
)
|
|
|
|
|
|
|
|
|
Unallocated
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,146,057
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
650,535
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,738,012
|
|
For the
year ended December 31, 2008
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Income (loss)
from
operations
|
|
|
Depreciation
and
amortization
|
|
|
Assets
|
|
Healthcare
Knitgoods Series
|
|
$
|
14,761
|
|
|
$
|
1,793
|
|
|
$
|
12,968
|
|
|
$
|
(124,199
|
)
|
|
$
|
824
|
|
|
$
|
50,188
|
|
Daily
Healthcare and Personal Care Series
|
|
|
144
|
|
|
|
17
|
|
|
|
127
|
|
|
|
(1,211
|
)
|
|
|
-
|
|
|
|
68,715
|
|
Wellness
House Activated Water Machine Series
|
|
|
407,707
|
|
|
|
302,044
|
|
|
|
105,663
|
|
|
|
(15,364
|
)
|
|
|
22,400
|
|
|
|
274,840
|
|
Segment
Totals
|
|
$
|
422,612
|
|
|
$
|
303,854
|
|
|
$
|
118,758
|
|
|
|
(140,774
|
)
|
|
$
|
23,224
|
|
|
|
393,743
|
|
Other
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,131
|
)
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,083
|
)
|
|
|
|
|
|
|
|
|
Unallocated
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,262,549
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(146,988
|
)
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,656,292
|
|
NOTE
14
-
FRANCHISE REVENUES
The
Company enters into franchising agreements to develop retail outlets for the
Company's products. The agreements provide that franchisees will sell Company
products exclusively. In exchange the Company provides them with geographic
exclusivity, discounted product, training and support. The agreements also
require franchisees to adhere to certain standards of product merchandising,
promotion and presentment. The agreements do not require any initial franchise
fees from the franchisees, nor do they require the franchisees to pay continuing
royalties. The agreements are generally for terms of three years and are
renewable at the mutual agreement of both parties. The Agreements are cancelable
at the Company’s discretion if franchisees do not purchase a certain minimum
level of product annually.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
The
following is a breakdown of revenue between franchise and non-franchise
customers:
|
|
Six Months ended June 30,
|
|
|
Year ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Sales
to franchise customers
|
|
$
|
2,016,731
|
|
|
$
|
622,592
|
|
|
$
|
2,238,586
|
|
|
$
|
-
|
|
Sales
to non-franchise customers
|
|
|
307,110
|
|
|
|
361,864
|
|
|
|
870,473
|
|
|
|
422,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
|
|
$
|
2,323,841
|
|
|
$
|
984,456
|
|
|
$
|
3,109,059
|
|
|
$
|
422,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in franchise
outlets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of franchise outlets open at beginning of period
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Number
of franchise outlets opened during the period
|
|
|
58
|
|
|
|
69
|
|
|
|
182
|
|
|
|
-
|
|
Number
of franchise outlets closed during the period
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of franchise outlets open at the end of the period
|
|
|
219
|
|
|
|
69
|
|
|
|
175
|
|
|
|
-
|
|
NOTE
15
–
SUBSEQUENT EVENTS
On July
9, 2010, Shengshi Group entered into a share acquisition agreement with Chen
Jingyun, one of the stockholders of Joway Decoration. Joway Decoration became a
wholly-owned subsidiary of Shengshi Group.
On July
25, 2010, Shengshi Group entered into a share acquisition agreement with Chen
Jingyun, one of the stockholders of Joway Technology. Joway Technology became a
wholly-owned subsidiary of Shengshi Group.
On July
28, 2010, Shengshi Group entered into a share acquisition agreement with Wang
Aiying, one of the stockholders of Shengtang. Shengtang became a wholly-owned
subsidiary of Shengshi Group.
On
October 1, 2010, G2 Ventures, Inc., (“G2 Ventures”) a company incorporated in
Texas, entered into a Share Exchange Agreement (the “Exchange Agreement”) with
Dynamic Elite. Pursuant to the terms of the Exchange Agreement, Crystal Globe
Limited (“Crystal Globe”), the sole stockholder of Dynamic Elite transferred to
G2 Ventures all of the Dynamic Elite shares in exchange for the issuance of
15,215,426 shares (the “Shares”) of G2 Ventures common stock (the “Share
Exchange”). As a result of the Share Exchange, Dynamic Elite became a
wholly-owned subsidiary of G2 Ventures and the stockholders of Dynamic Elite
acquired approximately 76.08% of the issued and outstanding stock of G2
Ventures.
Dynamic
Elite International Limited and Subsidiaries
Notes to
consolidated Financial Statements
June 30,
2010 and 2009 (Unaudited) and December 31,2009 and 2008 (Audited)
The
effect of the share Exchange is such that effectively a reorganization of the
entities has occurred for accounting purposes that is deemed to be a reverse
acquisition. Subsequent to the share Exchange, the financial statements
presented will be those of a combined Dynamic Elite and its subsidiary and
controlled VIEs, as if the share Exchange had been in effect retroactively for
all periods presented. As previously noted the “Company” for financial statement
purposes was the consolidation of Dynamic Elite and its subsidiary, Junhe and
its controlled VIEs. Subsequent to the Share Exchange the “Company” is referred
to as the consolidation of Dynamic Elite, its subsidiary and controlled VIEs and
G2 Ventures, with G2 Ventures as the legal acquirer in Share Exchange, and
subsequent to the Share Exchange the parent company of the consolidated
entity.
(b)
Pro forma
financial information
.
The pro
forma financial information concerning the acquisition of the business
operations of our PRC Entities appears below.
G2
VENTURES, INC and DYNAMIC ELITE INTERNATIONAL LIMITED
PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Pro
Forma Consolidated Financial Statements:
|
|
|
|
Pro
Forma Consolidated Balance Sheets As of June 30, 2010
(unaudited)
|
F-2
|
|
|
Pro
Forma Consolidated Statement of Operations for the Six Months Ended June
30, 2010
|
F-3
|
|
|
Pro
Forma Consolidated Statement of Operations for the Year Ended
December 31, 2009
|
F-4
|
|
|
Notes
to Pro Forma Consolidated Financial Statements
|
F-5
|
Pro Forma
Consolidated Financial Statements
G2
VENTURES, INC.
UNAUDITED
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF
JUNE 30, 2010
|
|
Dynamic Elite
International Ltd.
|
|
|
G2 VENTURES,
INC.
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent
|
|
$
|
659,316
|
|
|
$
|
1,446
|
|
|
$
|
|
|
|
$
|
660,762
|
|
Accounts
receivable, net
|
|
|
16,318
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,318
|
|
Other
receivables
|
|
|
395,339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
395,339
|
|
Due
from related party
|
|
|
1,468,730
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,468,730
|
|
Inventories
|
|
|
1,053,688
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,053,688
|
|
Advances
to suppliers
|
|
|
149,580
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,580
|
|
Prepaid
other tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
current assets
|
|
|
3,742,971
|
|
|
|
1,446
|
|
|
|
-
|
|
|
|
3,744,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
|
|
5,718,852
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,718,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
587,879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
587,879
|
|
Total
other assets
|
|
|
587,879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
587,879
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,049,702
|
|
|
$
|
1,446
|
|
|
$
|
-
|
|
|
$
|
10,051,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
426,293
|
|
|
$
|
13,758
|
|
|
$
|
-
|
|
|
$
|
440,051
|
|
Advances
from customers
|
|
|
126,759
|
|
|
|
-
|
|
|
|
-
|
|
|
|
126,759
|
|
Taxes
payable
|
|
|
216,519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
216,519
|
|
Other
payables
|
|
|
108,974
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108,974
|
|
Due
to related parties
|
|
|
583,873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
583,873
|
|
Stockholder
advances
|
|
|
-
|
|
|
|
127,649
|
|
|
|
-
|
|
|
|
127,649
|
|
Total
liabilities
|
|
|
1,462,418
|
|
|
|
141,407
|
|
|
|
-
|
|
|
|
1,603,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock of G2 Ventures, Inc. - par value $0.001; 1,000,000 shares
authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock of G2 Ventures, Inc. - par value $0.001; 200,000,000 shares
authorized; 4,784,574 shares issued and outstanding; 20,000,000 shares
outstanding on pro forma
|
|
|
-
|
|
|
|
4,785
|
|
|
|
15,215
|
(a)
|
|
|
20,000
|
|
Common
stock of Dynamic Elite International Limited - par value $1; 50,000 shares
authorized; 10,000 shares issued and outstanding
|
|
|
10,000
|
|
|
|
-
|
|
|
|
(10,000
|
)(b)
|
|
|
-
|
|
Additional
paid-in-capital
|
|
|
7,272,954
|
|
|
|
167,811
|
|
|
|
(327,772
|
)(a,b)
|
|
|
7,112,993
|
|
Statutory
reserves
|
|
|
49,788
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,788
|
|
Retained
earnings (deficit)
|
|
|
1,133,561
|
|
|
|
(312,557
|
)
|
|
|
312,557
|
(b)
|
|
|
1,133,561
|
|
Accumulated
other comprehensive income
|
|
|
130,981
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,981
|
|
Subscription
receivable
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
10,000
|
(b)
|
|
|
-
|
|
Total
stockholders' equity
|
|
|
8,587,284
|
|
|
|
(139,961
|
)
|
|
|
-
|
|
|
|
8,447,323
|
|
Total
liabilities and stockholders' equity
|
|
$
|
10,049,702
|
|
|
$
|
1,446
|
|
|
$
|
-
|
|
|
$
|
10,051,148
|
|
The
accompanying notes are an integral part of these pro forma consolidated
financial statements
G2
VENTURES, INC.
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
SIX MONTHS ENDED JUNE 30, 2010
|
|
Dynamic Elite
International
Ltd.
|
|
|
G2 VENTURES,
INC.
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
2,323,841
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
2,323,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
|
639,488
|
|
|
|
-
|
|
|
|
-
|
|
|
|
639,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,684,353
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,684,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
235,670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
235,670
|
|
General
and administrative expenses
|
|
|
525,825
|
|
|
|
18,674
|
|
|
|
-
|
|
|
|
544,499
|
|
OPERATING
EXPENSES
|
|
|
761,495
|
|
|
|
18,674
|
|
|
|
-
|
|
|
|
780,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
922,858
|
|
|
|
(18,674
|
)
|
|
|
-
|
|
|
|
904,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,175
|
|
Other
(expense) income
|
|
|
1,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,092
|
|
Non
operating Income (expenses)
|
|
|
(26,107
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,107
|
)
|
OTHER
(EXPENSE) INCOME, NET
|
|
|
(23,840
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
899,018
|
|
|
|
(18,674
|
)
|
|
|
-
|
|
|
|
880,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
211,233
|
|
|
|
-
|
|
|
|
-
|
|
|
|
211,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
687,785
|
|
|
|
(18,674
|
)
|
|
|
-
|
|
|
|
669,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
35,709
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
$
|
723,494
|
|
|
$
|
(18,674
|
)
|
|
|
-
|
|
|
$
|
704,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER COMMON SHARE, BASIC AND DILUTED
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
|
|
|
|
4,784,574
|
|
|
|
15,215,426
|
(c)
|
|
|
20,000,000
|
|
The
accompanying notes are an integral part of these financial
statements
G2
VENTURES, INC.
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2009
|
|
Dynamic Elite
International
Ltd.
|
|
|
G2 VENTURES,
INC.
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
3,109,059
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
3,109,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
|
1,164,683
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,164,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,944,376
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,944,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
165,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
165,994
|
|
General
and administrative expenses
|
|
|
967,255
|
|
|
|
74,660
|
|
|
|
-
|
|
|
|
1,041,915
|
|
OPERATING
EXPENSES
|
|
|
1,133,249
|
|
|
|
74,660
|
|
|
|
-
|
|
|
|
1,207,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
811,127
|
|
|
|
(74,660
|
)
|
|
|
-
|
|
|
|
736,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,952
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,952
|
|
Other
(expense) income
|
|
|
2,902
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,902
|
|
Non
operating Income (expenses)
|
|
|
(24,198
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,198
|
)
|
OTHER
(EXPENSE) INCOME, NET
|
|
|
(19,344
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
791,783
|
|
|
|
(74,660
|
)
|
|
|
-
|
|
|
|
717,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
141,248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
650,535
|
|
|
|
(74,660
|
)
|
|
|
-
|
|
|
|
575,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(3,157
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
$
|
647,378
|
|
|
$
|
(74,660
|
)
|
|
|
-
|
|
|
$
|
572,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER COMMON SHARE, BASIC AND DILUTED
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
|
|
|
|
4,784,574
|
|
|
|
15,215,426
|
(c)
|
|
|
20,000,000
|
|
The
accompanying notes are an integral part of these financial
statements
Description
of Pro Forma Adjustments
|
|
Dr
|
|
|
Cr
|
|
|
|
|
|
|
|
|
a -
Stock Issuance in reverse merger
|
|
|
|
|
|
|
Additional
paid in capital
|
|
|
15,215
|
|
|
|
|
Common
shares
|
|
|
|
|
|
|
15,215
|
|
|
|
|
|
|
|
|
|
|
b -
To eliminate retained deficit of G2 VENTURES, INC.
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
|
312,557
|
|
|
|
|
|
Common
Stock
|
|
|
10,000
|
|
|
|
|
|
Retained
Deficit
|
|
|
|
|
|
|
312,557
|
|
Subscription
receivable
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
c -
To give effect to 15,215,426 common shares issued with Exchange
Agreement
|
|
|
|
|
|
|
|
|
The
unaudited pro forma consolidated financial statements for the six months ended
June 30, 2010 and for the year ended December 31, 2009 were derived from
unaudited financial statements of G2 Ventures, INC. (“G2 Ventures”) and Dynamic
Elite International Limited (“Dynamic Elite”) as of and for the six months ended
June 30, 2010. These unaudited pro forma combined financial statements should be
read in conjunction with Dynamic Elite’s unaudited and audited financial
statements and notes to those consolidated financial statements included
elsewhere in this Form 8-K and historical financial statements and notes of G2
Ventures.
The pro
forma adjustments are based on the best information available and assumptions
that management believes are reasonable given the information available;
however, such adjustments are subject to change based upon the costs incurred in
connections with the Share Exchange Agreement and related transactions and any
other material information. The unaudited pro forma financial information is for
illustrative and informational purposes only and is not intended to represent or
be indicative of what the Company’s financial position would have been had the
transactions contemplated by the Share Exchange Agreement and related
transactions occurred on June 30, 2010.
On
October 1, 2010, G2 Ventures, a company incorporated in Texas, entered into
a Share Exchange Agreement (the “Exchange Agreement”) with Dynamic Elite, a
British Virgin Island company. Pursuant to this Exchange Agreement, the
shareholders of Dynamic Elite transferred to G2 Venture all of the Dynamic Elite
Shares in exchange for the issuance of 15,215,426 shares (the “Shares”) of G2
Ventures common stock (the “Share Exchange”). As a result of the Share Exchange,
Dynamic Elite became a wholly-owned subsidiary of G2 Ventures and the
shareholders of Dynamic Elite acquired approximately 76.08% of issued and
outstanding stock of G2 Ventures. Subsequent to June 30, 2010 and prior to the
acquisition with Dynamic Elite, the liabilities and assets of G2 Ventures were
settled.
The share
exchange transaction was treated as a reverse acquisition, with G2 Ventures as
the accounting acquiree and Dynamic Elite as the accounting acquirer .
Consequently, the financial statements presented are those of a combined G2
Ventures, Dynamic Elite and its subsidiary and controlled VIE’s, as if the Share
Exchange had been in effect retroactively for all periods
presented.
(c)
Shell company
transactions
.
Reference
is made to Items 9.01(a) and 9.01(b) above and the exhibits referred to therein,
which are incorporated herein by reference.
(d) The
following exhibits are filed with this report:
Exhibit
Number
|
|
Description
|
3.1
|
|
Articles
of Incorporation *
|
|
|
|
3.2
|
|
Bylaws
*
|
|
|
|
3.3
|
|
Specimen
of Common Stock Certificate*
|
|
|
|
10.1
|
|
Share
Exchange Agreement, dated October 1, 2010, by and among G2 Ventures,
Crystal Globe and Dynamic Elite
|
|
|
|
10.2
|
|
Consulting
Services Agreement, dated September 16, 2010, by and between Junhe
Consulting and Joway Group
|
|
|
|
10.3
|
|
Operating
Agreement, dated September 16, 2010, by and between Junhe Consulting and
Joway Group
|
|
|
|
10.4
|
|
Option
Agreement, dated September 16, 2010, by and between Junhe Consulting and
Joway Group
|
10.5
|
|
Proxy
Agreement, dated September 16, 2010, by and between Junhe Consulting and
Joway Group
|
|
|
|
10.6
|
|
Equity
Pledge Agreement, dated September 16, 2010, by and between Junhe
Consulting and Joway Group
|
|
|
|
10.7
|
|
Cash
Advance Agreement, dated May 10, 2007, by and between Jinghe Zhang and
Joway Technology
|
|
|
|
10.8
|
|
Cash
Advance Agreement, dated May 10, 2007, by and between Jinghe Zhang and
Joway Group
|
|
|
|
10.9
|
|
Property
Lease Agreement, dated June 25, 2009, by and between Joway Group and
Aiying Wang
|
|
|
|
10.10
|
|
Property
Lease Agreement, dated June 25, 2009, by and between Joway Group and
Guifen Feng
|
|
|
|
10.11
|
|
Supply
Agreement, dated October 1, 2008, by and between Tianjin Daxing Import
& Export Trade Co., Ltd. and Joway
Technology
|
|
|
|
10.12
|
|
Supply
Agreement, dated October 9, 2008, by and between Tianjin Daxing
Import & Export Trade Co., Ltd. and Joway Group
|
|
|
|
10.13
|
|
Supply
Agreements, by and between Shenyang Joway and Joway
Group
|
|
|
|
10.14
|
|
Trademark
& Patent License Agreement, dated December 1, 2009, by and between
Joway Group and Jinghe Zhang
|
|
|
|
10.15
|
|
Trademark
License Agreement, dated December 1, 2009, by and between Joway Group and
Shenyang Joway.
|
|
|
|
10.16
|
|
Employment
Agreement, dated September 28 , 2010, by and between G2 Ventures and
Jinghe Zhang
|
|
|
|
10.17
|
|
Employment
Agreement, dated September 28, 2010, by and between G2 Ventures and Yuan
Huang
|
|
|
|
10.18
|
|
Entrust Agreement,
dated February 20, 2009, by and between Joway Group and Changlong
Si
|
|
|
|
14.1
|
|
Code
of Ethics **
|
|
|
|
16.1
|
|
Letter
from the Company to Turner, Stone & Company, LLP, CPA, dated October
5, 2010
|
|
|
|
16.2
|
|
Consent
Letter of Turner, Stone & Company, LLP, dated October 6,
2010
|
|
|
|
21.1
|
|
List
of Subsidiaries
|
|
|
|
23.1
|
|
Consent
Letter of Sherb, dated October 6,
2010
|
*Incorporated
by reference to the exhibits to our registration statement on Form SB-2 filed
with the SEC on September 11, 2003.
**Incorporated
by reference to the exhibits to our annual report on Form 10-K filed with the
SEC on March 1, 2010.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
G2
VENTURES, INC.
|
|
|
Date:
October 6, 2010
|
|
|
|
|
/s/
Jinghe Zhang
|
|
Name:
Jinghe Zhang
|
|
Title:
President and Chief Executive
Officer
|
EXCHANGE
AGREEMENT
This
EXCHANGE AGREEMENT, dated as of October 1, 2010 (the “Agreement”) by
and among G2 VENTURES, INC., a Texas corporation (“G2”), DYNAMIC ELITE
INTERNATIONAL LIMITED (“Dynamic”) and CRYSTAL GLOBE LIMITED (“Crystal
”), the sole shareholder of all the shares of common stock of
Dynamic.
WHEREAS,
Crystal owns 100% of the issued and outstanding shares of common stock, par
value $1 per share, of Dynamic (the "Dynamic Shares");
WHEREAS,
Crystal believes it is in its best interest to exchange the Dynamic Shares for
certain restricted shares of common stock of G2 and G2 believes it is in its
best interests to acquire the Dynamic Shares in exchange for its shares of
common stock, upon the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS,
it the intention of the parties that: (i) G2 shall acquire 100% of the Dynamic
Shares in exchange solely for the restricted shares of G2; (ii) said exchange
of shares of G2 for Dynamic Shares shall not qualify as a tax-free
reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended (the “Code”); and (iii) said exchange shall qualify as a transaction
in securities exempt from registration or qualification under the Securities Act
of 1933, as amended and in effect on the date of this Agreement (the “Securities
Act”).
NOW,
THEREFORE, in consideration of the mutual terms, conditions and other agreements
set forth herein, the parties hereto hereby agree as follows:
ARTICLE
I
EXCHANGE
OF SHARES FOR COMMON STOCK
Section
1.1
Agreement
to Exchange Dynamic Shares for G2 Shares
. On the Closing Date (as hereinafter
defined) and upon the terms and subject to the conditions set forth in this
Agreement, Crystal shall sell, assign, transfer, convey and deliver the Dynamic
Shares (representing 10,000 Dynamic Shares, par value $1 per share or 100% of
the issued and outstanding Dynamic Shares) to G2, and G2 shall accept the
Dynamic Shares from Crystal in exchange for the issuance to Crystal 15,215,426
restricted shares of common stock of G2 (the “G2 Shares”).
Section
1.2
Capitalization.
On the Closing Date, immediately after
the transactions to be consummated pursuant to this Agreement, G2 shall have
authorized 200,000,000 shares of common stock, par value $.001 per share, of
which 20,000,000 shares shall be issued and outstanding, all of which are
duly authorized, validly issued and fully paid.
