o |
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
o |
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended___________________________________________________
|
o |
TRANSITION REPORT PURSUANT TO SECTION
13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _________ to
______
|
x | SHELL COMPANY REPORT PURSUANT TO SECTION
13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date
of Event Requiring this Shell Company Report: September 12, 2005
|
4/F,
East 3/B, Saige Science & Technology Park
Huaqiang,
Shenzhen, China 518028
|
None
|
Name
of each exchange on which registered
None
|
INTRODUCTION
|
1
|
||||||
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
1
|
||||||
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
2
|
|||||
ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
3
|
|||||
ITEM
3.
|
KEY
INFORMATION
|
4
|
|||||
ITEM
4.
|
INFORMATION
ON THE COMPANY
|
16
|
|||||
ITEM
4A.
|
UNRESOLVED
STAFF COMMENTS
|
26
|
|||||
ITEM
5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
26
|
|||||
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
37
|
|||||
ITEM
7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
41
|
|||||
ITEM
8.
|
FINANCIAL
INFORMATION
|
46
|
|||||
ITEM
9.
|
THE
OFFER AND LISTING
|
46
|
|||||
ITEM
10.
|
ADDITIONAL
INFORMATION
|
48
|
|||||
ITEM
11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
60
|
|||||
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES.
|
61
|
|||||
ITEM
13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES.
|
61
|
|||||
ITEM
14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
|
61
|
|||||
ITEM
15.
|
CONTROLS
AND PROCEDURES.
|
61
|
|||||
ITEM
16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT.
|
61
|
|||||
ITEM
16B.
|
CODE
OF ETHICS.
|
61
|
|||||
ITEM
16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
61
|
ITEM
16D.
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
|
61
|
|||||
ITEM
16E.
|
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS.
|
61
|
|||||
ITEM
17.
|
FINANCIAL
STATEMENTS.
|
62
|
|||||
ITEM
19.
|
EXHIBITS.
|
|
NAME
|
AGE
|
POSITION
|
|||||
Guoshen
Tu
|
41
|
CEO
and Director
|
|||||
|
|||||||
Jinxu
Wu
|
35
|
Chief
Financial Officer
|
|||||
|
|||||||
Yuehua
Yang
|
40
|
Chief
Technology Officer
|
|||||
|
|||||||
Lingfeng
Xiong
|
54
|
Director
|
|||||
|
|||||||
Jianping
Cui
|
35
|
Director
|
|||||
|
|||||||
Yan
Lam
|
28
|
Director
|
|||||
|
|||||||
Xinghua
Chen
|
41
|
Director
|
2001
|
2002
|
2003
|
2004
|
2005
|
||||||||||||
Revenues
|
$
|
4,045,098
|
$
|
10,330,847
|
$
|
11,794,869
|
$
|
16,055,704
|
$
|
32,688,582
|
||||||
Income
from operations
|
$
|
302,445
|
$
|
2,234,128
|
$
|
3,262,057
|
$
|
6,130,779
|
$
|
7,478,842
|
||||||
Net
Income
|
$
|
257,078
|
$
|
1,899,009
|
$
|
2,752,123
|
$
|
5,724,026
|
$
|
7,265,957
|
||||||
Net
Income from Operations Per Share
|
$
|
0.018
|
$
|
0.13
|
$
|
0.19
|
$
|
0.36
|
$
|
0.40
|
||||||
Total
Assets
|
$
|
10,687,966
|
$
|
13,581,661
|
$
|
16,976,999
|
$
|
22,008,920
|
$
|
29,116,672
|
||||||
Total
Current Liabilities
|
$
|
1,766,061
|
$
|
4,126,166
|
$
|
5,900,469
|
$
|
5,208,364
|
$
|
4,504,926
|
||||||
Net
Assets
|
$
|
8,921,905
|
$
|
9,455,495
|
$
|
11,076,530
|
$
|
16,800,556
|
$
|
24,611,746
|
||||||
Weighted
average shares
|
17,000,000
|
17,000,000
|
17,000,000
|
17,000,000
|
18,521,479
|
|||||||||||
Total
Equity
|
$
|
8,592,637
|
$
|
8,849,715
|
$
|
11,076,530
|
$
|
16,800,556
|
$
|
24,611,746
|
||||||
Capital
Stock (excluding long term debt and redeemable preferred
stock)
|
17,000,000
|
