UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K/A
þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended March 31, 2009
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number 333-139910
China
Shoe Holdings, Inc.
(Exact
name of registrant as specified in its charter )
Nevada
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20-2234410
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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23/F,
Westin Center, 26 Hung To Road
Kwun
Tong, Kowloon, Hong Kong
(Address
of principal executive offices)
+852
2295-1818
(
Registrant
’
s tel
ephone number, including area
code
)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value
Per Share
Indicate
by check mark whether the registrant is a well-known seasoned issuer as defined
in Rule 405 of the Securities Act. Yes
o
No
þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
þ
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated
filer
o
Smaller
Reporting Company
þ
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act) Yes
¨
No
þ
As of
June 15, 2009, the aggregate market value of the issued and outstanding common
stock held by non-affiliates of the registrant, based upon the closing price of
the common stock as quoted on the National Association of Securities Dealers
Inc. OTC Bulletin Board of $0.01 was approximately
$4,694,456. For purposes of the above statement only, all
directors, executive officers and 10% shareholders are assumed to be
affiliates. This determination of affiliate status is not necessarily
a conclusive determination for any other purpose.
Number of
shares of common stock outstanding as of June 15, 2009 was
1,990,759,517.
DOCUMENTS INCORPORATED BY
REFERENCE
– None
CHINA
SHOE HOLDINGS, INC.
FORM
10-K/A
FOR
THE FISCAL YEAR ENDED MARCH 31, 2009
INDEX
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Page
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PART
I
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Item
1
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Business
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4
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Item
1A
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Risk
Factors
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12
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Item
1B
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Unresolved
Staff Comments
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18
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Item
2
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Properties
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18
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Item
3
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Legal
Proceedings
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19
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Item
4
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Submission
of Matters to a Vote of Security Holders
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19
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PART
II
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Item
5
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Market
for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
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20
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Item
6
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Selected
Financial Data
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21
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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22
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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27
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Item
8
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Financial
Statements and Supplementary Data
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28
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Item
9
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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29
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Item
9A
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Controls
and Procedures
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29
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Item
9B
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Other
Information
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29
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PART
III
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Item
10
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Directors,
Executive Officers, and Corporate Governance
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30
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Item
11
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Executive
Compensation
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31
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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34
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Item
13
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Certain
Relationships and Related Transactions and Director
Independence
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35
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Item
14
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Principal
Accounting Fees and Services
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35
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PART
IV
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Item
15
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Exhibits
and Financial Statement Schedules
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36
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Signatures
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37
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STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
In this
annual report, references to "China Shoe Holdings, Inc.," "China Shoe," "Extra
Ease Limited," “Eatware Intellectual Properties Limited,” "the Company," "we,"
"us," and "our" refer to China Shoe Holdings, Inc. and its wholly owned
subsidiaries, Extra Ease Limited Eatware Intellectual Properties
Limited.
Except
for the historical information contained herein, some of the statements in this
Report contain forward-looking statements that involve risks and uncertainties.
These statements are found in the sections entitled "Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
and "Risk Factors." They include statements concerning: our business strategy;
expectations of market and customer response; liquidity and capital
expenditures; future sources of revenues; expansion of our proposed product
line; and trends in industry activity generally. In some cases, you can identify
forward-looking statements by words such as "may," "will," "should," "expect,"
"plan," "could," "anticipate," "intend," "believe," "estimate," "predict,"
"potential," "goal," or "continue" or similar terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including, but not limited to, the risks outlined under "Risk
Factors," that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. For example, assumptions that could cause
actual results to vary materially from future results include, but are not
limited to: our ability to successfully develop and market our products to
customers; our ability to generate customer demand for our products in our
target markets; the development of our target markets and market opportunities;
our ability to manufacture suitable products at competitive cost; market pricing
for our products and for competing products; the extent of increasing
competition; technological developments in our target markets and the
development of alternate, competing technologies in them; and sales of shares by
existing shareholders. 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. Unless we are required
to do so under federal securities laws or other applicable laws, we do not
intend to update or revise any forward-looking statements.
PART
I
ITEM
1. BUSINESS
Introduction
CHSH was
incorporated in the State of Nevada on January 24, 2005 as Indigo Technologies,
Inc. On June 6, 2007, the Company changed its name to China Shoe Holdings,
Inc. Prior to the transaction under the Exchange Agreement, CHSH was engaged,
through its subsidiaries, in the manufacturing of ladies fashion footwear for
shoe retailers in Japan and China. The Company also produced various types of
shoe soles for the domestic market in the PRC. The Company’s manufacturing
plant was located in Jiading Township, a suburb of Shanghai in the People's
Republic of China. However, the Company faced a worsening operating environment
during the third quarter of 2008 as the global financial crisis cut demand and a
rising currency eroded profits.
As a
result, on March 31, 2009 (the “Closing Date”), China Shoe Holdings, Inc.
(“CHSH” or the “Company”) entered into a Share Exchange Agreement (the “Exchange
Agreement”) by and among (1) Extra Ease Limited (“Extra Ease”), (2) Eatware
Intellectual Properties Limited (“EWIP”), (3) China Shoe Holdings, Inc., a
Nevada corporation (the “Company”), and (4) the Shareholders of Extra Ease and
EWIP (collectively “the Shareholders”).
Pursuant
to the Exchange Agreement, the Company agreed to acquire (the “Acquisition”),
subject to the satisfaction of the conditions to closing as outlined in the
Agreement, all of the issued and outstanding shares of common stock of Extra
Ease and EWIP. As consideration, the Company shall issue a total of
1,871,313,946 shares of its common stock, of which (i) 121,313,946 shares shall
be issued to the shareholder of Extra Ease or its designee/designees (the “Extra
Ease Exchange Shares”) in exchange for 10,000 shares of Extra Ease, representing
100% of the issued and outstanding common stock of Extra Ease, and (ii)
1,750,000,000 shares shall be issued to the shareholders of EWIP or their
designee/designees (the “EWIP Exchange shares”) in exchange for 50,000 shares of
EWIP, representing 100% of the issued and outstanding common stock of
EWIP. Immediately following completion of the share exchange
transaction, the Company shall have a total of 1,990,759,517 shares of its
common stock issued and outstanding.
As a
result, the Company acquired the business and operations of Extra Ease and EWIP,
and the Company’s principal business activities, moving forward, shall continue
to be conducted through these two companies and their subsidiaries, as further
described below. As a result, in connection with the Exchange Agreement, the
Company sold off the existing business operations of CHSH by way of a Subsidiary
Stock Purchase Agreement dated March 31, 2009, thereby selling the business and
assets of its subsidiaries to a third party. Moving forward, the
Company shall engage in the business as described in the “Business” section
below.
In
connection with the acquisition of Extra Ease and EWIP, the Company intends to
change its name to EATware Inc. The Company has also changed its fiscal year-end
from December 31 to March 31.
Overview
We
conduct our operations through our wholly owned subsidiaries, EWIP and
Extra Ease and its subsidiaries – EGC, Eatware Asset Management Ltd.,
Eatware Far East Ltd., Eatware International Ltd., and Rongbao (Nantong)
Environmental Co. Ltd. (collectively referred to as “EGC”). Extra Ease, EGC and
EWIP are collectively referred to as “Eatware” or the “Group”. We
primarily engage in the marketing and trading of environmentally safe food
packaging products and additives. Our objective is to establish ourselves as a
leading brand of high quality bio-based food packaging
products. We are also looking into opportunities of licensing our
technology, intellectual properties and trademarks to licensed factories for
producing Eatware products and collect royalty for additional income
source.
Our
Corporate Structure
Our
Intellectual Properties
Prior to
Eatware products launching to the market, we have performed extensive research
on pulp technology. Throughout the process, EWIP has involved experts both from
the industry and the universities. Management believes that Eatware’s
technological application in this area is far advanced of its competitors. Our
research and development strategy is to create innovative, value-added products
and market opportunities and thus enhance Eatware’s market
position.
The
patented technology combined with the unique additive serve as a high barrier to
entry for the Company’s competitors.
Invention
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An Apparatus And A Method Of
Producing Pulp-Moulded Products
(Compression Chamber Forming)
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A Method To Reduce Water
Content During Cold Press
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A Kind Of Food Container Box
Hasp Structure
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A Mould Cavity Device To Reduce
Residual Moisture Of Pulp-Moulded
Products During Compression
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China
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-
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Patent
No.: ZL 200520040420.9
(Issued
on 27 Sept 06)
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App
No. 200520047096.3
(filed
on 1 Dec 05)
(Process
time : 48 months)
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App
No. 200610140169.2
(filed
on 10 Oct 06)
(Process
time : 48 months)
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Korea
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Patent
No.: 10-0877008
(Issued
on 24 Dec 08)
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Malaysia
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App
No. PI20056021
(filed
on 20 Dec 05)
(Process
time : 48 months)
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App
No. PI20060276
(filed
on 23 Jan 06)
(Process
time : 48 months)
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Singapore
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App
No. 200508402-5
(filed
on 27 Dec 05)
(Process
time : 48 months)
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App
No. 200602007-7
(filed
on 27 Mar 06)
(Process
time : 48 months)
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-
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Taiwan
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Patent
No. : M296135
(Issued
on 21 Aug 06)
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-
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UK
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App
No. GB0415853.1
(filed
on 15 July 04)
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EWIP has
been working extensively with copyrights and trademarks to protect against
infringement of its properties. The below table outlines Eatware’s
copyrights and trademarks:
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TRADEMARK/COPYRIGHT
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COUNTRY
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Canada
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File
no.: 1255299
(class
16 & 21)
Filed
on 26 Apr 05
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-
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-
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File
no.:1255302
(class
1)
Filed
on 26 Apr 05
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China
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®
4601212 (class 16)
Reg.
date : 21 August 08
®
4601214 (class 21)
Reg.
date : 21 August 08
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-
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File
no.: ZC5014116SL
(class
35)
Filed
on 1 March 06
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-
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®
4601213 (class 1)
Reg.
date :
21
August 08
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European Union
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®
005050976
(class
16,21,35)
Reg.
date : 20 July 07
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-
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Hong
Kong
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®
300305225
(class
16 & 21)
Reg.
date : 21 Oct 04
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-
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®
300569160
(class
16 & 21 & 35)
EATWARE/Eatware/
eatware
Reg.
date : 21 Jan 06
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®
300569142
(class
16 & 21 & 35)
Reg.
date : 21 Jan 06
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®
300305216 (class 1)
Reg.
date 21 Oct 04
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Japan
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®
4968375 (class 16 & 21)
Reg.
date : 7 Jul 06
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-
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-
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Malaysia
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®
06000078 (class 16)
Reg.
date : 4 Jan 06
®
06000079 (class 21)
Reg.
date : 4 Jan 06
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-
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File
no: 6008434 (class 35)
Filed
on 19 May 06
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®
06008435
(class 35)
Reg.
date : 21 Nov 05
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-
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Singapore
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®
T06/00623D
(class 16)
®
T06/00624B (class 21)
Reg.
date: 9 Jan 06
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-
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®
T06/09579B (class 35)
Reg.
date: 19 May 06
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-
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Taiwan
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®
01198302 (class 16)
Reg.
date: 1 Mar 06
®
01204663 (class 21)
Reg.
date: 16 Apr 06
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-
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®
01249531 (class 35)
Reg.
date: 1 Feb 07
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®
01249530 (class 35)
Reg.
date: 1 Feb 07
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®
01203450 (class 1)
Reg.
date: 16 Apr 06
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UK
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®
2395326 (class 16 & 21)
Reg.
date: 7 May 05
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-
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-
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-
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®2397473
(class 1)
Reg.
date: 7 May 05
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US
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®
3308510 (class 16)
Reg.
date : 9 Oct 07
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®
3364588
Reg.
date : 8 Jan 08 (class 16, 21)
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®3364587
Reg.
date : 8 Jan 08
(class
16, 21)
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-
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®3481399
Reg.
date : 5 Aug 08
(class
16, 21)
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EWIP
relies on a combination of trade secrets, confidentiality agreements, patent,
trademark, copyright, licenses, unfair competition and other intellectual
property laws to protect its intellectual property and other proprietary
rights.
EWIP has
engaged with B.I. Appraisals Limited (“B.I. Appraisals”) for an opinion of
valuation of its Intellectual Property in the technology to produce
environmentally preferable food packaging products. B.I.
Appraisals and the management have been conducting asset valuations and
consultancy works in the Greater China and the Asia Pacific regions for various
purposes for over 25 years. In their report dated December
23, 2008, B.I. Appraisals has estimated that the market value of EWIP
Intangible Asset as at November 30, 2008, was reasonably represented by the
amount of US$127,000,000.00 (US Dollars One Hundred and Twenty-seven Million
only).
Our
Products
Eatware
products are 100% organic, chemical-free biodegradable foodservice packaging
product. Features of the products include being oil, water, heat
resistant, microwave and oven safe. EWIP also invented what management believes
to be the world’s first 100% organic additive - Eatplus
®
, comprised of a modified
starch. While other food packaging competitive products can take over 200 years
to decompose and have contributed to massive landfills across the globe, Eatware
products are designed to decompose in the soil within 180 days and can disperse
in water within two weeks. Eatplus
®
enhances the products making
them sturdy, yet 100% biodegradable.
In
contrast, traditional foodservice disposables, wraps, and paperboard are
currently manufactured from a variety of materials, including paper and plastic.
Management believes that none of these materials fully addresses three of the
principal challenges facing the foodservice industry; namely performance, price,
and environmental impact. Management believes that Eatware products address the
combination of these challenges better than traditional alternatives and
therefore will be able to achieve a significant share of the foodservice
disposable packaging market.
Eatware
products can be categorized into five types: (1) plates; (2) bowls; (3) trays;
(4) lunch boxes; and (5) mini containers. To date, EWIP’s technology has been
used to produce limited commercial quantities of plates, bowls, and hinged-lid
containers intended for use by all segments of the foodservice disposable
packaging market, including quick-service restaurants, food and facilities
management companies, Governments, universities/colleges, and retail operations.
These products were developed using detailed environmental assessments and
carefully selected raw materials and processes to minimize the harmful impact on
the environment without sacrificing competitive price or
performance.
The
Company markets and sells bio-based tableware for the food service packaging
industry that is:
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100% decomposable, biodegradable
and compostable;
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¨
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100% oil-resistant to over
400ºF;
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¨
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100% heat-resistant to over
400ºF;
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¨
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100% microwave-safe to over
400ºF;
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¨
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100% made of natural materials –
absolutely no chemicals/petroleum are
added;
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¨
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Made from bamboo, sugarcane, rice
or cornstarches;
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¨
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Decomposable in a landfill within
90 days;
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¨
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Decomposable in a compost pile
within 2 days;
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Industry
Based on
industry studies, management believes that the annual spending on foodservice
disposable packaging is approximately $12 billion in the U.S. and will reach
14.4 billion in year 2009. (
source:
http://www.allbusiness.com/specialty-businesses/860475-1.html
) The
Company believes that of the foodservice disposables purchased in the U.S. by
quick-service restaurants and other institutions, approximately 45% are made of
coated or plastic laminated paper and 55% are made of non-paper materials such
as plastic, polystyrene or foil.
In
addition to the U.S., management believes the market opportunity for Eatware
products are particularly strong in Europe and parts of Asia due to heightened
environmental concerns and government regulations.
The
Current Market for Environmentally-Friendly Tableware
According
to the U.S. Environmental Protection Agency (“EPA”), approximately 60 billion
disposable cups, 20 billion disposable eating utensils and 25 billion disposable
plates are used and sent to landfills and incinerators each year in the United
States. Single-use disposable "Expanded Polystyrene" (“EPS”) food and
drink containers (lunch boxes, cups and bowls) are discarded by consumers around
the world by the hundreds of millions each and every single day. This is
extremely detrimental to the environment. EPS products are being viewed by
cities and countries around the world as the main culprit for causing so called
"White Pollution" since EPS is totally non-biodegradable and non-recyclable,
according to the California Integrated Waste management Board,
Statewide Waste
Characterization Study: Results and Final Report
, pub.
#340-00-009, Sacramento, Calif., December 1999, prepared by Cascadia Consulting
Group. It takes over 200 years before EPS begins to only partly degrade in water
or in the earth. Not only that, but EPS also releases significant toxic
by-products.
Most
widely-used food serviceware is made from crude oil (Styrofoam, etc.) and, like
all conventional plastics, polystyrene foam is non-renewable, non-biodegradable
and virtually non-recyclable. Polystyrene foam food serviceware ends up in
landfills, waterways or the ocean. It breaks down into smaller and smaller
pieces which are often mistaken for food and ingested by marine animals, birds
and fish. Medical evidence also suggests that chemicals in polystyrene foam are
carcinogenic and may leach into food or drink. Polystyrene is produced from
styrene, which is also a known human neurotoxin and a known animal
carcinogen.
As a
result, many municipalities have enacted efforts, regulations and laws to curb
or ban the use of EPS products, such as polystyrene. In fact, over 100 cities in
the US have banned polystyrene in some empirical form (
source:
http://earth911.com/blog/2008/06/23/stroyfoam-bans-here-to-stay/
). In
Oakland, CA, for instance, recently banned the use of polystyrene foam (such as
Styrofoam) disposable food service ware for all food vendors (
source: Ordiance No.