Section
1.3
Closing
. The closing of the exchange to be
made pursuant to this Agreement (the "Closing") shall take place at 10:00 a.m.
E.D.T. on the date of this Agreement and upon the conditions to closing set
forth in Articles V and VI have been satisfied or waived, or at such other time
and date as the parties hereto shall agree in writing (the "Closing Date"), at
the offices of Sichenzia Ross Friedman Ference LLP, 61 Broadway, 32
nd
Floor, New York, NY 10006. At the
Closing, Crystal shall deliver to G2 the stock certificate(s) representing 100%
of the Dynamic Shares, duly endorsed in blank for transfer or accompanied by
appropriate stock powers duly executed in blank. In full consideration and
exchange for the Dynamic Shares, G2 shall issue and exchange with Crystal the G2
Shares.
Section
1.4
Tax
Treatment
. The exchange
described herein is not intended to comply with Section 368(a)(1)(B) of the
Code, and all applicable regulations thereunder.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF G2
G2 hereby
represents, warrants and agrees as follows:
Section
2.1
Corporate
Organization
a.
G2 is a corporation duly organized,
validly existing and in good standing under the laws of Texas, and has all
requisite corporate power and authority to own its properties and assets and to
conduct its business as now conducted and is duly qualified to do business in
good standing in each jurisdiction in which the nature of the business conducted
by G2 or the ownership or leasing of its properties makes such qualification and
being in good standing necessary, except where the failure to be so qualified
and in good standing will not have a material adverse effect on the business,
operations, properties, assets, condition or results of operation
of G2 (a "G2 Material Adverse Effect");
b.
Copies of the Articles of Incorporation
and By-laws of G2, with all amendments thereto to the date hereof, have been
furnished by G2 to Crystal, and such copies are accurate and complete as of the
date hereof. The minute books of G2 are current as required by law, contain the
minutes of all meetings of the Board of Directors and shareholders of G2 from
its date of incorporation to the date of this Agreement, and adequately reflect
all material actions taken by the Board of Directors and shareholders of
G2.
Section
2.2
Capitalization of G2
.
The authorized capital stock of G2 consists of (a) 200,000,000 shares
of common stock, par value $.001 per share, of which 4,784,574 shares
are issued and outstanding, all of which are duly authorized, validly issued and
fully paid. As of the date of this Agreement there are and as of the Closing
Date, there will be, no outstanding options, warrants, agreements, commitments,
conversion rights, preemptive rights or other rights to subscribe for, purchase
or otherwise acquire any shares of capital stock or any un-issued or treasury
shares of capital stock of G2.
Section
2.3
Subsidiaries
and Equity Investments
. G2
has no subsidiaries or equity interest in any corporation, partnership or joint
venture.
Section
2.4
Authorization
and Validity of Agreements
. G2 has all corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by G2 and the consummation by G2 of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of G2, and no other corporate proceedings on the part of G2 are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby.
Section
2.5
No Conflict
or Violation
. The
execution, delivery and performance of this Agreement by G2 does not and will
not violate or conflict with any provision of its Articles of Incorporation or
By-laws, and does not and will not violate any provision of law, or any order,
judgment or decree of any court or other governmental or regulatory authority,
nor violate or result in a breach of or constitute (with due notice or lapse of
time or both) a default under, or give to any other entity any right of
termination, amendment, acceleration or cancellation of, any contract, lease,
loan agreement, mortgage, security agreement, trust indenture or other agreement
or instrument to which G2 is a party or by which it is bound or to which any of
their respective properties or assets is subject, nor will it result in the
creation or imposition of any lien, charge or encumbrance of any kind whatsoever
upon any of the properties or assets of G2, nor will it result in the
cancellation, modification, revocation or suspension of any of the licenses,
franchises, permits to which G2 is bound.
Section
2.6
Consents
and Approvals
. No consent,
waiver, authorization or approval of any governmental or regulatory authority,
domestic or foreign, or of any other person, firm or corporation, is required in
connection with the execution and delivery of this Agreement by G2 or the
performance by G2 of its obligations hereunder.
Section
2.7
Absence of
Certain Changes or Events
.
Since its inception:
a.
G2 has operated in the ordinary course
of business consistent with past practice and there has not been any material
adverse change in the assets, properties, business, operations, prospects, net
income or condition, financial or otherwise of G2. As of the date of this
Agreement, G2 does not know or have reason to know of any event, condition,
circumstance or prospective development which threatens or may threaten to have
a material adverse effect on the assets, properties, operations, prospects, net
income or financial condition of G2;
b.
there has not been any declaration,
setting aside or payment of dividends or distributions with respect to shares of
capital stock of G2 or any redemption, purchase or other acquisition of any
capital stock of G2 or any other of G2’s securities;
and
c.
there has not been an increase in the
compensation payable or to become payable to any director or officer of
G2.
Section
2.8
Disclosure
. This Agreement and any certificate
attached hereto or delivered in accordance with the terms hereby by or on behalf
of G2 in connection with the transactions contemplated by this Agreement, when
taken together, do not contain any untrue statement of a material fact or omit
any material fact necessary in order to make the statements contained herein
and/or therein not misleading.
Section
2.9
Survival
. Each of the representations and
warranties set forth in this Article II shall be deemed represented and made by
G2 at the Closing as if made at such time and shall survive the Closing for a
period terminating on the second anniversary of the date of this
Agreement.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF DYNAMIC AND CRYSTAL
Dynamic
and Crystal, jointly and severally, represent, warrant and agree as
follows:
Section
3.1
Corporate
Organization
.
a.
Dynamic is a newly-formed corporation.
It is duly organized, validly existing and in good standing under the laws of
the British Virgin Islands and has all requisite corporate power and authority
to own its properties and assets and to conduct its business as now conducted
and is duly qualified to do business in good standing in each jurisdiction in
where the nature of the business conducted by Dynamic or the ownership or
leasing of its properties makes such qualification and being in good standing
necessary, except where the failure to be so qualified and in good standing will
not have a material adverse effect on the business, operations, properties,
assets, condition or results of operation of Dynamic (a "Dynamic
Material Adverse Effect").
b.
Copies of the Certificate of
Incorporation and By-laws of Dynamic, with all amendments thereto to the date
hereof, have been furnished to G2, and such copies are accurate and complete as
of the date hereof. The minute books of Dynamic are current as required by law,
contain the minutes of all meetings of the Board of Directors and shareholders
of Dynamic, and committees of the Board of Directors of Dynamic from the date of
incorporation to the date of this Agreement, and adequately reflect all material
actions taken by the Board of Directors, shareholders and committees of the
Board of Directors of Dynamic.
Section
3.2
Capitalization
of Dynamic; Title to the Dynamic Shares
. On the Closing Date, immediately
before the transactions to be consummated pursuant to this Agreement, Dynamic
shall have authorized Fifty Thousand (50,000) Dynamic Shares, of which 10,000
Dynamic Shares will be issued and outstanding. The Dynamic Shares are the sole
outstanding shares of capital stock of Dynamic, and there are no outstanding
options, warrants, agreements, commitments, conversion rights, preemptive rights
or other rights to subscribe for, purchase or otherwise acquire any shares of
capital stock or any un-issued or treasury shares of capital stock of
Dynamic.
Section
3.3
Subsidiaries
and Equity Investments; Assets
. As of the date hereof and on the
Closing Date, except for Tianjian Junhe Enterprise Management Consulting Co.,
Ltd, a PRC wholly-foreign owned entity, Dynamic does not and will not directly
or indirectly, own any shares of capital stock or any other equity interest in
any entity or any right to acquire any shares or other equity interest in any
entity and Dynamic does not and will not have any assets or
liabilities.
Section 3.4
Authorization and Validity
of Agreements
. Dynamic has all corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Dynamic and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of Dynamic are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. Crystal has
approved this Agreement and no other stockholder approvals are required to
consummate the transactions contemplated hereby.
Section
3.5
No Conflict
or Violation
. The
execution, delivery and performance of this Agreement by Dynamic and Crystal do
not and will not violate or conflict with any provision of the constituent
documents of Dynamic, and do not and will not violate any provision of law, or
any order, judgment or decree of any court or other governmental or regulatory
authority, nor violate, result in a breach of or constitute (with due notice or
lapse of time or both) a default under or give to any other entity any right of
termination, amendment, acceleration or cancellation of any contract, lease,
loan agreement, mortgage, security agreement, trust indenture or other agreement
or instrument to which Dynamic or Crystal is a party or by which it/her is bound
or to which any of its respective properties or assets is subject, nor result in
the creation or imposition of any lien, charge or encumbrance of any kind
whatsoever upon any of the properties or assets of Dynamic or Crystal, nor
result in the cancellation, modification, revocation or suspension of any of the
licenses, franchises, permits to which Dynamic or Crystal is
bound.
Section
3.6
Investment
Representations
. (a) The
G2 Shares will be acquired hereunder solely for the account of Crystal, for
investment, and not with a view to the resale or distribution thereof. Crystal
understands and is able to
bear any economic risks associated with its investment in the G2 Shares. G2 has
had full access to all the information G2 considers necessary or
appropriate to make an informed investment decision with respect to the G2
Shares to be acquired under this Agreement. Crystal further has had an
opportunity to ask questions and receive answers from G2’s directors regarding
G2 and to obtain additional information (to the extent G2’s directors possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to Crystal or to which Crystal had
access. Crystal (as such term is hereinafter defined) is an
“accredited investor” (as such term is defined in Rule 501(a) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities
Act).
(b) No
offer to enter into this Agreement has been made by G2 to Crystal in the United
States. At the times of the offer and execution of this Agreement, Crystal was
domiciled outside the United States.Crystal, nor any affiliate of Crystal, nor
any person acting on behalf of Crystal or on behalf of any such affiliate, has
engaged or will engage in any activity undertaken for the purpose of, or that
reasonably could be expected to have the effect of, conditioning the markets in
the United States for the G2 Shares, including, but not limited to, effecting
any sale or short sale of securities through Crystal or any affiliate
of Crystal prior to the expiration of any restricted period contained
in Regulation S promulgated under the Securities Act (any such activity being
defined herein as a “Directed Selling Effort”). To the best knowledge of
Crystal, this Agreement and the transactions contemplated herein are not part of
a plan or scheme to evade the registration provisions of the Securities Act, and
the G2 Shares are being acquired for investment purposes by Crystal. Crystal
agrees that all offers and sales of the G2 Shares from the date hereof and
through the expiration of the any restricted period set forth in Rule 903 of
Regulation S (as the same may be amended from time to time hereafter) shall not
be made to U.S. Persons or for the account or benefit of U.S. Persons and shall
otherwise be made in compliance with the provisions of Regulation S and any
other applicable provisions of the Securities Act. Neither Crystal nor the
representatives of Crystal have conducted any Directed Selling Effort
as that term is used and defined in Rule 902 of Regulation S and Crystal will
not engage in any such Directed Selling Effort within the United States through
the expiration of any restricted period set forth in Rule 903 of Regulation
S.
Section
3.7
Brokers’
Fees
.
Neither Dynamic nor Crystal has any
liability to pay any fees or commissions or other consideration to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement.
Section
3.8
Disclosure
. This Agreement, the schedules hereto
and any certificate attached hereto or delivered in accordance with the terms
hereby by or on behalf of Dynamic or Crystal in connection with the
transactions contemplated by this Agreement, when taken together, do not contain
any untrue statement of a material fact or omit any material fact necessary in
order to make the statements contained herein and/or therein not
misleading.
Section
3.8
Survival
. Each of the representations and
warranties set forth in this Article III shall be deemed represented and made by
Dynamic and Crystal at the Closing as if made at such time and shall survive the
Closing for a period terminating on the second anniversary of the date of this
Agreement.
ARTICLE
IV
COVENANTS
Section
4.1
Certain
Changes and Conduct of Business
.
a.
From and after the date of this
Agreement and until the Closing Date, G2 shall conduct its business solely in
the ordinary course consistent with past practices and, in a manner consistent
with all representations, warranties or covenants of G2, and without the prior
written consent of Crystal will not, except as required or permitted
pursuant to the terms hereof:
|
i.
|
make any material change in the
conduct of its businesses and/or operations or enter into any transaction
other than in the ordinary course of business consistent with past
practices;
|
|
ii.
|
make any change in its Articles
of Incorporation or By-laws; issue any additional shares of capital stock
or equity securities or grant any option, warrant or right to acquire any
capital stock or equity securities or issue any security convertible into
or exchangeable for its capital stock or alter in any material term of any
of its outstanding securities or make any change in its outstanding shares
of capital stock or its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange
or readjustment of shares, stock dividend or
otherwise;
|
|
iii.
|
A.
|
incur, assume or guarantee any
indebtedness for borrowed money, issue any notes, bonds, debentures or
other corporate securities or grant any option, warrant or right to
purchase any thereof, except pursuant to transactions in the ordinary
course of business consistent with past practices;
or
|
|
B.
|
issue any securities convertible
or exchangeable for debt or equity securities
of G2;
|
|
iv.
|
make any sale, assignment,
transfer, abandonment or other conveyance of any of its assets or any part
thereof, except pursuant to transactions in the ordinary course of
business consistent with past
practice;
|
|
v.
|
subject any of its assets, or any
part thereof, to any lien or suffer such to be imposed other than such
liens as may arise in the ordinary course of business consistent with past
practices by operation of law which will not have an G2 Material Adverse
Effect;
|
|
vi.
|
acquire any assets, raw materials
or properties, or enter into any other transaction, other than in the
ordinary course of business consistent with past
practices;
|
|
vii.
|
enter into any new (or amend any
existing) employee benefit plan, program or arrangement or any new (or
amend any existing) employment, severance or consulting agreement, grant
any general increase in the compensation of officers or employees
(including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or grant any increase in the
compensation payable or to become payable to any employee, except in
accordance with pre-existing contractual provisions or consistent with
past practices;
|
|
viii.
|
make or commit to make any
material capital
expenditures;
|
|
ix.
|
pay, loan or advance any amount
to, or sell, transfer or lease any properties or assets to, or enter into
any agreement or arrangement with, any of its
affiliates;
|
|
x.
|
guarantee any indebtedness for
borrowed money or any other obligation of any other
person;
|
|
xi.
|
fail to keep in full force and
effect insurance comparable in amount and scope to coverage maintained by
it (or on behalf of it) on the date
hereof;
|
|
xii.
|
take any other action that would
cause any of the representations and warranties made by it in this
Agreement not to remain true and correct in all material
aspect;
|
|
xiii.
|
make any material loan, advance
or capital contribution to or investment in any
person;
|
|
xiv.
|
make any material change in any
method of accounting or accounting principle, method, estimate or
practice;
|
|
xv.
|
settle, release or forgive any
claim or litigation or waive any
right;
|
|
xvi.
|
commit itself to do any of the
foregoing.
|
b.
From
and after the date of this Agreement, Dynamic will:
|
1.
|
continue to maintain, in all
material respects, its properties in accordance with present practices in
a condition suitable for its current
use;
|
|
2.
|
file, when due or required,
federal, state, foreign and other tax returns and other reports required
to be filed and pay when due all taxes, assessments, fees and other
charges lawfully levied or assessed against it, unless the validity
thereof is contested in good faith and by appropriate proceedings
diligently conducted;
|
|
3.
|
continue to conduct its business
in the ordinary course consistent with past
practices;
|
|
4.
|
keep its books of account,
records and files in the ordinary course and in accordance with existing
practices; and
|
|
5.
|
continue to maintain existing
business relationships with
suppliers.
|
Section
4.2
Access to
Properties and Records
.
Dynamic shall afford G2’s accountants, counsel and authorized
representatives, and G2 shall afford to Dynamic’s accountants, counsel and
authorized representatives full access during normal business hours throughout
the period prior to the Closing Date (or the earlier termination of this
Agreement) to all of such parties’ properties, books, contracts, commitments and
records and, during such period, shall furnish promptly to the requesting party
all other information concerning the other party's business, properties and
personnel as the requesting party may reasonably request, provided that no
investigation or receipt of information pursuant to this Section 4.2 shall
affect any representation or warranty of or the conditions to the obligations of
any party.
Section
4.3
Negotiations
. From and after the date hereof until
the earlier of the Closing or the termination of this Agreement, no party to
this Agreement nor its officers or directors (subject to such director's
fiduciary duties) nor anyone acting on behalf of any party or other persons
shall, directly or indirectly, encourage, solicit, engage in discussions or
negotiations with, or provide any information to, any person, firm, or other
entity or group concerning any merger, sale of substantial assets, purchase or
sale of shares of capital stock or similar transaction involving any party. A
party shall promptly communicate to any other party any inquiries or
communications concerning any such transaction which they may receive or of
which they may become aware of.
Section
4.4
Consents
and Approvals
. The parties
shall:
|
i.
|
use their reasonable commercial
efforts to obtain all necessary consents, waivers, authorizations and
approvals of all governmental and regulatory authorities, domestic and
foreign, and of all other persons, firms or corporations required in
connection with the execution, delivery and performance by them of this
Agreement; and
|
|
ii.
|
diligently assist and cooperate
with each party in preparing and filing all documents required to be
submitted by a party to any governmental or regulatory authority, domestic
or foreign, in connection with such transactions and in obtaining any
governmental consents, waivers, authorizations or approvals which may be
required to be obtained connection in with such
transactions.
|
Section
4.5
Public
Announcement
. Unless
otherwise required by applicable law, the parties hereto shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and shall not issue any such press release or
make any such public statement prior to such
consultation.
Section
4.6
Stock
Issuance
. From and after
the date of this Agreement until the Closing Date, neither G2 nor Dynamic shall
issue any additional shares of its capital stock.
Section
4.7
Notwithstanding anything to the
contrary contained herein, it is herewith understood and agreed that both G2 and
Dynamic may enter into and conclude agreements and/or financing transactions as
same relate to and/or are contemplated by any separate written agreements
either: (a) annexed hereto as exhibits; or (b) entered into by G2 with Dynamic
executed by both parties subsequent to the date hereof. These Agreements shall
become, immediately upon execution, part of this Agreement and subject to all
warranties, representations and conditions contained herein.
ARTICLE
V
CONDITIONS
TO OBLIGATIONS OF DYNAMIC AND CRYSTAL
The
obligations of Dynamic and Crystal to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, at or before the Closing Date,
of the following conditions, any one or more of which may be waived by both
Dynamic and Crystal in their sole discretion:
Section
5.1
Representations
and Warranties of G2.
All
representations and warranties made by G2 in this Agreement shall be true and
correct on and as of the Closing Date as if again made by G2 as of such
date.
Section
5.2
Agreements
and Covenants
. G2 shall
have performed and complied in all material respects to all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
Section
5.3
Consents
and Approvals
. Consents,
waivers, authorizations and approvals of any governmental or regulatory
authority, domestic or foreign, and of any other person, firm or corporation,
required in connection with the execution, delivery and performance of this
Agreement shall be in full force and effect on the Closing
Date.
Section
5.4
No
Violation of Orders
. No
preliminary or permanent injunction or other order issued by any court or
governmental or regulatory authority, domestic or foreign, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
government or governmental or regulatory authority, which declares this
Agreement invalid in any respect or prevents the consummation of the
transactions contemplated hereby, or which materially and adversely affects the
assets, properties, operations, prospects, net income or financial condition
of G2 shall be in effect; and no action or proceeding before any
court or governmental or regulatory authority, domestic or foreign, shall have
been instituted or threatened by any government or governmental or regulatory
authority, domestic or foreign, or by any other person, or entity which seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement or which challenges the validity or enforceability of this
Agreement.
Section
5.5
Other
Closing Documents
. Dynamic
and Crystal shall have received such other certificates, instruments and
documents in confirmation of the representations and warranties of G2
or in furtherance of the transactions contemplated by this Agreement as Dynamic,
Crystal or its counsels may reasonably request.
ARTICLE
VI
CONDITIONS
TO OBLIGATIONS OF G2
The
obligations of G2 to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, at or before the Closing Date, of the
following conditions, any one or more of which may be waived by G2 in its sole
discretion:
Section
6.1
Representations
and Warranties of Dynamic
.
All representations and warranties made by Dynamic in this Agreement shall be
true and correct on and as of the Closing Date as if again made by Dynamic on
and as of such date.
Section
6.2
Agreements
and Covenants
. Dynamic
shall have performed and complied in all material respects to all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
Section
6.3
Consents
and Approvals
. All
consents, waivers, authorizations and approvals of any governmental or
regulatory authority, domestic or foreign, and of any other person, firm or
corporation, required in connection with the execution, delivery and performance
of this Agreement, shall have been duly obtained and shall be in full force and
effect on the Closing Date.
Section
6.4
No
Violation of Orders
. No
preliminary or permanent injunction or other order issued by any court or other
governmental or regulatory authority, domestic or foreign, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
government or governmental or regulatory authority, domestic or foreign, that
declares this Agreement invalid or unenforceable in any respect or which
prevents the consummation of the transactions contemplated hereby, or which
materially and adversely affects the assets, properties, operations, prospects,
net income or financial condition of Dynamic, taken as a whole, shall be in
effect; and no action or proceeding before any court or government or regulatory
authority, domestic or foreign, shall have been instituted or threatened by any
government or governmental or regulatory authority, domestic or foreign, or by
any other person, or entity which seeks to prevent or delay the consummation of
the transactions contemplated by this Agreement or which challenges the validity
or enforceability of this Agreement.
Section
6.5.
Other
Closing Documents
. G2
shall have received such other certificates, instruments and documents in
confirmation of the representations and warranties of Dynamic or in
furtherance of the transactions contemplated by this Agreement as G2 or its
counsel may reasonably request.