17,000,000
|
17,000,000
|
17,000,000
|
18,521,479
|
|||||||||||
Number
of Shares
|
17,000,000
|
17,000,000
|
17,000,000
|
17,000,000
|
21,558,000
|
|||||||||||
Dividends
per Share
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
Basic
& Diluted Net Income per Share
|
$
|
0.015
|
$
|
0.11
|
$
|
0.16
|
$
|
0.34
|
$
|
0.39
|
|
Noon
buying rate
|
||||||
|
RMB
per US$
|
||||||
|
High
|
Low
|
|||||
November
2005
|
8.0877
|
8.0796
|
|||||
December
2005
|
8.0808
|
8.0702
|
|||||
January
2006
|
8.0702
|
8.0596
|
|||||
February
2006
|
8.0616
|
8.0415
|
|||||
March
2006
|
8.0505
|
8.0167
|
|||||
April
2006
|
8.0248
|
8.0040
|
|||||
May
2006 (through May 26)
|
8.0255
|
8.0005
|
|
Period-end
noon
buying
rate
|
Average
noon
buying
rate
|
|||||
|
RMB per US$
|
RMB per US$
|
|||||
2001
|
8.2766
|
8.2772
|
|||||
2002
|
8.2800
|
8.2772
|
|||||
2003
|
8.2767
|
8.2771
|
|||||
2004
|
8.2765
|
8.2768
|
|||||
2005
|
8.0702
|
8.1826
|
|||||
2006
(through May 26)
|
8.0245
|
8.0320
|
Indebtedness
|
$
|
4,504,926
|
||
Shareholders’
Equity
|
||||
Common
Stock, par value $0.01; 100,000,000 shares authorized, 21,558,000
shares
issued and outstanding
|
215,580
|
|||
Additional
paid-in capital
|
4,494,565
|
|||
Retained
earnings (loss)
|
18,552,610
|
|||
Total
Shareholders' equity and capitalization
|
24,611,746
|
· |
diversion
of management’s attention from running our existing
business;
|
· |
increased
expenses, including travel, legal, administrative and compensation
expenses resulting from newly hired
employees;
|
· |
increased
costs to integrate personnel, customer base and business practices
of the
acquired company with our own;
|
· |
adverse
effects on our reported operating results due to possible write-down
of
goodwill associated with
acquisitions;
|
· |
potential
disputes with sellers of acquired businesses, technologies, services
or
products; and
|
· |
dilution
to stockholders if we issue securities in any
acquisition.
|
· |
enhance
our existing products and services;
|
· |
anticipate
changing customer requirements by designing, developing, and launching
new
products and services that address the increasingly sophisticated
and
varied needs of our current and prospective customers;
and
|
· |
respond
to technological advances and emerging industry standards and practices
on
a cost-effective and timely basis.
|
•
|
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.
|
· |
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.
|
· |
Participating
in various industrial shows to display our
products;
|
· |
Advertising
in industrial magazines and periodicals to introduce and promote
our
products;
|
· |
Publishing
our own magazine which is distributed to our suppliers and sales
agents so
that they can better understand our company and strengthen their
confidence in us; and
|
· |
Utilizing
the Internet to promote our products, such as the public safety network,
Chinese Security Association network and HuiChong
Network.
|
|
Name
|
Trademark
No.
|
Type
|
Expiration
Date
|
Status
|
1
|
Golden
Group
|
4108508
|
Word
(Chinese)
|
July
2014
|
Approved
|
2
|
DVR
|
4108509
|
Word
|
July
2014
|
Approved
|
3
|
|
4108511
|
Word
and Logo
|
July
2014
|
Approved
|
4
|
|
4108510
|
Logo
|
July
2014
|
Approved
|
5
|
威勒
|
3814725
|
Word
and logo
|
December
2013
|
Approved
|
6
|
JDR
|
N/A
|
Word
|
N/A
|
Pending
|
Location
|
Type
of Facility
|
Size
of the Land
(Square
Meters)
|
Size
of the Building
(Square
Meters)
|
Shangtian,
Taihe County, Jiangxi Province
|
Manufacturing
|
64,533
|
45,877.5
|
No.