07-004http://www.ci.emeryville.ca.us/community/environment/pdf/foodware_ordinance.pdf
)
In our
disposable society, though, it is difficult to ban disposable products
altogether. Fast food restaurants, households with young children,
hospitals, school cafeterias and other facilities concerned with the spread of
food-borne disease attest to the need for disposable food containers.
Add to this the additional energy, water and detergents needed to
wash permanent-ware and it becomes clear that a disposable eco-friendly
alternative is needed around the world. The dilemma, of course, is in
choosing a disposable container that is effective, cost efficient, and minimizes
damage to the environment. Management believes that Eatware products fulfill
this need.
The
Company believes that no other competitive product currently exists in the
market that can equal its environmentally friendly product line’s full list of
benefits. A strong opportunity exists, then, for segment dominance by
Eatware products since the market is just beginning to adopt eco-friendly
foodware. The Company forecasts multiple niche markets that could readily
transition to using the Company’s products, including: catering, government,
academic, hospitality, airline, military and restaurants. Major
opportunities also exist to capture significant portions of the fresh and frozen
food packaging industries.
Environmental
Compliance
Eatware
products have received numerous awards and certifications throughout the
years:
Eatware
Management System Certifications
|
1
|
Quality
Management System ISO9001:2000
|
|
2
|
Environmental
Management System ISO14001:2004
|
|
3
|
Food
Safety Management System HACCP
|
Eatware
Product Awards
|
2
|
***China
Environmental Label***
|
|
3
|
Hong
Kong Eco-Products Award
|
|
4
|
Hong
Kong Q-Mark Product
|
|
6
|
China
Quality Safety Mark
|
|
7
|
US
People’s Choice Award – Best New
Technology
|
Eatware Product Compliance Testing
|
1
|
HKEPD
Testing Guideline on the Degradability and Food Safety of Container and
Bags
|
HS 1004
Pesticides Residues Test
HS 1005
Coliform Bacteria Test
HS 1006
Moulds and Yeasts Test
HS 2001
Biodegradability Test
HS 3001
Static Loading Test
HS 3003
Low Temperature Resistance Test
HS 3004
Water and Oil Proof Tests at Raised Temperature
HS 3006
Acid Resistance Test
Components
of Paper and Paperboard in Contact with Aqueous and Fatty Foods
Preservatives
for Fiber
|
4
|
US
FDA Bacteriological Analytical Manual Chapter
18
|
Yeasts,
Molds and Mycotoxins
Packaging
Materials Pollutants Analysis
|
6
|
EU
Council Directive 94/62/EC; French Law
98-638
|
Recyclability,
Composting and Biodegradability
|
7
|
The
European Standard EN13432
|
Requirements
for Resins Recoverable through Composting and Biodegradation
Biobased
content
|
9
|
Canada
Consumer Packaging and Labelling Act (R.S., 1985,
c.C-38)
|
Packaging,
Labelling, Sale, Importation and Advertising
In
addition to international certifications, Eatware products have also been
awarded Eco Products Award by the Centre of Environmental Technology Ltd, the
Chinese and Hong Kong General Chamber of Commerce in 1999, the Best New
Technology Award by Los Angeles Western Foodservice & Hospitality Expo 2006
and recently the Hong Kong Q-Mark Product Scheme in May 2008 for its remarkable
biodegradable nature and quality. Governmental authorities worldwide recognize
Eatware® as a strong advocator of environmental preservation providing the most
bio-based foodware solutions.
Customers
The
Company’s current customer base is comprised of professional medium size
corporations, with years of experiences in their market segments and with
established network within the food and packaging industries, for faster
penetration. The Company continues to search internationally for more industry
players, to expand its network, as it increases its licensed manufacturing base
for production capacity.
Suppliers
Our
principal suppliers include:
NAME
|
|
AMOUNT (HK$)
04/01/07 – 03/31/08
|
|
|
AMOUNT (HK$)
04/01/08 – 03/31/09
|
|
Tian
Yao Puikei (Haimen) Environmental Product Co. Ltd.
|
|
|
4,147,608.14
|
|
|
|
8,524,140.49
|
|
|
|
|
|
|
|
|
|
|
Tian
Yao (Nantong) Environment Protection
|
|
|
3,432,151.22
|
|
|
|
4,787,552.78
|
|
|
|
|
|
|
|
|
|
|
Glory
Team Industrial Ltd, Shanghai
|
|
|
0.0
|
|
|
|
76,287.90
|
|
Competition
Competition
among food and beverage container manufacturers in the foodservice industry is
intense and many of these competitors have greater financial and marketing
resources at their disposal than the Company does, and many have established
supply, production and distribution relationships and channels.
A number
of the competitors have introduced or are attempting to develop biodegradable
starch-based materials, plastics, or other materials that may be positioned as
potential environmentally superior packaging alternatives. It is expected that
many existing packaging manufacturers may actively seek to develop
competitive alternatives to the Company’s patented manufacturing process and
products.
There are
at least five companies involved in the production of water- and oil-stopping
additives that compete against us, namely: 3M, Dupont, Proman, Michelin and
Aquashield.
To the
best of our knowledge, our principal competitors within the PRC are the
following companies:
|
¨
|
Shandong Teanhe Green PAK Science
and Technology
|
|
¨
|
China National
Aero-Technology
|
|
¨
|
Zuangzhou Xin Yan Environmental
Protection Products
|
For
countries outside PRC, there are also competing products from companies such as:
Earthcycle, Biosphere, Cereplast, Earthshell, Novamont, Enviropak, Biobag,
International Paper, NatureWorks, Eatitworlda and Earthsmart. Management
believes that its low-cost manufacturing and technological advantage of EWIP’s
patented additive, EATplus (as described in the section titled “Our Business”),
gives the Company a strong competitive advantage over competitors. The main
advantage, though, is that Eatware product line is a proven technology that has
been manufactured, distributed and marketed for years in Asia.
Some of
our competitive strengths include:
|
¨
|
Premium
Quality:
We are committed to ensure the
quality of our products. Every single piece of product is carefully
examined before delivering to our
customers.
|
|
¨
|
Highest
Hygienic Standard:
Our productions from licensees
are designed to meet the highest food safety requirements to ensure
Eatware products arefree of chemicals, microbiologicals and
allergens.
|
|
¨
|
Extensive
Product Range:
Our licensees are capable of full
customized solutions, developments and production. We can tailor our
products to meet client needs in terms of thickness, shape or
size.
|
The
Company believes that its patents and proprietary manufacturing process give it
a competitive advantage in its area of specialization.
Our
Distribution Method
Sales and Marketing.
Our
internal sales and marketing team is responsible for monitoring international
sales, which includes coordinating and distributing orders from
distributors.
Distribution Network.
We
have established a wide distribution network which allows us to maintain our
competitiveness in the industry. Eatware products are exported through
distributors to various countries, including Bioplanet USA (formerly known as
Global Food Trade, LLC) of USA, BSS (Hong Kong) Corporation Ltd. of Hong Kong
and Singapore, Biopack Pty Ltd. of Australia and New Zealand, and Meitav Chef of
Israel.
As of
March 31st, 2009 we had 16 distributors and 2 sales representatives in various
countries throughout the world as follows:
Country
|
|
No. of Distributors
|
Australia
& New Zealand
|
|
1
|
|
|
|
Canada
|
|
1
|
|
|
|
France
|
|
1
|
|
|
|
Benelux
|
|
1
|
|
|
|
Hong
Kong & Singapore
|
|
1
|
|
|
|
Korea
|
|
1
|
|
|
|
Mexico
|
|
1
|
|
|
|
Sweden
|
|
1
|
|
|
|
United
Kingdom
|
|
1
|
|
|
|
United
States
|
|
6
|
|
|
|
Israel
|
|
1
|
|
|
|
Sales
Representative (Italy)
|
|
1
|
|
|
|
Sales
Representatives (US)
|
|
1
|
|
|
|
Total
|
|
18
|
The
Company primarily serves three customer groups: (1) foodservice (2) consumer and
(3) produce (growers/packers). The Company has maintained strong relationships
with leading foodservice customers and emphasis on innovation and customer
service.
The
Company mainly markets and sells its product line to foodservice distributors
through its in-house direct sales force. Foodservice distributors
sell the products they purchase to various operators including catering
services, the government, academic institutions, hospitality companies,
airlines, the military and restaurants. The company’s sales team works closely
with these customers to develop unique product offerings and promotional
programs.
Compared
to polystyrene products, Eatware products are equally leak-proof, versatile,
sturdy and convenient. However, the biodegradability of Eatware’s starch-based
products could lessen the burden of disposable serviceware on the environment.
Although consumers are generally more environmentally conscious, pricing is
still the key factors for commercial customers and distributors. In the last few
years, the general manufacturing costs for “green” biodegradable products have
become much more competitive compared to traditional methods. Besides promoting
the biodegradability of Eatware products, the Company emphasizes on building
cost advantage by developing economies of scale. The Company expects the costs
of Eatware products would be very competitive to traditional polystyrene
products when more licensed manufacturers are in full operation. It is the
Company’s strategic plan to aggressively expand in order to meet the targeted
price points.
ITEM 1A. RISK
FACTORS
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Information Regarding Forward Looking Statements.” The risks
and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties not presently known to us or that we currently
believes are immaterial may also impair our business operations. If any of the
following risks actually occur, the Company’s businesses, financial condition or
results of operations could be materially adversely affected, the value of the
common stock could decline, and you may lose all or part of your
investment.
RISKS
RELATED TO OUR BUSINESS
We
are dependent on our Executive Directors and Executive Officers. Any
loss in their services without suitable replacement may adversely affect our
operations.
Our
success to date has been largely due to the contribution of our Chairman and
Chief Financial Officer, Jonathan W. L. So. Mr. So is the founder of our
Company, and has spearheaded our expansion and growth. He is
responsible for our operations, marketing, public relations, strategic planning
and development of new products and markets. Our continued success is
dependent, to a large extent, on our ability to retain his services. The
continued success of our business is also dependent on our key management
and operational personnel such as Mr. Wu, Man-Shing, our Chief Executive
Officer and Mr. Megret, Laurent, our Chief Operating Officer. We
rely on their experience in the food packaging industry, product development,
sales and marketing and on their relationships with our customers and
suppliers.
The loss
of the services of any of our executive directors or executive officers without
suitable replacement or the inability to attract and retain qualified personnel
will adversely affect our operations and hence, our revenue and
profits.
We
have not yet fully evaluated all of the Eatware products and it is possible that
some of the products may not perform as well as conventional
products.
Although
we believe that our licensed Eatware manufacturer can engineer and manufacture
Eatware product to meet many of the critical performance requirements for
specific applications, individual products may not perform as well as
conventional foodservice disposables; for example, some consumers may prefer
clear cups and clear lids on take-home containers which are not available with
our technology. We are still developing many of our Eatware product
and we have not yet evaluated the performance of all of them. If we
fail to develop Eatware product that perform comparably to conventional
foodservice disposables, this could cause consumers to prefer our competitors'
products.
Established
manufacturers in the foodservice disposables industry could improve their
ability to recycle their existing products or develop new environmentally
preferable disposable foodservice containers, which could render our technology
obsolete and could negatively impact our ability to compete.
Competition
among existing food and beverage container manufacturers in the foodservice
industry is intense. Virtually all of the key participants in the
industry have substantially greater financial and marketing resources at their
disposal than we do, and many have well-established supply, production and
distribution relationships and channels. Companies producing competitive
products utilizing competitive materials may reduce their
prices or engage in advertising or
marketing campaigns designed to protect their respective
market shares
and impede market acceptance of our
Eatware product line. In addition, several paper and
plastic disposable packaging manufacturers and
converters and others have made efforts
to increase the recycling of these
products. Increased recycling of paper and plastic products
could lessen their harmful environmental impact, one major basis upon which the
Company intends to compete. A number of companies have introduced or
are attempting to develop biodegradable starch-based materials, plastics, or
other materials that may be positioned as potential environmentally superior
packaging alternatives. We expect that many existing packaging manufacturers may
actively seek competitive alternatives to our products and processes. The
development of competitive, environmentally attractive, disposable foodservice
packaging, whether or not based on our products and technology, could render our
technology obsolete and could impair our ability to compete, which would have an
adverse effect on our business, financial condition and results of
operations.
Our
anticipated international revenues are subject to risks inherent in
international business activities.
We expect
sales of our products and services in foreign countries to account for a
material portion of our revenues. These sales are subject to risks inherent in
international business activities, including:
|
¨
|
Any adverse change in
the political or
economic environments in these
countries;
|
|
¨
|
Any adverse change in tax, tariff
and trade or other
regulations;
|
|
¨
|
The absence or significant lack
of legal protection for intellectual property
rights;
|
|
¨
|
Exposure to exchange rate risk
for revenues which are denominated in currencies other than U.S. dollars;
and
|
|
¨
|
Difficulties in managing joint
venture businesses spread over various
jurisdictions.
|
Our revenues could
be substantially less than we expect if these risks affect
our ability to successfully sell
our products in the international
market.
Our
products may be perceived poorly by customers and/or environmental groups, which
could have an adverse affect on our business.
Our
success depends substantially on our ability to design and develop foodservice
disposables that are not as harmful to the environment as conventional
disposable foodservice containers made from paper, plastic and polystyrene.
Extra Ease uses a cradle to grave approach in its environmental assessment of
Eatware products and in the development of associated environmental claims. We
have received support for the Eatware concept from a number of environmental
groups. Although we believe that Eatware products offer several environmental
advantages over conventional packaging products, our products may also possess
characteristics that consumers or some environmental groups could perceive as
negative for the environment. Whether, on balance, Eatware products are better
for the environment than conventional packaging products is a somewhat
subjective judgment. Environmental groups, regulators, customers or
consumers may not agree that present and future Eatware products have an
environmental advantage over conventional packaging.
Third parties
may infringe upon our patents, new products that we
develop may not be covered by our
patents and we could suffer an adverse determination in a
patent infringement proceeding, which could allow our competitors to duplicate
our products without having incurred the research and
development costs we
have incurred and therefore allow
them to produce and market those products more
profitably
Our
ability to compete effectively with
conventional packaging will depend, in part, on
our ability to protect our proprietary rights to our
technology. Although the Company endeavors to protect our licensed
technology through, among other things, U.S. and foreign patents, the duration
of these patents is limited and the patents and patent applications licensed to
us may not be sufficient to protect our technology. We also rely on
trade secrets and proprietary know-how that we try to protect in part by
confidentiality agreements with employees and consultants. These agreements have
limited terms and these agreements may be breached, we may not have adequate
remedies for any breach and our competitors may learn our trade secrets or
independently develop them. It is necessary for us to litigate from
time to time to enforce patents issued or licensed to us, to protect our trade
secrets or know-how and to determine the enforceability, scope and validity of
the proprietary rights of others
We
believe that we own or have the rights to use all of the technology that we
expect to incorporate into Eatware products, but an adverse determination in
litigation or infringement proceedings to which we are or may become a party
could subject us to significant liabilities and costs to third parties or
require us to seek licenses from third parties. Although patent
and intellectual property disputes are often settled through licensing or
similar arrangements, costs associated with those arrangements could be
substantial and could include ongoing royalties. Furthermore, we may
not obtain the necessary licenses on satisfactory terms or at all. We
could incur substantial costs attempting to
enforce our licensed patents against third party infringement, or
the unauthorized use of
our trade secrets and proprietary know-how or
in defending ourselves against claims of infringement by others. Accordingly, if
we suffered an adverse determination in a judicial or administrative proceeding
or failed to obtain necessary licenses, it would prevent us from manufacturing
or licensing others to manufacture some of our products.
Our
Failure to produce products profitably on a commercial scale would adversely
affect our ability to compete with conventional disposable foodservice
packagers.
Production
volumes of Eatware products to date have been low relative to the intended
capacity of the various manufacturing lines, and, until production volumes
approach design capacity levels, actual costs and profitability will not be
certain. Since the actual cost of manufacturing Eatware products on a
commercial scale has not been fully demonstrated, they may not be manufactured
at a competitive cost. As we begin to commercially produce Eatware products, we
may encounter unexpected difficulties that cause production costs to exceed
current estimates. The failure to manufacture Eatware products at commercially
competitive costs would make it difficult to compete with other foodservice
disposable manufacturers.
Unavailability
of raw materials used to manufacture our products, increases in the price of the
raw materials, or the necessity of finding alternative raw materials to use in
our products could delay the introduction and market acceptance of our
products.
Although
we believe that sufficient quantities of all raw materials used in Eatware
products are generally available, if any raw materials become unavailable, it
could delay the commercial introduction and hinder market acceptance of Eatware
products. In addition, we may
become significant consumers of certain
key raw materials such as starch, and if such consumption is
substantial in relation to
the available resources, raw
material prices may increase which in turn may increase
the cost of Eatware products and impair our profitability. In
addition, we may need to seek alternative sources of raw materials or modify our
product formulations if the cost or availability of the raw materials that we
currently use become prohibitive.
Our
operations are subject to regulation by the U.S. Food and Drug
Administration.