ARTICLE
VII
TERMINATION
AND ABANDONMENT
SECTION
7.1
Methods of
Termination
. This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time before the Closing:
a.
By the mutual written consent of
Crystal, G2 and Dynamic;
b.
By G2, upon a material breach of any
representation, warranty, covenant or agreement on the part of Crystal or
Dynamic set forth in this Agreement, or if any representation or warranty
of Dynamic or Crystal shall become untrue, in either case such that
any of the conditions set forth in Article VI hereof would not be satisfied (an
"Dynamic Breach"), and such breach shall, if capable of cure, has not been cured
within ten (10) days after receipt by the party in breach of a notice from the
non-breaching party setting forth in detail the nature of such
breach;
c.
By Dynamic, upon a material breach of
any representation, warranty, covenant or agreement on the part of G2 set forth
in this Agreement, or, if any representation or warranty of G2 shall
become untrue, in either case such that any of the conditions set forth in
Article V hereof would not be satisfied (a "G2 Breach"), and such
breach shall, if capable of cure, not have been cured within ten (10) days after
receipt by the party in breach of a written notice from the non-breaching party
setting forth in detail the nature of such breach;
d.
By either G2 or Dynamic, if the Closing
shall not have consummated before ninety (90) days after the date hereof;
provided, however, that this Agreement may be extended by written notice of
either G2 or Dynamic, if the Closing shall not have been consummated as a result
of G2 or Dynamic having failed to receive all required regulatory approvals or
consents with respect to this transaction or as the result of the entering of an
order as described in this Agreement; and further provided, however, that the
right to terminate this Agreement under this Section 7.1(d) shall not be
available to any party whose failure to fulfill any obligations under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before this date.
e.
By either Dynamic or G2 if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use its best
efforts to lift), which permanently restrains, enjoins or otherwise prohibits
the transactions contemplated by this Agreement.
Section
7.2
Procedure
Upon Termination
. In the
event of termination and abandonment of this Agreement by G2 or Dynamic pursuant
to Section 7.1, written notice thereof shall forthwith be given to the other
parties and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without further action. If this Agreement is
terminated as provided herein, no party to this Agreement shall have any
liability or further obligation to any other party to this Agreement; provided,
however, that no termination of this Agreement pursuant to this Article VII
shall relieve any party of liability for a breach of any provision of this
Agreement occurring before such termination.
ARTICLE
VIII
POST-CLOSING
AGREEMENTS
Section
8.1
Consistency
in Reporting
. Each party
hereto agrees that if the characterization of any transaction contemplated in
this agreement or any ancillary or collateral transaction is challenged, each
party hereto will testify, affirm and ratify that the characterization
contemplated in such agreement was the characterization intended by the party;
provided, however, that nothing herein shall be construed as giving rise to any
obligation if the reporting position is determined to be incorrect by final
decision of a court of competent jurisdiction.
ARTICLE
IX
MISCELLANEOUS
PROVISIONS
Section
9.1
Survival of
Provisions
. The respective
representations, warranties, covenants and agreements of each of the parties to
this Agreement (except covenants and agreements which are expressly required to
be performed and are performed in full on or before the Closing Date) shall
survive the Closing Date and the consummation of the transactions contemplated
by this Agreement, subject to Sections 2.9, 3.8 and 8.2. In the event of a
breach of any of such representations, warranties or covenants, the party to
whom such representations, warranties or covenants have been made shall have all
rights and remedies for such breach available to it under the provisions of this
Agreement or otherwise, whether at law or in equity, regardless of any
disclosure to, or investigation made by or on behalf of such party on or before
the Closing Date.
Section
9.2
Publicity
. No party shall cause the publication
of any press release or other announcement with respect to this Agreement or the
transactions contemplated hereby without the consent of the other parties,
unless a press release or announcement is required by law. If any such
announcement or other disclosure is required by law, the disclosing party agrees
to give the non-disclosing parties prior notice and an opportunity to comment on
the proposed disclosure.
Section
9.3
Successors
and Assigns
. This
Agreement shall inure to the benefit of, and be binding upon, the parties hereto
and their respective successors and assigns; provided, however, that no party
shall assign or delegate any of the obligations created under this Agreement
without the prior written consent of the other parties.
Section
9.4
Fees and
Expenses
. Except as
otherwise expressly provided in this Agreement, all legal and other fees, costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees, costs or
expenses.
Section
9.5
Notices
. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been given or made if in writing and delivered personally or sent by registered
or certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses:
If to
Dynamic or Crystal, to:
P.O.
Box 957, Offshore Incorporations Centre
Road
Town, Tortola, British Virgin Islands
If to G2,
to:
G2
Ventures, Inc.
16
th
Floor,
Tianjin Global Zhiye
Square,
309 Nanjing Road
Nankai
District, Tianjin, PRC 300100
or to
such other persons or at such other addresses as shall be furnished by any party
by like notice to the others, and such notice or communication shall be deemed
to have been given or made as of the date so delivered or mailed. No change in
any of such addresses shall be effective insofar as notices under this Section
9.5 are concerned unless such changed address is located in the United States of
America and notice of such change shall have been given to such other party
hereto as provided in this Section 9.5
Section
9.6
Entire
Agreement
. This Agreement,
together with the exhibits hereto, represents the entire agreement and
understanding of the parties with reference to the transactions set forth herein
and no representations or warranties have been made in connection with this
Agreement other than those expressly set forth herein or in the exhibits,
certificates and other documents delivered in accordance herewith. This
Agreement supersedes all prior negotiations, discussions, correspondence,
communications, understandings and agreements between the parties relating to
the subject matter of this Agreement and all prior drafts of this Agreement, all
of which are merged into this Agreement. No prior drafts of this Agreement and
no words or phrases from any such prior drafts shall be admissible into evidence
in any action or suit involving this Agreement.
Section
9.7
Severability
. This Agreement shall be deemed
severable, and the invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of this Agreement or of
any other term or provision hereof. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties hereto intend that there shall be
added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible so as to be valid and
enforceable.
Section
9.8
Titles and
Headings
. The Article and
Section headings contained in this Agreement are solely for convenience of
reference and shall not affect the meaning or interpretation of this Agreement
or of any term or provision hereof.
Section
9.9
Counterparts
.
This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
Section
9.10
Convenience
of Forum; Consent to Jurisdiction
. The parties to this Agreement, acting
for themselves and for their respective successors and assigns, without regard
to domicile, citizenship or residence, hereby expressly and irrevocably elect as
the sole judicial forum for the adjudication of any matters arising under or in
connection with this Agreement, and consent and subject themselves to the
jurisdiction of, the courts of the State of New York located in County of New
York, and/or the United States District Court for the Southern District of New
York, in respect of any matter arising under this Agreement. Service of process,
notices and demands of such courts may be made upon any party to this Agreement
by personal service at any place where it may be found or giving notice to such
party as provided in Section 9.5.
Section
9.11
Enforcement
of the Agreement
. The
parties hereto agree that irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereto, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section
9.12
Governing
Law
. This Agreement shall
be governed by and interpreted and enforced in accordance with the laws of the
State of New York without giving effect to the choice of law provisions
thereof.
Section
9.13
Amendments
and Waivers
.
No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties hereto.. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.
G2
VENTURES, INC.
By:
|
/s/ Jinghe Zhang
|
Jinghe
Zhang
|
Title:
Chief Executive Officer
|
DYNAMIC
ELITE INTERNATIONAL LIMITED
By:
|
/s/ Lionel Evan Liu
|
Name:
Lionel Evan Liu
|
Title:
Director
|
CRYSTAL
GLOBE LIMITED
By:
|
/s/ Lionel Evan Liu
|
Name:
Lionel Evan Liu
|
Title:
Director
|
CONSULTING
SERVICES AGREEMENT
This
Consulting Services Agreement (this “
Agreement
”) is dated
September 16, 2010, and is entered into in Tianjin City, People’s Republic of
China (“PRC” or “China”) by and between Tianjin Junhe Enterprise Management
Consulting Co., Ltd. (“Party A”), and Tianjin Joway Shengshi Group Co., Ltd.
(“Party B”). Party A and Party B are referred to collectively in this Agreement
as the “Parties.”
RECITALS
(1)
|
Party
A, a company incorporated in the PRC as a foreign invested enterprise, has
the expertise in the business of
consulting;
|
(2)
|
Party
B, a company incorporated in China, is engaged in the business of
manufacture and sale of knit goods, bedding, tourmaline health-care
product (excluding edible products), water filter, and wooden products;
wholesale and retail of gymnasium equipment, daily necessities and
stationery; consulting services on consuming information (the “
Business
”);
|
(3)
|
The
Parties desire that Party A provide consulting and other relevant services
relating to the Business to Party
B;
|
The
Parties are entering into this Agreement to set forth the terms and conditions
under which Party A shall provide consulting and other related services to Party
B.
NOW THEREFORE,
the Parties
agree as follows:
1.1 In
this Agreement the following terms shall have the following
meanings:
“
Affiliate
,” with
respect to any Person, shall mean any other Person that directly or indirectly
controls, or is under common control with, or is controlled by, such
Person. As used in this definition, “control” shall mean possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether ownership of securities or partnership or other ownership
interests, by contract or otherwise);
“
Consulting Services
Fee
” shall be as defined in Clause 3.1;
“
Indebtedness
” shall
mean, as to any Person, without duplication, (i) all indebtedness (including
principal, interest, fees and charges) of such Person for borrowed money for the
deferred purchase price of property or services, (ii) the face amount of all
letters of credit issued for the amount of such Person and all drafts drawn
thereunder, (iii) all liabilities secured by any Lien on any property owned by
such person, whether or not such liabilities have been assumed by such Person,
(iv) the aggregate amount required to be capitalized under leases under which
such Person is the lessee and (v) all contingent obligations (including, without
limitation, all guarantees to third parties) of such Person;
“
Lien
” shall mean any
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), preference, priority or other security agreement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing or similar statement or
notice filed under recording or notice statute, and any lease having
substantially the same effect as any of the foregoing);
“
Person
” shall mean
any individual, corporation, company, voluntary association, partnership, joint
venture, trust, unincorporated organization, entity or other organization or any
government body;
“
PRC
” means the
People’s Republic of China;
“
Services
” means the
services to be provided under the Agreement by Party A to Party B, as more
specifically described in Clause 2.
|
1.2
|
The
headings in this Agreement shall not affect the interpretation of this
Agreement.
|
2.
|
RETENTION AND SCOPE OF
SERVICES
|
2.1 Party
B hereby agrees to retain the services of Party A, and Party A accepts such
appointment, to provide to Party B services in relation to the current and
proposed operations of Party B’s business in the PRC pursuant to the terms and
conditions of this Agreement. The services subject to this Agreement
shall include, without limitation:
(a)
General Business
Operation
. Provide general advice and assistance relating to
the management and operation of the Business of Party B.
(b)
Human
Resources
.
(i) Provide
general advice and assistance in relation to the staffing of Party B, including
assistance in the recruitment, employment and secondment of management
personnel, administrative personnel and staff of Party B;
(ii) Provide
training of management, staff and administrative personnel;
(iii) Assist
Party B to establish an efficient payroll management system;
and
(iv) Provide
assistance in the relocation of Party B’s management and staff.
(c)
Business Development
.
Provide advice and assistance in business growth and development.
(d)
Other
. Such
other advice and assistance as may be agreed upon by the Parties.
2.2
Exclusive Services
Provider
. During the term of this Agreement, Party A shall be
the exclusive provider of the Services. Party B shall not seek or
accept similar services from other providers unless the prior written approval
is obtained from Party A.
2.3
Intellectual Property Rights
Related to the Services
. Party A shall own all intellectual
property rights developed or discovered through research and development, in the
course of providing Services, or derived from the provision of the
Services. Such intellectual property rights shall include patents,
trademarks, trade names, copyrights, patent application rights, copyright and
trademark application rights, research and technical documents and materials,
and other related intellectual property rights including the right to license or
transfer such intellectual property rights. If Party B requires the
use of Party A’s intellectual property rights, Party A agrees to grant such
intellectual property rights to Party B on terms and conditions to be set forth
in a separate agreement.
2.4
Pledge
. Party
B shall permit and cause the owners of Party B to pledge their equity interests
in Party B to Party A for securing the Consulting Services Fee as required
pursuant to this Agreement.
3.1
General
.
(a) In
consideration of the Services provided by Party A hereunder, Party B shall pay
to Party A a consulting services fee (the “
Consulting Services
Fee
”) during the term of this Agreement, payable in RMB each quarter,
equal to all of its net income for such quarter based on the quarterly financial
statements provided under Clause 5.1 below. Such quarterly payment shall be made
within fifteen (15) days after receipt by Party A of the financial statements
referenced above.
(b) Party
B will permit, from time to time during regular business hours as reasonably
requested by Party A, its agents or representatives (including independent
public accountants, which may be Party B’s independent public accountants), (i)
to conduct periodic audits of the financial books and records of Party B, (ii)
to examine and make copies and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in the possession or
under the control of Party B (iii) to visit the offices and properties of Party
B for the purpose of examining such materials described in clause (ii) above,
and (iv) to discuss matters relating to the performance by Party B hereunder
with any of the officers or employees of Party B having knowledge of such
matters. Party A may exercise the audit rights described herein at
any time, provided that Party A provides a ten (10) day written notice to Party
B specifying the scope, purpose and duration of such audit. All such
audits shall be conducted in such a manner as not to interfere with Party B’s
normal operations.
3.2 Party
B shall not be entitled to set off any amount it may claim is owed to it by
Party A against any Consulting Services Fee payable by Party B to Party A unless
Party B first obtains Party A’s prior written consent.
3.3 The
Consulting Services Fee shall be paid in RMB by telegraphic transfer to Party
A’s bank account, or to such other account or accounts as may be specified in
writing from time to time by Party A.
3.4 Should
Party B fail to pay all or any part of the Consulting Services Fee due to Party
A in RMB under this Clause 3 within the time limits stipulated, Party B shall
pay to Party A interest in RMB on the amount overdue based on the three (3)
month lending rate for RMB published by the Bank of China on the relevant due
date.
3.5 All
payments to be made by Party B hereunder shall be made free and clear and
without any consideration of tax deduction, unless Party B is required to make
such payment subject to the deduction or withholding of tax.
4.
|
FURTHER TERMS OF
COOPERATION
|
All business revenue of Party B shall
be directed in full by Party B into a bank account nominated by Party
A.
5.
|
UNDERTAKINGS OF PARTY
A
|
Party B hereby agrees that, during the
term of the Agreement:
5.1
Information
Covenants
. Party B shall provide to Party A:
5.1.1
Preliminary Monthly
Reports
. Within five (5) days after the end of each calendar month the
preliminary income statements and balance sheets of Party B made up to as of the
end of such calendar month, in each case prepared in accordance with the
generally accepted accounting principles of the PRC.
5.1.2
Final Monthly
Reports
. Within ten (10) days after the end of each calendar month, a
final report from Party B on the financial and business operations of Party B as
of the end of such calendar month, setting forth the comparison of financial and
operation figures for the corresponding period in the preceding financial year,
in each case prepared in accordance with generally accepted accounting
principles of the PRC.
5.1.3
Quarterly Reports
. As
soon as available and in any event within forty-five (45) days after each
Quarterly Period (as defined below), unaudited consolidated and consolidating
statements of income, retained earnings and changes in financial positions of
Party B and its subsidiaries for such Quarterly Period, and for the period from
the beginning of the relevant fiscal year to such Quarterly Date, and the
related consolidated and consolidating balance sheets as of such Quarterly
Period, setting forth in each case the actual versus budgeted comparisons and a
comparison of the corresponding consolidated and consolidating figures for the
corresponding period in the preceding fiscal year, accompanied by a certificate
of Party B’s Chief Financial Officer, and such certificate shall state that the
said financial statements fairly represent the consolidated and consolidating
financial conditions and results of operations, as the case may be, of Party B
and its subsidiaries, in accordance with the general accepted accounting
principles of the PRC for such period (subject to normal year-end audit
adjustments and the preparation of notes for the audited financial
statements). For the purpose of this Agreement, a “Quarterly Period”
shall mean the last day of March, June, September and December of each year, the
first of which shall be the first Quarterly Period following the date of this
Agreement; provided that if any such Quarterly Period is not a business day in
the PRC, then such Quarterly Period shall be the next succeeding business day in
the PRC.
5.1.4
Annual Audited
Accounts
. Within three (3) months after the end of the
financial year, Party B’s annual audited accounts (setting forth in each case
the comparison of the corresponding figures for the preceding financial year),
shall be prepared in accordance with the generally accepted accounting
principles of the PRC.
5.1.5
Budgets
. At least
ninety (90) days prior to Party B’s fiscal year, Party B shall prepare a budget
in a form satisfactory to Party A (including budgeted statements of income and
sources and uses of cash and balance sheets) for each of the four quarters of
the fiscal year accompanied by the statement of Party B’s Chief Financial
Officer, to the effect that, to the best of his or her knowledge, the budget is
a reasonable estimate for the corresponding period.
5.1.6
Notice of Litigation
.
Party B shall notify Party A, within one (1) business day of obtaining the
knowledge thereof, of (i) any litigation or governmental proceeding pending
against Party B which could materially adversely affect the business,
operations, property, assets, condition or prospects of Party B and (ii) any
other event which is likely to materially adversely affect the business,
operations, property, assets, condition or prospects of Party B.
5.1.7
Other
Information
. From time to time, such other information or
documents as Party A may reasonably request.
5.2
Books, Records and
Inspections
. Party B shall keep accurate books and records of
its business activities and transactions according with PRC’s generally accepted
accounting principles and all other legal requirements. During an
appropriate time and within a reasonable scope requested by Party A, Party B
will permit Party A’s officers and designated representatives to visit the
premises of Party B and to inspect, under the guidance of Party B’s officers,
Party B’s books and records, and to discuss the affairs, finances and accounts
of Party B.
5.3
Corporate
Franchises
. Party B will do or cause to be done, all things
necessary to preserve and keep in full force and effect its existence and
maintain its material rights and licenses.
5.4
Compliance with
Laws
. Party B shall abide by all applicable laws, regulations
and orders of all relevant governmental administration, including but not
limited to United States Foreign Corrupt Practices Act, in respect to its
business and the ownership of its property, including, without limitation,
maintenance of valid and proper governmental approvals and licenses necessary to
provide the services, unless such noncompliance could not, in the aggregate,
have a material adverse effect on the business, operations, property, assets,
condition or prospects of Party B.
Party B covenants and agrees that,
during the term of this Agreement, without the prior written consent of Party
A:
6.1
Equity
. Party
B will not issue, purchase or redeem any equity or debt, or equity or debt
securities of Party B.
6.2
Liens
. Party
B will not create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Party B whether existing or hereafter acquired, provided that the provisions of
this Clause 6.1 shall not prevent the creation, incurrence, assumption or
existence of:
6.2.1 Liens for taxes not
yet due, or Liens for taxes being contested in good faith and by appropriate
proceedings for which adequate reserves have been established; and
6.2.2 Liens in respect
to Party B’s property or assets imposed by law, which were incurred in the
ordinary course of business, and (x) which do not in the aggregate, materially
detract from the value of Party B’s property or assets or materially impair the
use thereof in the operation of Party B’s business or (y) which are being
contested in good faith by appropriate proceedings and proceedings which have
the effect of preventing the forfeiture or sale of the property of assets
subject to any such Lien.
6.3
Consolidation, Merger, Sale
of Assets, etc
. Party B will not wind up, liquidate or
dissolve its affairs or enter into any transaction of merger or consolidation,
or convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any future time) all or any part of its property or assets, or
purchase or otherwise acquire (in one or a series of related transactions) any
part of the property or assets (other than purchases or other acquisitions of
inventory, materials and equipment in the ordinary course of business) of any
Person, except that (i) Party B may sell inventory in the ordinary course of
business and (ii) Party B may sell equipment which is uneconomic or obsolete, in
the ordinary course of business.
6.4
Dividends
. Party
B will not declare or pay any dividends, or return any capital, to its
shareholders or authorize or make any other distribution, payment or delivery of
property or cash to its shareholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock now or hereafter outstanding (or any options or
warrants issued by Party B with respect to its capital stock), or set aside any
funds for any of the foregoing purposes.
6.5
Leases
. Party
B will not permit the aggregate payments (including, without limitation, any
property taxes paid as additional rent or lease payments) by Party B under
agreements to rent or lease any real or personal property to exceed the amount
agreed by Party A in any fiscal year of Party B.
6.6
Indebtedness
. Party
B will not contract, create, incur, assume or suffer to exist any indebtedness,
except accrued expenses and current trade accounts payable incurred in the
ordinary course of business, and obligations under trade letters of credit
incurred by Party B in the ordinary course of business, which are to be repaid
in full not more than one (1) year after the date on which such indebtedness is
originally incurred to finance the purchase of goods by Party B.
6.7
Advances, Investment and
Loans
. Party B will not lend money or credit or make advances
to any Person, or purchase or acquire any stock, obligations or securities of,
or any other interest in, or make any capital contribution to, any other Person,
except that Party B may acquire and hold receivables owing to it, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms.
6.8
Transactions with Affiliates
or Related Parties
. Party B will not enter into any
transaction or series of related transactions, whether or not in the ordinary
course of business, with any Affiliate or Related Parties of Party B, other than
on terms and conditions substantially as favorable to Party B as would be
obtainable by Party B at the time in a comparable arm’s-length transaction with
a Person other than an Affiliate or Related Parties and with the prior written
consent of Party A. The term “Affiliate or Related Parties” shall mean the
Shareholders and (a) each individual who is, or who has at any time been, an
officer, director or executive employee of Party B or any Affiliate; (b)
each member of the family of the Shareholders and each of the
individuals referred to in clause
“
(a)
”
above; and (c)
any entity in which any one of the individuals referred to in clauses
“
(a)
”
and
“
(b)
”
above holds or
held (or in which more than one of such individuals collectively hold or held),
beneficially or otherwise, a controlling interest or a material voting,
proprietary or equity interest.