45 Jifu Road, Jiangxi Province
|
Manufacturing
|
28,592.66
|
5,224.34
|
Jishui
County, Jiangxi Province
|
Manufacturing
|
24,866.52
|
10,404.67
|
4th
Floor, Building 3, Shaige Technology Park, Futian District,
Shenzhen
|
Office
and Manufacturing
|
1,252.47
|
1,252.47
|
Total
|
119,244.65
|
62,758.98
|
Year
Ended December 31,
|
|||||||||||||
Item
|
2005
|
2004
|
Increase
(Decrease)
|
%
Increase
(%
Decrease)
|
|||||||||
Revenue
|
32.69
|
16.06
|
16.63
|
103.55
|
%
|
||||||||
Cost
of Goods Sold
|
23.47
|
8.80
|
14.67
|
166.70
|
%
|
||||||||
Gross
Profit
|
9.22
|
7.26
|
1.96
|
27.00
|
%
|
||||||||
Operating
Expenses
|
1.74
|
1.14
|
0.60
|
52.63
|
%
|
||||||||
Other
Income (expense)
|
0.57
|
0.47
|
0.10
|
21.28
|
%
|
||||||||
Provision
for Taxes
|
0.78
|
0.87
|
0.09
|
10.34
|
%
|
||||||||
Net
income
|
7.27
|
5.72
|
1.55
|
27.10
|
%
|
Year
Ended December 31,
|
|||||||||||||
Item
|
2004
|
2003
|
Increase
(Decrease)
|
%
Increase
(%
Decrease)
|
|||||||||
Revenue
|
16.06
|
11.79
|
4.27
|
36.22
|
%
|
||||||||
Cost
of Goods Sold
|
8.80
|
7.58
|
1.22
|
16.09
|
%
|
||||||||
Gross
Profit
|
7.26
|
4.21
|
3.05
|
72.45
|
%
|
||||||||
Operating
Expenses
|
1.14
|
0.95
|
0.19
|
20.00
|
%
|
||||||||
Other
Income (expense)
|
0.47
|
0.007
|
0.46
|
6614.28
|
%
|
||||||||
Provision
for Taxes
|
0.87
|
0.52
|
0.35
|
67.31
|
%
|
||||||||
Net
income
|
5.72
|
2.75
|
2.97
|
108.00
|
%
|
Revenue
|
2005
|
2004
|
2003
|
|||||||
Project
income from supply and installation of security and surveillance
equipment
|
30.56
|
15.53
|
10.06
|
|||||||
Outright
sale of security and surveillance equipment
|
2.13
|
0.53
|
1.73
|
Cost
Item
|
2005FY
|
2004FY
|
2003FY
|
|||||||
Salary
|
1.09
|
1.01
|
0.25
|
|||||||
Percentage
|
4.64
|
%
|
11.48
|
%
|
3.30
|
%
|
||||
Purchase
|
22.38
|
7.79
|
7.33
|
|||||||
Percentage
|
95.36
|
%
|
88.52
|
%
|
96.70
|
%
|
||||
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
· |
Basis
of Consolidation
-
The consolidated financial statements of the Company and its subsidiaries
are prepared in accordance with accounting principles generally accepted
in the United States of America and include the accounts of the Company
and its subsidiaries. All material inter-company accounts and transactions
have been eliminated in the
consolidation.
|
· |
Deferred
Income - Deferred
income represents amount billed for contracts for supply and installation
of security and surveillance equipment which have not been fully
completed
at the balance sheet date.
|
· |
Intangible
Assets - Intangible
assets represent a surveillance recording system acquired from Yuan
Da.
The value was established by an independent accounting firm. The
value of
the recording system is to be amortized using the straight-line method
over its estimated useful life of five
years.
|
· |
Inventories
-
Inventories are stated at the lower of cost, determined on a weighted
average basis, and net realizable value. Net realizable value is
the
estimated selling price in the ordinary course of business less the
estimated cost of completion and the estimated costs necessary to
make the
sale.
|
· |
Accounts
Receivable - Trade
receivables are recognized and carried at the original invoice amount
less
allowance for any uncollectible amounts. An estimate for doubtful
accounts
is made when collection of the full amount is no longer probable.
Bad
debts are written off as incurred.
|
· |
Advances
to Suppliers -
Advances
to suppliers represent the cash paid in advance for purchasing of
inventory items from suppliers.
|
· |
Revenue
Recognition - The
Company derives the bulk of its revenue from the supply and installation
of security and surveillance equipment and the two deliverables do
not
meet the separation criteria under EITF issue 00-21. The installation
is
not considered to be essential to the functionality of the equipment
having regard to the following criteria as set out in SAB
104:
|
· |
Foreign
Currency Translation- The
functional currency of the Company is Renminbi (RMB) and RMB is not
freely
convertible into foreign currencies. The Company maintains its financial
statements in the functional currency. Monetary assets and liabilities
denominated in currencies other than the functional currency are
translated into the functional currency at rates of exchange prevailing
at
the balance sheet date. Transactions denominated in currencies other
than
the functional currency are translated into the functional currency
at the
exchange rates prevailing at the dates of the transactions. Exchange
gains
or losses arising from foreign currency transactions are included
in the
determination of net income for the respective
periods.
|
2005
|
2004
|
2003
|
||||||||
Year
end
RMB : exchange rate
|
8.07
|
8.28
|
8.28
|
|||||||
Average
yearly RMB
: exchange rate
|
8.19
|
8.28
|
8.28
|
· |
Use
of Estimates - The
preparation of the financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the
time the
estimates are made; however actual results could differ materially
from
those estimates.
|
· |
Income
Taxes - Income
tax expense is based on reported income before income taxes. Deferred
income taxes reflect the effect of temporary differences between
assets
and liabilities that are recognized for financial reporting purposes
and
the amounts that are recognized for income tax purposes. In accordance
with Statement of Financial Accounting Standard (SFAS) No. 109,
“Accounting for Income Taxes,” these deferred taxes are measured by
applying currently enacted tax
laws.
