Filed
Pursuant to Rule 424(b)(3)
File
Number 333-140692
PROSPECTUS
SUPPLEMENT NO. 1
to
Prospectus dated February 12, 2008
(Registration
No. 333-140692)
ASIA
TIME CORPORATION
This
Prospectus Supplement No. 1 supplements our Prospectus dated February 12,
2008.
The securities that are the subject of the Prospectus have been registered
to
permit their resale to the public by the selling security holders named in
the
Prospectus. We are not selling any securities in this offering and therefore
will not receive any proceeds from this offering. You should read this
Prospectus Supplement No. 1 together with the Prospectus.
This
Prospectus Supplement No. 1 includes the attached report, as set forth below,
as
filed by us with the Securities and Exchange Commission (the “SEC”): Annual
Report on Form 10-K filed with the SEC on March 31, 2008.
Our
common stock is traded on the American Stock Exchange under the symbol “TYM.”
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A
CRIMINAL OFFENSE.
The
date
of this Prospectus Supplement No. 1 is April 14, 2008.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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|
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
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OR
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o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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FOR
THE TRANSITION PERIOD FROM _______
TO ___________
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COMMISSION
FILE NO. 001-33956
ASIA
TIME CORPORATION
(
Exact
Name Of Registrant As Specified In Its Charter
)
Delaware
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20-4062619
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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|
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Room
1601-1604, 16/F., CRE Centre
889
Cheung Sha Wan Road, Kowloon, Hong Kong
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N/A
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
:
(852)-23100101
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title
of Each Class
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|
Name
of Each Exchange on Which Registered
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Common
Stock, $0.0001 par value
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American
Stock Exchange
|
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
o
No
x
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
x
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
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated
filer
x
Smaller
reporting company
o
(Do
not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
o
No
x
The
registrant’s common stock commenced trading on the American Stock Exchange on
February 12, 2008. The aggregate market value of the registrant's issued and
outstanding shares of common stock held by non-affiliates of the registrant
as
of March 3, 2008 (based on the price at which the registrant’s common stock was
last sold on such date) was approximately $24,449,363.
There
were 24,684,649 shares outstanding of the registrant’s common stock, par value
$.0001 per share, as of March 15, 2008. The registrant’s common stock is listed
on the American Stock Exchange under the ticker symbol “TYM.”
DOCUMENTS
INCORPORATED BY REFERENCE: The information required by Part III of Form 10-K
is
incorporated by reference from the registrant's definitive proxy statement
on
Schedule 14A that will be filed no later than the end of the 120-day period
following the registrant's fiscal year end, or, if the registrant's definitive
proxy statement is not filed within that time, the information will be filed
as
part of an amendment to this Annual Report on Form 10-K/A, not later than the
end of the 120-day period.
ASIA
TIME CORPORATION
TABLE
OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
For
the Fiscal Year Ended December 31, 2007
ITEM
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Page
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PART
I
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2
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Item
1.
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Business
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2
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Item
1A.
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Risk
Factors
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6
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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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20
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder 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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22
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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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23
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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36
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Item
8.
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Financial
Statements and Supplementary Data
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37
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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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37
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Item
9A.
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Controls
and Procedures
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37
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Item
9B.
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Other
Information
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38
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PART
III
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39
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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39
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Item
11.
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Executive
Compensation
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39
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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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39
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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39
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Item
14.
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Principal
Accounting Fees and Services
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39
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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Signatures
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40
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The
information contained in this report, including in the documents incorporated
by
reference into this report, includes some statements that are not purely
historical and that are “forward-looking statements.” Such forward-looking
statements include, but are not limited to, statements regarding our and their
management’s expectations, hopes, beliefs, intentions or strategies regarding
the future, including our financial condition, and results of operations. In
addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words “anticipates,”
“believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,”
“might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,”
“should,” “will,” “would” and similar expressions, or the negatives of such
terms, may identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking.