6.9
Capital
Expenditures
. Party B will not make any expenditure for fixed
or capital assets (including, without limitation, expenditures for maintenance
and repairs which are capitalized in accordance with generally accepted
accounting principles in the PRC and capitalized lease obligations) during any
quarterly period which exceeds the aggregate the amount contained in the budget
as set forth in Section 5.1.5.
6.10
Modifications to Debt
Arrangements, Agreements or Articles of Association
. Party B
will not (i) make any voluntary or optional payment or prepayment on or
redemption or acquisition for value of (including, without limitation, by way of
depositing with the trustee with respect thereto money or securities before due
for the purpose of paying when due) any existing Indebtedness or (ii) amend or
modify, or permit the amendment or modification of, any provision of any
existing Indebtedness or of any agreement (including, without limitation, any
purchase agreement, indenture, loan agreement or security agreement) relating to
any of the foregoing or (iii) amend, modify or change its Articles of
Association or business license, or any agreement entered into by it, with
respect to its capital stock, or enter into any new agreement with respect to
its capital stock.
6.11
Line of
Business
. Party B will not engage (directly or indirectly) in
any business other than those types of business prescribed within the business
scope of Party B’s business license except with the prior written consent of
Party A.
7.1 This
Agreement shall take effect on the date of execution of this Agreement and shall
remain in full force and effect unless terminated pursuant to Clause
7.2.
7.2 This
Agreement may be terminated:
7.2.1 By Party A
giving written notice to Party B if Party B has committed a material breach of
this Agreement (including, but not limited to, the failure by Party B to pay the
Consulting Services Fee) and such breach, if capable of remedy, has not been so
remedied within fourteen (14) days, in the case of breach of a non-financial
obligation, following the receipt of such written notice;
7.2.2 Either Party
giving written notice to the other Party if the other Party becomes bankrupt or
insolvent or is the subject of proceedings or arrangements for liquidation or
dissolution or ceases to carry on business or becomes unable to pay its debts as
they become due;
7.2.3 By either Party giving written notice to the other Party if,
for any reason, the operations of Party A are terminated;
7.2.4 By either Party giving written notice to the other Party if
circumstances arise which materially and adversely affect the performance or the
objectives of this Agreement; or
7.2.5 By election of Party A with or without reason.
7.3 Any
Party electing to terminate this Agreement pursuant to Clause 7.2 shall have no
liability to the other Party for indemnity, compensation or damages arising
solely from the exercise of such termination right. The expiration or
termination of this Agreement shall not affect the continuing liability of Party
B to pay any Consulting Services Fees already accrued or due and payable to
Party A. Upon expiration or termination of this Agreement, all
amounts then due and unpaid to Party A by Party B hereunder, as well as all
other amounts accrued but not yet payable to Party A by Party B, shall hereby
become due and payable by Party B to Party A.
8.
|
PARTY A’S REMEDY UPON
PARTY B’S BREACH
|
In addition to the remedies provided
elsewhere under this Agreement, Party A shall be entitled to remedies permitted
under PRC laws, including, without limitation, compensation for any direct and
indirect losses arising from the breach and legal fees incurred to recover
losses from such breach.
The Parties are independent
contractors, and nothing in this Agreement shall be construed to constitute
either Party to be the agent, partner, legal representative, attorney or
employee of the other for any purpose whatsoever. Neither Party shall
have the power or authority to bind the other except as specifically set out in
this Agreement.
10.
|
GOVERNING LAW AND
JURISDICTION
|
10.1
Governing
Law
. This Agreement shall be governed by, and construed in
accordance with, the laws of the PRC.
10.2
Arbitration
. Any
dispute arising from, out of or in connection with this Agreement shall be
settled through amicable negotiations between the Parties and/or arbitration in
accordance with this Clause 10.2. Such negotiations shall begin
immediately after one Party has delivered to the other Party a written request
for such negotiation. If, within ninety (90) days following the date
of such notice, the dispute cannot be settled through negotiations, the dispute
shall, upon the request of either Party with notice to the other Party, be
submitted to arbitration in China under the auspices of China International
Economic and Trade Arbitration Commission (the “CIETAC”). The Parties
shall jointly appoint a qualified interpreter for the arbitration proceeding and
shall be responsible for sharing in equal portions the expenses incurred by such
appointment. The arbitration proceeding shall take place in Beijing,
China. The outcome of the arbitration shall be final and binding and
enforceable upon the Parties.
10.3
Number and Selection of
Arbitrators
. There shall be three (3) arbitrators. Party B
shall select one (1) arbitrator and Party A shall select one (1) arbitrator, and
both arbitrators shall be selected within thirty (30) days after giving or
receiving the demand for arbitration. Such arbitrators shall be
freely selected, and the Parties shall not be limited in their selection to any
prescribed list. The chairman of the CIETAC shall select the third
arbitrator. If a Party does not appoint an arbitrator who consents to
participate within thirty (30) days after giving or receiving the demand for
arbitration, the relevant appointment shall be made by the chairman of the
CIETAC.
10.4
Arbitration Language and
Rules
. Unless otherwise provided by the arbitration rules of
CIETAC, the arbitration proceeding shall be conducted in English. The
arbitration tribunal shall apply the arbitration rules of the
CIETAC. However, if such rules are in conflict with the provisions of
this clause, or with Section 10 of this Agreement, then the terms of Section 10
of this Agreement shall prevail.
10.5
Cooperation;
Disclosure
. Each Party shall cooperate with the other Party in making
full disclosure of and providing complete access to all information and
documents requested by the other Party in connection with such proceedings,
subject only to any confidentiality obligations binding on such
Parties.
10.6
Jurisdiction
.
Judgment rendered by the arbitration may be entered into by any court having
jurisdiction, or application may be made to such court for a judicial
recognition of the judgment or any order of enforcement thereof.
10.7
Continuing
Obligations
. The Parties shall continue their implementation of this
Agreement during the period when the relevant dispute is being
resolved,
No part of this Agreement shall be
assigned or transferred by either Party without the prior written consent of the
other Party. Any such assignment or transfer shall be
void. Party A, however, may assign its rights and obligations
hereunder to an Affiliate without Party B’s consent.
Notices or other communications
required to be given by any Party pursuant to this Agreement shall be written in
English and Chinese and delivered personally or sent by registered mail or
prepaid mail or by a recognized courier service or by facsimile transmission to
the address of relevant each Party or both Parties set forth below or other
address of the Party or of the other addressees specified by such Party from
time to time. The date when the notice is deemed to be duly served shall be
determined as the follows: (a) a notice delivered personally is deemed duly
served upon the delivery; (b) a notice sent by mail is deemed duly served the
tenth (10
th
) day
after the date, or the fourth (4
th
) day
after the delivery date of an internationally recognized courier service; and
(c) a notice sent by facsimile transmission is deemed duly served upon the time
shown on the transmission confirmation of relevant documents.
Party A
|
Tianjin
Junhe Enterprise Management Consulting Co.,
Ltd.
|
Address:
No.2 Baowang Road, Baodi Economic Development Zone, Tianjin City,
China
Attn:
ZHANG Jinghe
Party
B:
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
Address:
Floor 16, Global Landmark, No.309 Nanjing Road, Nankai District, Tianjin City,
China
13.1 The
failure or delay in exercising a right or remedy under this Agreement shall not
be constituted as a waiver of the right or remedy, and no single or partial
exercise of any right or remedy under this Agreement shall prevent any further
exercise of the right or remedy.
13.2 Should
any clause or any part of any clause contained in this Agreement be declared
invalid or unenforceable for any reason whatsoever, all other clauses or parts
of clauses contained in this Agreement shall remain in full force and
effect.
13.3 This
Agreement constitutes the entire agreement between the Parties relating to the
subject matter of this Agreement and supersedes all previous
agreements.
13.4 No
amendment or variation of this Agreement shall be valid unless it is in writing
and executed by the Parties or their authorized representatives.
13.5 This
Agreement shall be executed in five (5) duplicate originals in English. Each
Party has received one (1) duplicate original, and all originals shall be
equally valid.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF
this
Agreement is duly executed by each Party or its legal
representatives.
PARTY
A:
|
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
|
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
PARTY B
:
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
Appendix
1: List of Consulting and Services
1
、
|
Assistance
of design, research and development of new products for Party
B;
|
2
、
|
Permission
of use of computer software of Party
A;
|
3
、
|
Permission
of use of know-how technology of Party
A;
|
4
、
|
Daily
management, maintenance and update of database of customers and suppliers
of Party B;
|
5
、
|
Vocational
training for the technicians of Party
B;
|
6
、
|
Assistance
of collection and study of relevant marketing and technical information
for Party B;
|
7
、
|
Assistance
of idea creation regarding marketing promotion for Party
B;
|
8
、
|
Other
relevant consulting and services as required by Party B from time to
time.
|
OPERATING
AGREEMENT
This
Operating Agreement (this “
Agreement
”) is dated
September 16, 2010, and is entered into in Tianjin City, People’s Republic of
China (“PRC” or “China”) by and between Tianjin Junhe Enterprise Management
Consulting Co., Ltd. (“
Party A
”), Tianjin
Joway Shengshi Group Co., Ltd. (“
Party B
”), and
shareholders holding 100% outstanding shares of Party B (the “
Shareholders of Party
B
” or “
Party
C
”). Party A, Party B, and Party C are each referred to in
this Agreement as a “
Party
” and
collectively as the “
Parties
.”
RECITALS
1. Party
A, a company incorporated in the PRC as a foreign invested enterprise, has the
expertise in the business of consulting;
2. Party
B is a company incorporated in China, and is engaged in the business of
manufacture and sale of knit goods, bedding, tourmaline health-care product
(excluding edible products), water filter, and wooden products; wholesale and
retail of gymnasium equipment, daily necessities and stationery; consulting
services on consuming information (the “Business”);
3. The
undersigned Shareholders of Party B collectively own 100% of the equity
interests of Party B;
4. Party
A has entered into a Consulting Services Agreement with Party B (hereinafter
“
Consulting Services
Agreement
”) to establish a business relationship;
5. Pursuant
to that certain Consulting Services Agreement between Party A and Party B dated
September 16, 2010, Party B is obligated to make regular payments of consulting
services fee to Party A during the term of the Consulting Services
Agreement. However, no payment has yet been made, and Party B’s daily
operation has a material effect on its ability to make such payments to Party A;
and
6. The
Parties are entering into this Agreement to clarify certain matters in
connection with Party B’s operations.
NOW THEREFORE,
all Parties of
this Agreement hereby agree as follows through negotiations:
1. Party
A agrees, subject to Party B’s agreement to relevant provisions of this
Agreement, to be Party B’s guarantor in connection with the contracts,
agreements and transactions executed between Party B and any other third party,
and to provide full guarantee for the performance of such contracts, agreements
or transactions by Party B. Party B agrees, as a counter-guarantee,
to pledge all of its relevant assets, including accounts receivable, to Party
A. Pursuant to such guarantee arrangement, Party A wishes to enter
into written guarantee agreements with Party B’s counter-parties thereof, to
assume the guarantee liability as the guarantor when applicable. As
such, Party B and Party C shall take all necessary actions (including, but not
limited to, executing relevant documents and proceeding with relevant
registrations) to carry out the counter-guarantee arrangements provided by Party
A thereof.
2. In
consideration of Article 1 herein and to assure the performance of the various
arrangements between Party A and Party B, and the payment of the accounts
payable by Party B to Party A, Party B and the Party C hereby jointly agree that
Party B shall not, without the prior written consent of Party A, conduct any
transactions which may materially affect the assets, obligations, rights or the
operations of Party B (excluding proceeding with Party B’s normal business
operation and the lien obtained by relevant counter parties due to such
agreements). Such transactions shall include, without limitation, the
following:
2.1
To
borrow money from any third party or assume any debt;
2.2 To
sell or acquire from any third party any asset or right, including, but not
limited to, any intellectual property rights;
2.3 To
provide any guarantees to any third parties using its assets or intellectual
property rights; or
2.4 To
assign to any third party its business agreements.
3. In
order to ensure the performance of the various operation agreements between
Party A and Party B and the payments of various accounts payable by Party B to
Party A, Party B and Party C hereby jointly agree to accept the corporate
policies provided by Party A in connection with Party B’s daily operations,
financial management and the employment and dismissal of Party B’s
employees.
4. Party
B and Party C hereby jointly agree that Party C shall appoint the members
recommended by Party A as the Directors of Party B, and shall appoint members of
Party A’s senior management as Party B’s General Manager, Chief Financial
Officer, and other senior officers. If any member of such senior
management leaves or is dismissed by Party A, he or she will lose the
qualification to take any position with Party B, and Party B shall appoint
another member of Party A’s senior management to take such position, as
recommended by Party A. The person recommended by Party A in
accordance with this section shall have the qualifications of a Director,
General Manager, Chief Financial Officer, and/or other relevant senior officers
pursuant to applicable laws.
5. Party
B, together with the Party C, hereby jointly agree and confirm that Party B
shall first seek guarantee from Party A if Party B requires any guarantee for
its performance of any contract or loan in the course of its business
operation. Under such circumstances, Party A shall have the right,
but not the obligation, to provide the appropriate guarantee to Party B at its
sole discretion. If Party A decides not to provide such guarantee,
Party A shall issue a written notice to Party B immediately and Party B shall
seek a guarantee from other third party.
Operating
Agreement
JOWAY
6. In
the event that any of the agreements between Party A and Party B terminates or
expires, Party A shall have the right, but not the obligation, to terminate all
agreements between Party A and Party B, including, but not limited to, the
Consulting Services Agreement.
7. Any
amendment to this Agreement shall be made in writing. The amendments
duly executed by all Parties shall be deemed as a part of this Agreement and
shall have the same legal effect as this Agreement.
8. If
any provision or provisions of this Agreement shall be held to be invalid,
illegal, unenforceable or in conflict with the laws and regulations of the
jurisdiction, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
9. Party
B shall not assign its rights and obligations under this Agreement to any third
party without the prior written consent of Party A. Party B hereby
agrees that Party A may assign its rights and obligations under this Agreement
if necessary and such transfer shall only be subject to a written notice sent to
Party B by Party A, and no any further consent from Party B will be
required.
10. The
Parties of this Agreement shall acknowledge and ensure the confidentiality of
all oral and written materials exchanged relating to this
Agreement. No Party shall disclose the confidential information to
any other third party without the other Party’s prior written approval, unless:
(a) it was in the public domain at the time it was communicated (unless it
entered the public domain without the authorization of the disclosing Party);
(b) the disclosure was in response to the relevant laws, regulations, or stock
exchange rules; or (c) the disclosure was required by any of the Party’s legal
counsel or financial consultant for the purpose of the transaction of this
Agreement. However, such legal counsel and/or financial consultant
shall also comply with the confidentiality as stated hereof. The
disclosure of confidential information by employees or hired institutions of the
disclosing Party is deemed to be an act of the disclosing Party, and such
disclosing Party shall bear all liabilities of the breach of
confidentiality. If any provision of this Agreement is found by a
proper authority to be unenforceable or invalid such unenforceability or
invalidity shall not render this Agreement unenforceable or invalid as a
whole.
11. This
Agreement shall be governed and construed in accordance with PRC
law.
12. The
Parties shall strive to settle any disputes arising from the interpretation or
performance of this Agreement through amicable negotiations. If such
dispute cannot be settled, any Party may submit such dispute to China
International Economic and Trade Arbitration Commission (“CIETAC”) for
arbitration. There shall be three (3) arbitrators. Party B shall
select one (1) arbitrator and Party A shall select one (1) arbitrator, and both
arbitrators shall be selected within thirty (30) days after giving or receiving
the demand for arbitration. Such arbitrators shall be freely
selected, and the Parties shall not be limited in their selection to any
prescribed list. The chairman of the CIETAC shall select the third
arbitrator. If a Party does not appoint an arbitrator who consents to
participate within thirty (30) days after giving or receiving the demand for
arbitration, the relevant appointment shall be made by the chairman of the
CIETAC. The arbitration shall abide by the rules of CIETAC, and the arbitration
proceedings shall be conducted in Beijing, China in English. The
judgment of the arbitration shall be final and binding upon the
Parties.
Operating
Agreement
JOWAY
13. This
Agreement shall be executed by a duly authorized representative of each Party as
of the date first written above and becomes effective
simultaneously.
14. The
Parties confirm that this Agreement shall constitute the entire agreement of the
Parties with respect to the subject matters therein and supersedes and replaces
all prior or contemporaneous verbal and written agreements and
understandings.
15. The
term of this Agreement shall commence from the effective date and shall last for
the maximum period of time permitted by law unless early terminated in
accordance with the relevant provisions herein or by any other agreements
reached by all Parties. Within the term of the Agreement, if Party A shall
terminate this Agreement (including any extension of such term) or if this
Agreement shall terminate due to any other reason, this Agreement shall be
terminated upon the termination of such Party, unless such Party has already
assigned its rights and obligations in accordance with Article 9
hereof.
16. This
Agreement shall be terminated on the expiration date unless it is renewed in
accordance with the relevant provisions herein. During the effective
term of this Agreement, Party B shall not terminate this
Agreement. Notwithstanding the above stipulation, Party A shall have
the right to terminate this Agreement at any time by giving a thirty (30) day
prior written notice to Party B.
17.
This
Agreement has been executed in five (5) duplicate originals in
English. Each Party has received one (1) original, and all originals
shall be equally valid.
[SIGNATURE
PAGE FOLLOWS]
Operating
Agreement
JOWAY
IN WITNESS WHEREOF
this
Agreement is duly executed by each Party or its legal
representatives.
PARTY A:
|
Tianjin
Junhe Enterprise Management Consulting Co.,
Ltd.
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
Title:
Executive
Director
|
PARTY B:
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
|
|
Name:
ZHANG Jinghe
|
|
|
|
|
|
Title:
Executive Director
|
|
|
Operating
Agreement
JOWAY
SIGNATURE PAGE FOR
SHAREHOLDERS OF PARTY B
SHAREHOLDERS
OF PARTY B:
/s/ Zhang Jinghe
|
|
ZHANG
Jinghe
|
|
ID Card No.:
120103196511255419
Owns 99%
of Tianjin Joway Shengshi Group Co., Ltd.
/s/ Song Baogang
|
|
SONG
Baogang
|
|
ID Card
No.: 120222196009281034
Owns 1%
of Tianjin Joway Shengshi Group Co., Ltd.
Operating
Agreement
JOWAY
OPTION
AGREEMENT
This
Option Agreement (this “
Agreement
”) is dated
September 16
, 2010, and is
entered into in Tianjin City, People’s Republic of China (“PRC” or “China”) by
and between Tianjin Junhe Enterprise Management Consulting Co., Ltd. (“Party
A”), and
Tianjin Joway Shengshi
Group Co., Ltd.
(“Party B”), and the undersigned shareholders of Party B
(each a “Shareholder” and collectively the “
Shareholders
”). Party
A, Party B and the Shareholders are each referred to in this Agreement as a
“
Party
” and
collectively as the “
Parties
.”
RECITALS
1. Party
B is engaged in the business of manufacture and sale of knit goods, bedding,
tourmaline health-care product (excluding edible products), water filter, and
wooden products; wholesale and retail of gymnasium equipment, daily necessities
and stationery; consulting services on consuming information (the
“Business”). Party A has the expertise in consulting, and Party A and Party B
has entered into a Consulting Services Agreement to provide Party B with various
consulting services in connection with the Business.
2. The
Shareholders collectively holds 100% of the issued and outstanding equity
interests of Party B (collectively the “Equity Interest”).
3. The
Parties are entering into this Agreement in connection with the Consulting
Services Agreement.
NOW, THEREFORE
, the Parties to
this Agreement hereby agree as follows:
1.
PURCHASE AND SALE OF EQUITY
INTEREST
1.1
Grant of Rights
. The
Shareholders (hereinafter the “
Transferors
”) hereby
collectively and irrevocably grant to Party A or a designee of Party A (the
“Designee”) an option to purchase at any time, to the extent permitted under PRC
Law, all or a portion of the Equity Interest in accordance with such procedures
as determined by Party A, at the price specified in Section 1.3 of this
Agreement (the “
Option
”). No
Option shall be granted to any party other than to Party A and/or a
Designee. Party B hereby agrees to grant the Party C’s Option to
Party A and/or the Designee. As used herein, Designee may be an
individual person, a corporation, a joint venture, a partnership, an enterprise,
a trust or an unincorporated organization.
1.2
Exercise of
Rights
. According with the requirements of applicable PRC laws
and regulations, Party A and/or the Designee may exercise the Option at any time
by issuing a written notice (the “Notice”) to one or more of the Transferors and
specifying the amount of the Equity Interest to be purchased from such
Transferor(s) and the manner of purchase.
1.3
Purchase
Price
.
1.3.1 The
purchase price of the Equity Interest pursuant to an exercise of the Option
shall be equal to the capital paid in by the Transferors, adjusted pro rata for
purchase of less than all of the Equity Interest, unless applicable PRC laws and
regulations require an appraisal of the Equity Interest or stipulate other
restrictions regarding the purchase price of the Equity Interest.
1.3.2 If the
applicable PRC laws and regulations require an appraisal of the Equity Interest
or stipulate other restrictions regarding the purchase price of the Equity
Interest at the time Party A exercises the Option, the Parties agree that the
purchase price shall be set at the lowest price permissible under the applicable
laws and regulations.