|
Contractual
Obligations
|
Payments
due by period
|
|||||||||||||||
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
||||||||||||
Long-Term
Debt Obligations
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
Capital
(Finance) Lease Obligations
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
Operating
Lease Obligations
|
$
|
93,286
|
$
|
34,982
|
$
|
58,304
|
0
|
0
|
||||||||
Purchase
Obligations
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
Other
Long-Term Liabilities Reflected on the
Company's
Balance Sheet under the GAAP of the primary financial
statements
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
Total
|
$
|
93,286
|
$
|
34,982
|
$
|
58,304
|
0
|
0
|
NAME
|
AGE
|
POSITION
|
Guoshen
Tu
|
41
|
CEO
and Director
|
Jianguo
Jiang
|
40
|
COO
and Director
|
Jinxu
Wu
|
35
|
CFO
|
Lingfeng
Xiong
|
54
|
Vice
President, Director and Secretary
|
Yong
Zhao
|
43
|
Chief
Technology Officer
|
Terence
Yap
|
35
|
Vice
Chairman of the Board and Vice President
|
Yan
Lam
|
28
|
Director
|
Name
and Address
|
Number
of Shares Beneficially
Owned
|
Percent
of Class (5)
|
|||||
Guoshen
Tu(1)
(4)
|
13,627,500(2
|
)
|
55.6
|
%
|
|||
Lingfeng
Xiong
(1)
|
60,000
|
*
|
|||||
Jinxu
Wu(1)
|
0
|
*
|
|||||
Yong
Zhao(1)
|
0
|
*
|
|||||
Terence
Yap(1)
|
100,000
|
*
|
|||||
Yan
Lam(1)
|
0
|
*
|
|||||
Jianguo
Jiang(1)
|
200,000
|
*
|
|||||
Xinghua
Chen(3)
|
500,000
|
*
|
|||||
All
Current Officers and Directors as a Group
(8
in number)
|
14,487,500
|
59.1
|
%
|
||||
Whitehorse
Technology Ltd.
(4)
|
13,627,500
|
55.6
|
%
|
||||
Li
Zhi Qun (6)
|
13,627,500
|
55.6
|
%
|
||||
Total
shares owned by persons named above
|
14,487,500
|
59.1
|
%
|
|
Price
(US $)
|
||||||
|
High
|
Low
|
|||||
|
|
|
|||||
Annual
Information
|
|||||||
2001
|
N/A
|
N/A
|
|||||
2002
|
N/A
|
N/A
|
|||||
2003
|
N/A
|
N/A
|
|||||
2004
|
N/A
|
N/A
|
|||||
2005
|
4.50
|
0.05
|
|||||
Quarterly
Information
|
|||||||
1st
quarter 2004
|
N/A
|
N/A
|
|||||
2nd
quarter 2004
|
N/A
|
N/A
|
|||||
3rd
quarter 2004
|
N/A
|
N/A
|
|||||
4th
quarter 2004
|
N/A
|
N/A
|
|||||
1st
quarter 2005
|
N/A
|
N/A
|
|||||
2nd
quarter 2005 (from June 23, 2005)
|
0.25
|
0.05
|
|||||
3rd
quarter 2005
|
4.50
|
0.05
|
|||||
4th
quarter 2005
|
3.00
|
1.85
|
|||||
Monthly
Information
|
|||||||
December
2005
|
3.00
|
2.25
|
|||||
January
2006
|
N/A
|
N/A
|
|||||
February
2006
|
4.40
|
3.50
|
|||||
March
2006
|
4.20
|
3.50
|
|||||
April
2006
|
7.25
|
3.60
|
|||||
May
2006
|
6.10
|
8.10
|
Pages
|
|
Reports
of Independent Registered Public Accounting Firms
|
64
- 65
|
Consolidated
Balance Sheets as of December 31, 2005 and 2004
|
66
|
Consolidated
Statements of Income and Comprehensive Income for the
|
|
years
ended December 31, 2005, 2004 and 2003
|
67
|
Consolidated
Statements of Changes in Shareholders’ Equity for the
|
|
years
ended December 31, 2005, 2004 and 2003
|
68
|
Consolidated
Statements of Cash Flow for the years ended December 31,
|
|
2005,
2004 and 2003
|
69 -
70
|
Notes
to Consolidated Financial Statements as of December 31,
2005,
|
|
2004
and 2003
|
71
- 87
|
ASSETS
|
|||||||
December
31,
2005
|
December
31,
2004
|
||||||
CURRENT
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
2,276,915
|
$
|
33,298
|
|||
Accounts
receivable, net
|
11,642,823
|
4,306,774
|
|||||
Related
party receivables
|
3,783,198
|
-
|
|||||
Inventories,
net
|
5,311,293
|
6,012,019
|
|||||
Advances
to suppliers
|
1,492,512
|
3,272,371
|
|||||
Other
receivables
|
415,455
|
78,513
|
|||||
Deferred
tax assets - current portion
|
129,712
|
-
|
|||||
Total
current assets
|
25,051,908
|
13,702,975
|
|||||
|
|||||||
Plant
and equipment, net
|
1,951,566
|
2,006,318
|
|||||
Land
use rights, net
|
1,142,182
|
1,140,797
|
|||||
Intangible
assets
|
511,127
|
-
|
|||||
Related
parties receivables
|
-
|
4,152,024
|
|||||
|
|||||||
Due
from directors
|
-
|
1,006,806
|
|||||