The
forward-looking statements contained in this report are based on current
expectations and beliefs concerning future developments and the potential
effects on the parties and the transaction. There can be no assurance that
future developments actually affecting us will be those anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond the parties’ control) or other assumptions that may cause
actual results or performance to be materially different from those expressed
or
implied by these forward-looking statements, including the
following:
·
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Dependence
on a limited number of suppliers;
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·
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Cyclicality
of our business;
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·
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Decline
in the value of our inventory;
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·
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Significant
order cancellations, reductions or
delays;
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·
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Competitive
nature of our industry;
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·
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Vulnerability
of our business to general economic
downturn;
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·
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Our
ability to obtain all necessary government certifications and/or
licenses
to conduct our business;
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·
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Development
of a public trading market for our securities;
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·
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The
cost of complying with current and future governmental regulations
and the
impact of any changes in the regulations on our operations;
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·
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Costs
and expenses related to the Bonds and Bond Warrants;
and
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·
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The
other factors referenced in this report, including, without limitation,
under the sections entitled “Risk Factors,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and
“Business.”
|
These
risks and uncertainties, along with others, are also described below under
the
heading “Risk Factors.” Should one or more of these risks or uncertainties
materialize, or should any of the parties’ assumptions prove incorrect, actual
results may vary in material respects from those projected in these
forward-looking statements. We undertake no obligation to update or revise
any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities
laws.
PART
I
Item
1. Business
Overview
With
respect to this discussion, the terms “we” and “our” refer to Asia Time
Corporation, its 100%-owned subsidiary Times Manufacture & E-Commerce
Corporation Limited, a British Virgin Islands corporation, (“Times Manufacture”)
and its subsidiaries, Times Manufacturing & E-Commerce Corporation Ltd., TME
Enterprise Ltd., Citibond Design Ltd. and Megamooch Online Ltd., each of which
is a British Virgin Islands corporation, and the Hong Kong corporate
subsidiaries Billion Win International Enterprise Ltd., Goldcome Industrial
Ltd., Citibond Industrial Ltd., and Megamooch International Ltd. Times
Manufacture was founded in March 2002 and is based in Hong Kong.
Our
Company
We
are a
distributor of watch movements components used in the manufacture and assembly
of watches to a wide variety of timepiece manufacturers. Our core customer
base
consists primarily of wholesalers, and medium-to-large sized watch manufacturers
that produce watches primarily for consumer sale. To a lesser extent, we design
watches for manufacturers and exporters of watches and manufacture and
distribute complete watches primarily to internet marketers.
We
have
distribution centers and strategically located sales offices throughout Hong
Kong and the People’s Republic of China (“China” or “PRC”). We distribute more
than 350 products from over 30 vendors, including such market leaders as Citizen
Group, Seiko Corporation and Ronda AG, to a base of over 300 customers primarily
through our direct sales force. As a part and included in our sale of watch
movements, we provide a variety of value-added services, including automated
inventory management services, integration, design and development, management,
and support services.
Our
Industry
A
typical
watch manufacturing process begins with the watch being designed, either from
scratch or based on a chosen watch movement according to the required features.
For example, if a watch manufacturer wants to design a three-hand chronograph
with split-second, three dials and date, they will source the watch movements
that meet these requirements and design the watch according to the
specifications of this movement. Next in the process is the sourcing, purchasing
or manufacture of the required components, including the watch case, watch
movement, strap and crown. The last steps in the process are the assembly of
the
watch components, followed by testing and quality control.
Except
for the largest watch manufactures, such as Citizen, Seiko, and Swatch, which
produce and use their own watch movements, most watch manufacturers source
and
purchase the movements in the market.
In
the
watch manufacturing process, we provide watch movements directly to the
manufacturers or through movement wholesalers, assisting the manufacturers
to
source the movement by providing technical information, advise, and pricing.
We
also assist provide our customers with watch design and technical
assistance.
There
are
two categories of watch movements, quartz and mechanical. The main parts of
an
analog quartz watch movement are the battery; the oscillator, a piece of quartz
that vibrates in response to the electric current; the integrated circuit,
which
divides the oscillations into seconds; the stepping motor, which drives the
gear
train; and the gear train itself, which makes the watch’s hands move. A digital
watch movement has the same timing components as an analog quartz movement
but
has no stepping motor or gear train.