The
manufacture, sale and use of Eatware products are subject to regulation by the
U.S. Food and Drug Administration (the "FDA"). The FDA's regulations
are concerned with substances used in food packaging materials, not with
specific finished food packaging
products. Thus, food and beverage
containers are in compliance with FDA regulations if the components
used in the food and beverage containers: (i)
are approved by the FDA as indirect food
additives for their intended uses and comply with
the applicable FDA indirect food
additive regulations; or (ii) are
generally recognized as safe for their intended uses and are of
suitable purity for those intended uses. the
Company believes that Eatware plates, bowls and
hinged-lid containers and all other current and prototype Eatware
products are in compliance with all requirements of the FDA and do not require
additional FDA approval. However, the FDA may not agree with these
conclusions, which could have a material adverse affect on our business
operations.
RISKS
RELATED TO DOING BUSINESS IN CHINA
Our
operations in the PRC are subject to the laws and regulations of the
PRC.
As the
manufacturing of our products by licensees is mainly carried out in the PRC, we
are subject to and have to operate within the framework of the PRC legal system.
Any changes in the laws or policies of the PRC or the implementation thereof,
for example in areas such as foreign exchange controls, tariffs, trade barriers,
taxes, export licence requirements and environmental protection, may have a
material impact on our operations and financial performance.
The
corporate affairs of our subsidiary in the PRC are governed by its articles of
association and the corporate and foreign investment laws and regulations of the
PRC. The principles of the PRC laws relating to matters such as the fiduciary
duties of directors and other corporate governance matters and foreign
investment laws in the PRC are relatively new. Hence, the enforcement of
investors or shareholders' rights under the articles of association of a PRC
company and the interpretation of the relevant laws relating to corporate
governance matters remain largely untested in the PRC.
Introduction
of new laws or changes to existing laws by the PRC government may adversely
affect our business.
The laws
of the PRC govern our businesses and operations that are located in the PRC. The
PRC legal system is a codified system of written laws, regulations, circulars,
administrative directives and internal guidelines. The PRC government is still
in the process of developing its legal system to encourage foreign investment
and to align itself with global practices and standards. As the PRC economy is
undergoing development at a faster rate than the changes to its legal system,
some degree of uncertainty exists in connection with whether and how existing
laws and regulations apply to certain events and circumstances. Some of the laws
and regulations and the interpretation, implementation and enforcement of such
laws and regulations are also at an experimental stage and are subject to policy
changes. Hence, precedents on the interpretation, implementation and enforcement
of certain PRC laws are limited and court decisions in the PRC do not have
binding effect on lower courts. Accordingly, the outcome of dispute resolutions
and litigation may not be as consistent or predictable as in other more
developed jurisdictions and it may be difficult to obtain swift and equitable
enforcement of the laws in the PRC, or to obtain enforcement of a judgment by a
court or another jurisdiction.
In
particular, on 8 August 2006, six PRC regulatory bodies (including MOFCOM and
the China Security and Regulatory Commission (“CSRC”)) jointly promulgated the
new “Regulations on Foreign Investors Merging with or Acquiring Domestic
Enterprises”, which took effect on 8 September 2006 (“2006 M&A Rules”). The
2006 M&A Rules regulate,
inter alia
, the
acquisition of PRC domestic companies by foreign investors.
On 21
September 2006, the CSRC promulgated the “Guidelines on Domestic Enterprises
Indirectly Issuing or Listing and Trading their Stocks on Overseas Stock
Exchanges” (the “CSRC Guidelines”).
Under the
2006 M&A Rules and the CSRC Guidelines, the listing of overseas special
purpose vehicles (“SPV”) which are controlled by PRC entities or individuals are
subject to the prior approval of the CSRC.
The 2006
M&A Rules and the CSRC Guidelines do not provide any express requirement for
an SPV to retroactively obtain CSRC approval where the restructuring steps had
been completed prior to 8 September 2006.
John Y.
Lo, 9/F, Hutchison House, Central, Hong Kong, telephone number
(852) 2848-4848, the Legal Adviser to our Company on PRC Law, is of the
opinion that our Group has obtained all the necessary governmental approvals
from PRC authorities for the Restructuring Exercise prior to 8 September 2006,
the requirement to obtain CSRC approval is not applicable to our Company and it
is not necessary for the Company to comply retroactively with the requirement of
obtaining the prior approval of the CSRC for a listing on OTC-BB.
There is
no assurance that these PRC authorities will not issue further directives,
regulations, clarifications or implementation rules requiring us to obtain
further approvals in relation to our proposed listing on the
OTC-BB.
PRC
foreign exchange control may limit our ability to utilise our cash effectively
and affect our ability to receive dividends and other payments from our PRC
subsidiaries.
Our PRC
subsidiary, which is a foreign investment entity (“FIEs”), is subject to the PRC
rules and regulations on currency conversion. In the PRC, the State
Administration of Foreign Exchange (“SAFE”) regulates the conversion of the RMB
into foreign currencies. Currently, foreign investment enterprises (including
wholly foreign-owned enterprises) are required to apply to the SAFE for “Foreign
Exchange Registration Certificates for FIEs”. With such registration
certification (which have to be renewed annually), FIEs are allowed to open
foreign currency accounts including the “current account” and “capital account”.
Currently, transactions within the scope of the "current account" (for example,
remittance of foreign currencies for payment of dividends) can be effected
without requiring the approval of the SAFE. However, conversion of currency in
the “capital account” (for example, for capital items such as direct
investments, loans and securities) still requires the approval of the SAFE. Our
PRC operating subsidiary Rixiang has obtained the "Foreign Exchange Registration
Certificates for FIEs", which is subject to annual review.
Our
subsidiaries, operations and significant assets are located outside the
U.S. Shareholders may not be accorded the same rights and protection
that would be accorded under the Securities Act. In addition, it could be
difficult to enforce a U.S judgment against our Directors and
officers.
Our
subsidiaries, operations and assets are located in the PRC, British Virgin
Islands and Hong Kong. Our subsidiaries are therefore subject to the relevant
laws in the PRC, British Virgin Islands and Hong Kong. The Companies Act may
provide shareholders with certain rights and protection which may not have
corresponding or similar provisions under the laws of the PRC, British Virgin
Islands and Hong Kong. As such, investors in our Shares may or may not be
accorded the same level of shareholder rights and protection that would be
accorded under the Securities Act. In addition, some of our Executive Directors,
as at the Latest Practicable Date, are non-residents of the U.S. and the assets
of these persons are mainly located outside the U.S. As such, there may be
difficulty for Shareholders to effect service of process in the U.S., or to
enforce a judgment obtained in PRC, British Virgin Islands and Hong Kong against
any of these persons.
We
are subject to the PRC's environmental laws and regulations.
Our
production facilities in the PRC will be subject to environmental laws and
regulations imposed by the PRC authorities,
inter alia
, in respect of
air protection, waste management and water protection. In the event stricter
rules are imposed on air protection, waste management and water protection by
the PRC authorities, we may have to incur higher costs to comply with such
rules. Accordingly, our financial performance may be adversely affected. In
addition, we require licence for the discharge of pollutants for our operations,
which is subject to annual review and renewal. In the event that we fail to
renew our licence with the relevant authority, our operations and financial
performance will be adversely affected.
Changes in
China
’
s political or
economic situation could harm us and our operating results
.
Economic
reforms adopted by the Chinese government have had a positive effect on the
economic development of the country, but the government could change these
economic reforms or any of the legal systems at any time. This could
either benefit or damage our operations and profitability. Some of
the things that could have this effect are:
|
¨
|
Level of government involvement
in the economy;
|
|
¨
|
Control of foreign
exchange;
|
|
¨
|
Methods of allocating
resources;
|
|
¨
|
Balance of payments
position;
|
|
¨
|
International trade restrictions;
and
|
|
¨
|
International
conflict.
|
The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in many
ways. As a result of these differences, we may not develop in the
same way or at the same rate as might be expected if the Chinese economy were
similar to those of the OECD member countries.
Our business is
largely subject to the uncertain legal environment in China and your legal
protection could be limited
.
The
Chinese legal system is a civil law system based on written
statutes. Unlike common law systems, it is a system in which
precedents set in earlier legal cases are not generally used. The
overall effect of legislation enacted over the past 20 years has been to enhance
the protections afforded to foreign invested enterprises in
China. However, these laws, regulations and legal requirements are
relatively recent and are evolving rapidly, and their interpretation and
enforcement involve uncertainties. These uncertainties could limit
the legal protections available to foreign investors, such as the right of
foreign invested enterprises to hold licenses and permits such as requisite
business licenses. In addition, some of our executive officers and
our directors are residents of China and not of the U.S., and substantially all
the assets of these persons are located outside the U.S. As a result,
it could be difficult for investors to effect service of process in the U.S., or
to enforce a judgment obtained in the U.S. against our Chinese operations and
subsidiaries.
The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.
China
only recently has permitted provincial and local economic autonomy and private
economic activities. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to
taxation, import and export tariffs, environmental regulations, land use rights,
property and other matters. We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of the jurisdictions in which we
operate may impose new, stricter regulations or interpretations of existing
regulations that would require additional expenditures and efforts on our part
to ensure our compliance with such regulations or interpretations.
Accordingly,
government actions in the future including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.
The
PRC's legal and judicial system may not adequately protect our business and
operations and the rights of foreign investors.
The PRC
legal and judicial system may negatively impact foreign investors. In 1982, the
National People's Congress amended the Constitution of China to authorize
foreign investment and guarantee the "lawful rights and interests" of foreign
investors in the PRC. However, the PRC's system of laws is not yet
comprehensive. The legal and judicial systems in the PRC are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in the PRC lack
the depth of legal training and experience that would be expected of a judge in
a more developed country. Because the PRC judiciary is relatively inexperienced
in enforcing the laws that do exist, anticipation of judicial decision-making is
more uncertain than would be expected in a more developed country. It may be
impossible to obtain swift and equitable enforcement of laws that do exist, or
to obtain enforcement of the judgment of one court by a court of another
jurisdiction. The PRC's legal system is based on the civil law regime, that is,
it is based on written statutes; a decision by one judge does not set a legal
precedent that is required to be followed by judges in other cases. In addition,
the interpretation of Chinese laws may be varied to reflect domestic political
changes.
The
promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign investors. However,
the trend of legislation over the last 20 years has significantly enhanced the
protection of foreign investment and allowed for more control by foreign parties
of their investments in Chinese enterprises. There can be no assurance that a
change in leadership, social or political disruption, or unforeseen
circumstances affecting the PRC's political, economic or social life, will not
affect the PRC government's ability to continue to support and pursue these
reforms. Such a shift could have a material adverse effect on our business
and prospects.
The
practical effect of the PRC legal system on our business operations in the PRC
can be viewed from two separate but intertwined considerations. First, as a
matter of substantive law, the Foreign Invested Enterprise laws provide
significant protection from government interference. In addition, these laws
guarantee the full enjoyment of the benefits of corporate Articles and contracts
to Foreign Invested Enterprise participants. These laws, however, do impose
standards concerning corporate formation and governance, which are qualitatively
different from the general corporation laws of the United States. Similarly, the
PRC accounting laws mandate accounting practices, which are not consistent with
U.S. generally accepted accounting principles. PRC's accounting laws require
that an annual "statutory audit" be performed in accordance with PRC accounting
standards and that the books of account of Foreign Invested Enterprises are
maintained in accordance with Chinese accounting laws. Article 14 of the
People's Republic of China Wholly Foreign-Owned Enterprise Law requires a wholly
foreign-owned enterprise to submit certain periodic fiscal reports and
statements to designated financial and tax authorities, at the risk of business
license revocation. While the enforcement of substantive rights may appear
less clear than United States procedures, the Foreign Invested Enterprises and
Wholly Foreign-Owned Enterprises are Chinese registered companies, which enjoy
the same status as other Chinese registered companies in business-to-business
dispute resolution. Any award rendered by an arbitration tribunal is enforceable
in accordance with the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (1958). Therefore, as a practical matter,
although no assurances can be given, the Chinese legal infrastructure, while
different in operation from its United States counterpart, should not present
any significant impediment to the operation of Foreign Invested
Enterprises
Capital
outflow policies in the PRC may hamper our ability to remit income to the United
States.
The PRC
has adopted currency and capital transfer regulations. These regulations may
require that we comply with complex regulations for the movement of capital and
as a result we may not be able to remit all income earned and proceeds received
in connection with our operations or from the sale of our operating subsidiary
to the U.S. or to our stockholders.
Future
inflation in China may inhibit our ability to conduct business in
China.
In recent
years, the Chinese economy has experienced periods of rapid expansion and highly
fluctuating rates of inflation. During the past ten years, the rate of inflation
in China has been as high as 20.7% and lows as -2.2%. These factors have led to
the adoption by the Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. High inflation may in the future cause the Chinese government
to impose controls on credit and/or prices, or to take other action, which could
inhibit economic activity in China, and thereby harm the market for our
products.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could harm our operations.
A renewed
outbreak of SARS or another widespread public health problem in China, where our
operations are conducted, could have a negative effect on our
operations.
Our
operations may be impacted by a number of health-related factors, including the
following:
|
¨
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Quarantines or closures of some
of our offices which would severely disrupt our
operations,
|
|
¨
|
The sickness or death of our key
officers and employees, and
|
|
¨
|
A general slowdown in the Chinese
economy.
|
Any of
the foregoing events or other unforeseen consequences of public health problems
could damage our operations.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
The
majority of our revenues will be settled in Renminbi and U.S. dollars, and any
future restrictions on currency exchanged may limit our ability to use revenue
generated in Renminbi to fund any future business activities outside China or to
make dividend or other payments in the U.S. dollars. Although the Chinese
government introduced regulations in 1996 to allow greater convertibility of the
Renminbi for current account transactions, significant restrictions still
remain, including primarily the restriction that foreign-invested enterprises
may only buy, sell or remit foreign currencies after providing valid commercial
documents, at those banks in China authorized to conduct foreign exchange
business. In addition, conversion of Renminbi for capital account items,
including direct investment and loans, is subject to governmental approval in
China, and companies are required to open and maintain separate foreign exchange
accounts for capital account items. We cannot be certain that the Chinese
regulatory authorities will not impose more stringent restrictions on the
convertibility of the Renminbi.
The
value of our securities will be affected by the foreign exchange rate between
U.S. dollars and Renminbi.
The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and Renminbi, and between those currencies and other currencies in which
our sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and should the Renminbi
appreciate against the U.S. dollar at that time, our financial position, the
business of the company, and the price of our common stock may be harmed.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of declaring dividends on our common stock or for other business
purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar
equivalent of our earnings from our subsidiaries in China would be
reduced.
Because our funds are held in banks
which do not p
rovide
insurance, the failure of any bank in which we deposit our funds could affect
our ability to continue in business.
Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. As a result, in the event of a bank failure, we may not have access
to funds on deposit. Depending upon the amount of money we maintain in a bank
that fails, our inability to have access to our cash could impair our
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in
business.
Imposition
of trade barriers and taxes may reduce our ability to do business
internationally, and the resulting loss of revenue could harm our
profitability.
We may
experience barriers to conducting business and trade in our targeted emerging
markets in the form of delayed customs clearances, customs duties and tariffs.
In addition, we may be subject to repatriation taxes levied upon the exchange of
income from local currency into foreign currency, substantial taxes of profits,
revenues, assets and payroll, as well as value-added tax. The markets in
which we plan to operate may impose onerous and unpredictable duties, tariffs
and taxes on our business and products, and there can be no assurance that this
will not reduce the level of sales that we achieve in such markets, which would
reduce our revenues and profits.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.
We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with us, are not
subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices occur from time-to-time in the PRC. We can make
no assurance, however, that our employees or other agents will not engage in
such conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse effect on our
business, financial condition and results of operations.
Because one or more of our
subsidiaries has inade
quate insurance
coverage
in the
PRC,
we may not be
protected from risks that are customarily covered by insurance in the United
States.
We
currently have a US$3 million product liability. However, we cannot
guarantee that this amount would cover the liability in the event of the failure
of any of our products. This is particularly true given our plan to
significantly expand our sales into international markets, like the United
States, where product liability claims are more prevalent.
Except
for the product liability insurance, we do not have other insurance such as
business liability or disruption insurance coverage for our operations in the
PRC.
We do not
maintain a reserve fund for warranty or defective products claims. Our costs
could substantially increase if we experience a significant number of warranty
claims. We have not established any reserve funds for potential warranty claims
since historically we have experienced few warranty claims for our products so
that the costs associated with our warranty claims have been low. If we
experience an increase in warranty claims or if our repair and replacement costs
associated with warranty claims increase significantly, it would have a material
adverse effect on our financial condition and results of
operations.
RISKS
RELATED TO THE MARKET FOR OUR STOCK
Our
common stock is quoted on the OTC Bulletin Board which may have an unfavorable
impact on our stock price and liquidity.
Our
common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a
significantly more limited market than the New York Stock Exchange or NASDAQ
system. The quotation of our shares on the OTC Bulletin Board may result in a
less liquid market available for existing and potential stockholders to trade
shares of our common stock, could depress the trading price of our common stock
and could have a long-term adverse impact on our ability to raise capital in the
future.
The
market price of our common stock may be volatile.