1.4
Transfer of Equity
Interest
. Upon each exercise of the Option under this
Agreement:
1.4.1 The
Transferors shall hold or cause to be held a meeting of shareholders of Party B
in order to adopt such resolutions as necessary in order to approve the transfer
of the relevant Equity Interest (such Equity Interest hereinafter the “Purchased
Equity Interest”) to Party A and/or the Designee;
1.4.2 The
relevant Parties shall, enter into an Equity Interest Purchase Agreement, in a
form reasonably acceptable to Party A, setting forth the terms and conditions
for the sale and transfer of the Purchased Equity Interest;
1.4.3 The
relevant Parties shall execute, without any security interest, all other
requisite contracts, agreements or documents, obtain all requisite approval and
consent of the government, conduct all necessary actions, transfer the valid
ownership of the Purchased Equity Interest to Party A and/or the Designee, and
cause Party A and/or the Designee to be the registered owner of the Purchased
Equity Interest. As used herein, “security interest” means any
mortgage, pledge, the right or interest of the third party, any purchase right
of equity interest, right of acquisition, right of first refusal, right of
set-off, ownership detainment or other security arrangements; however, such term
shall not include any security interest created under that certain Equity Pledge
Agreement dated as of September 16, 2010 by and among the Parties (the “Pledge
Agreement”).
1.5
Payment
. Payment
of the purchase price shall be determined through negotiation between the
Transferors and Party A
(
including the
Designee
)
in
accordance with the applicable laws at the time of the exercise of the
Option.
2.
REPRESENTATIONS RELATING TO
EQUITY INTEREST
2.1
Party B’s
Representations
. Party B hereby represents and
warrants:
2.1.1 Without
Party A’s prior written consent, Party B’s Articles of Association shall not be
supplemented, changed or renewed in any way, Party B’s registered capital of
shall not be increased or decreased, and the structure of the registered capital
shall not be changed in any form;
2.1.2 To
maintain the corporate existence of Party B and to prudently and effectively
operate the business according with customary fiduciary standards applicable to
managers with respect to corporations and their shareholders;
2.1.3 Without
Party A’s prior written consent, upon the execution of this Agreement, to not
sell, transfer, mortgage, create pledges, liens, or any other encumbrances on or
dispose, in any other form, any asset, legitimate or beneficial interest of
business or income, or encumber or approve any encumbrance or imposition of any
security interest on Party B’s assets;
2.1.4 Without
Party A’s prior written consent, to not issue or provide any guarantee or permit
the existence of any debt, other than (i) such debt that may arise from Party
B’s normal or daily business (excepting a loan); and (ii) such debt which has
been disclosed to Party A before this Agreement;
2.1.5 To operate
and conduct all business operations in the ordinary course of business, without
damaging Party B’s business or the value of its assets;
2.1.6 Without
Party A’s prior written consent, to not enter into any material agreements,
other than agreements entered into in the ordinary course of business (for
purpose of this paragraph, if any agreement for an amount in excess of One
Hundred Thousand Renminbi (RMB 100,000) shall be deemed a material
agreement);
2.1.7 Without
Party A’s prior written consent, to not provide loan or credit to any other
party or organization;
2.1.8 To provide
to Party A all relevant documents relating to its business operations and
finance at the request of Party A;
2.1.9 To
purchase and maintain general business insurance of the type and amount
comparable to those held by companies in the same industry, with similar
business operations and assets as Party B, from an insurance company approved by
Party A;
2.1.10 Without Party A’s
prior written consent, to not enter into any merger, cooperation, acquisition or
investment;
2.1.11 To notify Party A of
the occurrence or the potential occurrence of litigation, arbitration or
administrative procedure relating to Party B’s assets, business operations
and/or income;
2.1.12 In order to guarantee the
ownership of Party B’s assets, to execute all requisite or relevant documents,
take all requisite or relevant actions, and make and pursue all relevant
claims;
2.1.13 Without Party A’s
prior written notice, to not assign the Equity Interest in any form; however,
Party B shall distribute dividends to the Shareholders upon the request of Party
A; and
2.1.14 In accordance with
Party A’s request, to appoint any person designated by Party A to be a
management member of Party B.
2.2
Transferors’
Representations
. The Transferors hereby represent and
warrant:
2.2.1 Without
Party A’s prior written consent, upon the execution of this Agreement, to not
sell, transfer, mortgage, create pledges, liens, or any other encumbrances on or
dispose in any other form any legitimate or beneficial interest of the Equity
Interest, or to approve any security interest, except as created pursuant to the
Pledge Agreement;
2.2.2 Without
Party A’s prior written notice, to not adopt or support or execute any
shareholders resolution at any meeting of the shareholders of Party B that seeks
to approve any sale, transfer, mortgage or disposal of any legitimate or
beneficial interest of the Equity Interest, or to allow any attachment of
security interests, except as created pursuant to the Pledge
Agreement;
2.2.3 Without
Party A’s prior written notice, to not agree or support or execute any
shareholders resolution at any meeting of the shareholders of Party B that seeks
to approve Party B’s merger, cooperation, acquisition or
investment;
2.2.4 To notify
Party A the occurrence or the potential occurrence of any litigation,
arbitration or administrative procedure relevant to the Equity
Interest;
2.2.5 To cause
Party B’s Board of Directors to approve the transfer of the Purchased Equity
Interest pursuant to this Agreement;
2.2.6 In order
to maintain the ownership of Equity Interest, to execute all requisite or
relevant documents, conduct all requisite or relevant actions, and make all
requisite or relevant claims, or make requisite or relevant defense against all
claims of compensation;
2.2.7 Upon the
request of Party A, to appoint any person designated by Party A to be a director
of Party B; and
2.2.8 To
prudently comply with the provisions of this Agreement and any other agreements
entered into with Party A and Party B in connection therewith, and to perform
all obligations under all such agreements, without taking any action or
nonfeasance that may affect the validity and enforceability of such
agreements.
3.
Representations and
Warranties
. As of the execution date of this Agreement and on
each transfer of Purchased Equity Interest pursuant to an exercise of the
Option, Party B and the Transferors hereby represent and warrant as
follows:
3.1 Such
Parties shall have the power and ability to enter into and deliver this
Agreement and to perform their respective obligations thereunder, and at each
transfer of Purchased Equity Interest, the relevant Equity Interest Purchase
Agreement and to perform their obligations thereunder. Upon
execution, this Agreement and each Equity Interest Purchase Agreement will
constitute legal, valid and binding obligations and be fully enforceable in
accordance with their terms;
3.2 The
execution and performance of this Agreement and any Equity Interest Purchase
Agreement shall not: (i) violate any relevant laws and regulations of the PRC;
(ii) conflict with the Articles of Association or other organizational documents
of Party B; (iii) cause to breach any agreements or instruments or having
binding obligation on it, or constitute a breach under any agreements or
instruments or having binding obligation on it; (iv) breach relevant
authorization of any consent or approval and/or any effective conditions; or (v)
cause any authorized consent or approval to be suspended, removed, or cause
other added conditions;
3.3 The
Equity Interest is transferable in whole and in part, and neither Party B nor
the Transferors has permitted or caused any security interest to be imposed upon
the Equity Interest other than pursuant to the Pledge Agreement;
3.4 Party
B does not have any unpaid debt, other than (i) such debt that may arise during
the ordinary course of business; and (ii) debt either disclosed to Party A
before this Agreement or incurred pursuant to Party A’s written
consent;
3.5 Party
B has complied with all applicable PRC laws and regulations in connection with
this Agreement;
3.6 There
are no pending or ongoing litigation, arbitration or administrative procedures
with respect Party B, its assets or the Equity Interests, and Party B and the
Transferors have no knowledge of any pending or threatened claims to the best of
their knowledge; and
3.7 The
Transferors own the Equity Interest free and clear of encumbrances of any kind,
other than the security interest pursuant to the Pledge
Agreement.
4.
ASSIGNMENT OF
AGREEMENT
4.1 Party
B and the Transferors shall not transfer their rights and obligations under this
Agreement to any third party without Party A’s prior written
consent.
4.2 Party
B and the Transferors hereby agrees that Party A shall be able to transfer all
of its rights and obligations under this Agreement to any third party, and such
transfer shall only be subject to a written notice of Party A to Party B
and the Transferors without any further consent from Party B or the
Transferors.
5.
EFFECTIVE DATE AND
TERM
5.1 This
Agreement shall be effective as of the date first set forth above.
5.2 The
term of this Agreement shall commence from the effective date and shall last for
the maximum period of time permitted by law unless it is early terminated in
accordance with this Agreement.
5.3 At
the end of the term of this Agreement (including any extension thereto), or if
earlier terminated pursuant to Section 5.2, the Parties agree that any transfer
of rights and obligations pursuant to Section 4.2 shall continue to be in
effect.
6.
APPLICABLE LAWS AND DISPUTE
RESOLUTION
6.1
Applicable
Laws
. The execution, validity, interpretation and performance
of this Agreement and the dispute resolution under this Agreement shall be
governed by the laws of PRC.
6.2
Dispute
Resolution
. The Parties shall strive to resolve any disputes
arising from the interpretation or performance of this Agreement through
amicable negotiations. If such dispute cannot be settled within
thirty (30) days, any Party may submit such dispute to China International
Economic and Trade Arbitration Commission (“CIETAC”) for arbitration.
There shall be three (3)
arbitrators. Party B shall select one (1) arbitrator and Party A
shall select one (1) arbitrator, and both arbitrators shall be selected within
thirty (30) days after giving or receiving the demand for
arbitration. Such arbitrators shall be freely selected, and the
Parties shall not be limited in their selection to any prescribed
list. The chairman of the CIETAC shall select the third
arbitrator. If a Party does not appoint an arbitrator who consents to
participate within thirty (30) days after giving or receiving the demand for
arbitration, the relevant appointment shall be made by the chairman of the
CIETAC. The arbitration shall abide by the rules of CIETAC, and the
arbitration proceedings shall be conducted in Beijing, China in
English. The determination of CIETAC shall be final and binding upon
the Parties.
7.
Taxes and
Expenses
. Each Party shall, according with PRC laws, bear any
and all registration taxes, costs and expenses for the transfer of equity
arising from the preparation, execution and completion of this Agreement and all
Equity Interest Purchase Agreements.
8.
Notices
. Notices
or other communications required to be given by any Party pursuant to this
Agreement shall be written in English and Chinese and delivered personally or
sent by registered mail or prepaid mail or by a recognized courier service or by
facsimile transmission to the relevant address of each Party as set forth below
or other addresses of the Party as specified by such Party from time to
time. The date when the notice is deemed to be duly served shall be
determined as follows: (a) a notice delivered personally is deemed duly served
upon the delivery; (b) a notice sent by mail is deemed duly served the tenth
(10th) day after the date of the air registered mail with the postage prepaid
has been sent out (as is shown on the postmark), or the fourth (4th) day after
the delivery by an internationally recognized courier service; and (c) a notice
sent by facsimile transmission is deemed duly served upon the receipt time as
shown on the transmission confirmation.
Party
A
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
Address:
No.2 Baowang Road, Baodi Economic Development
Zone,
Tianjin City, China
Attn:
ZHANG Jinghe
Fax:
86-22-22531917
Tel:
86-22-22531917
Party
B:
Tianjin
Joway Shengshi Group Co., Ltd.
Address:
Floor 16, Global Landmark, No.309 Nanjing Road,
Nankai
District, Tianjin City, China
Attn:
ZHANG Jinghe
Fax:
86-22-58896860
Tel:
86-22-58896888
Party C:
PartyC1
:
ZHANG Jinghe
Address:
Floor 16, Global
Landmark, No.309 Nanjing Road, Nankai District, Tianjin City,
China
.
Tel: 86-22-58896889
Fax: 86-22-58896860
PartyC2:
SONG
Baogang
Address: No.40, Line 1, 1 Zone, Qingtuo Cun, Douzhangzhuang
Villiage, Wuqing District, Tianjin City, China
Tel: 86-22-58896866
Fax: 86-22-58896860
9.
Confidentiality
. The
Parties acknowledge and confirm that any oral or written information exchanged
by the Parties in connection with this Agreement is confidential. The
Parties shall maintain the confidentiality of all such information. Without the
written approval by the other Parties, any Party shall not disclose to any third
party any confidential information except as follows:
(a) Such
information was in the public domain at the time it was
communicated;
(b) Such
information is required to be disclosed pursuant to the applicable laws,
regulations, policies relating to the stock exchange; or
(c) Such
information is required to be disclosed to a Party’s legal counsel or financial
consultant, provided however, such legal counsel and/or financial consultant
shall also comply with the confidentiality as stated hereof. The
disclosure of confidential information by employees or agents of the disclosing
Party is deemed to be an act of the disclosing Party, and such Party shall be
responsible for all breach of confidentiality arising from such
disclosure. This provision shall survive even if certain clauses of
this Agreement are subsequently amended, revoked, terminated or determined to be
invalid or unable to implement for any reason.
10.
Further
Warranties
. The Parties agree to promptly execute such
documents as required to perform the provisions of this Agreement, and to take
such actions as may be reasonably required to perform the provisions of this
Agreement.
11.
MISCELLANEOUS
11.1
Amendment, Modification and
Supplement
. Any amendments and supplements to this Agreement
shall only take effect if executed by both Parties in writing.
11.2
Entire
Agreement
. Notwithstanding Article 5 of this Agreement, the
Parties acknowledge that this Agreement constitutes the entire agreement of the
Parties with respect to the subject matters therein and supersede and replace
all prior or contemporaneous agreements and understandings, whether oral or in
writing.
11.3
Severability
. If
any provision of this Agreement is deemed invalid or non-enforceable according
with relevant laws, such provision shall be deemed invalid only within the
applicable laws and regulations of the PRC, and the validity, legality and
enforceability of the other provisions hereof shall not be affected or impaired
in any way. The Parties shall, through reasonable negotiation,
replace such invalid, illegal or non-enforceable provisions with valid
provisions in order to bring similar economic effects of those invalid, illegal
or non-enforceable provisions.
11.4
Headings
. The
headings contained in this Agreement are for reference only and shall not affect
the interpretation and explanation of the provisions in this
Agreement.
11.5
Language and
Copies
. This Agreement shall be executed in English in five
(5) duplicate originals. Each Party shall hold one (1) original, each of which
shall have the same legal effect.
11.6
Successor
. This
Agreement shall be binding on the successors of each Party and the transferee
allowed by each Party.
11.7
Survival
. Each
Party shall continue to perform its obligations notwithstanding the expiration
or termination of this Agreement. Article 6, Article 8, Article 9 and
Section 11.7 hereof shall continue to be in full force and effect after the
termination of this Agreement.
11.8
Waiver
. Any
Party may waive the terms and conditions of this Agreement in writing with the
written approval of all the Parties. Under certain circumstances, any
waiver by a Party to the breach of other Parties shall not be construed as a
waiver of any other breach by any other Parties under similar
circumstances.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF
this
Agreement is duly executed by each Party or its legal representatives as of the
date first set forth above.
PARTY
A:
|
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
|
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
PARTY
B:
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
SIGNATURE PAGE FOR
SHAREHOLDERS OF PARTY B
SHAREHOLDERS
OF PARTY B:
/s/ Zhang Jinghe
|
|
ZHANG
Jinghe
|
|
ID Card No.:
120103196511255419
|
|
Owns
99% of Tianjin Joway Shengshi Group Co., Ltd.
|
|
/s/ Song Baogang
|
|
SONG
Baogang
|
|
ID
Card No.: 120222196009281034
|
|
Owns
1% of Tianjin Joway Shengshi Group Co., Ltd.
|
|
VOTING
RIGHTS PROXY AGREEMENT
This
Voting Rights Proxy Agreement (the “
Agreement
”) is
entered into in Tianjin City, People’s Republic of China (“
PRC
” or “
China
”) as of
September 16, 2010 by and among Tianjin Junhe Enterprise Management Consulting
Co., Ltd. (“
Party
A
”), Tianjin Joway Shengshi Group Co., Ltd.(the “
Company
” or “
Party B
”), and the
undersigned shareholders of Party B (the “
Shareholders
”). Party
A, Party B and the Shareholders are each referred to in this Agreement as a
“
Party
” and
collectively as the “
Parties
.”
RECITALS
1. Party
B is engaged in the business of manufacture and sale of knit goods, bedding,
tourmaline health-care product (excluding edible products), water filter, and
wooden products; wholesale and retail of gymnasium equipment, daily necessities
and stationery; consulting services on consuming information. Party A
has the expertise in consulting, and Party A has entered into a series of
agreements with Party B to provide Party B with various consulting
services.
2
.
The
Shareholders are shareholders of the Company, each legally holding such amount
of equity interest of the Company as set forth on the signature page of this
Agreement and collectively holding 100% of the issued and outstanding equity
interests of the Company (collectively the “Equity Interest”).
3. The
Shareholders desire to grant to Party A a proxy to vote the Equity Interest for
the maximum period of time permitted by law in consideration of good and
valuable consideration, the receipt of which is hereby acknowledged and agreed
by Party A.
NOW THEREFORE
, the Parties
agree as follows:
1. The
Shareholders hereby agree to irrevocably grant and entrust Party A, for the
maximum period of time permitted by law, with all of their voting rights as
shareholders of the Company. Party A shall exercise such rights in
accordance with and within the parameters of the laws of the PRC and the
Articles of Association of the Company.
2. Party
A may establish and amend rules to govern how Party A shall exercise the powers
granted by the Shareholders herein, including, but not limited to, the number or
percentage of directors of Party A which shall be required to authorize the
exercise of the voting rights granted by the Shareholders, and Party A shall
only proceed in accordance with such rules.
3. The
Shareholders shall not transfer or cause to be transferred the Equity Interest
to any party (other than Party A or such designee of Party A). Each
Shareholder acknowledges that it will continue to perform its obligations under
this Proxy Agreement even if one or more of other Shareholders no longer holds
any part of the Equity Interest.
4. This
Proxy Agreement has been duly executed by the Parties as of the date first set
forth above, and in the event that a Party is not a natural person, then such
Party’s action has been duly authorized by all necessary corporate or other
action and executed and delivered by such Party’s duly authorized
representatives. This Agreement shall take effect upon the execution
of this Agreement.
5. Each
Shareholder represents and warrants to Party A that such Shareholder owns such
amount of the Equity Interest as set forth next to its name on the signature
page below, free and clear of all liens and encumbrances, and such Shareholder
has not granted to any party, other than Party A, a power of attorney or proxy
over any of such amount of the Equity Interest or any of such Shareholder’s
rights as a shareholder of Company. Each Shareholder further
represents and warrants that the execution and delivery of this Agreement by
such Shareholder shall not violate any law, regulations, judicial or
administrative order, arbitration award, agreement, contract or covenant
applicable to such Shareholder.
6. This
Agreement may not be terminated without the unanimous consent of all Parties,
except that Party A may, by giving a thirty (30) day prior written notice to the
Shareholders, terminate this Agreement, with or without cause
7. Any
amendment to and/or rescission of this Agreement shall be in writing by the
Parties.
8. The
execution, validity, creation and performance of this Agreement shall be
governed by the laws of PRC.
9. This
Agreement shall be executed in five (5) duplicate originals in English, and each
Party shall receive one (1) duplicate original, each of which shall be equally
valid.
10. The
Parties agree that in the event a dispute shall arise from this Agreement, the
Parties shall settle their dispute through amicable negotiations and/or
arbitration in accordance with this Clause 10. If the Parties cannot
reach a settlement within 45 days following the negotiations, the dispute shall
be submitted to be determined by arbitration through China International
Economic and Trade Arbitration Commission (“CIETAC”) in accordance with CIETAC
arbitration rules. There shall be three (3) arbitrators. Party B
shall select one (1) arbitrator and Party A shall select one (1) arbitrator, and
both arbitrators shall be selected within thirty (30) days after giving or
receiving the demand for arbitration. Such arbitrators shall be
freely selected, and the Parties shall not be limited in their selection to any
prescribed list. The chairman of the CIETAC shall select the third
arbitrator. If a Party does not appoint an arbitrator who consents to
participate within thirty (30) days after giving or receiving the demand for
arbitration, the relevant appointment shall be made by the chairman of the
CIETAC. The arbitration shall be conducted in Beijing in English. The
determination of CIETAC shall be conclusively binding upon the Parties and shall
be enforceable in any court of competent jurisdiction.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF
this
Agreement is duly executed by each Party or its legal
representatives.
PARTY
A:
|
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
|
|
|
PARTY
B:
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
SIGNATURE PAGE FOR
SHAREHOLDERS OF PARTY B
SHAREHOLDERS
OF PARTY B:
/s/
Zhang Jinghe
|
|
ZHANG
Jinghe
|
ID
Card No.: 120103196511255419
|
Owns
99% of Tianjin Joway Shengshi Group Co.,
Ltd.
|
/s/
Song Baogang
|
|
SONG
Baogang
|
ID
Card No.: 120222196009281034
|
Owns
1% of Tianjin Joway Shengshi Group Co.,
Ltd.
|
Proxy
Agreement
JOWAY
EQUITY
PLEDGE AGREEMENT
This
Equity Pledge Agreement (hereinafter this “
Agreement
”) is dated
September 16, 2010, and is entered into in Tianjin City, People’s Republic of
China (“PRC” or “China”) by and among Tianjin Junhe Enterprise Management
Consulting Co., Ltd. (“
Pledgee
”), Tianjin
Joway Shengshi Group Co., Ltd. (“Party B” or the “Company”), and each
of the shareholders of Party B listed on the signature pages hereto
(each a “Pledgor” and collectively, the “
Pledgors
”).
RECITALS
1. The
Pledgee is a company incorporated in the PRC as a foreign invested enterprise
and has the expertise in the business of consulting.