Deferred
tax assets - non-current portion
|
459,889
|
||||||
TOTAL
ASSETS
|
$
|
29,116,672
|
$
|
22,008,920
|
|||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES
|
|||||||
Accounts
payable and accruals
|
$
|
1,839,609
|
$
|
4,779,187
|
|||
Taxes
payable
|
1,115,356
|
415,231
|
|||||
Payable
for acquisition of business
|
592,846
|
-
|
|||||
Deferred
income
|
887,469
|
-
|
|||||
Due
to director
|
69,646
|
13,946
|
|||||
Total
liabilities (all current)
|
4,504,926
|
5,208,364
|
|||||
SHAREHOLDERS’
EQUITY
|
|||||||
Common
stock, $0.001 par value; 100,000,000 shares authorized 21,558,000
(2005)
and 17,000,000 (2004) shares issued and outstanding
|
215,580
|
170,000
|
|||||
Additional
paid-in capital
|
4,494,565
|
4,540,145
|
|||||
Retained
earnings
|
18,552,610
|
12,090,411
|
|||||
Reserve
|
803,758
|
-
|
|||||
Accumulated
other comprehensive income
|
545,233
|
-
|
|||||
Total
shareholders’ equity
|
24,611,746
|
16,800,556
|
|||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
29,116,672
|
$
|
22,008,920
|
2005
|
2004
|
2003
|
||||||||
Revenues
|
$
|
32,688,582
|
$
|
16,055,704
|
$
|
11,794,869
|
||||
Cost
of goods sold
|
23,473,009
|
8,796,374
|
7,580,845
|
|||||||
Gross
profit
|
9,215,573
|
7,259,330
|
4,214,024
|
|||||||
Selling
and marketing
|
287,980
|
391,238
|
499,578
|
|||||||
Advertising
|
6,553
|
5,871
|
-
|
|||||||
General
and administrative
|
1,182,531
|
506,813
|
317,504
|
|||||||
Depreciation
and amortization
|
259,667
|
224,629
|
134,885
|
|||||||
Income
from operations
|
7,478,842
|
6,130,779
|
3,262,057
|
|||||||
Rental
income from related parties
|
438,516
|
478,261
|
||||||||
Other
income (expense), net
|
129,090
|
(11,610
|
)
|
6,818
|
||||||
Income
before income taxes
|
8,046,448
|
6,597,430
|
3,268,875
|
|||||||
Income
taxes
|
780,491
|
873,404
|
516,752
|
|||||||
Net
income
|
7,265,957
|
5,724,026
|
2,752,123
|
|||||||
Foreign
currency translation gain
|
545,233
|
-
|
-
|
|||||||
COMPREHENSIVE
INCOME
|
$
|
7,811,190
|
$
|
5,724,026
|
$
|
2,752,123
|
||||
NET
INCOME PER SHARE
|
||||||||||
BASIC
AND DILUTED
|
$
|
0.39
|
$
|
0.34
|
$
|
0.16
|
||||
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
||||||||||
BASIC
AND DILUTED
|
18,521,479
|
17,000,000
|
17,000,000
|
|||||||
Common
Stock
|
|||||||||||||||||||||||||||
Shares
|
Par
Value
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
|
Statutory
surplus
reserve fund
|
Total
|
|||||||||||||||||||||
BALANCE
AT JANUARY 1, 2003
|
17,000,000
|
$
|
170,000
|
$
|
4,540,145
|
$
|
3,614,262
|
$
|
-
|
$
|
-
|
$8,324,407
|
|||||||||||||||
Net
income for the year
|
-
|
-
|
-
|
2,752,123
|
-
|
-
|
2,752,123
|
||||||||||||||||||||
BALANCE
AT DECEMBER 31, 2003
|
17,000,000
|
170,000
|
4,540,145
|
6,366,385
|
-
|
-
|
11,076,530
|
||||||||||||||||||||
Net
income for the year
|
-
|
-
|
-
|
5,724,026
|
-
|
-
|
5,724,026
|
||||||||||||||||||||
BALANCE
AT DECEMBER 31, 2004
|
17,000,000
|
170,000
|
4,540,145
|
12,090,411
|
-
|
-
|
16,800,556
|
||||||||||||||||||||
Common
stock issued for consulting services
|
1,420,000
|
14,200
|
(14,200
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Common
shares issued to previous Apex
|
|||||||||||||||||||||||||||
shareholders
(Note 1)
|
3,138,000
|
31,380
|
(31,380
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Foreign
currency translation
|
-
|
-
|
-
|
-
|
545,233
|
545,233
|
|||||||||||||||||||||
Net
income for the year
|
-
|
-
|
-
|
7,265,957
|
-
|
-
|
7,265,957
|
||||||||||||||||||||
Transfer
|
-
|
-
|
-
|
(803,758
|
)
|
-
|
803,758
|
-
|
|||||||||||||||||||
BALANCE
AT DECEMBER 31, 2005
|
21,558,000
|
$
|
215,580
|
$
|
4,494,565
|
$
|
18,552,610
|
$
|
545,233
|
$
|
803,758
|
$24,611,746
|
2005
|
2004
|
2003
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||
Net
income
|
$
|
7,265,957
|
$
|
5,724,026
|
$
|
2,752,123
|
||||
Adjustments