The
market price of our common stock has been subject to wide fluctuations. The
market price of our common stock in the future is likely to continue to be
subject to wide fluctuations in response to various factors, including, but not
limited to, the following:
¨
|
variations in our operating
results and financial
conditions;
|
¨
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actual or anticipated
announcements of technical innovations, new product developments, or
design wins by us or our
competitors;
|
¨
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general conditions in the
foodware industries; and
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worldwide economic and financial
conditions.
|
In
addition, the public stock markets have recently experienced extreme price and
volume fluctuations that have particularly affected the market price for many
technology companies and that have often been unrelated to the operating
performance of these companies. The broad market fluctuations and other factors
may continue to adversely affect the market price of our common
stock
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
As of
March 31, 2009, the Company’s corporate office leases an office building space
located at 23/F Westin Center, 26 Hung To Road, Kwun Tong, Kowloon, Hong
Kong. The Company also leases and operates a manufacturing facility
at Nantong, Jiangsu, China for producing its patented additive.
ITEM
3. LEGAL PROCEEDINGS
None of
our directors, executive officers, promoters or control persons has been
involved in any of the following events during the past five years:
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Any bankruptcy petition filed by
or against any business of which such person was a general partner or
executive officer either at the time of bankruptcy or within two years
prior to that time;
|
|
¨
|
Any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor
offenses);
|
|
¨
|
Being 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;
or
|
|
¨
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Being found by a court of
competent jurisdiction (in a civil violation), the SEC or the Commodity
Future Trading Commission to have violated a federal or state securities
or commodities law, and the judgment has not been reversed, suspended, or
vacated.
|
From time
to time we may be a defendant and plaintiff in various legal proceedings arising
in the normal course of our business. We are currently not a party to any
material pending legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, management is not
aware of any known litigation or liabilities involving the operators of our
properties that could affect our operations. Should any liabilities incurred in
the future, they will be accrued based on management’s best estimate of the
potential loss. As such, there is no adverse effect on our consolidated
financial position, results of operations or cash flow at this time.
Furthermore, Management of the Company does not believe that there are any
proceedings to which any director, officer, or affiliate of the Company, any
owner of record of the beneficially or more than five percent of the common
stock of the Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
PART
II
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our
common stock is traded on the OTC Bulletin Board under the symbol
"CHSH". The following table sets forth the range of high and low
prices per share of our common stock for each period indicated.
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2007
(1)
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|
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2008
(2)
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|
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|
High
|
|
|
Low
|
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|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
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|
First
quarter
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|
$
|
0.067
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|
|
$
|
0.0329
|
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|
$
|
0.24
|
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|
$
|
0.04
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|
Second
quarter
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|
$
|
2.5
|
|
|
$
|
0.25
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|
|
$
|
0.18
|
|
|
$
|
0.04
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|
Third
quarter
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|
$
|
0.39
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|
|
$
|
0.08
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|
|
$
|
0.05
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|
|
$
|
0.0032
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|
Fourth
quarter
|
|
$
|
0.17
|
|
|
$
|
0.0705
|
|
|
$
|
0.01
|
|
|
$
|
0.003
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(1) For
fiscal year 04/01/2007 – 03/31/2008
(2) For
fiscal year 04/01/2008 – 03/31/2009
As of
June 15, 2009, there were 293 holders of record of our common stock. Because
brokers and other institutions hold many of the shares on behalf of
shareholders, we are unable to determine the actual number of shareholders
represented by these record holders.
The
shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9
of the Securities Exchange Act of 1934, as amended (the Exchange Act”), commonly
referred to as the “penny stock” rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g9(d)(1)
incorporates the definition of penny stock as that used in Rule 3a51-1 of
the Exchange Act.
The
Commission generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions.
Rule 3a51-1 provides 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 Commission; authorized for
quotation on The NASDAQ Stock Market; issued by a registered investment company;
excluded from the definition on the basis of price (at least $5.00 per share) or
the registrant’s net tangible assets; or exempted from the definition by the
Commission. Trading in the shares is subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse.
For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser’s written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker dealers to
trade and/or maintain a market in the Company’s common stock and may affect the
ability of shareholders to sell their shares.
Dividends
We have
never declared or paid cash dividends on our common stock. We currently
anticipate that we will retain all future earnings to fund the operation of our
business and do not anticipate paying dividends on our common stock in the
foreseeable future.
Recent
Issuances of Unregistered Stock
On March
31, 2009, the Company entered into a Share Exchange Agreement pursuant to which
the Company agreed to acquire all of the issued and outstanding shares of common
stock of Extra Ease and EWIP. As consideration, the Company shall
issue a total of 1,871,313,946 shares of its common stock.
On March
31, 2009, the Company entered into an Agreement for Sale of Stock to which Feng
Guang Yuan agreed to purchase all of the issued and outstanding stock, i.e.
945,000 shares of Wholly Success, a British Virgin Islands corporation (“WS”)
for a total consideration of $100. Prior to this transaction, the Company and
the management performed an evaluation of the requirement of ASC 205-20 and
ascertained that the subsidiary as a discontinued operation. As a result,
management decided that the disposal of the subsidiary was in the best interest
of the Company. The Board exhausted its business contacts to locate interested
buyers and finally the buyer was identified in early March 2009. As of December
31, 2008, the net asset value of Wholly Success totaled a capital deficit of
$70,000 and as such, management believes that the consideration of $100 was a
fair value of the disposal as it was higher than Wholly Success’s carrying
value.
On March
24, 2008, the Company entered into an Equity Line Agreement (the “ELA”) and a
Registration Rights Agreement (“RRA”) with Magellan Global Fund, L.P., a
Delaware limited partnership with offices in San Diego, California (“Magellan”).
The ELA provides that he Company will receive up to $2,000,000 from Magellan in
connection with the issuance to Magellan of Common Stock. Magellan was issued
571,429 shares of the Company’s common stock upon execution of the ELA and
will be issued additional shares of the Company’s common stock (having a market
value of $40,000 based on the closing bid price on the effective date of the
registration statement on such effective date.
On
January 30, 2008, the Company entered into a Regulation S Subscription Agreement
with Yu Guorui a resident and national of the Peoples Republic of China pursuant
to which it sold 4,230,769 shares (approximately 4.1% of the 104,230,769
outstanding shares) to such investor for US$550,000.00.
On July
3, 2007, a closing was held pursuant to an Agreement and Plan of Reorganization,
dated as of June 29, 2007, (the “Agreement”) by and among the Company, Wholly
Success Technology Group Limited, a British Virgin Islands Corporation, (WSTG)
and WSTG’s shareholders. Pursuant to the Agreement, each Shareholder of WSTG
exchanged all of his shares in WSTG for shares in the Company with an aggregate
of 69,615,000 shares in the Company being issued in exchange for the shares
in WSTG. In addition, the Agreement provided that China Venture Partners, Inc.
(“CVP”), a Delaware corporation, would be issued 15,185,000 shares in the
Company at their par value of $.001 per share for services pursuant to a
consulting agreement which the Company and CVP have agreed to value at
$15,185.
On April
16, 2006, a total of 4,125,000 shares of Common Stock were issued to our
director in exchange for cash in the amount of $4,125 U.S., or $.001 per share.
On April 20, 2006, a total of 1,000,000 shares of Common Stock were issued to 4
unrelated shareholders in exchange for cash in the amount of $10,000 U.S., or
$.01 per share. These securities were issued in reliance upon the exemption
contained in Section 4(2) of Securities Act of 1933
All of
the above noted securities were sold in reliance on Regulation D,
Section 504 of the Securities Act of 1933. All shareholders are subject to
Rule 144 of the Securities Act of 1933 with respect to resale. We relied on
this exemption from registration due to the fact that at the time of these
sales we were not subject to the reporting requirements of Section 13 or
15(d) of the Securities Act of 1933, not an investment company, we had a
specific business plan at the time we sold the securities, we are not a blank
check company, as that term is defined in Rule 419(a)(2) of
Regulation C or Rule 504 (a)(3) of Regulation D of the Securities
Act of 1933, and the aggregate offering price was less that $1,000,000. All of
the subscribers are directors and/or officers of us.
No
underwriters were used, and no commissions or other remuneration was paid except
to the company for any of the above noted
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FI
NANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The
following discussion should be read in conjunction with the Financial Statements
and Notes thereto. Our fiscal year ends March 31. This document contains certain
forward-looking statements including, among others, anticipated trends in our
financial condition and results of operations and our business strategy. (See
Part I, Item 1A, "Risk Factors "). These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. Important factors to consider in evaluating such forward-looking
statements include (i) changes in external factors or in our internal budgeting
process which might impact trends in our results of operations; (ii)
unanticipated working capital or other cash requirements; (iii) changes in our
business strategy or an inability to execute our strategy due to unanticipated
changes in the industries in which we operate; and (iv) various competitive
market factors that may prevent us from competing successfully in the
marketplace.
Overview
We
conduct our operations through our wholly owned subsidiaries, EWIP and
Extra Ease and its subsidiaries – EGC, Eatware Asset Management Ltd.,
Eatware Far East Ltd., Eatware International Ltd., and Rongbao (Nantong)
Environmental Co. Ltd. (collectively referred to as “EGC”). Extra Ease, EGC and
EWIP are collectively referred to as “Eatware” or the “Group”. We
primarily engage in the marketing and trading of environmentally safe food
packaging products and additives. Our objective is to establish ourselves
as a leading brand of high quality bio-based food packaging
products. We are also looking into opportunities of licensing our
technology, intellectual properties and trademarks to licensed factories for
producing Eatware products and collect royalty for additional income
source.
Prior to
Eatware products launching to the market, we have performed extensive research
on pulp technology. Throughout the process, EWIP has involved experts both from
the industry and the universities. Management believes that Eatware’s
technological application in this area is far advanced of its competitors. Our
research and development strategy is to create innovative, value-added products
and market opportunities and thus enhance Eatware’s market
position.
The
patented technology, disclosed elsewhere in this annual report, combined with
the unique additive serve as a high barrier to entry for the Company’s
competitors.
The
Company relies on a combination of trade secrets, confidentiality agreements,
patent, trademark, copyright, licenses, unfair competition and other
intellectual property laws to protect its intellectual property and other
proprietary rights. The Company has engaged with B.I. Appraisals Limited (“B.I.
Appraisals”) for an opinion of valuation of its Intellectual Property in the
technology to produce environmentally preferable food
packaging products. B.I. Appraisals and the management have been
conducting asset valuations and consultancy works in the Greater China and the
Asia Pacific regions for various purposes for over 25 years. In their
report dated December 23, 2008, B.I. Appraisals has estimated that the
market value of the Company’s Intangible Asset as at November 30, 2008, was
reasonably represented by the amount of US$127,000,000.00 (US Dollars One
Hundred and Twenty-seven Million only).
The
Company’s products are 100% organic, chemical-free biodegradable foodservice
packaging product in the industry. Features of the products include
being oil, water, heat resistant, microwave and oven safe. EWIP also invented
what management believes to be the world’s first 100% organic additive -
Eatplus
®
, comprised of a
modified starch. While other food packaging competitive products can take over
200 years to decompose and have contributed to massive landfills across the
globe, Eatware products are designed to decompose in the soil within 180 days
and can disperse in water within two weeks. Eatplus
®
enhances the
products making them sturdy, yet 100% biodegradable.
In
contrast, traditional foodservice disposables, wraps, and paperboard are
currently manufactured from a variety of materials, including paper and plastic.
Management believes that none of these materials fully addresses three of the
principal challenges facing the foodservice industry; namely performance, price,
and environmental impact. Management believes that Eatware products address the
combination of these challenges better than traditional alternatives and
therefore will be able to achieve a significant share of the foodservice
disposable packaging market.
The
Company’s products can be categorized into five types: (1) plates; (2) bowls;
(3) trays; (4) lunch boxes; and (5) mini containers. To date, The Company’s
technology has been used to produce limited commercial quantities of plates,
bowls, and hinged-lid containers intended for use by all segments of the
foodservice disposable packaging market, including quick-service restaurants,
food and facilities management companies, Governments, universities/colleges,
and retail operations. These products were developed using detailed
environmental assessments and carefully selected raw materials and processes to
minimize the harmful impact on the environment without sacrificing competitive
price or performance.
The
Company markets and sells bio-based tableware for the food service packaging
industry that is:
|
¨
|
100% decomposable, biodegradable
and compostable;
|
|
¨
|
100% oil-resistant to over
400ºF;
|
|
¨
|
100% heat-resistant to over
400ºF;
|
|
¨
|
100% microwave-safe to over
400ºF;
|
|
¨
|
100% made of natural materials –
absolutely no chemicals/petroleum are
added;
|
|
¨
|
Made from bamboo, sugarcane, rice
or cornstarches;
|
|
¨
|
Decomposable in a landfill within
90 days;
|
|
¨
|
Decomposable in a compost pile
within 2 days;
|
Critical
Accounting Policies
The
Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods. Not all of the accounting policies require management to
make difficult, subjective or complex judgments or estimates. However, the
following policies could be deemed to be critical within the SEC
definition.
Revenue
Recognition
In
accordance with the SEC’s Staff Accounting Bulletin No. 104,
“
Revenue Recognition”
, the
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, and
collectibility is reasonably assured.
(a) Sales
of products
Revenue
is recognized when products are delivered to the customers. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
In instances where products are configured to customer requirements, revenue is
recorded upon the successful completion of the Company’s final test procedures
and the customer’s acceptance.
The
Company is subject to valued-added tax ("VAT") under the PRC tax law which is
levied on the majority of the products at the rate of 17% on the invoiced value
of sales. Output VAT is borne by customers in addition to the invoiced value of
sales and input VAT is borne by the subsidiaries in addition to the
invoiced value of purchases to the extent not refunded for export
sales.
(b) Interest
income
Interest
income is recognized on a time apportionment basis, taking into account the
principal amounts outstanding and the interest rates applicable.
Use
of Estimates
In
preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
Results
of Operations
The
following table summarizes the results of our operations for the year ended
March 31, 2009 and 2008, and provides information regarding the dollar and
percentage increase or (decrease) from the year ended March 31, 2009 to the year
ended March 31, 2008.
All
amounts, other than percentages, are in millions of U.S dollars.
|
|
Years ended March 31,
|
|
|
|
|
|
|
|
Item
|
|
2009
|
|
|
2008
|
|
|
Increase
(Decrease)
|
|
|
% Increase
(% Decrease)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2.36
|
|
|
$
|
1.17
|
|
|
$
|
1.19
|
|
|
|
101.1
|
%
|
Cost
of Goods Sold
|
|
|
1.86
|
|
|
|
1.08
|
|
|
|
0.78
|
|
|
|
72.4
|
%
|
Gross
profit
|
|
|
0.50
|
|
|
|
0.09
|
|
|
|
0.41
|
|
|
|
430.2
|
%
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
0.12
|
|
|
|
0.47
|
|
|
|
(0.36
|
)
|
|
|
-75.4
|
%
|
Research
and development
|
|
|
0.14
|
|
|
|
0.24
|
|
|
|
(0.09
|
)
|
|
|
-40.0
|
%
|
General
administrative
|
|
|
1.03
|
|
|
|
0.95
|
|
|
|
0.08
|
|
|
|
8.0
|
%
|
Loss
from operations
|
|
|
(0.78
|
)
|
|
|
(1.56
|
)
|
|
|
0.78
|
|
|
|
49.9
|
%
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
N/A
|
|
Interest
expense
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
N/A
|
|
Loss
before income tax
|
|
|
(0.79
|
)
|
|
|
(1.56
|
)
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
N/A
|
|
Net
loss
|
|
|
(0.79
|
)
|
|
|
(1.56
|
)
|
|
|
0.77
|
|
|
|
49.3
|
%
|
Other
comprehensive (loss) income
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(0.80
|
)
|
|
$
|
(1.56
|
)
|
|
|
0.76
|
|
|
|
48.6
|
%
|
Year
Ended March 31, 2009 Compared to Year Ended March 31, 2008
Revenues
Revenue
increased by $1.19 million, or 101.1%, for the year ended March 31, 2009
compared to the prior year period. The sales growth is primarily attributable to
an increase in sales volume as a result of our continual expansion of
distribution network and a slight increase in average selling
price.
Gross
Profits
For the
year ended March 31, 2009, gross profit increased by $0.5 million over the prior
year period. As a percentage of sales, gross profit margin increased from 8.0%
for the year ended March 31, 2008 to 21.2% for the year ended March 31, 2009.
The increase in gross profit margin was a result of an increase in economies of
scales which lowered unit cost and a slight increase in selling
price.
Research
and Development Expenses
For the
year ended March 31, 2009, research and development expenses decreased by $0.09
million, or 40% over the prior year period. The decrease was due
primarily to a lesser expense in machine testing, research and
development.
Sales
and Marketing Expenses
Sales and
marketing expenses decreased by $0.36 million, or 75.4% for the year ended March
31, 2009 compared to the prior year period. Marketing expenses has
been reduced due to the slow down of world economy during the year and therefore
reduced participation in marketing exhibitions when compared to the same period
of year 2008.
General
and Administrative Expenses
General
and administrative expenses increased by $0.08 million, or 8% for the year ended
March 31, 2009 compared to the year ended March 31, 2008. The
increase in general and administrative expenses can be attributed to an increase
in legal consultation and professional expenses associated with our preparation
to become a public company.
Off-Balance
Sheet Arrangements
We have
no off balance sheet arrangements that are reasonably likely to have a current
or future effect on our financial condition, revenues, results of operations,
liquidity or capital expenditures.