2. The
Company is a company incorporated in the People’s Republic of China (“PRC” or
“China”) and is in the business of manufacture and sale of knit goods, bedding,
tourmaline health-care product (excluding edible products), water filter, and
wooden products; wholesale and retail of gymnasium equipment, daily necessities
and stationery; consulting services on consuming information (the
“Business”).
3. The
Pledgors are shareholders of the Company and collectively own 100% of the
outstanding equity interests of the Company.
4. The
Pledgee and the Company have executed a Consulting Services Agreement (the
“
Consulting Services
Agreement
”) concurrently herewith, pursuant to which the Company shall
pay consulting and service fees (the “
Consulting Services
Fee
”) to the Pledgee for consulting and related services in connection
with the Business.
5. In
order to ensure that the Company will perform its obligations under the
Consulting Services Agreement, and in order to provide an additional mechanism
for the Pledgee to enforce its rights to collect the Consulting Services Fee
from the Company, the Pledgors agree to pledge all their equity interests in the
Company as security for the performance of the obligations of the Company under
the Consulting Services Agreement, including payment of the Consulting Services
Fee.
NOW THEREFORE
, the Pledgee,
the Company and the Pledgors through mutual negotiations hereby enter into this
Agreement based upon the following terms:
1.
Definitions and
Interpretation
. Unless otherwise provided in this Agreement,
the following terms shall have the following meanings:
1.1 “
Pledge
” refers to the
full content of Section 2 hereunder.
1.2 “
Equity Interest
”
refers to all the equity interests in the Company legally held by the
Pledgors.
1.3 “
Term of Pledge
”
refers to the period provided for under Section 3.2 hereunder.
1.4 “
Event of Default
”
refers to any event in accordance with Section 7.1 hereunder.
1.5 “
Notice of Default
”
refers to the notice of default issued by the Pledgee in accordance with this
Agreement.
2.
The
Pledge
. The Pledgors hereby pledge the Equity Interest to the
Pledgee as a security for the obligations of the Company under the Consulting
Services Agreement (the “Pledge”). Pursuant thereto, the Pledgee
shall have priority in receiving payments from the evaluation or the proceeds
from the auction or sale of the Equity Interest. The Equity Interest shall
hereinafter be referred to as the “Pledged Collateral”.
3.
Term of
Pledge
.
3.1 The
Pledge shall take effect as of the date when the Pledge is recorded in the
Company’s Register of Shareholders, and shall expire two (2) years from the
Company’s satisfaction of all its obligations under the Consulting Services
Agreement (the “Term”).
3.2 During
the Term, the Pledgee shall be entitled to vote, control, sell, or dispose of
the Pledged Collateral in accordance with this Agreement in the event that the
Company does not perform its obligations under the Consulting Services
Agreement, including without limitations thee failure to pay the Consulting
Service Fee.
3.3 During
the Term, the Pledgee shall be entitled to collect any and all dividends
declared or paid in connection with the Pledged Collateral.
4.
Pledge Procedure and
Registration
.
4.1 The
Pledge shall be recorded in the Company’s Register of
Shareholders. The Pledgors shall, within ten (10) days after the date
of this Agreement, process the registration procedures with the Administration
for Industry and Commerce concerning the Pledge.
5.
Representation and
Warranties of Pledgors
.
5.1 The
Pledgors are the legal owners of the Pledged Collateral.
5.2 Other
than to the Pledgee, the Pledgors have not pledged the Pledged Collateral to any
other party, and the Pledged Collateral is not encumbered to any other
party.
6.
Covenants of
Pledgors
.
6.1 During
the Term, the Pledgors represent and warrant to the Pledgee for the Pledgee’s
benefit that the Pledgors shall:
Equity
Pledge Agreement
JOWAY
6.1.1 Not
transfer or assign the Pledged Collateral, nor create or permit to create any
pledge or encumbrance to the Pledged Collateral which may adversely affect the
rights and/or benefits of the Pledgee without the Pledgee’s prior written
consent.
6.1.2 Comply
with the laws and regulations with respect to the Pledge; present to Pledgee any
notices, orders or advisements with respect to the Pledge that may be issued or
made by a competent PRC authority within five (5) days upon receiving such
notices, orders or advisements; comply with such notices, orders or advisements;
or object to the foregoing matters upon the reasonable request of the Pledgee or
with consent from the Pledgee.
6.1.3 Timely
notify the Pledgee of any events which may affect the Pledged Collateral or the
Pledgors’ rights thereto, or which may change any of the Pledgors’ warranties or
affect the Pledgor’s performance of their obligations under this
Agreement.
6.2 The
Pledgors agree that the Pledgee’s right to the Pledge pursuant to this Agreement
shall not be suspended or inhibited by any legal proceedings initiated by the
Pledgors, jointly or separately, or by any successor of or any person authorized
by the Pledgors.
6.3 The
Pledgors represent and warrant to the Pledgee that in order to protect and
perfect the security for the payment of the Consulting Services Fee, the
Pledgors shall execute in good faith and cause other parties who have interests
in the Pledged Collateral to execute all the title certificates, contracts, and
perform actions and cause other parties who have interests to take action, as
required by the Pledgee.
6.4 The
Pledgors represent and warrant to the Pledgee or its appointed representative
(whether a natural person or a legal entity) that they will execute all
applicable and required amendments in connection with the registration of the
Pledge, and within a reasonable amount of time upon request, provide the
relevant notice, order and decision regarding such registration to the
Pledgee.
6.5 The
Pledgors represent and warrant to the Pledgee that they will abide by and
perform all relevant guarantees, covenants, warranties, representations and
conditions necessary to insure the rights of the Pledgee under this
Agreement. The Pledgors shall compensate all the losses suffered by
the Pledgee as a result of the Pledgors’ failure to perform any such guarantees,
covenants, warranties, representations or conditions.
7.
Events of
Default
.
|
7.1
|
The
occurrence of any one of the following events shall be regarded as an
“Event of Default”:
|
7.1.1 This
Agreement is deemed illegal by a governing authority of the PRC, or the Pledgor
is incapable of continuing to perform the obligations herein due to any reason
except
force
majeure
;
Equity
Pledge Agreement
JOWAY
7.1.2 The
Company fails to timely pay the Consulting Services Fee in full as required
under the Consulting Service Agreement;
7.1.3 A
Pledgor makes any materially false or misleading representations or warranties
under Section 5 herein, or breaches any warranties under Section 5
herein;
7.1.4
A Pledgor
breaches the covenants under Section 6 herein;
7.1.5
A Pledgor
breaches any terms and conditions of this Agreement;
7.1.6 A
Pledgor transfers or assigns, cause to be transferred or assigned, or otherwise
abandons the Pledged Collateral without the prior written consent of the
Pledgee;
7.1.7 The
Company is incapable of repaying debt;
7.1.8 The
assets of a Pledgor are adversely affected so as to cause the Pledgee to believe
that such Pledgor’s ability to perform the obligations herein is adversely
affected;
7.1.9 The
successors or agents of the Company refuse, or are only partly able, to perform
the payment obligations under the Consulting Services Agreement;
7.2 A
Pledgor shall immediately give a written notice to the Pledgee if such Pledgor
is aware of or discovers that any event under Section 7.1 herein, or any event
that may result in any one of the foregoing events, has occurred or is likely to
occur.
7.3 Unless
an Event of Default has been resolved to the Pledgee’s satisfaction within 15
days of its occurrence (the “Cure Period”), the Pledgee may, at any time
thereafter, give a written default notice (the “Default Notice”) to the Pledgor
and require the Pledgors to immediately make full payment of the then
outstanding Consulting Service Fee and any other outstanding payables in
accordance with Section 8 herein.
8.
Exercise of
Remedies
.
8.1
Authorized Action by Secured
Party
.
The
Pledgors hereby irrevocably appoint Pledgee as the attorney-in-fact of the
Pledgors for the purpose of carrying out the security provisions of this
Agreement and to take any action and execute any instrument that the Pledgee may
deem necessary or advisable to accomplish the purpose of this
Agreement. Such power of attorney shall be effective, automatically
and without the necessity of any action (including any transfer of any Pledged
Collateral) by any person, upon the occurrence an Event of
Default. Pledgee shall not have any duty to exercise any such right
or to preserve the same and shall not be liable for any failure to do so or for
any delay in doing so.
If an Event of Default occurs, or is
already proceeding, Pledgee shall have the right to exercise the following
rights:
Equity
Pledge Agreement
JOWAY
(a) Collect
by legal proceedings or otherwise, and endorse and/or receive all payments,
proceeds and other sums and property now or hereafter payable on or on account
of the Pledged Collateral;
(b) Enter
into any extension, reorganization, deposit, merger, consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the Pledged Collateral;
(c) Transfer
the Pledged Collateral under the Pledgee’s name or under an appointed
nominee;
(d) Make
any compromise or settlement, and take any action the Pledgee deems advisable,
with respect to the Pledged Collateral;
(e) Notify
any obligor with respect to the Pledged Collateral to make payment directly to
the Pledgee;
(f) All
rights of the Pledgors that they would otherwise be entitled to enjoy or
exercise with respect to the Pledged Collateral, including without limitations
the rights to vote and to receive distributions, shall cease without any further
action by or notice, and all such rights shall thereupon become vested in the
Pledgee; and
(g) The
Pledgors shall execute and deliver to the Pledgee such other instruments as the
Pledgee may request in order to permit the Pledgee to exercise the rights set
forth herein.
8.2
Other
Remedies
. Upon the expiration of the Cure Period, the Pledgee,
in addition to the remedies set forth in Section 8.1 or such other rights in
law, equity or otherwise, may, without notice or demand on the Pledgors, elect
any of the following:
(a) Require
the Pledgors to immediately pay all outstanding unpaid amounts due under the
Consulting Services Agreement;
(b) Foreclose
or otherwise enforce the Pledgee’s security interest to the Pledged Collateral
in any manner permitted by law or provided under this Agreement;
(c)
Terminate
this Agreement pursuant to Section 11;
(d) Exercise
any and all rights as the beneficial and legal owner of the Pledged Collateral,
including, without limitation, the transfer and exercise of voting and any other
rights to the Pledged Collateral; and
(e) Exercise
any and all rights and remedies of a secured party under applicable
laws.
Equity
Pledge Agreement
JOWAY
8.3 The
Pledgee has priority in the receipt of payments from the proceeds of auction or
sale of the Pledged Collateral, in part or in whole, in accordance with legal
procedures, until all payment obligations under the Consulting Services
Agreement are satisfied.
8.4 The
Pledgors shall not hinder the Pledgee from exercising its rights in accordance
with this Agreement and shall give necessary assistance so that the Pledgee may
exercise its rights in full.
9.
Assignment
.
9.1 The
Pledgors shall not assign or otherwise transfer the rights and obligations
herein without the Pledgee’s prior written consent.
9.2 This
Agreement shall be binding upon each of the Pledgors and their respective
successors, and shall be binding on the Pledgee and each of its successor and
assignee.
9.3 Upon
the transfer or assignment by the Pledgee of any or all of its rights and
obligations under the Consulting Service Agreement, the Pledgee’s transferee or
assignee shall enjoy and undertake the same rights and obligations as the
Pledgee under this Agreement. The Pledgors shall be notified of any
such transfer or assignment by written notice and at the request of the Pledgee,
the Pledgors shall execute such relevant agreements and/or documents with
respect to such transfer or assignment.
9.4 In
the event of the Pledgee’s change in control resulting in the transfer or
assignment of this Agreement, the successor to the Pledgee and the Pledgors
shall execute a new equity pledge agreement.
10.
|
Formalities, Fees and
Other Charges
.
|
10.1 The
Pledgors shall be responsible for all the fees and expenses in relation to this
Agreement, including, but not limited, to legal fees, cost of production, stamp
tax and any other taxes and charges. If the Pledgee pays the relevant
taxes in accordance with applicable law, the Pledgors shall fully reimburse the
Pledgee of such taxes.
10.2 The
Pledgors shall be responsible for all expenses (including, but not limited to,
any taxes, application fees, management fees, litigation costs, attorney’s fees,
and various insurance premiums in connection with the disposition of the Pledge)
incurred by the Pledgee in its recourse to collect from the Pledgors arising
from the Pledgors’ failure to pay any relevant taxes and fees.
Equity
Pledge Agreement
JOWAY
11.
|
Confidentiality
.
The Parties hereby acknowledge and agree to ensure the confidentiality of
all oral and written materials exchanged relating to this
Agreement. No Party shall disclose any confidential information
to any other third party without the other Parties’ prior written
approval, unless: (a) such information was in the public domain at the
time it was communicated (unless it entered the public domain without the
authorization of the disclosing Party); (b) the disclosure was in response
to the relevant laws, regulations, or stock exchange rules; or (c) the
disclosure was required by any of the Party’s legal counsel or financial
consultant for the purpose of the transaction underlying this
Agreement. However, such legal counsel and/or financial
consultant shall also comply with the confidentiality as stated
hereof. The disclosure of confidential information by employees
or agents of the disclosing Party is deemed to be an act of the disclosing
Party, and such disclosing Party shall bear all liabilities for any breach
of confidentiality.
|
12.1 This
Agreement shall be governed by and construed in accordance with the laws of the
PRC.
12.2 The
Parties shall strive to resolve any disputes arising from the interpretation or
performance of this Agreement through amicable negotiations. If a
dispute cannot be settled, any Party may submit such dispute to China
International Economic and Trade Arbitration Commission (“CIETAC”) for
arbitration. There shall be three (3) arbitrators. Party B shall
select one (1) arbitrator and Party A shall select one (1) arbitrator, and both
arbitrators shall be selected within thirty (30) days after giving or receiving
the demand for arbitration. Such arbitrators shall be freely
selected, and the Parties shall not be limited in their selection to any
prescribed list. The chairman of the CIETAC shall select the third
arbitrator. If a Party does not appoint an arbitrator who consents to
participate within thirty (30) days after giving or receiving the demand for
arbitration, the relevant appointment shall be made by the chairman of the
CIETAC. The arbitration shall abide by the rules of CIETAC, and the arbitration
proceedings shall be conducted in Beijing, China in English. The
decision of CIETA shall be final and binding upon the parties.
13.
Notices
. Any
notice given by the parties hereto for the purpose of performing the rights and
obligations hereunder shall be in writing. If such notice is
delivered by messenger, the time of receipt is the time when such notice is
received by the addressee; if such notice is transmitted by facsimile, the time
of receipt is the time when such notice is transmitted. If the notice
does not reach the addressee by the end of the business day, the following
business day shall be the date of receipt. The place of delivery is
the Party’s address as set forth in the signature pages hereto or the address
advised in writing including via facsimile.
14.
Entire
Contract
. The Parties agree that this Agreement constitutes
the entire agreement of the Parties upon its effectiveness and supersedes all
prior oral and/or written agreements and understandings relating to this
Agreement.
15.
Severability
. If
any provision or provisions of this Agreement shall be held by a proper
authority to be invalid, illegal, unenforceable or in conflict with the laws and
regulations of the PRC, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
16.
Appendices
. The
appendices to this Agreement are incorporated into and are a part of this
Agreement.
Equity
Pledge Agreement
JOWAY
17.
Amendment or
Supplement
.
17.1 The
Parties may amend this Agreement in writing, provided that such amendment shall
be duly executed and signed by the Pledgee, the Company, and such Pledgors
collectively holding a majority of the Equity Interests, and such amendment
shall thereupon become a part of this Agreement and shall have the same legal
effect as this Agreement.
17.2 This
Agreement and any amendments, modification, supplements, additions or changes
hereto shall be in writing and come into effect upon being executed and stamped
by the parties hereto.
18.
Language and Copies of the
Agreement
. This Agreement shall be executed in English in five
(5) original copies. Each Party shall receive one (1) original copy,
all of which shall be equally valid and enforceable.
[SIGNATURE
PAGE FOLLOWS]
Equity
Pledge Agreement
JOWAY
IN WITNESS WHEREOF
this
Agreement is duly executed by each Party or its legal representatives as of the
date first set forth above.
PLEDGEE:
|
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
|
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
PARTY
B:
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
|
|
|
|
|
Legal/Authorized
Representative:
|
/s/ Zhang Jinghe
|
|
|
Name:
ZHANG Jinghe
|
|
|
Title:
Executive Director
|
|
Equity
Pledge Agreement
JOWAY
PLEDGOR SIGNATURE
PAGE
PLEDGORS:
|
|
|
|
/s/ Zhang Jinghe
|
|
ZHANG
Jinghe
|
|
ID
Card No.:120103196511255419
|
|
Owns
99% of Tianjin Joway Shengshi Group Co., Ltd.
|
|
|
|
/s/ Song Baogang
|
|
SONG
Baogang
|
|
ID
Card No.: 120222196009281034
|
|
Owns
1% of Tianjin Joway Shengshi Group Co., Ltd.
|
|
Equity
Pledge Agreement
JOWAY
Appendix
1
RESOLUTIONS
OF THE SHAREHOLDERS
OF
TIANJIN JOWAY SHENGSHI GROUP CO.,
LTD.
WHEREAS,
Tianjin Joway Shengshi Group Co., Ltd. (the “Company”) has entered into a
Consulting Services Agreement with Tianjin Junhe Enterprise Management
Consulting Co., Ltd. (the “Junhe”), pursuant to which the
Company is obligated to pay certain fees in exchange for Junhe ’s
consultation and related services;
WHEREAS,
the undersigned shareholders of the Company (the “Shareholders”) collectively
hold 100% of the issued and outstanding equity interests of the Company (the
“Equity Interest”), and have been requested by the Company to pledge the Equity
Interest to Junhe pursuant to an Equity Pledge Agreement in order to
secure the Company’s payment obligations under the Consulting Services
Agreement; and
WHEREAS,
it is in the best interest of the Company and the Shareholders to enter into the
Pledge Agreement;
RESOLVED,
that the Shareholders shall pledge the Equity Interest to Junhe pursuant to the
Equity Pledge Agreement, the terms and conditions of which are hereby
approved.
These
resolutions were executed and submitted on September 16, 2010 by the undersigned
shareholders:
Equity
Pledge Agreement
JOWAY
SHAREHOLDERS:
|
|
|
|
/s/
Zhang Jinghe
|
|
ZHANG
Jinghe
|
|
ID Card No.:
120103196511255419
|
|
Owns
99% of Tianjin Joway Shengshi Group Co., Ltd.
|
|
|
|
/s/
Song Baogang
|
|
SONG
Baogang
|
|
ID
Card No.: 120222196009281034
|
|
Owns
1% of Tianjin Joway Shengshi Group Co., Ltd.
|
|
Equity
Pledge Agreement
JOWAY
Loan
Agreement
Party A:
Zhang Jinghe
Party B:
Liaoning Joway Technology Engineering Co., Ltd.
Mr. Zhang
Jinghe (Party A) is majority shareholder of Liaoning Joway Technology
Engineering Co., Ltd. (Party B). Through friendly negotiation between the two
parties, Party A shall agree to lend money to Party B as operating capital
during the production operational process. Meanwhile, Party B needn’t pay the
interests accrued as well as providing any assets served as guaranty or
pledge.
This
Agreement is valid during the business period of Party B.
Party A:
/s/ Jinghe Zhang
Date: May
10, 2007
Party B:
/stamp/ Liaoning Joway Technology Engineering Co., Ltd.
Date: May
10, 2007
Loan
Agreement
Party A:
Zhang Jinghe
Party B:
Tianjin Joway Textile Co., Ltd.
Mr. Zhang
Jinghe (Party A) is majority shareholder and also President of Tianjin Joway
Textile Co., Ltd. (Party B). Through friendly negotiation between the two
parties, Party A shall agree to lend money to Party B as operating capital
during the production operational process. Meanwhile, Party B needn’t pay the
interests accrued as well as providing any assets served as guaranty or
pledge.
This
Agreement is valid during the business period of Party B.
Party A:
/s/ Jinghe Zhang
Date: May
10, 2007
Party B:
/stamp/ Tianjin Joway Textile Co., Ltd.
Date: May
10, 2007
天津市房屋租赁合同
Leasing
Contract
租赁当事人:
出租人(以下简称甲方):
王爱英
国籍
/
法定代表人:
身份证
/
营业执照
/
其他证件:
地址:
0;
邮政编码:
联系电话:
Leasing
Parties:
Lessor
(hereinafter referred to as Party A)
:
Wang
Aiying__
_________
Nationality/
legal representative: __________________________
ID Card/
Business License/Other Licenses: ___________________________
Address:
______________________________________________________
Postcode:
__________________ Tel:____________________
承租人(以下简称乙方):
天津中威盛世集团有限公司
0;
国籍
/
法定代表人:
张景和
身份证
/
营业执照
/
其他
7;件:
地址:
天津市宝坻经济开发区宝旺道
2
号
;
邮政编码:
联系电话:
Lessee
(hereinafter referred to as Party B):
Tianjin Joway Group Co.,
Ltd.
Nationality/
legal representative:
Zhang
Jinghe
ID Card/
Business License/Other Licenses: ___________________________
Address:
No. 2, Baowang Road,
Baodi Economic Development Zone, Tianjin
Postcode:
__________________ Tel:____________________
根据《中华人民共和国合同法》、《中华人民共和国城市房地产管理法》等有关法律、法规的规定,甲、乙双方遵循自愿、平等、公平、诚实信用的原则,经协商一致,达成如下条款:
In
accordance with relevant Chinese laws and pertinent rules such as “Contract Law
of PRC“ and “Real Estate Management of PRC”, Party A and Party B have reached an
agreement through friendly consultation to conclude the following
contract.