The
main
parts of a mechanical watch movement are the winding mechanism; the mainspring,
which is the source of the watch’s power; the gear train, which transmits power
from the mainspring to the escapement and drives the watch’s minutes and seconds
hands; the escapement, which distributes power to the oscillator (i.e., the
balance) and controls how fast the mainspring unwinds; the balance itself,
which
measures out time by vibrating at a steady rate; and the motion works, which
moves the watch’s hour hand.
Most
mechanical and quartz analog watch movements are made by one of three companies:
Japan’s Citizen and Seiko, or Switzerland’s ETA, which is owned by the Swatch
Group watch conglomerate. There are several smaller watch movement companies:
Ronda, ISA, and others. Digital watch movements are made by various companies,
most of them in China. Most watch manufacturers buy the movements, case them
and
sell them under their own brand names.
Watch
movement distributors relieve movement manufacturers of a portion of the costs
and personnel needed to warehouse, sell and deliver their products. Distributors
market movement manufacturers’ products to a broader range of customers than
such manufacturers could economically serve with their direct sales forces.
Today, movement distributors have become an integral part of a watch
manufacturer’s purchasing and inventory processes. Generally, companies engaged
in the distribution of watch movement components, including us, are required
to
maintain a relatively significant investment in inventories and accounts
receivable to be responsive to the needs of customers. To meet these
requirements, we, as well as other companies in our industry, typically depend
on internally generated funds as well as external sources of
financing.
Products
We
currently offer over 350 items. Our products primarily consist of watch
movements and, to a lesser extent, complete watches.
Watch
Movements
We
primarily distribute quartz watch movements that were produced primarily in
Switzerland and Japan. All quartz watch movements distributed by our company
are
multi-function and have three hands. The watch movements have high adaptability
so that a range of watches, from inexpensive to luxury, may be made from the
same watch movement. To a lesser extent, we also offer mechanical movements
manufactured by Citizen and Tsinlien Sea Gull Co. Ltd. For the year ended
December 31, 2007, we acquired most of our watch movement products from the
following two manufacturers: Citizen Miyota Co., Ltd., which is a member company
in the Citizen Group, supplied 63% and Seiko Corporation supplied 27%. The
next
highest supplier was Hip Shun Industrial (HK) Ltd., which supplied us with
less
than 4% of our watch movements.
Complete
Watches
To
a
lesser extent we also distribute complete analog-quartz and automatic watches
with pricing between $20.00 to $50.00. Manufacturing for these watches is
currently outsourced to third party factories in China. Our top three brand
names include NxTime, SIDIO and Marcellus. The watches are primarily designed
by
U.S. designers and range from fashion watches to classic designs. Watches can
either be made-to-order or design-to-order.
Strategy
Our
goal
is to be a leading watch movement and timepiece distributor in Hong Kong and
China through the following strategies.
Offer
wide-ranging product spectrum to customers.
Management estimates that it can increase revenues by broadening our product
spectrum and offering more brands of quartz movement to customers. Apart from
quartz movement, we intend to offer mechanical movements. By broadening our
product spectrum, we hope to increase our market share through sales to
manufacturers of high-end watches utilizing sophisticated mechanical movements.
We plan to source other brands of quartz and mechanical movement in order to
broaden our product spectrum. The number of brands and products that we plan
to
introduce will depend on the terms and conditions offered by our
suppliers.
Manufacture
branded proprietary watch movements.
To
further diversify our product offering and reduce our reliance on third party
watch movement manufacturers, we eventually hope to manufacture our own brands
of quartz movements and high end mechanical movements in-house. We estimate
that
our company can replace a portion of our current third-party watch movement
sales with our own brand movements, watch movements manufactured in-house would
be higher margin offerings than distributed products of third-party suppliers.
In addition, in-house manufacturing will allow product offerings at more
competitive price points which we believe will enhance our competitive position.
To manufacture our own brands of quartz and mechanical movements in-house,
would
need to acquire watch movement facilities in China and invest in new equipments
and research and development. We expect that up to $5.5 million will be required
to obtain the equipment and facilities to manufacture branded proprietary watch
movements. Our plan to acquire manufacturing facilities and equipment to
manufacture our own brand of quartz and mechanical movements in-house is still
underway and we have identified certain targets for negotiations and will
disclose in due course.