to reconcile net income to net cash provided by operating activities:
|
||||||||||
Depreciation
and amortization
|
259,667
|
224,629
|
134,885
|
|||||||
Allowance
for doubtful accounts
|
-
|
239,448
|
-
|
|||||||
Deferred
taxes
|
(589,601
|
)
|
-
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||||
(Increase)
decrease in:
|
||||||||||
Accounts
receivable
|
(7,269,715
|
)
|
526,337
|
(1,628,701
|
)
|
|||||
Related
party receivables
|
368,826
|
(887,926
|
)
|
(703,030
|
)
|
|||||
Other
receivable
|
(336,942
|
)
|
(78,513
|
)
|
-
|
|||||
Inventories
|
770,871
|
(4,537,036
|
)
|
(115,912
|
)
|
|||||
Advances
to suppliers
|
1,779,859
|
114,356
|
(1,134,890
|
)
|
||||||
(Decrease)
increase in:
|
||||||||||
Accounts
payable and accruals
|
(3,630,214
|
)
|
(392,743
|
)
|
1,138,809
|
|||||
Payable
for acquisition of business
|
592,846
|
-
|
-
|
|||||||
Deferred
income
|
887,469
|
-
|
-
|
|||||||
Customer
deposits
|
-
|
(540,749
|
)
|
540,749
|
||||||
Tax
payable
|
700,125
|
292,032
|
35,137
|
|||||||
Net
cash provided by operating activities
|
799,148
|
683,861
|
1,019,170
|
|||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||
Construction
in progress
|
-
|
676,387
|
(676,387
|
)
|
||||||
Additions
to fixed assets
|
(48,898
|
)
|
(786,914
|
)
|
-
|
|||||
Net
cash outflow on acquisition of net assets of Yuan Da Wei Shi Technology
Limited (net of cash acquired)
|
(30,231
|
)
|
-
|
-
|
||||||
Net
cash used in investing activities
|
(79,129
|
)
|
(110,527
|
)
|
(676,387
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||
Cash
received from (advanced to) directors
|
1,062,506
|
(1,055,891
|
)
|
72,149
|
||||||
Net
cash provided by (used in) financing activities
|
1,062,506
|
(1,055,891
|
)
|
72,149
|
||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,782,525
|
(482,557
|
)
|
414,932
|
||||||
Effect
of exchange rate changes on cash
|
461,092
|
-
|
-
|
|||||||
Cash
and cash equivalents, at beginning of year
|
33,298
|
515,855
|
100,923
|
|||||||
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$
|
2,276,915
|
$
|
33,298
|
$
|
515,855
|
SUPPLEMENTARY
CASH FLOW INFORMATION
|
||||||
Income
taxes paid
|
$
|
1,403,551
|
$
|
620,849
|
$
|
438,151
|
(a) |
The
Company purchased net assets of Yuan Da Wei Shi Technology Limited
for
$630,021 as detailed in note 3. In conjunction with the acquisition,
liabilities were assumed as
follows:-
|
Fair
value of net assets acquired
|
$
|
630,021
|
Cash
paid
|
37,175
|
|
Amount
owed at December 31, 2005
|
$
|
592,846
|
(b) |
1,420,000
shares of common stock were issued to consultants for services
provided to
the Company during 2005 in connection with the acquisition of Safetech
by
Apex (Note 1).
|
1. |
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
2. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a) |
Basis
of Consolidation
|
(b) |
Economic
and Political Risks
|
(c) |
Plant
and Equipment
|
Building
|
20
years
|
Leasehold
improvement
|
10
years
|
Plant
and equipment
|
5
years
|
Electronics
equipment
|
5
years
|
Motor
Vehicle
|
5
years
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(d) |
Intangible
Assets
|
(e) |
Accounting
for the Impairment of Long-Lived
Assets
|
(f) |
Deferred
Income
|
(g) |
Inventories
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(h) |
Accounts
Receivable
|
(i) |
Cash
and Cash Equivalents
|
(j) |
Advances
to Suppliers
|
(k) |
Land
Use Rights
|
(l) |
Fair
Value of Financial Instruments
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(m) |
Revenue
Recognition
|
(i) |
The
security and surveillance equipment is a standard product with
minor
modifications according to customers’
specifications;
|
(ii) |
Installation
does not significantly alter the security and surveillance equipment’s
capabilities; and
|
(iii) |
Other
companies which possess the relevant licenses are available to
perform the
installation services.