Going
Concern
As a
result of the losses incurred during the last two fiscal years and the
accumulated deficit of $4,448,903 and negative operating cash flow of
$1,012,696, the report of our independent registered public accounting firm on
the financial statements for the year ended March 31, 2009 includes an
explanatory paragraph indicating substantial doubt as to our ability to continue
as a going concern. Management has taken certain actions and
continues to implement changes designed to improve the Company’s financial
results and operating cash flows. The actions include certain
cost-saving initiatives, continuous development of new and existing clients and
seeking of capital financings from other parties. Management believes
that these actions will enable the Company to move towards profitability and
improve cash flow in its continuing operations through the coming
year.
Liquidity
and Capital Resources
Cash
flows from operating activities
We
experienced negative cash flows from operating activities in the amount of
$1,012,696 for the year ended March 31, 2009, primarily due to net loss of
$793,272 and decrease of accounts payable, related parties of $421,324, offset
by a decrease of accounts receivable, net of $80,086 and a decrease of accounts
receivable, related parties of $52,734.
For the
year ended March 31, 2008 we experienced negative cash flows from operating
activities in the amount of $1,016,063, primarily due to net loss from
operations of $1,563,152 offset by increase in accounts payable, related parties
of $421,324.
Cash
flows from investing activities
Net cash
flows used in investing activities for the year ended March 31, 2009 was $1,271
representing the purchase of plant and equipment.
For the
year ended March 31, 2008 net cash flows used in investing activities was $5,008
representing the purchase of plant and equipment.
Cash
flows from financing activities
Net cash
flows provided by financing activities for the year ended March 31, 2009 was
$973,178 primarily due to net increase in bank overdraft of $167,553, advance
from a non-related party of $374,169 and advance from a director of
$431,456.
For the
year ended March 31, 2008 net cash flows provided by financing activities was
$1,062,799 which was an advance from a director.
Liquidity
Our
growth plans may require additional funding from outside sources. We intend to
pursue discussions with existing shareholders, third party financing sources and
potential lenders to ensure access to funds as required. Our future liquidity
will depend on our revenue growth and our ability to sell our products at
positive gross margins and control our operating expenses. Over the coming
twelve months, we expect to spend approximately $1,500,000 for operating
expenses assuming no significant change in business strategies. We expect to
meet these capital needs from sales revenues and other internal or external
sources of financing.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market
rate risk
We are
exposed to market risk related to changes in interest rates and foreign currency
exchanges rates.
Interest
rate risk
We hold
our assets in cash and cash equivalents. We do not hold derivative
financial instruments or equity securities.
Foreign
currency exchange rate risk
Our
revenue and expenses are denominated in U.S. dollars. We have
conducted some transactions in foreign currencies and expect to continue to do
so; we do not anticipate that foreign exchange gains or losses will be
significant. We have not engaged in foreign currency hedging to
date.
Our
international business is subject to risks typical of international activity,
including, but not limited to, differing economic conditions; change in
political climates; differing tax structures; and other regulations and
restrictions. Accordingly, our future results could be impacted by
changes in these or other factors.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
Consolidated
Financial Statements
For
The Years Ended March 31, 2009 And 2008
(With
Report of Independent Registered Public Accounting Firm Thereon)
ZYCPA
COMPANY LIMITED
Certified
Public Accountants
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
Consolidated
Balance Sheets
|
|
F-3
|
Consolidated
Statements of Operations And Comprehensive Loss
|
|
F-4
|
Consolidated
Statements of Cash Flows
|
|
F-5
|
Consolidated
Statements of Stockholders’ Deficit
|
|
F-6
|
Notes
to Consolidated Financial Statements
|
|
F-7
to F-27
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders of
China
Shoe Holdings, Inc.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
We have
audited the accompanying consolidated balance sheets of China Shoe Holdings,
Inc. (formerly Extra Ease Limited and EATware Intellectual Properties Limited)
and its subsidiaries (“the Company”) as of March 31, 2009 and 2008 and the
related consolidated statements of operations and comprehensive loss, cash flows
and stockholders’ deficit for the years ended March 31, 2009 and 2008. The
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of March 31,
2009 and 2008 and the results of operations and cash flows for the years ended
March 31, 2009 and 2008 and in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred substantial losses and has a
capital deficit, all of which raise substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are
also described in Note 2. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
ZYCPA
Company
Limited
|
ZYCPA
Company Limited
(Formerly
Zhong Yi (Hong Kong) C.P.A. Company Limited)
Certified
Public Accountants
Hong
Kong, China
July 13,
2009
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
CONSOLIDATED
BALANCE SHEETS
AS
OF MARCH 31, 2009 and 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
|
As of March 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,092
|
|
|
$
|
53,863
|
|
Accounts
receivable, net
|
|
|
142,515
|
|
|
|
230,123
|
|
Accounts
receivable, related parties
|
|
|
-
|
|
|
|
52,734
|
|
Inventories
|
|
|
3,243
|
|
|
|
4,184
|
|
Prepayments
and other receivables
|
|
|
56,944
|
|
|
|
11,682
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
207,794
|
|
|
|
352,586
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets:
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
-
|
|
|
|
1
|
|
Plant
and equipment, net
|
|
|
3,726
|
|
|
|
4,183
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
211,520
|
|
|
$
|
356,770
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
167,553
|
|
|
$
|
-
|
|
Accounts
payable, trade
|
|
|
218,163
|
|
|
|
127,568
|
|
Accounts
payable, related parties
|
|
|
-
|
|
|
|
421,324
|
|
Note
payable
|
|
|
374,169
|
|
|
|
-
|
|
Amount
due to a director
|
|
|
1,202,847
|
|
|
|
1,321,606
|
|
Other
payables and accrued liabilities
|
|
|
156,138
|
|
|
|
142,646
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,118,870
|
|
|
|
2,013,144
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
2,118,870
|
|
|
|
2,013,144
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 2,000,000,000 shares authorized; 1,990,759,517
shares issued and outstanding as of March 31, 2009 and
2008
|
|
|
1,990,759
|
|
|
|
1,871,314
|
|
Additional
paid-in capital
|
|
|
550,215
|
|
|
|
-
|
|
Accumulated
other comprehensive income
|
|
|
579
|
|
|
|
8,498
|
|
Accumulated
deficit
|
|
|
(4,448,903
|
)
|
|
|
(3,536,186
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(1,907,350
|
)
|
|
|
(1,656,374
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
211,520
|
|
|
$
|
356,770
|
|
See
accompanying notes to consolidated financial statements.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR
THE YEARS ENDED MARCH 31, 2009 and 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
|
Years ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
REVENUES,
NET
|
|
|
|
|
|
|
Product
sales
|
|
$
|
2,358,912
|
|
|
$
|
1,119,731
|
|
Product
sales, related parties
|
|
|
-
|
|
|
|
52,589
|
|
|
|
|
|
|
|
|
|
|
Total
revenues, net
|
|
|
2,358,912
|
|
|
|
1,172,320
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
1,858,661
|
|
|
|
546,345
|
|
Cost
of revenues, related parties
|
|
|
-
|
|
|
|
531,792
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
|
1,858,661
|
|
|
|
1,078,137
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
500,251
|
|
|
|
94,183
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
116,582
|
|
|
|
471,813
|
|
Research
and development
|
|
|
141,296
|
|
|
|
235,022
|
|
General
and administrative
|
|
|
1,026,396
|
|
|
|
950,631
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,284,274
|
|
|
|
1,657,466
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(784,023
|
)
|
|
|
(1,563,283
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
52
|
|
|
|
131
|
|
Interest
expense
|
|
|
(9,301
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAX
|
|
|
(793,272
|
)
|
|
|
(1,563,152
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(793,272
|
)
|
|
$
|
(1,563,152
|
)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
-
Foreign currency translation (loss) gain
|
|
|
(7,919
|
)
|
|
|
4,715
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
LOSS
|
|
$
|
(801,191
|
)
|
|
$
|
(1,558,437
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per share – Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – Basic and diluted
|
|
|
1,871,313,946
|
|
|
|
1,871,313,946
|
|
See
accompanying notes to consolidated financial statements.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED MARCH 31, 2009 and 2008
(Currency
expressed in United States Dollars (“US$”))
|
|
Years ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(793,272
|
)
|
|
$
|
(1,563,152
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,791
|
|
|
|
1,496
|
|
Allowance
for doubtful accounts
|
|
|
7,522
|
|
|
|
-
|
|
Impairment
loss on intangible assets
|
|
|
1
|
|
|
|
-
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, trade
|
|
|
80,086
|
|
|
|
(178,966
|
)
|
Accounts
receivable, related parties
|
|
|
52,734
|
|
|
|
(52,734
|
)
|
Inventories
|
|
|
941
|
|
|
|
(432
|
)
|
Prepayments
and other receivables
|
|
|
(45,262
|
)
|
|
|
139,255
|
|
Accounts
payable, trade
|
|
|
90,595
|
|
|
|
106,970
|
|
Accounts
payable, related parties
|
|
|
(421,324
|
)
|
|
|
421,324
|
|
Other
payables and accrued liabilities
|
|
|
13,492
|
|
|
|
110,176
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,012,696
|
)
|
|
|
(1,016,063
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of plant and equipment
|
|
|
(1,271
|
)
|
|
|
(5,008
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(1,271
|
)
|
|
|
(5,008
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase in bank overdraft
|
|
|
167,553
|
|
|
|
-
|
|
Proceeds
from note payable
|
|
|
374,169
|
|
|
|
-
|
|
Advances
from a director
|
|
|
431,456
|
|
|
|
1,062,799
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
973,178
|
|
|
|
1,062,799
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(7,982
|
)
|
|
|
4,716
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(48,771
|
)
|
|
|
46,444
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
53,863
|
|
|
|
7,419
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
5,092
|
|
|
$
|
53,863
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for interest
|
|
$
|
9,301
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Forfeiture
of the amount payable to a director
|
|
$
|
550,215
|
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED MARCH 31, 2009 and 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
|
Common stock
|
|
|
Additional
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
No. of share
|
|
|
Amount
|
|
|
paid-in capital
|
|
|
(loss) income
|
|
|
deficit
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of April 1, 2007
|
|
|
1,871,313,946
|
|
|
$
|
1,871,314
|
|
|
$
|
-
|
|
|
$
|
3,783
|
|
|
$
|
(1,973,034
|
)
|
|
$
|
(97,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,563,152
|
)
|
|
|
(1,563,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,715
|
|
|
|
-
|
|
|
|
4,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2008
|
|
|
1,871,313,946
|
|
|
|
1,871,314
|
|
|
|
-
|
|
|
|
8,498
|
|
|
|
(3,536,186
|
)
|
|
|
(1,656,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
and reverse acquisition
|
|
|
119,445,571
|
|
|
|
119,445
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(119,445
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture
of the amount payable to a director
|
|
|
-
|
|
|
|
-
|
|
|
|
550,215
|
|
|
|
-
|
|
|
|
-
|
|
|
|
550,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(793,272
|
)
|
|
|
(793,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,919
|
)
|
|
|
-
|
|
|
|
(7,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2009
|
|
|
1,990,759,517
|
|
|
$
|
1,990,759
|
|
|
$
|
550,215
|
|
|
$
|
579
|
|
|
$
|
(4,448,903
|
)
|
|
$
|
(1,907,350
|
)
|
See
accompanying notes to consolidated financial statements.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
1.
|
ORGANIZATION
AND BUSINESS BACKGROUND
|
China
Shoe Holdings, Inc. (the “Company” or “CHSH”) was incorporated in the State of
Nevada on January 24, 2005 as Indigo Technologies, Inc. On June 6, 2007, CHSH
changed its name to China Shoe Holdings, Inc.
Business
history
On March
31, 2009, the Company entered into a Share Exchange Agreement (the “Exchange
Agreement”) by and among (1) Extra Ease Limited (“Extra Ease”) and (2) Eatware
Intellectual Properties Limited (“EWIP”), and (3) the shareholders of Extra Ease
and EWIP.
Pursuant
to the Exchange Agreement, the Company agreed to issue a total of 1,871,313,946
shares of its common stock, of which (i) 121,313,946 shares were issued to the
shareholder of Extra Ease in exchange for 10,000 shares of Extra Ease,
representing 100% of the issued and outstanding common stock of Extra Ease, and
(ii) 1,750,000,000 shares were issued to the shareholders of EWIP in
exchange for 50,000 shares of EWIP, representing 100% of the issued and
outstanding common stock of EWIP. Immediately following completion of the share
exchange transaction, the Company had a total of 1,990,759,517 shares of its
common stock issued and outstanding.
On the
closing date, the Company consummated the disposal of all of its subsidiaries to
a third party. This disposal transaction was assumed to be completed as of the
beginning of the periods presented in the accompanying consolidated financial
statements.
Extra
Ease is mainly engaged in the development and manufacturing of proprietary
additives and trading of bio-degradable food containers and packaging products
in Hong Kong and overseas. EWIP obtains the exclusive trademarks of “EATWARE”,
registered and pending patent applications and technical know-how used in the
production of certain bio-degradable food containers and packaging
products.
The stock
exchange transaction has been accounted for as a reverse acquisition and
recapitalization of CHSH whereby Extra Ease and EWIP, as a combined
entity is deemed to be the accounting acquirers (legal acquirees) and
CHSH to be the accounting acquiree (legal acquirer). The accompanying
consolidated financial statements are in substance those of Extra Ease and EWIP,
with the assets and liabilities, and revenues and expenses, of CHSH being
included effective from the date of stock exchange transaction. CHSH is deemed
to be a continuation of the business and operations of Extra Ease and EWIP.
Accordingly, the accompanying consolidated financial statements include the
following:
(1)
|
the
balance sheet consists of the net assets of the accounting acquirers at
historical cost and the net assets of the accounting acquiree at
historical cost;
|
(2)
|
the
financial position, results of operations, and cash flows of the
accounting acquirers for all periods presented as if the recapitalization
had occurred at the beginning of the earliest period presented and the
operations of the accounting acquiree from the date of stock exchange
transaction.
|
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
Description
of subsidiaries
As of
March 31, 2009, details of the Company’s subsidiaries are described
below:
Name of subsidiaries
|
|
Place and date of
incorporation
|
|
Particulars of
issued/ registered
share capital
|
|
Principal activities
|
|
|
|
|
|
|
|
Extra
Ease Limited (“Extra Ease”)
|
|
British
Virgin Islands,
January
2, 2008
|
|
10,000
issued share of US$1 each
|
|
Investments
holding
|
|
|
|
|
|
|
|
Eatware
Global Corp. (“EGC”)
|
|
British
Virgin Islands,
March
31, 2006
|
|
1
issued share of US$1 each
|
|
Investments
holding
|
|
|
|
|
|
|
|
EATware
Intellectual Properties Limited (“EWIP”)
|
|
British
Virgin Islands,
December
15, 2006
|
|
1
issued share of US$1 each
|
|
Development
of technical know-how and patents
|
|
|
|
|
|
|
|
Eatware
Far East Limited (“EFEL”)
|
|
Hong
Kong,
January
26, 2007
|
|
1
issued share of HK$1 each
|
|
Trading
of foodwares and containers
|
|
|
|
|
|
|
|
Eatware
International Limited (“EIL”)
|
|
British
Virgin Islands, December 15, 2006
|
|
1
issued share of US$1 each
|
|
Trading
of foodwares and packaging products
|
|
|
|
|
|
|
|
Rongbao
(Nantong) Environmental Co., Ltd (“RBNT”)
|
|
The
People’s Republic of China,
June
22, 2005
|
|
US$100,000
|
|
Manufacture
and development of proprietary additives
|
|
|
|
|
|
|
|
Eatware
Assets Management Limited (“EAML”)
|
|
Hong
Kong,
September
1, 2008
|
|
1
issued share of HK$1 each
|
|
Investments
holding
|
Substantially
all of its operations are conducted by its subsidiaries in Hong Kong and the
People's Republic of China ("PRC").
The
Company and its subsidiaries are hereinafter referred to as (the
"Company").
2. GOING
CONCERN UNCERTAINTIES
These
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of assets
and the discharge of liabilities in the normal course of business for the
foreseeable future.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
For the
year ended March 31, 2009, the Company incurred a net loss of $793,272 with the
accumulated deficit of $4,448,903 and suffered from a negative operating cash
flow of $1,012,696. The continuation of the Company is dependent upon the
continuing financial support of its shareholders and obtaining additional
financing, generating significant revenue and achieving profitability. The
actions involve certain cost-saving initiatives and growing strategies. As a
result, the consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of the Company’s ability to continue as a going concern.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
These
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America.
In
preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
The
consolidated financial statements include the financial statements of CHSH and
its subsidiaries.
All
significant inter-company balances and transactions within the Company have been
eliminated upon consolidation.
l
|
Cash
and cash equivalents
|
Cash and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
Accounts
receivable are recorded at the invoiced amount and do not bear interest. The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and determined based on managements’ assessment of known
requirements, aging of receivables, payment history, the customers’ current
credit worthiness and the economic environment.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
As of
March 31, 2009 and 2008, the Company recorded the allowance for doubtful
accounts of $7,548 and $0, respectively.