Developing
closer relationships with product brands owners and
distributors.
We
believe it is important for our company to develop closer relationships with
product brand owners and its distributors, which we believe would lead to more
competitive pricing and stable supply of products. We also have plans to develop
closer relationships with our existing brands and distributors by expanding
our
sales force. We commenced expansion of our sales force in the fourth quarter
of
2007 and will continue in 2008.
Expand
the distribution of complete watches
.
Currently, the distribution of complete watches represents less than 12% of
our
revenues. As part of our expansion plan, we intend to expand our sales and
marketing efforts in China. We believe that a heightened focus in this area
can
lead to an increase in market share and enhance our earning capacity. It is
expected that these watches will be marketed through a lower to middle pricing
strategy, with sales price range from US$100-$200. We plan to appoint watch
distributors in larger China cities in the next two years to expand the
distribution of our complete watches.
Value-Added
Services
As
a part
of and included in our sale of watch movements, we provide a number of
value-added services which are intended to attract new customers and to maintain
and increase sales to existing customers. These value-added services
include:
—
|
Automated
inventory management services.
We
manage our customers’ inventory reordering, stocking and administration
functions. We believe these services reduce paperwork, inventory,
cycle
time and the overall cost of doing business for our customers. The
automated inventory management services are provided through our
computer
system through which we can manage our customer’s inventory reordering,
stocking and administration functions. We believe this helps us to
provide
better service to our customers by understanding their stock level,
purchase behavior and allows us to be more responsive to their demands
and
queries.
|
—
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Integration.
Our sales specialists work directly with our customers to develop
and
deliver customized solutions and technical support to meet specific
requirements for our customers’ applications. We are able to offer
customers a one-stop source for their integration
needs.
|
Sales
and Marketing
Watch
Movements
We
believe we have developed valuable long-term customer relationships and an
understanding of our customers’ requirements. Our sales personnel are trained to
identify our customers’ requirements and to actively market our entire product
line to satisfy those needs. We serve a broad range of wholesalers, medium
to
small watch manufacturers and volume users in China and Hong Kong. We have
established inventory management programs to address the specific distribution
requirements of our customers.
As
a
distributor for leading watch movement manufacturers, we are able to offer
technical support as well as a variety of supply chain management programs.
Technical support and supply chain management services enhance our ability
to
attract new customers. Many of our services revolve around our use of software
automation, computer-to-computer transactions through Internet-based solutions,
technically competent product managers and business development
managers.
Sales
are
made throughout China and Hong Kong from the sales departments maintained at
our
distribution facilities located in Hong Kong and from strategically located
sales offices. Sales are made primarily through personal visits by our employees
and telephone sales personnel who answer inquiries and receive and process
orders from customers. Sales are also made through general advertising,
referrals and marketing support from component manufacturers.
Complete
Watches
Currently,
the main distribution channels of our watches are US direct marketers, online
retailers and China department stores. As part of our expansion plan, we intend
to increase our focus on China’s complete watch market along with exportation to
overseas markets.
With
our
foothold in Southern China, we intend further develop Eastern China and Northern
China regions so as to cover the entire China market in complete
watches.
We
intend
continue to outsource the production of complete watches to third parties.
As
part of our integrated efforts, we intend to supply these manufacturers with
watch movements.
We
are
also exploring opportunities to establish a retail network in China through
teaming up with fashion, apparel or accessories chain stores to market our
completed watches in China.
Suppliers
Manufacturers
of watch movements are increasingly relying on the marketing, customer service,
technical support and other resources of distributors who market and sell their
product lines to customers not normally served by the manufacturer, and to
supplement the manufacturer’s direct sales efforts for other accounts often by
providing value-added services not offered by the manufacturer. Manufacturers
seek distributors who have strong relationships with desirable customers, have
the infrastructure to handle large volumes of products and can assist customers
in the design and use of the manufacturers’ products. Currently, we have stable
supplies from many manufacturers, including Miyota, Seiko, Ronda and
Suissebaches. We continuously seek to identify potential new suppliers. During
the year ended December 31, 2007, products purchased from our ten largest
suppliers accounted for 92% of our total net purchases.