1-1
甲方将坐落于
南开区
区、
南京路
路
天津环球置业广场
16
楼
1601-1603
0;
房屋出租给乙方。该出租房屋面积
600.1
平方米
(
建筑面积
使用面积
)
产别
私产
,结构
框架
,房屋类型
写字楼
(平房
/
多层
/
高层
/
写字楼),设计用途
商业
,房屋所有权证号为
,该房屋
未
(已
/
未)设定抵押。
1-1 Party
A will lease to Party B the premises and attached facilities all owned by Party
A itself, which is located at
Storey 16 1601-1603, Huanqiu
Zhidi Plaza
,
Nanjing
Road,
Nankai
District. The
registered size of the leased premises is__
_600.1_
_____square
meters (Gross size/Usable area). Type:
Private,
Structure:
Frame,
Style:
Office Building
(Bungalow/ Muti-Storey/High-rise Flat/ Office Building),
Usage:
Business
, No. of
Building Droit Card: __________________. The premises
haven’t
(Already/Not)
set hypothec.
2-1
乙方所承租房屋用于
办公
(居住
/
商业服务业
/
办公
/
工业
/
仓库
/
其他约定)。
2-2
乙方应按照约定的用途使用房屋,不得利用承租房屋进行违法活动。乙方改变房屋用途的,应征得甲方书面同意,并遵守国家和本市有关规定。未经甲方书面同意,乙方擅自改变房屋用途,甲方
可以解除合同,并要求乙方赔偿损失。
2-1 The
premises are for doing
office work
.
(Living/Business or Service/Office Work/Industry/Warehouse/Other
Usages)
2-2 Party
B should use the premises in accordance with the usage of leasing prescribed in
the contract and mustn’t carry on illegal activities. Party B will not transfer
the lease of the premises without Party A's written approval and should comply
with the relevant state provisions. Otherwise, Party B will be responsible to
compensate any damages of the premises and attached facilities caused by its
fault and negligence.
3-1
房屋租赁期限自
2009
年
11
月
1
日起至
2014
年
10
月
31
日止。
3-2
考虑乙方需要一定时间对该房屋进行装修,甲方应于
2009
年
7
月
1
日前,将出租的房屋交付乙方。
3-3
租赁期届满时,甲方有权收回房屋,乙方应按期返还。乙方需继续承租该房屋时,应当提前
3
个月与甲方协商。
|
²
|
Lease
Term and Due Date
|
3-1 The
lease term will be from
_Nov._
(month) _
1st
_(day) _
2009_
_ (year) to
_
Oct.
_(month)
_
31st_
(day)
_2014_
_(year).
3-2 Party
A will provide the premises to Party B for use before _
Jul.
(month)
_1st
(day) _
2009_
(year) on the
consideration of decorating.
3-3 When
the lease term expires, Party B will return the premises and attached facilities
to Party A within days. Within three months before the contract expires, Party B
will notify Party A if it intends to extend the leasehold.
4
-
1
甲、乙双方按以下方式计算租金。
按建筑面积计算租金,每平方米(日租金)为
2
元(人
民币),每年按
360
天计算,年租金为
432,000
元。考虑乙方承担装修费用,第一年甲方给予乙方优惠,减半收取租金,第一年租金为
216,000
元。
4-2
租赁期间,使用该房屋所发生的费用(水、电、煤气、通讯、物业管理、
有线电视、供热费等)中,
所有上述房屋使用
费用由
乙方
承担;其他有关费用,均由
甲方
承担。
|
²
|
Rental,
Payment and Rental Term
|
4-1 Party
A and Party B reach an agreement on the following rent.
The daily
rate is
2
yuan/sq.m and then the yearly rate is
432,000
yuan(360 days
each year) based on the gross area. Party A shall grant Party B by reducing the
rent by half, namely
216,000
yuan for the
first year.
4-2
Party B
will bear the
cost of utilities such as water, electricity, gas, communications, management
fee, CATV, heat-supplying Fee etc. on time during the lease term. The rest of
the expenses would be covered by
Party
A
.
5-1
在租赁期内,甲方应保证出租房屋的使用安全。乙方应合理使用其所承租的房屋及其附属设备。
5-2
租赁期间,乙方拆改房屋的,应预先征得甲方书面同意,并遵守国家和本市有关规定。未经甲方书面同意,乙方拆改房屋的,甲方可以解除合同,并要求乙方赔偿损失。
5-3
房屋及原有附属设备因乙方正常使用,发生损坏的,乙方负责承租房屋及原有附属设备的维修,并承担维修费用,甲方应予以协助。
|
²
|
Usage
and Maintenance of Premises
|
5-1
During the term of the lease, Party A should ensure the safety of the premises.
On the contrary, Party B should use the premises and attached facilities
legally.
5-2
During the term of the lease, Party B will not transfer the lease of the
premises without Party A's written approval and should comply with the relevant
state provisions. Where Party B makes any improvements and/or additions to the
Leased Premises without or beyond the scope of the written consent of Party A,
Party A is entitled to rescind the Contract and claim damages for the breach of
contract.
5-3 Party
B will be responsible to compensate any damages of the premises and attached
facilities caused by its fault and negligence, and Party A shall give assistance
thereto.
6-1
经甲方同意,乙方可以将承租的房屋转租给第三人使用。转租期限不得超过本合同约定的终止日期。乙方转租的,甲乙双方的租赁合同继续有效。未经甲方同意,乙方擅自转租的,甲方可以解除
合同,并要求乙方赔偿损失。
6-2
甲方在租赁期限内出售乙方承租房屋时,应提前三个月通知乙方,同等条件下,乙方可优先购买。
|
²
|
Sublet
and Sale of the Premises
|
6-1 Party
B will not transfer the lease of the premises or sublet it without Party A's
approval. Otherwise Party A is entitled to rescind the Contract and claim
damages for the breach of contract. With the approval of Party A, the Contract
remains valid. The term of the exclusive right to sublet the premises shall not
exceed the expiration date.
6-2
Within three months before Party A sells the premises during the leasing term,
Party A should notify Party B. Under the same condition, Party B has the
priority to buy the premises.
7-1
租赁期间,甲方抵押该房屋,须书面通知乙方。
7-2
在合同履行过程中发生争议,甲乙双方应协商解决;协商不成时,可向
天津市南开区仲裁委员会申请仲裁。
7-3
本合同一式
贰
份。甲乙双方各
壹
份。
7-1 Party
A shall notify Party B its intention (if any) of mortgaging the leased premises
during the leasing term in writing.
7-2 Both
parties will solve the disputes arising from execution of the contract or in
connection with the contract through friendly consultation. In case the
agreement cannot be reached, any party may summit the dispute to Tianjin Nankai
District Arbitration Committee for arbitration over the matter.
7-3 There
are
2
originals
of this contract. Each party will hold
1
original.
甲方(签章):
|
乙方(签章):
|
|
|
Party
A:
|
Party
B:
|
|
|
/s/
Aiying Wang
|
/stamp/
Tianjin Joway Shengshi Group Co., Ltd.
|
|
|
日期:
|
日期:
|
|
|
Date:
June 25, 2009
|
Date:
June 25,
2009
|
合同编号:
Contract
NO.:
天津市房屋租赁合同
Leasing
Contract
租赁当事人:
出租人(以下简称甲方):
冯桂芬
国籍
/
法定代表人:
身份证
/
营业执照
/
其他证件:
地址:
邮政编码:
联系电话:
Leasing
Parties:
Lessor
(hereinafter referred to as Party A)
:
Feng
Guifen
__________
Nationality/
legal representative: __________________________
ID Card/
Business License/Other Licenses: ___________________________
Address:
______________________________________________________
Postcode:
__________________ Tel:____________________
承租人(以下简称乙方):
天津中威盛世集团有限公司
国籍
/
法定代表人:
张景和
身份证
/
营业执照
/
其他证件:
地址:
天津市宝坻经济开发区宝旺道
2
号
邮政编码:
联系电话:
Lessee
(hereinafter referred to as Party B):
Tianjin Joway Group Co.,
Ltd.
Nationality/
legal representative:
Zhang
Jinghe
ID Card/
Business License/Other Licenses: ___________________________
Address:
No. 2, Baowang Road,
Baodi Economic Development Zone, Tianjin
Postcode:
__________________ Tel:____________________
根据《中华人民共和国合同法》、《中华人民共和国城市房地产管理法》等有关法律、法规的规定,甲、乙双方遵循自愿、平等、公平、诚实信用的原则,经协商一致,达成如下条款:
In
accordance with relevant Chinese laws and pertinent rules such as “Contract Law
of PRC“ and “Real Estate Management of PRC”, Party A and Party B have reached an
agreement through friendly consultation to conclude the following
contract.
1-1
甲方将坐落于
南开
区、
南京
路
天津环球置业广场
16
楼
1604-1606
房屋出租给乙方。该出租房屋面积
852
平方米
(
建筑面积
使用面积
)
产别
私产
,结构
框架
,房屋类型
写字楼
(平房
/
多层
/
高层
/
写字楼),设计用途
商业
,房屋所有权证号为
,该房屋
未
(已
/
未)设定抵押。
1-1 Party
A will lease to Party B the premises and attached facilities all owned by Party
A itself, which is located at
Storey 16 1604-1606, Huanqiu
Zhidi Plaza, Nanjing
Road,
Nankai
District. The
registered size of the leased premises is__
852
_____square meters
(Gross size/Usable area). Type:
Private,
Structure:
Frame,
Style:
Office Building
(Bungalow/ Muti-Storey/High-rise Flat/ Office Building),
Usage:
Business
, No. of
Building Droit Card: __________________. The premises
haven’t
(Already/Not)
set hypothec.
2-1
乙方所承租房屋用于
办公
(居住
/
商业服务业
/
办公
/
工业
/
仓库
/
其他约定)。
2-2
乙方应按照约定的用途使用房屋,不得利用承租房屋进行违法活动。乙方改变房屋用途的,应征得甲方书面同意,并遵守国家和本市有关规定。未经甲方书面同意,乙方擅自改变房屋用途,甲方可以解除合同,并要求乙方赔偿损失。
2-1 The
premises are for doing
office work
.
(Living/Business or Service/Office Work/Industry/Warehouse/Other
Usages)
2-2 Party
B should use the premises in accordance with the usage of leasing prescribed in
the contract and mustn’t carry on illegal activities. Party B will not transfer
the lease of the premises without Party A's written approval and should comply
with the relevant state provisions. Otherwise, Party B will be responsible to
compensate any damages of the premises and attached facilities caused by its
fault and negligence.
3-1
房屋租赁期限自
2009
年
11
月
1
日起至
2014
年
10
月
31
日止。
3-2
考虑乙方需要一定时间对该房屋进行装修,甲方应于
2009
年
7
月
1
日前,将出租的房屋交付乙方。
3-3
租赁期届满时,甲方有权收回房屋,乙方应按期返还。乙方需继续承租该房屋时,应当提前
3
个月与甲方协商。
²
|
Lease
Term and Due Date
|
3-1 The
lease term will be from
Nov.
(month)
1st
(day)
2009
(year) to
Oct.
(month)
31st
(day)
2014
(year).
3-2 Party
A will provide the premises to Party B for use before
Jul.
(month)
1st
(day) _
2009_
(year) on the
consideration of decorating.
3-3 When
the lease term expires, Party B will return the premises and attached facilities
to Party A within days. Within three months before the contract expires, Party B
will notify Party A if it intends to extend the leasehold.
4
-
1
甲、乙双方按以下方式计算租金。
按建筑面积计算租金,每平方米(日租金)为
2
元(人民币),每年按
360
天计算,年租金为
613,000
元。考虑乙方承担装修费用,第一年甲方给予乙方优惠,减半收取租金,第一年租金为
306,500
元。
4-2
租赁期间,使用该房屋所发生的费用(水、电、煤气、通讯、物业管理、
有线电视、供热费等)中,
所有上述房屋使用
费用由
乙方
承担;其他有关费用,均由
甲方
承担。
²
|
Rental,
Payment and Rental Term
|
4-1 Party
A and Party B reach an agreement on the following rent.
The daily
rate is
2
yuan/sq.m and then the yearly rate is
613,000
yuan(360 days
each year) based on the gross area. Party A shall grant Party B by reducing the
rent by half, namely
306,500
yuan for the
first year.
4-2
Party B
will bear the
cost of utilities such as water, electricity, gas, communications, management
fee, CATV, heat-supplying Fee etc. on time during the lease term. The rest of
the expenses would be covered by
Party A
.
5-1
在租赁期内,甲方应保证出租房屋的使用安全。乙方应合理使用其所承租的房屋及其附属设备。
5-2
租赁期间,乙方拆改房屋的,应预先征得甲方书面同意,并遵守国家和本市有关规定。未经甲方书面同意,乙方拆改房屋的,甲方可以解除合同,并要求乙方赔偿损失。
5-3
房屋及原有附属设备因乙方正常使用,发生损坏的,乙方负责承租房屋及原有附属设备的维修,并承担维修费用,甲方应予以协助。
²
|
Usage
and Maintenance of Premises
|
5-1
During the term of the lease, Party A should ensure the safety of the premises.
On the contrary, Party B should use the premises and attached facilities
legally.
5-2
During the term of the lease, Party B will not transfer the lease of the
premises without Party A's written approval and should comply with the relevant
state provisions. Where Party B makes any improvements and/or additions to the
Leased Premises without or beyond the scope of the written consent of Party A,
Party A is entitled to rescind the Contract and claim damages for the breach of
contract.
5-3 Party
B will be responsible to compensate any damages of the premises and attached
facilities caused by its fault and negligence, and Party A shall give assistance
thereto.
6-1
经甲方同意,乙方可以将承租的房屋转租给第三人使用。转租期限不得超过本合同约定的终止日期。乙方转租的,甲乙双方的租赁合同继续有效。未经甲方同意,乙方擅自转租的,甲方可以解除合同,并要求乙方赔偿损失。
6-2
甲方在租赁期限内出售乙方承租房屋时,应提前三个月通知乙方,同等条件下,乙方可优先购买。
²
|
Sublet
and Sale of the Premises
|
6-1 Party
B will not transfer the lease of the premises or sublet it without Party A's
approval. Otherwise Party A is entitled to rescind the Contract and claim
damages for the breach of contract. With the approval of Party A, the Contract
remains valid. The term of the exclusive right to sublet the premises shall not
exceed the expiration date.
6-2
Within three months before Party A sells the premises during the leasing term,
Party A should notify Party B. Under the same condition, Party B has the
priority to buy the premises.
7-1
租赁期间,甲方抵押该房屋,须书面通知乙方。
7-2
在合同履行过程中发生争议,甲乙双方应协商解决;协商不成时,可向
天津市南开区仲裁委员会申请仲裁。
7-3
本合同一式
贰
份。甲乙双方各
壹
份。
7-1 Party
A shall notify Party B its intention (if any) of mortgaging the leased premises
during the leasing term in writing.
7-2 Both
parties will solve the disputes arising from execution of the contract or in
connection with the contract through friendly consultation. In case the
agreement cannot be reached, any party may summit the dispute to Tianjin Nankai
District Arbitration Committee for arbitration over the matter.
7-3 There
are 2 originals of this contract. Each party will hold 1 original.
甲方(签章):
|
乙方(签章):
|
|
|
Party
A:
|
Party
B:
|
|
|
/s/
Guifen Feng
|
/stamp/Tianjin
Joway Shengshi Group Co.,Ltd.
|
|
|
日期:
|
日期:
|
|
|
Date:
|
Date:
|
|
|
June
25, 2009
|
June
25, 2009
|
Contract
of Purchases and
Sales of Products
Party
A
:
Tianjin
Daxing
Import &
Export Trad
e
Co.,
Ltd.
Party B:
Liaoning Joway Technology
Engineering Co., Ltd.
On the
principle of
cooperation
and
win-win
results
on the basis of fairness, honesty,
tru
st,
equal
cooperation and mutual benefit
,
Party
A
and
Party
B reach
the following
consensus
through
full
consultation
s
with respect
to
Party
B
’
s
authoriz
ation to
Party
A
as
procurement agent
of
c
ontrol
v
alves
(
m
ultiport
valves
)
in
accordance with the
Contract
Law
o
f
t
he
People's Republic
o
f
China
and its
related
laws
.
1. P
roduct
No.
|
|
Product
Name
|
|
Specification
|
|
Unit
|
|
Unit
Price
(
T
ax
Included
)
|
|
Quantity
|
|
Amount
(Yuan)
|
1
|
|
M
anually
O
perated
V
alve
|
|
F56E1-1
|
|
set
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Water
Distributor
|
|
General
|
|
set
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
C
entral
T
ube
|
|
Φ
27mm
|
|
piece
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Water
Cylinder
|
|
Φ
3
65mm
|
|
piece
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Reducing
Valve
|
|
4kg
|
|
piece
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
2. Mode
Party B
entrusts
Party A
with
commodity purchase
s. D
ue to price chang
ing
with the market,
the current s
ettlement price
including
VAT
and
freight
is
determined via bilateral
negoti
at
ion.
3.
After-Sales Quality and
Service
The shelf life of the products supplied
by Party A to Party B is 1 year (
which can be extended
to 18 months
depending on the
date code in valve
body). Party A shall change
for new products
or provide
maintenan
ce accessories
free of charge
(
returning products through
logistics
,excluding
express delivery) in case there is any
defect or
quality problem
resulting from products
manufacturing in the warranty period.
Party A shall provide free
maintenance on the products
beyond the
warranty perio
d
or
product defects caused by improper use
of
party B (the third party
)
, but spare parts and in-transit freight
shall be
settled
separately.
Business involving returning goods
shall be confirmed via
faxes
with reasons
indicated;
otherwise
it shall
not be
done
.
4. A
rbitration
Any dispute
s
arising from
the performance of
the contract
between
both
parties
that cannot be
settled
via
negotiation
on
the
principle of amicable
consultations
shall be submitted to the arbitration
authority
in
Tianjin.
5.
Thi
s
c
ontract is executed in duplicate, one
for each, and shall
ent
er
into force
after being signed and
sealed by both parties. This contract shall take effect
as of
October
1
, 2
0
08
and shall expire on
September
30
,
20
09
.
Party
A
:
Tianjin
Daxing
Import &
Ex
port
Trad
e
Co.,
Ltd.
/Stamp/
Tianjin
Daxing
Import &
Export Trad
e
Co.,
Ltd.
Attorney:
Address:
No.8
Huatiandao
Road
,
Tianjin
Party
B
:
Liaoning Joway Technology Engineering
Co., Ltd.
/
Stamp/
Liaoning Joway Technology Engineering
Co., Ltd.
Attorney:
Address:
Clothing Park, Shaling Town, Yuhong District, Shenyang
Contracts of Purchases and Sales of
Products
Party
A
:
Tianjin
Daxing
Import &
Export Trad
e
Co.,
Ltd.
Party B:
Tianjin
Joway
Textile Co.,
Ltd.
1.
Product
Names, Specifications, Quantity, Amount:
Date
of Signing the
Contract
:
October 9,
2008
Product
Name
|
|
Color
|
|
Fabric
Requirement
|
|
Specification
|
|
Unit
Price
(
Yuan/Piece)
|
|
Quantity
( Piece)
|
|
Amount(Yuan)
|
|
Including
Tax
|
Sock
|
|
|
|
Cotton
|
|
male
/female
|
|
|
|
|
|
|
|
|
Underwear
|
|
|
|
Cotton
plus
Spandex
|
|
male
/female
|
|
|
|
|
|
|
|
|
Underclothes
|
|
|
|
Cotton
|
|
male /
emale
|
|
|
|
|
|
|
|
|
Bra
|
|
|
|
Spandex
plus
Polyamide
|
|
All Sizes
|
|
|
|
|
|
|
|
|
Kneepad
|
|
|
|
Polyamide
|
|
L/XL/XXL
|
|
|
|
|
|
|
|
|
Decorative
Cloth
|
|
|
|
Synthetic
Fiber
|
|
1.95m/w
|
|
|
|
|
|
|
|
|
Hat
|
|
|
|
Cotton
|
|
red/m
|
|
|
|
|
|
|
|
|
Shampoo
|
|
|
|
Bottle
|
|
|
|
|
|
|
|
|
|
|
Shower gel
|
|
|
|
Bottle
|
|
|
|
|
|
|
|
|
|
|
Soap
|
|
|
|
Bar
|
|
|
|
|
|
|
|
|
|
|
Tie
|
|
|
|
Box
|
|
|
|
|
|
|
|
|
|
|
Soften
Cotton
|
|
|
|
kg
|
|
|
|
|
|
|
|
|
|
|
Pillowcase
Cloth
|
|
|
|
m
|
|
|
|
|
|
|
|
|
|
|
Knitted
Fabrics
|
|
|
|
kg
|
|
|
|
|
|
|
|
|
|
|
Knitting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
(Capital)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
Party B entrusts Party A with commodity
purchases. Due to price changing with the market, the current settlement
p
rice is determined via
bilateral negotiation, which is the
delivered price
including VAT.
The number shall be allow
ed within
the range of
plus-minus
10%, and the volume above 10% shall not
be settled within the current period.
2. Product
Quality Standards
and
Acceptance Methods:
(i)
Reactive
dyes are needed for fabric dyeing and
finishing processes
to meet
the national environmental requirements in accordance with GB-18401-2003-B,
color fastness up to 4
th
level or above
with appearance quality
unaffected
due to fading in finishing treatments of
the purchaser. Color
difference on
fabrics can not exceed the visual standard, finished
products referred by
the standards
of retained sample. The products
with great
disparity
shall be
treated as
nonconformity
.
(i
i)
Fabrics shall be without
any damage, spinning or
skipped stitches
;
(iii)
Workmanship Requirements: Delicate, fine and close stitches, perfect design, no
out-pin or short-thread; binding edge width of 2.5cm, uniform smooth and natural
sewing.