Inventories
are stated at the lower of cost or market (net realizable value), cost being
determined on a weighted average method. Costs mainly represent the cost of raw
material of proprietary additives. The Company quarterly reviews historical
sales activity to determine excess, slow moving items and potentially obsolete
items and also evaluates the impact of any anticipated changes in future demand.
The Company provides inventory allowances based on excess and obsolete
inventories determined principally by customer demand. As of March 31, 2009 and
2008, no allowance for obsolete inventories was required.
Intangible
assets include the trademarks, registered and pending patent applications and
technical know-how obtained from a related party at the acquisition cost.
Technical know-how includes secret formulas, manufacturing processes, technical
and procedural manuals to manufacture bio-degradable food containers and
packaging products.
Amortization
of these intangible assets is provided on the basis over their estimated useful
lives ranging from 7 to 50 years, using the straight-line method.
Plant and
equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Depreciation is calculated on the straight-line basis
over the following expected useful lives from the date on which they become
fully operational:
|
|
Depreciable life
|
Leasehold
improvement
|
|
Term
of the lease (2 years)
|
Furniture,
fixtures and office equipment
|
|
4
to 5 years
|
Expenditure
for repairs and maintenance is expensed as incurred. When assets have retired or
sold, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in the results of
operations.
l
|
Valuation
of long-lived assets
|
Long-lived
assets primarily include plant and equipment and intangible assets. In
accordance with SFAS No. 144,
“
Accounting for the
Impairment or Disposal of Long-Lived Assets”
, the Company periodically
reviews long-lived assets for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully
recoverable or that the useful lives are no longer appropriate. Each impairment
test is based on a comparison of the undiscounted cash flows to the recorded
value of the asset. If an impairment is indicated, the asset is written down to
its estimated fair value based on a discounted cash flow analysis. Determining
the fair value of long-lived assets includes significant judgment by management,
and different judgments could yield different results.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
During
the year ended March 31, 2009, the Company performed the impairment test for
recoverability and recorded an impairment charge of $1 to fully write down the
carrying amount of intangible assets to zero.
In
accordance with the SEC’s Staff Accounting Bulletin No. 104,
“
Revenue Recognition”
, the
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, and
collectibility is reasonably assured.
Revenue
is recognized when products are delivered to the customers. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
In instances where products are configured to customer requirements, revenue is
recorded upon the successful completion of the Company’s final test procedures
and the customer’s acceptance.
The
Company is subject to valued-added tax ("VAT") under the PRC tax law which is
levied on the majority of the products at the rate of 17% on the invoiced value
of sales. Output VAT is borne by customers in addition to the invoiced value of
sales and input VAT is borne by the subsidiaries in addition to the invoiced
value of purchases to the extent not refunded for export sales.
Interest
income is recognized on a time apportionment basis, taking into account the
principal amounts outstanding and the interest rates applicable.
Advertising
costs are expensed as incurred under SOP 93-7,
“
Reporting for Advertising
Costs”
.
$14,211
and $22,158 of advertising expenses were incurred for the years ended March 31,
2009 and 2008, respectively.
SFAS No.
130
, “
Reporting Comprehensive
Income”
, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources.
Accumulated comprehensive income, as presented in the accompanying consolidated
statements of stockholder’s deficit consists of changes in unrealized gains and
losses on foreign currency translation. This comprehensive income is not
included in the computation of income tax expense or benefit.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
The
Company accounts for income tax using SFAS No. 109
“
Accounting for Income Taxes”
,
which requires the asset and liability approach for financial accounting and
reporting for income taxes. Under this approach, deferred income taxes are
provided for the estimated future tax effects attributable to temporary
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for the expected future tax
benefits from loss carry-forwards and provisions, if any. Deferred tax assets
and liabilities are measured using the enacted tax rates expected in the years
of recovery or reversal and the effect from a change in tax rates is recognized
in the statements of operations and comprehensive income in the period of
enactment. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some portion of, or all
of the deferred tax assets will not be realized.
The
Company also adopts the provisions of the Financial Accounting Standards
Interpretation No. 48,
“
Accounting for
Uncertainty in Income Taxes”
(“FIN 48”). FIN 48 prescribes a
recognition threshold and measurement process for recording in the financial
statements uncertain tax positions taken or expected to be taken in a tax
return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transitions. The adoption of FIN 48 did not have a significant impact on the
Company’s consolidated financial statements.
The
Company conducts major businesses in the PRC and Hong Kong and is subject to
taxes in these jurisdictions. As a result of its business activities, the
Company files tax returns that are subject to examination by the local and
foreign tax authorities.
l
|
Foreign
currencies translation
|
Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional currency using
the applicable exchange rates at the balance sheet dates. The resulting exchange
differences are recorded in the consolidated statement of
operations.
The
reporting currency of the Company is the United States dollar ("US$"). The
Company’s subsidiaries operating in Hong Kong maintain their books and record in
its local currency, Hong Kong Dollars ("HK$") while one subsidiary operating in
the PRC maintains its books and records in its local currency, Renminbi Yuan
("RMB"), which are functional currencies as being the primary currency of the
economic environment in which these entities operate.
In
general, assets and liabilities are translated into US$, in accordance with SFAS
No. 52,
“
Foreign Currency Translation”
, using the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the year. The gains and losses
resulting from translation of financial statements of foreign subsidiaries are
recorded as a separate component of accumulated other comprehensive income
within the consolidated statement of stockholders’ deficit.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
Translation
of amounts from HK$ and RMB into US$1 has been made at the following exchange
rates for the respective year:
|
|
2009
|
|
|
2008
|
|
Year
end RMB:US$ exchange rate
|
|
|
6.8456
|
|
|
|
7.0222
|
|
Average
rates RMB:US$ exchange rate
|
|
|
6.9367
|
|
|
|
7.4695
|
|
Year
end HK$:US$ exchange rate
|
|
|
7.7505
|
|
|
|
7.7827
|
|
Average
rates HK$:US$ exchange rate
|
|
|
7.7773
|
|
|
|
7.7993
|
|
Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expenses in the statements of operation and
comprehensive loss as and when the related employee service is
provided.
Parties,
which can be a corporation or individual, are considered to be related if the
Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and
operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
SFAS No.
131
“
Disclosures about Segments of an
Enterprise and Related Information”
establishes standards for reporting
information about operating segments on a basis consistent with the Company’s
internal organization structure as well as information about geographical areas,
business segments and major customers in the financial statements. During
2009 and 2008, the Company operates two reportable segments in Hong Kong and the
PRC.
l
|
Fair
value of financial instruments
|
The
Company values its financial instruments as required by SFAS No. 107,
“
Disclosures about Fair Value of
Financial Instru
ments”
. The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. The estimates presented
herein are not necessarily indicative of amounts that the Company could realize
in a current market exchange.
The
Company’s financial instruments primarily consist of cash and cash equivalents,
accounts receivable, prepayments and other receivables, accounts payable, note
payable, amount due to a director, other payables and accrued
liabilities.
As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented due to the
short term maturities of these instruments and that the interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at respective year ends.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
l
|
Recent
accounting pronouncements
|
The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.
In
September 2006, the Financial Accounting Standard Board (“FASB”) issued SFAS No.
157,
“
Fair Value
Measurements”
("SFAS No. 157"). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”), and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that
require or permit fair value measurement where the FASB has previously
determined that under those pronouncements fair value is the appropriate
measurement. This statement does not require any new fair value measurements but
may require companies to change current practice. This statement is effective
for those fiscal years beginning after November 15, 2007 and to the interim
periods within those fiscal years. The Company believes that SFAS No. 157 should
not have a material impact on the financial position or results of
operations
In
February 2007, the FASB issued SFAS No. 159,
“
The Fair Value Option for Financial
Assets and Financial Liabilities”
("SFAS No. 159"). SFAS No.
159 permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions of
which are required to be applied prospectively. The Company believes that SFAS
No. 159 should not have a material impact on the financial position or results
of operations.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007),
"Business Combinations"
("SFAS No. 141R"). SFAS No. 141R will change the accounting for business
combinations. Under SFAS No. 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items
in a business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations the Company engages in will be recorded
and disclosed following existing GAAP until January 1, 2009. The Company
believes that SFAS No. 141R should not have a material impact on the financial
position or results of operations.
In
December 2007, the FASB issued SFAS No. 160,
"Noncontrolling Interests in
Consolidated Financial Statements
—
An Amendment of ARB No.
51"
("SFAS No. 160"). SFAS No. 160 establishes new accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or
after December 15, 2008. It shall be applied prospectively as of the
beginning of the fiscal year in which it is initially adopted. The Company
will adopt the provisions of SFAS No. 160 beginning April 1, 2009, and do not
anticipate it to have a material effect on its financial position, results
of operations, or cash flows.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
In March
2008, the FASB issued SFAS No. 161,
"Disclosures about Derivative
Instruments and Hedging Activities"
("SFAS No. 161"). SFAS No. 161
requires companies with derivative instruments to disclose information that
should enable financial-statement users to understand how and why a company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for under SFAS No. 133
"Accounting for
Derivative Instruments and Hedging Activities"
and how
derivative instruments and related hedged items affect a company's financial
position, financial performance and cash flows. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption of this statement is not expected to have a
material effect on the Company's future financial position or results of
operations.
In May
2008, the FASB issued SFAS No. 163, “
Accounting for Financial Guarantee
Insurance Contracts
—
an interpretation of FAS
B Statement No. 60
” ("SFAS
No. 163"). SFAS No. 163 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. SFAS No. 163 is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009. The Company is currently evaluating the impact of SFAS No.
163 on its financial statements but does not expect it to have an effect on the
Company's financial position, results of operations or cash flows.
Also in
May 2008, the FASB issued FSP APB 14-1, “
Accounting for Convertible Debt
Instruments that may be Settled in Cash upon Conversion (Including Partial Cash
Settlement)”
("FSP APB 14-1"). FSP APB 14-1 applies to
convertible debt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. FSP APB 14-1 specifies that issuers of such
instruments should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years after December 15, 2008, and must
be applied on a retrospective basis. Early adoption is not permitted. The
Company does not expect it to have an effect on the Company's financial
position, results of operations or cash flows.
In June
2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1,
"Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities"
("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included in
the earnings allocation in computing earnings per share under the two-class
method as described in SFAS No. 128,
“
Earnings per Share”
.
Under the
guidance of FSP EITF 03-6-1, unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and all prior-period earnings per share data presented shall
be adjusted retrospectively. Early application is not permitted. The Company
does not expect it to have an effect on the Company's financial position,
results of operations or cash flows.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
Also in
June 2008, the FASB ratified EITF No. 07-5, “
Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity's Own Stock
” ("EITF
07-5"). EITF 07-5 provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. EITF 07-5 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. Early
application is not permitted. The Company is assessing the potential impact of
this EITF 07-5 on the financial condition and results of operations and does not
expect it to have an effect on the Company's financial position, results of
operations or cash flows.
In
December 2008, the FASB issued Staff Position (“FSP”) No. 140-4 and FIN 46(R)-8,
“
Disclosures by Public
Entities about Transfers of Financial Assets and Interests in Variable Interest
Entities”
.
The purpose of
this FSP is to promptly increase disclosures by public entities and enterprises
until the pending amendments to SFAS No. 140, “
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities”
,
("SFAS No. 140")
and FASB Interpretation No. 46 (revised December 2003), “
Consolidation of Variable Interest
Entities”
, ("FIN 46(R)") are finalized and approved by the FASB. The FSP
is effective for reporting periods (interim and annual) ending after December
15, 2008. This adoption did not have any impact on the consolidated financial
statements.
On
January 12, 2009, the FASB issued FSP EITF 99-20-01,
“
Amendment to the Impairment Guidance
of EITF Issue No. 99-20”
. This FSP amends the impairment guidance in
EITF Issue No. 99-20,
“
Recognition of Interest
I
ncome and Impairment
on Purchased Beneficial Interests and Beneficial Interests That Continue to be
Held by a Transferor in Securitized Financial Assets,”
to
achieve more consistent determination of whether an other-than-temporary
impairment has occurred. The FSP also retains and emphasizes the objective of an
other-than-temporary impairment assessment and the related disclosure
requirements in SFAS No. 115,
“
Accounting for Certain Investments
in Debt and Equity Securities,”
and other related guidance.
The FSP is shall be effective for interim and annual reporting periods ending
after December 15, 2008, and shall be applied prospectively. Retrospective
application to a prior interim or annual reporting period is not permitted. The
Company does not believe this pronouncement will impact its financial
statements.
On April
1, 2009, the FASB issued FSP 141(R)-1,
“
Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination that Arise from
Contingencies”
("FSP 141R-1"). FSP 141R-1 amends and clarifies
SFAS No. 141R to address application issues associated with initial recognition
and measurement, subsequent measurement and accounting, and disclosure of assets
and liabilities arising from contingencies in a business combination. FSP 141R-1
is effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Company will apply the provisions of FSP 141R-1 to future
acquisitions.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
On April
9, 2009, the FASB issued FSP SFAS 157-4,
“
Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Trans
actions That Are Not
Orderly,”
which provides additional guidance for estimating
fair value in accordance with SFAS No. 157 when the volume and level of activity
for the asset or liability have significantly decreased. This FSP re-emphasizes
that regardless of market conditions the fair value measurement is an exit price
concept as defined in SFAS No. 157. This FSP clarifies and includes additional
factors to consider in determining whether there has been a significant decrease
in market activity for an asset or liability and provides additional
clarification on estimating fair value when the market activity for an asset or
liability has declined significantly. FSP SFAS 157-4 is applied prospectively to
all fair value measurements where appropriate and will be effective for interim
and annual periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 is
not expected to have a material impact on the Company’s consolidated financial
statements or results of operations.
On April
29, 2009, the FASB issued FSP SFAS 107-1 and APB 28-1,
“
Interim Disclosures about Fair Value
of Financial Instruments.”
This FSP which amends SFAS No.
107,
“
Disclosures about Fair Value of
Financial Instruments,”
to require publicly-traded companies,
as defined in APB Opinion No. 28,
“
Interim Financial
Reporting,”
to provide disclosures on the fair value of
financial instruments in interim financial statements. FSP SFAS 107-1 and APB
28-1 are effective for interim periods ending after June 15, 2009. The adoption
of FSP SFAS 107-1 is not expected to have a material impact on the Company’s
consolidated financial statements or results of operations.
4.
|
TRADE
ACCOUNTS RECEIVABLE
|
The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on
specifically identified amounts that management believes to be uncollectible. If
actual collections experience changes, revisions to the allowance may be
required. Based upon the aforementioned criteria, the Company provided the
allowance for doubtful accounts of $7,522 and $0 for the years ended March 31,
2009 and 2008.
|
|
As of March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accounts
receivable, trade
|
|
$
|
150,063
|
|
|
$
|
230,123
|
|
Less:
allowance for doubtful accounts
|
|
|
(7,548
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
142,515
|
|
|
$
|
230,123
|
|
5.
|
PREPAYMENTS
AND OTHER RECEIVABLES
|
Prepayments
and other receivables consisted of the followings:
|
|
As of March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Prepayments
|
|
$
|
6,101
|
|
|
$
|
2,542
|
|
Utility
deposits
|
|
|
50,736
|
|
|
|
9,087
|
|
Other
receivables
|
|
|
107
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,944
|
|
|
$
|
11
,682
|
|
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
In
January 2007, the Company entered into the Deeds of Assignment with two related
companies which were previously controlled by the director of the Company
pursuant to which the Company acquired exclusive trademarks of “EATWARE”,
registered and pending patent applications, technical know-how used in the
production of bio-degradable food containers and packaging products for a
consideration of $1.
Management
performs impairment testing annually and more frequently if factors and
circumstances indicate an impairment may have occurred. Intangible assets with
finite lives will continue to be amortized over their estimated useful
lives.
In
accordance with SFAS No. 144, the Company reviewed its annual impairment test on
the intangible assets and concluded that the decline in expected future benefits
from these intangible assets was sufficient to result in an impairment loss of
$1.
7.
|
PLANT
AND EQUIPMENT, NET
|
Plant and
equipment consisted of the following:
|
|
As
of March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Leasehold
improvement
|
|
$
|
655
|
|
|
$
|
655
|
|
Furniture,
fixtures and office equipment
|
|
|
6,430
|
|
|
|
5,159
|
|
Foreign
translation difference
|
|
|
112
|
|
|
|
4
|
|
|
|
|
7,197
|
|
|
|
5,818
|
|
Less:
accumulated depreciation
|
|
|
(3,426
|
)
|
|
|
(1,631
|
)
|
Less:
foreign translation difference
|
|
|
(45
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Plant
and equipment, net
|
|
$
|
3,726
|
|
|
$
|
4,183
|
|
Depreciation
expense for the years ended March 31, 2009 and 2008 were $1,791 and $1,496,
respectively.
For the
years ended March 31, 2009 and 2008, the Company tested for impairment in
accordance with the SFAS No.142 and no impairment charge was
required.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
In May
2008, the Company obtained an overdraft facility with Dah Sing Bank with the
available balance of $167,553 (equivalent to HK$1,300,000). The overdraft
facility carried interest at a rate of 0.5% per annum over Hong Kong prime
rate, payable monthly. Weighted average interest rate approximated
5.75% per annum for the year ended March 31, 2009. This facility was
secured by real property held by and personally guaranteed by Mr. Jonathan W L
So, the director of the Company. The overdraft facility is subject to be
extended or renewed at the option of the bank.