Operations
Inventory
management is critical to a distributor’s business. We constantly focus on a
high number of resales or “turns” of existing inventory to reduce our exposure
to product obsolescence and changing customer demand.
Our
central computer system facilitates the control of purchasing and inventory,
accounts payable, shipping and receiving, and invoicing and collection
information for our distribution business. Our distribution software system
includes financial systems, customer order entry, purchase order entry to
manufacturers, warehousing and inventory control. Each of our sales departments
and offices is electronically linked to our central computer systems, which
provide fully integrated on-line, real-time data with respect to our inventory
levels. We track inventory turns by vendor and by product, and our inventory
management system provides immediate information to assist in making purchasing
decisions and decisions as to which inventory to exchange with suppliers under
stock rotation programs. In some cases, customers use computers that interface
directly with our computers to identify available inventory and to rapidly
process orders. Our computer system also tracks inventory turns by customer.
We
also monitor supplier stock rotation programs, inventory price protection,
rejected material and other factors related to inventory quality and quantity.
This system enables us to more effectively manage our inventory and to respond
quickly to customer requirements for timely and reliable delivery of components.
Competition
The
watch
movement distribution industry is highly competitive, primarily with respect
to
price, product availability, knowledge of product and quality of service. We
believe that the breadth of our customer base, services and product lines,
our
level of technical expertise and the overall quality of our services are
particularly important to our competitive position. We compete with large
distributors such as National Electronics Holding Ltd., as well as mid-size
distributors, such as PTS Resources Ltd., many of whom distribute the same
or
competitive products as we do.
Our
major
competitors in complete watches include designer brands from overseas, China
and
Hong Kong such as Guess, Calvin Klein and Dolce & Gabanna.
Backlog
As
is
typical of watch movement distributors, we have a backlog of customer orders.
At
December 31, 2007, we had a backlog of approximately $3.5 million as compared
to
a backlog of approximately $1.4 million at December 31, 2006. We believe that
a
substantial portion of our backlog represents orders due to be filled within
the
next 90 days. In recent years, the trend in our industry has been toward
outsourcing, with more customers entering into just-in-time contracts with
distributors, instead of placing orders with long lead times. As a result,
the
correlation between backlog and future sales is changing. In addition, we have
increased our use of transactions where we purchase inventory based on
electronically transmitted forecasts from our customers that may not become
an
order until the date of shipment and, therefore, may not be reflected in our
backlog. Our backlog is subject to delivery rescheduling and cancellations
by
the customer, sometimes without penalty or notice. For the foregoing reasons
our
backlog is not necessarily indicative of our future sales for any particular
period.
Employees
At
December 31, 2007, we had a total of 35 full-time employees. There are no
collective bargaining contracts covering any of our employees. We believe our
relationship with our employees is satisfactory
.
Available
Information
Our
principal executive offices are located at Room 1601-1604, 16/F., CRE Centre,
889 Cheung Sha Wan Road, Kowloon, Hong Kong. Our telephone number is (852)
23100101. Our Internet address is
www.asiatimecorp.com
.
We make
available free of charge on or through our Internet Website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission.
Item
1A. Risk Factors
Any
investment in our common stock involves a high degree of risk. Investors should
carefully consider the risks described below and all of the information
contained in this report before deciding whether to purchase our common stock.
Our business, financial condition or results of operations could be materially
adversely affected by these risks if any of them actually occur. Our shares
of
common stock are currently listed for trading on the American Stock Exchange
under the ticker symbol “TYM.” The trading price could decline due to any of
these risks, and an investor may lose all or part of his or her investment.
Some
of these factors have affected our financial condition and operating results
in
the past or are currently affecting us. This report also contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks described below
and elsewhere in this report.
RISKS
RELATED TO OUR OPERATIONS
We
are dependent on a limited number of suppliers. Loss of one or more of our
key
suppliers could harm our ability to manufacture and deliver our products to
our
customers, which would have a material adverse effect on our
business.