|
(n) |
Advertising
Costs
|
(o) |
Foreign
Currency Translation
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
2005
|
2004
|
2003
|
|||
Year
end RMB
: exchange rate
|
8.07
|
8.28
|
8.28
|
||
Average
yearly RMB
: exchange rate
|
8.19
|
8.28
|
8.28
|
(p) |
Retirement
Benefits
|
(q) |
Use
of Estimates
|
(r) |
Income
Taxes
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(s) |
Earnings
Per Share
|
(t) |
Reclassifications
|
(u) |
Recent
Accounting Pronouncements
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
2. |
SUMMARY
OF
SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
3. |
ACQUISITION
OF ASSETS AND ASSUMPTION OF LIABILITIES OF YUAN DA WEI SHI TECHNOLOGY
LIMITED (“YUAN DA”)
|
(i) |
A
cash payment of RMB300,000 was paid on December 31,
2005.
|
(ii) |
The
issuance of 200,000 unregistered shares of common stock of the
Company on
March 10, 2006.
|
(iii) |
A
payable of RMB700,000 was accrued at December 31, 2005 and is to
be paid
in 2006.
|
3.
|
ACQUISITION
OF ASSETS AND ASSUMPTION OF LIABILITIES OF YUAN DA WEI SHI TECHNOLOGY
LIMITED (“YUAN DA”) (CONTINUED)
|
Total
assets transferred to the Company:
|
||||
Cash
on hand and bank balance
|
$
|
6,944
|
||
Accounts
receivable
|
43,185
|
|||
Other
receivable
|
23,148
|
|||
Inventories
|
70,146
|
|||
Fixed
assets
|
79,367
|
|||
Intangible
assets
|
511,127
|
|||
Other
payables
|
(103,896
|
)
|
||
$
|
630,021
|
|||
Total
cash consideration paid
|
$
|
37,175
|
||
Total
payable to Yuan Da:
|
||||
To
be paid in cash
|
92,846
|
|||
Common
stock issued March 10, 2006
|
500,000
|
|||
$
|
630,021
|
4. |
ACCOUNTS
RECEIVABLE
|
2005
|
2004
|
||||||
Accounts
receivable
|
$
|
11,653,068
|
$
|
4,310,593
|
|||
Employee
advances
|
-
|
6,166
|
|||||
11,653,068
|
4,316,759
|
||||||
Less:
Allowance for doubtful accounts
|
(10,245
|
)
|
(9,985
|
)
|
|||
Accounts
receivable, net
|
$
|
11,642,823
|
$
|
4,306,774
|
5. |
INVENTORIES
|
2005
|
2004
|
||||||
Security
and surveillance equipment
|
$
|
5,354,370
|
$
|
6,054,003
|
|||
Less:
Allowance for obsolete inventories
|
(43,077
|
)
|
(41,984
|
)
|
|||
Inventories,
net
|
$
|
5,311,293
|
$
|
6,012,019
|
6. |
DUE
FROM DIRECTORS
|
7. |
PLANT
AND EQUIPMENT
|
2005
|
2004
|
||||||
Buildings
|
$
|
2,201,867
|
$
|
2,146,023
|
|||
Leasehold
improvements
|
693,988
|
676,387
|
|||||
Plant
and equipment
|
55,485
|
243,870
|
|||||
Electronic
equipment
|
137,285
|
143,820
|
|||||
Motor
Vehicle
|
48,899
|
-
|
|||||
3,137,524
|
3,210,100
|
||||||
Less:
Accumulated depreciation
|
(1,185,958
|
)
|
(1,203,782
|
)
|
|||
Plant
and equipment, net
|
$
|
1,951,566
|
$
|
2,006,318
|
8. |
LAND
USE RIGHTS
|
2005
|
2004
|
||||||
Cost
of land use rights
|
$
|
1,396,896
|
$
|
1,361,467
|
|||
Less:
Accumulated amortization
|
(254,714
|
)
|
(220,670
|
)
|
|||
Land
use rights, net
|
$
|
1,142,182
|
$
|
1,140,797
|
2006
|
27,887
|
|||
2007
|
27,887
|
|||
2008
|
27,887
|
|||
2009
|
27,887
|
|||
2010
|
27,887
|
|||
Thereafter
|
1,002,747
|
|||
Total
|
$
|
1,142,182
|
9. |
INTANGIBLE
ASSETS
|
2005
|
2004
|
||||||
Intangible
assets
|
$
|
511,127
|
$
|
-
|
10. |
RELATED
PARTY RECEIVABLES
|
2005
|
2004
|
||||||
Related
party receivables
|
$
|
4,018,632
|
$
|
4,381,487
|
|||
Allowance
for doubtful debts
|
(235,434
|
)
|
(229,463
|
)
|
|||
Related
party receivables, net
|
$
|
3,783,198
|
$
|
4,152,024
|
11. |
DUE
TO DIRECTOR
|
12. |
INCOME
TAXES
|
2005
|
2004
|
2003
|
||||||||
Computed
“expected” expense
|
$
|
1,206,967
|
$
|
989,614
|
$
|
490,331
|
||||
Temporary
differences
|
(589,601
|
)
|
-
|
-
|
||||||
Others
|
163,125
|
(116,210
|
)
|
26,421
|
||||||
Income
tax expense
|
$
|
780,491
|
$
|
873,404
|
$
|
516,752
|
2005
|
2004
|
2003
|
||||||||
Current
|
$
|
1,370,092
|
$
|
873,404
|
$
|
516,752
|
||||
Deferred
|
(589,601
|
)
|
-
|
-
|
||||||
$
|
780,491
|
$
|