9.
|
NOTE
PAYABLE TO A NON-RELATED PARTY
|
As of
March 31, 2009, the Company obtained an advance of $374,169 from a non-related
party, which carried interest rate of 7% per annum, was unsecured and repayable
on demand.
10.
|
AMOUNT
DUE TO A DIRECTOR
|
As of
March 31, 2009 and 2008, $1,202,847 and $1,321,606 due to a director, Mr.
Jonathan W L So represented temporary advances to the Company which was
unsecured and interest-free with no fixed repayment term. The imputed interest
on the amount due to a director was not significant.
11.
|
OTHER
PAYABLES AND ACCRUED LIABILITIES
|
Other
payables and accrued liabilities consisted of the followings:
|
|
As
of
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
120,032
|
|
|
$
|
102,102
|
|
Customers
deposit
|
|
|
23,520
|
|
|
|
36,416
|
|
Other
tax payable
|
|
|
462
|
|
|
|
352
|
|
Other
payables
|
|
|
12,124
|
|
|
|
3,776
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156,138
|
|
|
$
|
142,646
|
|
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
On
December 30, 2008, the Company approved and filed a Certificate of Change with
the Nevada Secretary of State to increase the number of shares of common stock
which it is authorized to issue from 300,000,000 shares, par value $0.001 per
share to 2,000,000,000 shares, par value $0.001 per share.
On March
31, 2009, the Company entered into a stock exchange transaction and issued an
aggregate 1,871,313,946 shares of common stock.
As of
March 31, 2009, the number of authorized and outstanding shares of the Company’s
common stock was 2,000,000,000 shares and 1,990,759,517 shares,
respectively.
(b)
|
Additional
paid-in capital
|
For the
year ended March 31, 2009, the Company approved the forfeiture of amount due to
a director, Mr. Jonathan W L So, totaling $550,215 and charged as a credit to
additional paid-in capital.
For the
years ended March 31, 2009 and 2008, the local (“United States of America”) and
foreign components of loss before income tax were comprised of the
following:
|
|
Years
ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Tax
jurisdictions from:
|
|
|
|
|
|
|
Local
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
|
(793,272
|
)
|
|
|
(1,563,152
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before income tax
|
|
$
|
(793,272
|
)
|
|
$
|
(1,563,152
|
)
|
The
effective tax rate in the years presented is the result of the mix of income
earned in various tax jurisdictions that apply a broad range of income tax
rates. The Company has subsidiaries that operate in various countries: Hong Kong
and the PRC that are subject to tax in the jurisdictions in which they operate,
as follows:
United
States of America
CHSH is
registered in the State of Nevada and is subjected to United States of America
tax law.
As of
March 31, 2009, the operation in the United States of America did not incur net
operating losses available for federal tax purposes, which are available to
offset future taxable income.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
British
Virgin Islands
Under the
current laws of the BVI, Extra Ease, EGC, EWIP and EIL are not subject to tax on
income or profit.
Hong
Kong
EFEL and
EAML are subject to Hong Kong Profits Tax at the statutory rate of 16.5% and
17.5% on the assessable income for the years ended March 31, 2009 and 2008,
respectively. For the years ended March 31, 2009 and 2008, its operating
subsidiaries in Hong Kong incurred an operating loss of $835,912 and $1,107,095
for income tax purposes and were exempted from Hong Kong Profits
Tax.
The
PRC
The
Company’s subsidiary, RBNT operating in the PRC is subject to the Corporate
Income Tax governed by the Income Tax Law of the People’s Republic of China, at
a unified statutory rate of 25%. Under the PRC Income Tax, RBNT is qualified as
a foreign investment enterprise and is exempted from income tax for the first
two profit making years with a 50% exemption of income tax for the next three
years. For the years ended March 31, 2009 and 2008, RBNT was exempted from
the PRC Income Tax due to the cumulative operating losses.
The
following table sets forth the significant components of the aggregate net
deferred tax assets and liabilities of the Company as of March 31, 2009 and
2008:
|
|
As
of
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
Depreciation
|
|
$
|
294
|
|
|
$
|
286
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
329,222
|
|
|
|
188,889
|
|
Total
net deferred tax assets
|
|
|
328,928
|
|
|
|
188,603
|
|
Less:
valuation allowance
|
|
|
(328,928
|
)
|
|
|
(188,603
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of
March 31, 2009 and 2008, the Company had approximately $1,978,796 and $1,133,259
of the cumulative tax losses which can be carried forward indefinitely to offset
future taxable income. The deferred tax assets for the Company as of March 31,
2009 and 2008 consisted mainly of tax losses and for which a full valuation
allowance has been provided, as the management believes it is more likely than
not that these assets will not be realized in the future.
Management
believes that it is more likely than not that the deferred tax assets will not
be fully realizable in the future. Accordingly, the Company provided for a full
valuation allowance against its deferred tax assets of $328,928 and $188,603 as
of March 31, 2009 and 2008, respectively. During 2009, the valuation allowance
increased by $140,325, primarily relating to net operating loss carryforwards
from the foreign tax regime.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
14.
|
RELATED
PARTY TRANSACTIONS
|
|
|
|
Years
ended
March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Sale
of goods to a related company
|
(a)
|
|
$
|
-
|
|
|
$
|
52,589
|
|
Purchase
of goods from a related company
|
(b)
|
|
|
-
|
|
|
|
531,792
|
|
Rental
charge reimbursed by a related company
|
(c)
|
|
|
137,602
|
|
|
|
128,071
|
|
Rental
expenses to a related company
|
(d)
|
|
|
-
|
|
|
|
376
|
|
Consultancy
fees paid to a related company
|
(e)
|
|
$
|
50,626
|
|
|
$
|
406,597
|
|
(a)
|
For
the year ended March 31, 2008, the Company sold its products to a related
company which is controlled by the director of the Company at its current
market value in a normal course of
business.
|
(b)
|
For
the year ended March 31, 2008, the Company purchases certain products for
re-sale from a related company which is controlled by the director of the
Company at its current market value in a normal course of
business.
|
(c)
|
For
the years ended March 31, 2009 and 2008, the Company leased out some
portion of the office premises to and partially reimbursed rental charge
by a related company which is controlled by the director of the Company,
at the market price in accordance with the lease agreement in a normal
course of business.
|
(d)
|
For
the year ended March 31, 2008, the Company leased some portion of the
office premises from related companies which is controlled by the director
of the Company, at the market price in accordance with the lease agreement
in a normal course of business.
|
(e)
|
For
the years ended March 31, 2009 and 2008, the Company paid consultancy
service to a related company which is controlled by the director of the
Company, at its fair value in a normal course of
business.
|
Hong
Kong
The
Company’s operating subsidiaries in Hong Kong participate in a defined
contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance
“MPF Scheme” for all its eligible employees in Hong Kong.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
The MPF
Scheme is available to all employees aged 18 to 64 with at least 60 days of
service in the employment in Hong Kong. Contributions are made by The Company’s
subsidiaries operating in Hong Kong at 5% of the participants’ relevant income
with a ceiling of HK$20,000. The participants are entitled to 100% of the
Company’s contributions together with accrued returns irrespective of their
length of service with The Company, but the benefits are required by law to be
preserved until the retirement age of 65. The total contributions made for MPF
Scheme were $19,557 and $26,757 for the years ended March 31, 2009 and 2008,
respectively.
The
PRC
Under the
PRC Law, full-time employees of RBNT, a subsidiary in the PRC are entitled to
staff welfare benefits including medical care, welfare subsidies, unemployment
insurance and pension benefits through a China government-mandated
multi-employer defined contribution plan. The Company’s subsidiary in the PRC is
required to accrue for these benefits based on certain percentages of the
employees’ salaries.
The
aggregate amount of such employee benefits were $1,036 and $263 for the years
ended March 31, 2009 and 2008.
Under the
PRC Law, its operating subsidiary in the PRC, RBNT is required to make
appropriations to the statutory reserve based on after-tax net earnings and
determined in accordance with generally accepted accounting principles of the
People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory
reserve should be at least 10% of the after-tax net income until the
reserve is equal to 50% of the registered capital. The statutory reserve is
established for the purpose of providing employee facilities and other
collective benefits to the employees and is non-distributable other than in
liquidation.
For the
years ended March 31, 2009 and 2008, RBNT made no appropriations to the reserve
due to its operating loss.
(a)
|
Business
segment reporting
|
The
Company’s business units have been aggregated into two reportable segments, as
defined by SFAS No. 131:
·
|
Additive Business – sales and
manufacture of proprietary additives in the
PRC
|
·
|
Foodware Business – trading of
food containers and packaging products in Hong Kong and
overseas
|
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 3). The Company had no
inter-segment sales for the years ended March 31, 2009 and 2008. The Company’s
reportable segments are strategic business units that offer different products
and services. They are managed separately based on the different technology and
marketing strategies of each business unit for making internal operating
decisions.
Summarized
financial information concerning the Company’s reportable segments is shown in
the following table for the years ended March 31, 2009 and 2008:
|
|
Year
ended
March
31,
2009
|
|
|
|
Additive
Business
|
|
|
Foodware
Business
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
146,664
|
|
|
$
|
2,212,248
|
|
|
$
|
2,358,912
|
|
Cost
of revenues
|
|
|
(137,253
|
)
|
|
|
(1,721,408
|
)
|
|
|
(1,858,661
|
)
|
Gross
profit
|
|
|
9,411
|
|
|
|
490,840
|
|
|
|
500,251
|
|
Depreciation
|
|
|
160
|
|
|
|
1,631
|
|
|
|
1,791
|
|
Net
loss
|
|
$
|
(9,626
|
)
|
|
$
|
(783,646
|
)
|
|
$
|
(793,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure
for long-lived assets
|
|
$
|
-
|
|
|
$
|
1,271
|
|
|
$
|
1,271
|
|
|
|
Year
ended
March
31,
2008
|
|
|
|
Additive
Business
|
|
|
Foodware
Business
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
102,118
|
|
|
$
|
1,070,202
|
|
|
$
|
1,172,320
|
|
Cost
of revenues
|
|
|
(102,376
|
)
|
|
|
(975,761
|
)
|
|
|
(1,078,137
|
)
|
Gross
(loss) profit
|
|
|
(258
|
)
|
|
|
94,441
|
|
|
|
94,183
|
|
Depreciation
|
|
|
148
|
|
|
|
1,348
|
|
|
|
1,496
|
|
Net
loss
|
|
$
|
(11,600
|
)
|
|
$
|
(1,551,552
|
)
|
|
$
|
(1,563,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure
for long-lived assets
|
|
$
|
-
|
|
|
$
|
5,008
|
|
|
$
|
5,008
|
|
(b)
|
Geographic
segment reporting
|
In
respect of geographical segment reporting, sales are based on the country in
which the customer is located, as follows:
|
|
Years
ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
By
regions:
|
|
|
|
|
|
|
North
America
|
|
$
|
1,640,672
|
|
|
$
|
632,404
|
|
Asia
|
|
|
501,817
|
|
|
|
377,241
|
|
Europe
|
|
|
132,006
|
|
|
|
148,384
|
|
Others
|
|
|
84,417
|
|
|
|
14,291
|
|
|
|
|
|
|
|
|
|
|
Total
revenue, net
|
|
$
|
2,358,912
|
|
|
$
|
1,172,320
|
|
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
As of
March 31, 2009, 11% of the Company’s long-lived assets were located in the PRC
and 89% in Hong Kong.
18.
|
CONCENTRATIONS
OF RISK
|
The
Company is exposed to the following concentrations of risk:
For the
year ended March 31, 2009, one customer represented more than 10% of the
Company’s revenue. This customer accounts for 45% of revenue amounting to
$1,052,886 with $0 of accounts receivable.
The
following is a table summarizing the revenue from customers that individually
represent greater than 10% of the total revenue for the year ended March 31,
2008 and their outstanding balances at year-end date:
|
|
Year
ended
March
31,
2008
|
|
|
|
|
March
31,
2008
|
|
|
|
Revenues
|
|
Percentage
of
revenues
|
|
|
|
|
Accounts
receivable,
trade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
$
|
433,300
|
|
37
|
%
|
|
|
|
$
|
161,750
|
|
Customer
B
|
|
|
126,477
|
|
11
|
%
|
|
|
|
|
21,201
|
|
Customer
C
|
|
|
119,905
|
|
10
|
%
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
679,682
|
|
58
|
%
|
|
Total:
|
|
$
|
182,951
|
|
The
following is a table summarizing the purchase from vendors that individually
represent greater than 10% of the total purchase for the years ended March 31,
2009 and 2008 and their outstanding balances at year-end date:
|
|
Year
ended
March
31,
2009
|
|
|
|
|
March
31,
2009
|
|
|
|
Purchases
|
|
Percentage
of
purchases
|
|
|
|
|
Accounts
payable,
trade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor
A
|
|
$
|
1,096,022
|
|
59
|
%
|
|
|
|
$
|
79,257
|
|
Vendor
B
|
|
|
615,577
|
|
33
|
%
|
|
|
|
|
105,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
1,711,599
|
|
92
|
%
|
|
Total:
|
|
$
|
185,101
|
|
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
|
Year
ended
March
31,
2008
|
|
|
|
|
March
31,
2008
|
|
|
|
Purchases
|
|
Percentage
of
purchases
|
|
|
|
|
Accounts
payable,
trade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor
A
|
|
$
|
531,792
|
|
49
|
%
|
|
|
|
$
|
-
|
|
Vendor
B
|
|
|
439,923
|
|
41
|
%
|
|
|
|
|
95,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
971,715
|
|
90
|
%
|
|
Total:
|
|
$
|
95,494
|
|
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition, but does not require collateral to support such
receivables.
The
Company cannot guarantee that the current exchange rate will remain steady;
therefore there is a possibility that the Company could post the same amount of
net income for two comparable periods and because of the fluctuating exchange
rate actually post higher or lower profit depending on exchange rate of HK$
converted to US$ on that date. The exchange rate could fluctuate depending on
changes in political and economic environments without notice.
As the
Company has no significant interest-bearing assets, the Company’s income and
operating cash flows are substantially independent of changes in market interest
rates.
The
Company’s interest-rate risk arises from bank overdraft. Bank overdraft at
variable rates exposes the Company to cash flow interest rate risk. The Company
manages interest rate risk by varying the issuance and maturity dates variable
rate debt, limiting the amount of variable rate debt, and continually monitoring
the effects of market changes in interest rates. As of March 31, 2009,
borrowings under overdraft facility were at variable rates. The interest rates
of overdraft facility are disclosed in Note 8.
19.
|
COMMITMENTS
AND CONTINGENCIES
|
(a)
|
Operating
lease commitments
|
The
Company was committed under various non-cancelable operating leases with fixed
monthly rentals, due September 2010. Costs incurred under these operating leases
are recorded as rent expense and totaled approximately $36,398 and $30,977 for
the years ended March 31, 2009 and 2008.
CHINA
SHOE HOLDINGS, INC.
(Formerly
Extra Ease Limited and EATware Intellectual Properties Limited)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
As of
March 31, 2009, the Company has future minimum rental payments of $63,132 due
under non-cancelable operating leases in the next 12 months.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure
based closely on the definition of “disclosure controls and procedures” in
applicable securities laws.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rules 13(a)-15(e)
and 15d-15(e). Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report to provide
reasonable assurance that material information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and
forms.
Management
is aware that there is a lack of segregation of duties due to the small number
of employees dealing with general administrative and financial matters. However,
at this time, management has decided that considering the employees involved,
the control procedures in place, and the outsourcing of certain financial
functions, the risks associated with such lack of segregation are low and the
potential benefits of adding additional employees to clearly segregate duties do
not justify the expenses associated with such increases. Management will
periodically reevaluate this situation. If the volume of the business increases
and sufficient capital is secured, it is our intention to increase staffing to
mitigate the current lack of segregation of duties within the general
administrative and financial functions.
A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems no evaluation of
controls can provide absolute assurance that all control issues, if any, within
a company have been detected. Such limitations include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal
control can occur because of human failures, such as simple errors or mistakes
or intentional circumvention of the established process.
Management’s
Annual Report on Internal Control Over Financial Reporting; Changes in Internal
Controls Over Financial Reporting.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U. S. generally
accepted accounting principles (“US GAAP”). The Company’s internal
control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the Company’s assets,
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U. S. generally
accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management
and directors of the Company; and, (iii) provide reasonable assurance regarding
prevention of timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial
statements.
Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies as
identified.
Because
of its inherent limitations, internal control over financial reporting, no
matter how well designed, may not prevent or detect misstatements. Accordingly,
even effective internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, the
effectiveness of internal control over financial reporting was made as of a
specific date. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of March 31, 2009, based on criteria for effective
internal control over financial reporting described in “
Internal Control—Integrated
Framework
“ issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Management’s assessment included an evaluation of the
design of the Company’s internal control over financial reporting and testing of
the operational effectiveness of its internal control over financial
reporting.
Based on
this assessment, management determined that, as of March 31, 2009, the Company
maintained effective internal control over financial reporting, although we did
recognize a significant deficiency. A significant deficiency is a
deficiency, or a combination of deficiencies, that is less severe than a
material weakness, yet important enough to merit attention by those responsible
for oversight of the registrant’s financial reporting.