3. Deliver
y Date:
The supplier
shall deliver goods
30
-45
days after signing the
contract
with
partial delivery permitted during the
period, but the
completion
date
can not exceed the
time agreed in the contract
. If the
supplier fails to deliver the goods within the
stipulated
time, he needs to inform the purchaser in advance. With the approval of both
sides, the delivery date can be adjusted; the purchaser can notice the supplier
to adjust
shipping time in
case that there is
excessive
inventory in the purchaser.
4.
Means of
Transportation and Freight: The supplier is responsible for
safety of
packages, and processing such as waterproof, moisture-proof, anti-fouling during
transport. The supplier shall choose safe and efficient transportation and pay
for long-distanc
e shipping
freight.
5. Payment
Settlement Methods: Both parties shall check accounts monthly. The
purchaser
shall make acceptance check on
all
commodities
in accordance
with the acceptance criteria provided to the supplier and return unqualified
goods to
the
supplier without paying
shipping fee for returning
with
the number
of qualified p
roducts
as payment
basis.
The supplier shall issue value-added
invoice and the purchaser pay
upon invoice
6.
Responsibility of Each Party:
Both parties shall abide by
all
clauses agreed in the
contract and safeguard bilateral rights and interests. The supplier shall not
produce
goods with
the logo of the
purchaser
without the permission of the latter.
Once found,
the
purchaser
shall be
entitled to terminate the contract and
ask for the
supplier
to assume the
economic losses, and reserve the right of action against the supplier. The
purchaser
is entitled
to unilaterally terminate the contract and ask for the
supplier to
bear the
actual loss
he supplier
has brought about
if
fr
equent
extension of the contract cause
s
a
fundamental breach. The
supplier should exchange or return any
commodity with quality problem confirmed such as non-normal fading, fabric
pilling, fabric damage, etc., when consum
ers use it and
compensate the loss
of consumers.
7. Methods of
Contract Default and Dispute Resolution: The both parties shall
be exempt from financial
responsibilities
by mutual consultation
for economic
losses due to force majeure.
Any disputes of the both
parties
arising from in
econo
mic contacts that
cannot be resolved after negotiation
on
the
principle of amicable negotiation and mutual benefits
shall be submitted to the court
at the
purchaser
’
s side
for settlement through
litigation
。
8. This
c
ontract is executed in duplicate, one
for each, and shall
ent
er
into force
after being signed and
sealed by both parties,
the
fax version is also valid.
This contract shall take effect as of
October 9, 2008
and shall
expire on
October 8, 2009
.
Party
A
Unit
Name:
Tianjin
Daxing Import & Export Trade Co., Ltd.
Address:
No.
8 Huatiandao Road
,
Tianjin
Legal Representative
:
Sun Wenxue
Stamped:
Tianjin
Daxing Import & Export Trade Co., Ltd.
Tel :
(
022
)
2322-8032
Fax:
(
022
)
2322-8031
Party
B
Unit
Name:
Tianjin
Joway
Textile Co.,
Ltd.
Address: No.2
Baowang Road, Tianbao Industrial Park, Baodi Economic Development Zone,
Tianjin
Legal Representative
:
Feng Yanli
Stamped:
Tianjin Joway
Textile Co., Ltd.
Tel:
(
022
)
2253-1918
Fax:
(
022
)
2253-3666
Sales
Contract
Party A:
Tianjin Joway Textile Co., Ltd.
Party B:
Shenyang Joway Industrial Development Co., Ltd.
Party A
and Party B have reached an agreement through friendly consultation to conclude
the following contract.
1. Party
A agrees to buy the undermentioned goods on the terms and conditions stated
below:
Name of Commodity
|
|
Specifications
|
|
Quantity
|
|
Unit Price
|
|
Total Value
|
Tourmaline
products
|
|
|
|
Refer
to list
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
:
NINE HUNDRED
AND THIRTY TWO THOUSAND NINE HUNDRED AND FOURTEEN YUAN AND FORTY
FEN
|
2.
Rights, interests and obligations of each party
(1)
Through the friendly negotiation of both sides, Party A shall pay by
installments during the production operational process.
(2) Party
B shall deliver all the goods within five working days upon signing the
contract.
(3) Upon
the acceptance of the goods by Party A, Party B shall provide added value tax
invoice to Party A.
(4) Party
B will be responsible for the quality of goods he provided.
3.
Matters not mentioned herein
,
if any
,
may be friendly
negotiated by the parties hereto. In case the agreement cannot be reached, any
party may summit the dispute to the exclusive jurisdiction of a competent court
of jurisdiction over the matter.
4. This
contract is executed in duplicate, one for each, and shall enter into force
after being signed and sealed by both parties.
Party
A:
Representative:
Stamped:
Tianjin Joway Textile Co., Ltd.
Dec. 20,
2009
Party
B:
Representative:
Stamped:
Shenyang Joway Industrial Development Co., Ltd.
Dec. 20,
2009
Sales
Contract
Party A:
Tianjin Joway Textile Co., Ltd.
Party B:
Shenyang Joway Industrial Development Co., Ltd.
Party A
and Party B have reached an agreement through friendly consultation to conclude
the following contract.
1. Party
A agrees to buy the undermentioned goods on the terms and conditions stated
below:
Name of Commodity
|
|
Specifications
|
|
Quantity
|
|
Unit Price
|
|
Total Value
|
Tourmaline
products
|
|
|
|
Refer
to list
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
:
ONE HUNDRED
AND EIGHTY SEVEN THOUSAND ONE HUNDRED AND THIRTY FIVE YUAN AND TWENTY NINE
FEN
|
2.
Rights, interests and obligations of each party
(1)
Through the friendly negotiation of both sides, Party A shall pay by
installments during the production operational process.
(2) Party
B shall deliver all the goods within five working days upon signing the
contract.
(3) Upon
the acceptance of the goods by Party A, Party B shall provide added value tax
invoice to Party A.
(4) Party
B will be responsible for the quality of goods he provided.
3.
Matters not mentioned herein
,
if any
,
may be friendly
negotiated by the parties hereto. In case the agreement cannot be reached, any
party may summit the dispute to the exclusive jurisdiction of a competent court
of jurisdiction over the matter.
4. This
contract is executed in duplicate, one for each, and shall enter into force
after being signed and sealed by both parties.
Party
A:
Representative:
Stamped:
Tianjin Joway Textile Co., Ltd.
Jan.
15th, 2009
Party
B:
Representative:
Stamped:
Shenyang Joway Industrial Development Co., Ltd.
Sales
Contract
Party A:
Tianjin Joway Textile Co., Ltd.
Party B:
Shenyang Joway Industrial Development Co., Ltd.
Party A
and Party B have reached an agreement through friendly consultation to conclude
the following contract.
1. Party
A agrees to buy the undermentioned goods on the terms and conditions stated
below:
Name of Commodity
|
|
Specifications
|
|
Quantity
|
|
Unit Price
|
|
Total Value
|
Tourmaline
products
|
|
|
|
Refer
to list
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
:
FOUR HUNDRED
AND TEN THOUSAND YUAN ONLY
|
2.
Rights, interests and obligations of each party
(1)
Through the friendly negotiation of both sides, Party A shall pay by
installments during the production operational process.
(2) Party
B shall deliver all the goods within five working days upon signing the
contract.
(3) Upon
the acceptance of the goods by Party A, Party B shall provide added value tax
invoice to Party A.
(4) Party
B will be responsible for the quality of goods he provided.
3.
Matters not mentioned herein
,
if any
,
may be friendly
negotiated by the parties hereto. In case the agreement cannot be reached, any
party may summit the dispute to the exclusive jurisdiction of a competent court
of jurisdiction over the matter.
4. This
contract is executed in duplicate, one for each, and shall enter into force
after being signed and sealed by both parties.
Party
A:
Representative:
Stamped:
Tianjin Joway Textile Co., Ltd.
Dec. 15,
2008
Party
B:
Representative:
Stamped:
Shenyang Joway Industrial Development Co., Ltd.
Dec. 15,
2008
TRADEMARK
LICENCE AGREEMENT
Part
A
:
Jinghe
Zhang
Part
B
:
Tianjin
Joway Shengshi Group Co., Ltd.
Party A
and Party B, through friendly negotiations, in respect of the grant of the five
patent and a trademark (hereinafter referred to as the Licensed Titles) owned by
Part A, to Part B for the rights to use, have agreed to enter into this
Agreement as follows:
Article
1 Name and Contents of the Licensed Titles
:
1.1
Patent right of utility models: Turmaline wellness mattress (Patent No. ZL 2007
2 0015435.9)
1.2 Paten
right of utility models: Turmaline wellness underwear (Patent No. ZL 2007 2
0015434.4)
1.3 Paten
right of utility models: A kind of turmaline wellness house (Patent No. ZL 2007
2 0014570.1)
1.4 Paten
right of utility models: A kind of activated water machine (Patent No. ZL 2007 2
0014571.6)
1.5 Paten
right of design: Drinking water machine (Patent No. ZL 2007 3
0011189.5)
1.6
Trademark: 24
(
Registration No.
4794111
)
Article
2 Term of License
The
agreement shall be valid for a period of ten years form the date of coming into
force of the Agreement. The licence to any patent or trademark of the Licensed
Titles shall be invalid respectively when its valid period expire. The Agreement
is renewable for a further period as may be mutually agreed in writing on expiry
of the agreement period.
Article
3 Price
Part A
grants Part B to use Licensed Titles free of charge. Pary B afford the relevant
expenses about Licensed Titles during the valid period.
Article
4 This Agreement shall become effective on the date of signing and
sealing by both parties.
Article
5 This Agreement is made in duplicate, holding the same legal
effects, one for each party.
Party
A:
Signature:
|
/s/ Jinghe Zhang
|
|
|
Jinghe
Zhang
|
|
Date:
December 1, 2009
Part
B:
Stamp:
Tianjin Joway Shengshi Group Co., Ltd.
Date:
December 1, 2009
TRADEMARK
LICENCE AGREEMENT
Part
A
:
Shenyang
Joway Industrial Development Co., Ltd.
Part
B
:
Tianjin
Joway Shengshi Group Co., Ltd.
Party A
and Party B, through friendly negotiations, in respect of the grant of the two
trademarks (hereinafter referred to as the Licensed Titles) owned by Part A, to
Part B for the rights to use, have agreed to enter into this Agreement as
follows:
Article
1 Name and Contents of the Licensed Titles
:
1.1
Trademark: 3
(
Registration No. 6104256
)
1.2
Trademark: 11
(
Registration No.
6104253
)
Article
2 Term of License
The
agreement shall be valid for a period of nine years from the date of coming into
force of the Agreement. The Agreement is renewable for a further period as may
be mutually agreed in writing on expiry of the agreement period.
Article
3 Price
Part A
grant Part B to use Licensed Titles free of charge.
Article
4 This Agreement shall become effective on the date of signing and
sealing by both parties.
Article
5 This Agreement is made in duplicate, holding the same legal
effects, one for each party.
Party
A
Stamp:
Shenyang Joway Industrial Development Co., Ltd.
Date:
December 1, 2009
Party
B
Stamp:
Tianjin Joway Shengshi Group Co., Ltd.
Date:
December 1, 2009
聘请合同
EMPLOYMENT
AGREEMENT
G2 Ventures,Inc.
(聘方)
聘请
张景和
(受聘方)
为
主席、首席执行官兼董事
(职务)。双方本着友好合作的精神,同意签定并遵守本合同。合同条款如下:
G2 Ventures,Inc.
(
the engaging party ) has engaged
Jinghe Zhang
( the
engaged party ) as
President, Chief Executive
Officer and director
( position ). The two parties in the spirit of
friendship and cooperation have entered into an agreement to sign and to comply
with the following terms:
1、聘期为
三年
,自
2010
年
9
月
28
日起,至
2013
年
9
月
27
日止
.
The
duration of service is
three years
, i.e.
from
9
/
28
/
2010
to
9
/
27
/
2013
.
2、聘方每月支付给受聘方薪金人民币
7000元
The
engaging party pays the engaged party a salary of RMB
7000
by
month.
3、双方均不得无故解除合同。
Neither
party shall cancel the contract without sufficient causes or
reasons.
4、聘方如中途中止合同,则需支付受聘方三个月薪金作为补偿。
If the
engaging party finds it imperative to terminate the contract, it shall pay the
engaged party three month salary as compensation allowance.
5、如受聘方中途提出辞职,聘方自同意之日起即停发工资,受聘方不再享有各种待遇。
If the
engaged party submits his resignation in the course of his service, the engaging
party shall stop paying the engaged party the salary from the day when his
resignation is approved by the engaging party, and the engaged party shall no
longer enjoy the salary and benefits stipulated.
6、本合同自受聘方到职之日起生效,聘请届满即自行失效。如一方要求延长聘期,必须在本合同期满之前向对方提出,经双方协商确认后,在另行签定延长聘期合同。
The
present contract shall come into effect on the first day of the term of service
herein stipulated and cease immediately to be effective at its expiration. If
either party wishes to renew the contract, the other party shall be notified
before it expires. Upon agreement by both parties through consultation a new
contract can be signed.
7、受聘方同意本合同的各项条款。
The
engaged party agrees to all the articles in this contract.
8、本合同用中、英文两种文字写成,两种文本具有同等效力。
The
present contract is done in Chinese and English, both versions being equally
valid.
聘方The
engaging party:
|
G2 Ventures, Inc.
|
|
|
|
|
By:
|
/s/ Jinghe Zhang
|
|
|
Jinghe
Zhang
|
|
Title:
President, Chief Executive Officer and director
Date:
September 28, 2010
受聘方The
engaged party:
|
/s/ Jinghe Zhang
|
|
|
Jinghe Zhang
|
|
Date:
September 28, 2010
聘请合同
EMPLOYMENT
AGREEMENT
G2 Ventures,Inc.
(聘方)
聘请
黄元
(受聘方)为
首席财务官、秘书兼财务总管_
(职务)。双方本着友好合作的精神,同意签定并遵守本合同。合同条款如下:
G2 Ventures,Inc.
(
the engaging party ) has engaged
Yuan Huang
( the
engaged party ) as
Chief Financial Officer,
Secretary and Treasurer
( position ). The two parties in the spirit of
friendship and cooperation have entered into an agreement to sign and to comply
with the following terms:
1、聘期为
三年
,自
2010
年
9
月
28
日起,至
2013
年
9
月
27
日止.
The
duration of service is
three years
, i.e. from
9
/
28
/
2010
to
9
/
27
/
2013
.
2、聘方每月支付给受聘方薪金人民币
5000元
The
engaging party pays the engaged party a salary of RMB
5000
by
month.
3、双方均不得无故解除合同。
Neither
party shall cancel the contract without sufficient causes or
reasons.
4、聘方如中途中止合同,则需支付受聘方三个月薪金作为补偿。
If the
engaging party finds it imperative to terminate the contract, it shall pay the
engaged party three month salary as compensation allowance.
5、如受聘方中途提出辞职,聘方自同意之日起即停发工资,受聘方不再享有各种待遇。
If the
engaged party submits his resignation in the course of his service, the engaging
party shall stop paying the engaged party the salary from the day when his
resignation is approved by the engaging party, and the engaged party shall no
longer enjoy the salary and benefits stipulated.
6、本合同自受聘方到职之日起生效,聘请届满即自行失效。如一方要求延长聘期,必须在本合同期满之前向对方提出,经双方协商确认后,在另行签定延长聘期合同。
The
present contract shall come into effect on the first day of the term of service
herein stipulated and cease immediately to be effective at its expiration. If
either party wishes to renew the contract, the other party shall be notified
before it expires. Upon agreement by both parties through consultation a new
contract can be signed.
7、受聘方同意本合同的各项条款。
The
engaged party agrees to all the articles in this contract.
8、本合同用中、英文两种文字写成,两种文本具有同等效力。
The
present contract is done in Chinese and English, both versions being equally
valid.
聘方The
engaging party:
|
G2 Ventures, Inc.
|
|
|
|
|
By:
|
/s/ Jinghe Zhang
|
|
|
Jinghe
Zhang
|
|
Title:
President, Chief Executive Officer and director
Date:
September 28, 2010
受聘方The
engaged party:
|
/s/ Yuan Huang
|
|
|
Yuan
Huang
|
|
Date:
September 28, 2010
Truster
(hereinafter referred to as Party A)
:
Tianjin Joway
Textile Co., Ltd.
Trustee
(hereinafter referred to as Party B)
:
Changlong
Si
ID Card
Number: 22020319821022211X
Party A
and Party B reach a consensus through friendly consultation on the matter that
Party A entrusts Party B to purchase a CITIC trust fund on behalf of Party
A.
I.
Duties of Each Party
1. Party
A is responsible to supply RMB 10 million to Party B to purchase CITIC trust
fund.
2. Party
B is responsible to purchase RMB 10 million of CITIC trust fund on that day when
Party B receives remittance from Party A or the next day; and return RMB 10
million and all interests of the CITIC trust fund to Party A on that day when
this agreement expire or the next day.
II
. Period of the
Entrustment
The
period of the entrustment is from February 25, 2009 to August 25,
2010.
III
.
Default
Responsibilities
1. Party
B shall purchase CITIC trust fund timely when receiving Party A’s remittance
according to this agreement. In case of breach of agreement by Party B, Party A
shall be entitled to require Party B to compensate for all losses of Party A
resulting therefrom.
2. Party
B is not allowed to embezzle the entrusted money. In case of breach of agreement
by Party B, Party A shall be entitled to require Party B to compensate for all
losses of Party A resulting therefrom and to bear relevant legal
liability.
3. If
Party A demand to recall the entrusted money in advance, Party B shall be
entitled to require Party A to compensate for all losses of early
redemption.
4. When
this agreement expire, Party B shall return all the entrusted money and relevant
interests timely according to this agreement. In case of breach of agreement by
Party B, Party A shall be entitled to require Party B to compensate for all
losses of Party A resulting therefrom and to bear relevant legal
liability.
IV
.
Dispute
Settlement
Should
any dispute happens during the execution of this agreement by both parties, it
should be solved through friendly consultation. In case no agreement can be
reached through consultation, any party may summit the dispute to the People's
Court on the side of Party A.
V
.
This agreement shall
become effective upon the signatures of both parties.
VI
.
This contract is
executed in duplicate, one for each party.
Party
A: /stamp/ Tianjin Joway Textile Co., Ltd.
|
Party
B: /s/ Changlong Si
|
G2
VENTURES, INC
16
th
Floor,
Tianjin Global Zhiye Square,
309
Nanjing Road, Nankai District,
Tianjin,
PRC 300100
October
5, 2010
BY
E-MAIL
Turner,
Stone & Company, LLP
12700
Park Central Drive, Suite 1400
Dallas,
Texas 75251
Re:
Termination of Engagement with G2 Ventures, Inc.
Dear
Sir/Madam:
As you
may already know, we have recently acquired control of G2 Ventures, Inc.
(the "Company"). We have decided to appoint Sherb & Co., LLP ("Sherb ") as
our public accounting firm and hereby notify you of the termination of your
services as the Company's public accounting firm with immediate
effect.
In
connection therewith, we have prepared the following draft disclosure to be
filed in a Current Report on Form 8-K:
Item
4.01 Changes in Registrant’s Certifying Accountant.
On
October 5, 2010, we dismissed Turner, Stone & Company, LLP (“TSC”)
as our independent
registered public accounting firm and. The reports of TSC on our
financial statements for each of the past two fiscal years contained no adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The decision to change
independent accountants was approved by our board of directors on October 5,
2010.
During
our two most recent fiscal years and through the date of this report, we have
had no disagreements with TSC
on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
TSC, would have caused it to make reference to the subject matter of such
disagreements in its report on our financial statements for such
periods.
During
our two most recent fiscal years and through the date of this report on Form
8-K, there have been no reportable events as defined under Item 304(a)(1)(v) of
Regulation S-K adopted by the SEC.
We
provided TSC with a copy of this disclosure before its filing with the SEC. We
requested that TSC provide us with a letter addressed to the SEC stating whether
or not it agrees with the above statements, and we received a letter from TSC
stating that it agrees with the above statements.
New
Independent Accountant
Our board
of directors appointed Sherb & Co., LLP (“Sherb”) as our new independent
registered public accounting firm effective as of October 5, 2010. During the
two most recent fiscal years and through the date of our engagement, we did not
consult with Sherb regarding either (1) 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 financial statements, or (2) any matter
that was either the subject of a disagreement (as defined in Regulation S-K Item
304(a)(1)(v)), during the two most recent fiscal years.
Prior to
engaging Sherb, Sherb did not provide our company with either written or oral
advice that was an important factor considered by our company in reaching a
decision to change our independent registered public accounting firm from TSC to
Sherb.
Please
let us know if you have any comments or proposed amendments to the above.
Assuming that you do not, we have taken the liberty to prepare your letter to
the Securities and Exchange Commission (see attached). Please extend a signed
copy of the letter to the SEC to us so that we may file it as an exhibit to
our Form 8-K by end of business day, October 6, 2010. If you have
any questions, please do not hesitate to contact our attorney, Benjamin Tan of
Sichenzia Ross Friedman Ference, LLP at (212) 930 9700. Thank you.
|
Very
truly yours,
|
|
|
|
/s/Huang
Yuan
|
|
Huang
Yuan
|
|
Chief
Financial Officer, Secretary and
Treasurer
|
Subsidiaries’
or Affiliate’s Name
|
|
Jurisdiction
of
Incorporation
or
Organization
|
|
Percentage
of Ownership
|
|
|
|
|
|
Dynamic
Elite International Limited (“Dynamic Elite”)
|
|
British
Virgin Islands
|
|
100%
by G2 Ventures, Inc.
|
|
|
|
|
|
Tianjin
Junhe Enterprise Management Consulting Co., Ltd.
|
|
PRC
|
|
100%
by Dynamic Elite
|