We
rely
on a limited number of suppliers for products that generate a significant
portion of our sales. During the year ended December 31, 2007, products
purchased from our 10 largest suppliers accounted for 92% of our total net
purchases. Substantially all of our inventory has been and will be purchased
from suppliers with which we have entered into non-exclusive distribution
agreements. Moreover, most of our distribution agreements are cancelable upon
short notice. As a result, in the event that one or more of those suppliers
experience financial difficulties or are not willing to do business with us
in
the future on terms acceptable to management, our ability to manufacture and
deliver our products to our customers would be harmed, which would result in
a
material adverse effect on our business, results of operations or financial
condition. Additionally, our relationships with our customers could be
materially adversely affected because our customers depend on our distribution
of watch movements from the industry’s leading suppliers.
Our
industry is highly cyclical, and an industry downturn could limit our ability
to
generate revenues and have a material adverse effect on our
business.
The
watch
movement distribution industry and, in particular, the timepiece manufacturing
industry has historically been affected by general economic downturns and
fluctuations in product supply and demand, often associated with changes in
technology and manufacturing capacity. These industry cycles and economic
downturns have often had an adverse economic effect upon manufacturers,
end-users of watch movements and watch movement distributors, including our
company. We cannot predict the timing or the severity of the cycles within
our
industry, or how long and to what levels any industry downturn and/or general
economic weakness will last or be exacerbated by terrorism or war or other
factors on our industry. Our revenues closely follow the strength or weakness
of
the timepiece market, and future downturns in this industry, would have a
material adverse effect on our business, results of operations and financial
condition.
Rapid
technological change and new and enhanced products could cause declines in
the
value of our inventory or result in obsolescence of our
inventory.
The
watch
movements industry is subject to rapid technological change, new and enhanced
products and evolving industry standards, which can contribute to a decline
in
value or obsolescence of inventory. During an industry and/or economic downturn,
it is possible that prices will decline due to an oversupply of product and,
therefore, there may be greater risk of declines in inventory value. We cannot
assure you that unforeseen new product developments or declines in the value
of
our inventory will not materially adversely affect our business, results of
operations or financial condition, or that we will successfully manage our
existing and future inventories.
We
make commitments regarding the level of business we sill seek and accept,
including production schedules and personnel levels, and significant order
cancellations, reductions, or delays by our customers could materially adversely
affect our commitments and business.
Our
sales
are typically made pursuant to individual purchase orders, and we generally
do
not have long-term supply arrangements with our customers, but instead work
with
our customers to develop nonbinding forecasts of future requirements. Based
on
these forecasts, we make commitments regarding the level of business that we
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. A variety of conditions, both
specific to each customer and generally affecting each customer’s industry, may
cause customers to cancel, reduce or delay orders that were either previously
made or anticipated. Generally, customers may cancel, reduce or delay purchase
orders and commitments without penalty, except for payment for services rendered
or products competed and, in certain circumstances, payment for materials
purchased and charges associated with such cancellation, reduction or delay.
Significant or numerous order cancellations, reductions or delays by our
customers could have a material adverse effect on our business, financial
condition or results of operations.
The
market for our products is very competitive and, if we cannot effectively
compete, our business will be harmed.
The
market for our products is very competitive and subject to rapid technological
change. We compete with many other distributors of watch movements and complete
watches many of which are larger and have significantly greater assets, name
recognition and financial, personnel and other resources than we have. As a
result, our competitors may be in a stronger position to respond quickly to
potential acquisitions and other market opportunities, new or emerging
technologies and changes in customer requirements. Occasionally, we compete
for
customers with many of our own suppliers and additional competition has emerged
from, fulfillment companies, catalogue distributors and e-commerce companies,
including on-line distributors and brokers, which have grown with the expanded
use of the Internet. We cannot assure you that we will be able to maintain
or
increase our market share against the emergence of these or other sources of
competition. Failure to maintain and enhance our competitive position could
materially adversely affect our business and prospects.