Although
currently we do not identify any material weaknesses in the process of self
assessment, we have recognized a significant deficiency in our internal
controls. Currently we do not have sufficient in-house expertise in
US GAAP reporting. Instead, we rely very much on the expertise and
knowledge of external financial advisors in US GAAP
conversion. External financial advisors have helped prepare and
review the consolidated financial statements. Although we have not
identified any material errors with our financial reporting or any material
weaknesses with our internal controls, no assurances can be given that there are
no such material errors or weaknesses existing. In addition, we do
not believe we have sufficient documentation with our existing financial
processes, risk assessment and internal controls. We plan to work
closely with external financial advisors to document the existing financial
processes, risk assessment and internal controls systematically.
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
As
required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures at the end of the period
covered by this report. This evaluation was carried out under the
supervision and with the participation of our management, including our chief
executive officer and principal financial officer. Based on this
evaluation, management has concluded that the design and operation of our
disclosure controls and procedures are effective. There were no
changes in our internal control over financial reporting or in other factors
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Disclosure
controls and procedures are our controls and other procedures that are designed
to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including chief executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth the names of our directors and executive officers as
of March 31, 2009:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Mr.
Wu, Man-Shing (1)
|
|
39
|
|
Chairman
of the Board
|
|
|
|
|
|
Mr.
So, Jonathan W.L. (2)
|
|
43
|
|
Chief
Executive Officer, Chief Financial Officer and
Director
|
|
|
|
|
|
Mr.
Megret, Laurent
|
|
42
|
|
Chief
Operating Officer and
Director
|
|
(1)
|
On
June 4, 2009, Mr. Wu, Man-Shing was appointed as Chief Executive
Officer.
|
|
(2)
|
On
June 4, 2009, Mr. So, Jonathan W.L. resigned as Chief Executive Officer,
and was appointed as Chairman of the Board of
Directors.
|
Mr.
Wu, Man-Shing, Chairman
Mr. Wu,
Man-Shing (“Mr. Wu”), Chairman of the Company. Mr. Wu has over 10
years of experiences in administration management, policy establishment and
business development over an extensive of businesses covering toys, gifts,
garment manufacturing, retailing, global sourcing as well as decomposable food
container made from natural materials.
Mr.
So, Jonathan W.L., C.E.O., C.F.O. and Director
Mr. So,
Jonathan W.L. (“Mr. So”), C.E.O., C.F.O. and a director of the Company. With his
wealth of international business experience, Mr. So leads the finance, business
management, sales & marketing and strategic planning divisions of the
Company. Mr. So continues to devote significant resources in
developing the Company and keeping the Company on track for steady sales
growth.
Mr. So
had been nurtured to do business since childhood. Mr. So’s family started a
manufacturing business in 1970. When the China’s economic reform
started in 1979, Mr. So’s family was one of the first investors to establish a
factory in Jiangsu Province, China. In 1988, Mr. So’s family further
expanded their factories to Shenzhen and Shanghai and employed over 5000
workers. Sales orders have been obtained from Europe and the United
States.
Besides
toys, gifts and garment manufacturing businesses, Mr. So further enhances the
business in retailing, global sourcing, franchising, internet, animation, comic
publishing, media as well as a self-invented single-use 100% decomposable food
container made from natural materials.
Mr.
Megret, Laurent, C.O.O. and Director
Mr.
Megret, Laurent (“Mr. Megret”), C.O.O. and a Director of the
Company. With over 18 years of experiences in sales and marketing,
Mr. Megret primarily engaged in clientele sales strategy and communications
along side operational management for development opportunities. From
Reinsurance Captives to EATware, he has looked after very specific niche markets
and put tremendous efforts to manage international clientele requirements and
convert them in better partnership and increased returns. Laurent enjoy working
in very dynamic international and multi-cultural structures.
CORPORATE
GOVERNANCE
Significant
Employees
Other
than the officers described above, we do not expect any other individuals to
make a significant contribution to our business.
Family
Relationships
There are
no family relationships among our officers, directors, or persons nominated for
such positions.
Audit
Committee
The
functions of the Audit Committee are currently carried out by our Board of
Directors. Our Board of Directors has determined that we do not have an audit
committee financial expert on our Board of Directors carrying out of the duties
of the Audit Committee. Our Board of Directors has determined that
the cost of hiring a financial expert to act as a director of us and to be a
member of the Audit Committee or otherwise perform Audit Committee functions
outweighs the benefits of having a financial expert on the Audit
Committee.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth information concerning the total compensation that
the Company has paid or that has accrued on behalf of Company’s chief executive
officer and other executive officers with annual compensation exceeding $100,000
in the last fiscal year.
Name &
Principal
Position
|
|
Inception
to
3/31/09
|
|
Salary
(US$)
|
|
Bonus
(US$)
|
|
Stock
Awards
($)
|
|
Option
Awards
(1)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in Pension Value
and
Non-Qualified Deferred
Compensation Earnings ($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Mr.
|
|
2009
|
|
$
|
51,281
|
|
$
|
3,856
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,137
|
|
Megret,
|
|
2008
|
|
$
|
15,788
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,788
|
|
Laurent,
COO,
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
grants in the last fiscal year
We did
not grant any options or stock appreciation rights to our named executive
officers or directors in the fiscal year of and. As of March 31,
2009, none of our executive officers or directors owned any of our derivative
securities.
Management
agreements
We have
no existing or proposed management agreements.
Compensation
of Directors
We do not
compensate our directors for their time spent on our behalf, but they are
entitled to receive reimbursement for all out of pocket expenses incurred for
attendance at our Board of Directors meetings.
Pension
and Retirement Plans
Currently,
we do not offer any annuity, pension or retirement benefits to be paid to any of
our officers, directors or employees. There are also no compensatory plans or
arrangements with respect to any individual named above which results or will
result from the resignation, retirement or any other termination of employment
with our company, or from a change in our control.
Compensation
Committee
Currently,
the Board of Directors does not have a Compensation Committee. The
Board of Directors as a whole determines executive
compensation.
Grants
of Plan-Based Awards
None.
Outstanding
Equity Awards at Fiscal Year-End
None
Option
Exercises and Stock Vested
No
executive officer identified in the Summary Compensation Table above exercised
an option in fiscal year 2009.
Pension
Benefits
The
Company does not have any plan which provides for payments or other benefits at,
following, or in connection with retirement.
Non-qualified
Deferred Compensation
The
Company does not have any defined contribution or other plan which provides for
the deferral of compensation on a basis that is not tax-qualified.
Employment
Agreements
On
November 10, 2008, a subsidiary of the Company entered into a permanent and
full-time employment agreement with Laurent Megret, covering the terms and
conditions of Mr. Megret’s employment as a sales and marketing
manager. The agreement provides a base salary of HK$396,000
(US$50,900) per year.
Director
Compensation Arrangements
No
director has received any cash or other compensation for serving as a director
and we do not plan to pay any cash or other compensation to any person for
serving as a director.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
following table sets forth certain information, as of March 31, 2009, with
respect to any person (including any “group”, as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) who is known to us to be the beneficial owner of more than five
percent (5%) of any class of our voting securities, and as to those shares of
our equity securities beneficially owned by each of our directors and executive
officers and all of our directors and executive officers as a group. Unless
otherwise specified in the table below, such information, other than information
with respect to our directors and executive officers, is based on a review of
statements filed with the Securities and Exchange commission (the “Commission”)
pursuant to Sections 13 (d), 13 (f), and 13 (g) of the Exchange Act
with respect to our common stock. As of March 31, 2009, there were 119,445,571
shares of our common stock outstanding. Following completion of the Share
Exchange Transaction, there were 1,990,759,517 shares issued and
outstanding.
The
number of shares of common stock beneficially owned by each person is determined
under the rules of the Commission and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which such person has
sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within sixty (60) days after the
date hereof, through the exercise of any stock option, warrant or other right.
Unless otherwise indicated, each person has sole investment and voting power (or
shares such power with his or her spouse) with respect to the shares set forth
in the following table. The inclusion herein of any shares deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares.
The table
also shows the number of shares beneficially owned as of April 6, 2009 by each
of our individual directors and executive officers, by our nominee directors and
executive officers and by all our current directors and executive officers as a
group.
Title
of
Class
|
|
Name
and Address of Beneficial Owner
|
|
Amount
and
Nature
of
Beneficial
Ownership
|
|
|
Percent
of
Class
1
|
|
Common
|
|
Gu
Xianzhong [former Director, President and C.E.O.]
488
Wai Qing Song Road, Waigang Town, Jiading District, Shanghai, PR
China
|
|
|
11,500,000
|
|
|
|
*
|
|
Common
|
|
Gu
Changhong [former C.O.O.]
488
Wai Qing Song Road, Waigang Town, Jiading District, Shanghai, PR
China
|
|
|
3,395,000
|
|
|
|
*
|
|
Common
|
|
Chaojun
Huang [former Secretary]
488
Wai Qing Song Road, Waigang Town, Jiading District, Shanghai, PR
China
|
|
|
1,000,000
|
|
|
|
*
|
|
Common
|
|
Wu,
Man-Shing [Chairman]
23/F,
Westin Center, 26 Hung To Road, Kwun Tong, Kowloon, Hong
Kong
|
|
|
1,521,313,946
|
(2)
|
|
|
76.42
|
%
|
Common
|
|
Grasswind
Investments Limited
23/F,
Westin Center, 26 Hung To Road, Kwun Tong, Kowloon, Hong
Kong
|
|
|
1,400,000,000
|
(2)
|
|
|
70.32
|
%
|
Common
|
|
Courdrey
Trading Limited
23/F,
Westin Center, 26 Hung To Road, Kwun Tong, Kowloon, Hong
Kong
|
|
|
121,313,946
|
(2)
|
|
|
6.09
|
%
|
Common
|
|
So,
Jonathan W.L. [C.E.O., C.F.O. and Director]
23/F,
Westin Center, 26 Hung To Road, Kwun Tong, Kowloon, Hong
Kong
|
|
|
0
|
|
|
|
*
|
|
Common
|
|
Megret,
Laurent [C.O.O. and Director]
23/F,
Westin Center, 26 Hung To Road, Kwun Tong, Kowloon, Hong
Kong
|
|
|
0
|
|
|
|
*
|
|
All
executive officers and directors as a group (3
individuals)
|
|
|
1,521,313,946
|
|
|
|
76.42
|
%
|
*
|
Represents
less than 1% beneficial ownership.
|
(1)
|
Percent
of Ownership is calculated in accordance with the Securities and Exchange
Commission’s Rule 13(d) — 13(d)(1). Beneficial ownership is
determined based on 1,990,759,517 shares issued and outstanding as of
April 5, 2009.
|
(2)
|
The
shares of common stock owned by Grasswind Investments Limited and Courdrey
Trading Limited are beneficially owned by Mr. Wu, Man-Shing, who exercises
the sole voting power over such
shares.
|
Description
of Securities
Our
authorized capital consists of 2,000,000,000 shares of common stock with a par
value of $0.001, and 10,000,000 shares of preferred stock with a par value of
$0.001. At the close of business on March 31, 2009, the Company had 119,445,571
shares of Common Stock issued and outstanding. Following completion of the Share
Exchange Transaction, there were 1,990,759,517 shares issued and
outstanding.
Holders
of the Company’s common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of the Company’s common stock representing a majority of the
voting power of the Company’s capital stock issued, outstanding and entitled to
vote, represented in person or by proxy, are necessary to constitute a quorum at
any meeting of stockholders. A vote by the holders of a majority of the
Company’s outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to the Company’s
articles of incorporation.
Holders
of the Company’s common stock are entitled to share in all dividends that the
board of directors, in its discretion, declares from legally available funds. In
the event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. The Company’s common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Company’s common stock.
Market
for Common Equity and Related Stockholders Matters
Our
shares of common stock, par value $0.001 per share, are quoted on the
Over-the-Counter Bulletin Board (“OTC.BB”) under the symbol “CHSH.OB”. We
initially traded under the symbol “INGY” commencing on April 13, 2007 and our
symbol was changed to “CHSH” on June 21, 2007 in connection with the change of
our name from Indigo Technologies, Inc. to China Shoe Holdings, Inc. and our
seven and six tenths for one stock split. As of March 31, 2009, there were 387
holders of record of our common stock. The number of holders does not include
the shareholders for whom shares are held in a "nominee" or "street" name.
We have not paid any cash dividends and do not anticipate doing so in the
foreseeable future. Future dividends, if any, will depend upon our results of
operations, financial condition, capital needs and such other factors as
the Board of Directors deems relevant.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Director
Independence
Our Board
of Directors has determined that none of our directors may be deemed
“independent” directors. Our securities are quoted on the OTC Bulletin Board
which does not have any director independence requirements. In the event we
engage further directors and officers, management intends to develop a
definition of independence and assess the Company’s Board of Directors with
regard to this definition.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees
Billed For Audit and Non-Audit Services
The
following table represents the aggregate fees billed for professional audit
services rendered by ZYCPA Company Limited (formerly Zhong Yi (Hong Kong) C.P.A.
Company Limited), our current independent auditor, and all fees billed for other
services rendered by the said firms during those periods.
Years
Ended
March
31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Audit Fees
(1)
|
|
40,000
|
|
|
120,000
|
|
Audit-Related Fees
(2)
|
|
-
|
|
|
-
|
|
Tax Fees
(3)
|
|
-
|
|
|
-
|
|
All Other Fees
(4)
|
|
-
|
|
|
-
|
|
Total
Accounting Fees and Services
|
|
40,000
|
|
|
120,000
|
|
(1)
|
Audit Fee
. These are
fees for professional services for the audit of the Company's annual
financial statements, and for the review of the financial statements
included in the Company's filings on Form 10-Q, and for services that are
normally provided in connection with statutory and regulatory filings or
engagements.
|
(2)
|
Audit-Related Fee
.
These are fees for the assurance and related services reasonably related
to the performance of the audit or the review of the Company's financial
statements.
|
(3)
|
Tax Fees
. These are
fees for professional services with respect to tax compliance, tax advice,
and tax planning.
|
(4)
|
All Other Fees
. These
are fees for permissible work that does not fall within any of the other
fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
Fees.
|
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) Financial
Statements and Schedules
1.
Financial
Statements
The
following consolidated financial statements are filed as part of this report
under Item 8 of Part II “Financial Statements and Supplementary
Data.:
|
A.
|
Consolidated
Balance Sheets as of March 31, 2009 and
2008
|
|
B.
|
Consolidated
Statements of Operations and Comprehensive Loss for the Years Ended March
31, 2009 and 2008
|
|
C.
|
Consolidated
Statements of Cash Flows for the Years Ended March 31, 2009 and
2008
|
|
D.
|
Consolidated
Statements of Stockholders’ Deficit for the Years Ended March 31, 2009 and
2008
|
2
.
Financial
Statement Schedules
None.
(b) Exhibits
Exhibit Number
|
|
Description
|
3.1
|
|
Certificate
of change to the Company’s Articles of Incorporation, filed December 30,
2008 (incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on December 26, 2008)
|
|
|
|
10.1
|
|
Agreement
for Share Exchange, dated as of December 22, 2008, by and among the
Company, Chinaone Investment Ltd., and the shareholders of Chinaone
Investment, Ltd. (incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 26,
2008)
|
|
|
|
10.2
|
|
Agreement
for Share Exchange, dated as of March 31, 2009, by and among Extra Ease
Limited, Eatware Intellectual Properties Limited, the Company, and the
shareholders of Extra Ease and EWIP (incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on March 31,
2009)
|
|
|
|
10.3
|
|
Agreement
for Sale of Stock by and between the Company and FENG Guang Yuan dated
March 31, 2009 (incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on April 7, 2009)
|
|
|
|
10.4
|
|
Employment
Agreement by and between the Company and Mr. Megret, Laurent (incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission
on April 7, 2009)
|
|
|
|
10.5
|
|
Letter
of indemnification with Appendix (incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on April 7,
2009)
|
|
|
|
10.6
|
|
Valuation
report of the Intellectual Property in the technology to produce
environmentally preferable food packaging products held by EATware
Intellectual Properties Limited dated December 23, 2008 by B.I. Appraisals
Limited (incorporated by reference to Form 8-K filed with the Securities
and Exchange Commission on April 7,
2009)
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 5th day of February, 2010.
|
CHINA
SHOE HOLDINGS, INC.
|
|
|
|
|
|
|
By:
|
/s/ Wu,
Man-Shing
|
|
|
|
Wu,
Man-Shing
|
|
|
|
Chief
Executive Officer
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on February 5, 2010, on behalf of the registrant and in the
capacities Indicated.
Signature
|
|
Title
|
|
|
|
/s/
Wu, Man-Shing
|
|
Chief
Executive Officer, Director
|
Wu,
Man-Shing
|
|
(Principal
Executive Officer)
|
|
|
|
/s/
Wu, Man-Shing
|
|
Interim
Chief Financial Officer
|
Wu,
Man-Shing
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
/s/
Megret, Laurent
|
|
Chief
Operating Officer, Director
|
Megret,
Laurent
|
|
|
China Shoe (CE) (USOTC:CHSH)
過去 株価チャート
から 8 2024 まで 9 2024
China Shoe (CE) (USOTC:CHSH)
過去 株価チャート
から 9 2023 まで 9 2024