873,404
|
$
|
516,752
|
2005
|
||||
Deferred
income tax assets:
|
||||
Deferred
income
|
$
|
133,120
|
||
Depreciation
|
473,760
|
|||
Deferred
income tax liability:
|
||||
Allowance
for doubtful accounts
|
(17,279
|
)
|
||
Net
deferred tax assets
|
$
|
589,601
|
||
Current
portion
|
129,712
|
|||
Non-current
portion
|
459,889
|
|||
$
|
589,601
|
13. |
ADVANCE
PAYMENTS
|
14. |
DEFERRED
INCOME
|
15. |
COMMITMENTS
AND CONTINGENCIES
|
16. |
SUBSEQUENT
EVENTS
|
16. |
SUBSEQUENT
EVENTS (CONTINUED)
|
1.1
|
Restated
Memorandum of Association of Apex Wealth Enterprises Limited (herein
incorporated by reference from the Company’s report on Form F-1 filed with
the Securities and Exchange Commission on October 29,
2003).
|
1.2
|
Articles
of Association of Apex Wealth Enterprises Limited (herein incorporated
by
reference from the Company’s report on Form F-1 filed with the Securities
and Exchange Commission on October 29,
2003).
|
4.1
|
Share
Exchange Agreement, dated as of July 22, 2005, between the Company
and
China Safetech Holdings Limited (herein incorporated by reference
from the
Company’s report on Form 6-k filed with the Securities and Exchange
Commission on July 22, 2005.)
|
4.2
|
Share
Purchase Agreement, dated as of July 22, 2005, by and among the Company,
Whitehorse Technology Limited and First Asia International Holdings
Limited (herein incorporated by reference from the Company’s report on
Form 6-k filed with the Securities and Exchange Commission on July
22,
2005).
|
4.3
|
Stock
Transfer Agreement, dated as of October 25, 2005, by and among the
Company, Golden Group Corporation (Shenzhen) Limited, Shenzhen Yuan
Da Wei
Shi Technology Limited and its stockholders Jianguo Jiang and Jing
Li.
|
4.4
|
Amendment
No. 1 to the Equity Transfer Agreement, dated as of April 28, 2006,
by and
among the Company, Golden Group Corporation (Shenzhen) Limited, Shenzhen
Yuan Da Wei Shi Technology Limited and its stockholders Jianguo Jiang
and
Jing Li.
|
4.5
|
Amendment
No. 2 to the Equity Transfer Agreement, dated as of May 25, 2006,
by and
among the Company, Golden Group Corporation (Shenzhen) Limited, Shenzhen
Yuan Da Wei Shi Technology Limited and its stockholders Jianguo Jiang
and
Jing Li.
|
4.6
|
Securities
Purchase Agreement, dated as of April 4, 2006, with certain investors
for
the sale of 2,666,667 shares of our common stock (herein incorporated
by
reference from the Company’s report on Form 6-k filed with the Securities
and Exchange Commission on April 5, 2006).
|
4.7
|
Registration
Rights Agreement, dated as of April 4, 2006, with certain investors
with
respect to resale registration of 2,666,667 shares of our common
stock
(herein incorporated by reference from the Company’s report on Form 6-k
filed with the Securities and Exchange Commission on April 5, 2006).
|
4.8
|
Lease
Agreement, dated as of April 18, 2006, by and between the Company
and
Shenzhen Huiye Technology Co. Ltd.
|
4.9
|
Cooperation
Agreement, dated as of February 17, 2006, by and between Golden Group
Corporation (Shenzhen) Limited and Graduate School (Shenzhen) of
Beijing
University.
|
4.10
|
Consulting
Agreement, dated as of February 8, 2006, by and between the Company
and
Terence Yap.
|
6.1
|
A
statement explaining in reasonable detail how earnings per share
information was calculated, unless the computation is clear from
material
contained in the registration statement or
report.
|
No.
of shares
|
No.
of days
|
Weighted
average number of shares
|
|
Balance
as at Jan 1, 2005
|
17,000,000
|
365
|
17,000,000
|
Issuance
on August 5, 2005
|
1,420,000
|
148
|
575,781
|
Issuance
on September 12, 2005
|
3,138,000
|
110
|
945,698
|
Balance
on December 31, 2005
|
21,558,000
|
18,521,479
|
8.1
|
Subsidiary
List of China Security and Surveillance Technology,
Inc.
|