Additionally,
prices for our products tend to decrease over their life cycle. This reduces
resale per component sold. There is also continuing pressure from customers
to
reduce their total cost for products. Our suppliers may also seek to reduce
our
margins on the sale of their products in order to increase their own
profitability or to be competitive with other suppliers of comparable product.
We incur substantial costs on our value-added services required to remain
competitive, retain existing business and gain new customers, and we must
evaluate the expense of those efforts against the impact of price and margin
reductions.
Substantial
defaults by our customers on accounts receivable or the loss of significant
customers could have a material adverse effect on our liquidity and results
of
operations.
A
substantial portion of our working capital consists of accounts receivable
from
customers. If customers responsible for a significant amount of accounts
receivable were to become insolvent or otherwise unable to pay for products
and
services, or to make payments in a timely manner, our liquidity and results
of
operations could be materially adversely affected. An economic or industry
downturn could materially adversely affect the servicing of these accounts
receivable, which could result in longer payment cycles, increased collection
costs and defaults in excess of management’s expectations. A significant
deterioration in our ability to collect on accounts receivable could also impact
the cost or availability of financing available to us.
We
are dependent on Japanese manufacturers for our watch movements and subject
to
trade regulations which expose us to political and economic
risk.
Approximately
90% of watch movements that we sell are manufactured by Japanese companies.
As a
result, our ability to sell certain products at competitive prices could be
adversely affected by any of the following:
·
|
increases
in tariffs or duties on imports from
Japan;
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·
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changes
in trade treaties between Japan and Hong
Kong;
|
·
|
strikes
or delays in air or sea transportation between Japan and Hong
Kong;
|
·
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future
legislation with respect to pricing and/or import quotas on products
imported from Japan; and
|
·
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turbulence
in the Japanese economy or financial
markets.
|
Trade
regulations between Hong Kong and Japan have remained stable for the past five
years. However, there is long-standing political tension between China and
Japan, which could intensify, causing trade retaliation and changes in trade
regulations. As a special administrative region of China, Hong Kong could be
indirectly affected by changes in trade regulation between China and Japan,
which would limit our ability to sell our products.
Our
industry is subject to supply shortages that could prevent us from manufacturing
and delivering our products to our customers in a timely manner. Any delay
or
inability to deliver our products may have a material adverse effect on our
results of operations.
During
prior periods, there have been shortages of components in the watch movements
industry and the availability of certain movements have been limited by some
of
our suppliers. We cannot assure you that any future shortages or allocations
would not have such an effect on us. A future shortage can be caused by and
result from many situations and circumstances that are out of our control,
and
such shortage could limit the amount of supply available of certain required
movements and increase prices affecting our profitability.
We
face risks related to our recent accounting restatements in December 2007 and
February 2008.
In
December 2007 and February 2008, we determined that we had accounting
inaccuracies in previously reported financial statements and decided to restate
our financial statements for the years ended December 31, 2006, 2005, and 2004,
the three months ended March 31, 2007, the three months and six months ended
June 30, 2007, and the three months and nine months September 30, 2007. The
restatements for the foregoing periods related to the correction of errors
with
respect to the accounting for inventory by adjusting watch movement costing
for
the effects of vendor incentives from an as received basis to an accrual basis,
as we were able to estimate the value of the incentives as inventory is
purchased, the accounting for fees and costs related to the January 2007 reverse
merger as a charge to operations, and the recognition of stock-based
compensation cost related to the Escrow Shares. As a result of these
adjustments, various income tax calculations were also revised, which effected
net income and also caused reclassifications to cash flows. We also corrected
average and actual shares outstanding retroactively (and related earnings per
share calculations) to reflect the January 2007 reverse merger. We also made
various changes to footnote disclosures relating to these revisions. It is
possible that such restatement of our financial statements could lead to
litigation claims and/or regulatory proceedings against us. The defense of
any
such claims or proceedings may cause the diversion of management's attention
and
resources, and we may be required to pay damages if any such claims or
proceedings are not resolved in our favor.
The
prices of our products are subject to volatility, which could have a negative
impact on our sales and gross profit margins.
A
portion
of the watch movements products we sell have historically experienced volatile
pricing. If market pricing for these products decreases significantly, we may
experience periods when our investment in inventory exceeds the market price
of
such products. In addition, at times there are price increases from our
suppliers that we are unable to pass on to our customers. These market
conditions could have a negative impact on our sales and gross profit margins
unless and until our suppliers reduce the cost of these products to us.
Furthermore, in the future, the need for aggressive pricing programs in response
to market conditions, an increased number of low-margin, large volume
transactions and/or increased availability of the supply of certain products,
could further impact our gross profit margins.
A
reversal of the trend for distribution to play an increasing role in the watch
movements industry could limit demand for our services and materially adversely
affect our results of operations.
In
recent
years, there has been a growing trend for large wholesalers and watch
manufacturers to outsource their procurement, inventory and materials management
processes to third parties, particularly watch movement distributors, including
our company. A reversal of this trend for could limit demand for our services,
materially adversely affecting our ability to generate revenues. If such a
reversal occurs, we may be forced to change the focus of our operations if
we
are unable to generate sufficient revenues to support our operations as
currently conducted.
Our
manufacturing capacity restraints and limited experience may cause unexpected
costs, delays and make it more difficult to compete, which may have an adverse
effect on our results of operations.
As
part
of our expansion plan, we intend to substantially expand the design and
manufacture of our own brands of complete watches and commence the manufacture
of branded watch movements in-house. In order to produce our watches and watch
movements in quantities sufficient to meet our anticipated market demand we
will
need to increase our manufacturing capacity by a significant factor over the
current level. There are technical challenges to increasing manufacturing
capacity, including equipment design and automation, material procurement,
problems with production yields and quality control and assurance. Developing
commercial scale manufacturing facilities will require the investment of
substantial funds and the hiring and retaining of additional management and
technical personnel who have the necessary manufacturing experience. We may
encounter some difficulties, such as significant unexpected costs and delays,
in
scaling up the necessary manufacturing operations to produce required quantities
of watch movements and watches. The failure to scale-up manufacturing operations
in a timely and cost-effective way may adversely affect our income. Moreover,
the lack of experience in watch movement and watch manufacture design may make
it difficult to compete against companies that have more senior management
and
experience. If we are unable to satisfy demand for products, our ability to
generate revenue could be impaired, market acceptance of our products could
be
adversely affected and customers may instead purchase our competitors’
products.
If
third-party carriers were unable to transport our products on a timely basis,
we
may be unable to timely deliver products to our customers and our operations
could be materially adversely affected.
All
of
our products are shipped through third party carriers. If a strike or other
event prevented or disrupted these carriers from transporting our products,
other carriers may be unavailable or may not have the capacity to deliver our
products to our customers. If adequate third party sources to ship our products
were unavailable at any time, our business would be materially adversely
affected.
Our
products may be found to be defective and, as a result, warranty and/or product
liability claims may be asserted against us which could have a material adverse
effect on our business.
Our
products are sold at prices that are significantly lower than the cost of the
watches in which they are incorporated. Since a defect or failure in a product
could give rise to failures in the end products that incorporate them (and
claims for consequential damages against us from our customers), we may face
claims for damages that are disproportionate to the sales and profits we receive
from our products involved. Our business could be materially adversely affected
as a result of a significant quality or performance issue in the products sold
by us depending on the extent to which we are required to pay for the damages
that result. Although we currently have product liability insurance, such
insurance is limited in coverage and amount.
The
failure to manage growth effectively could have an adverse effect on our
business, financial condition, and results of operations.
Any
significant growth in the market for our products or entry into new markets
by
Asia Time may require us to expand our employee base for managerial,
operational, financial, and other purposes. As of December 31, 2007, we had
35
full time employees. Continued future growth will impose significant added
responsibilities upon the members of management to identify, recruit, maintain,
integrate, and motivate new employees. Aside from increased difficulties in
the
management of human resources, we may also encounter working capital issues,
as
we will need increased liquidity to finance. For effective growth management,
we
will be required to continue improving our operations, management, and financial
systems and control. Our failure to manage growth effectively may lead to
operational and financial inefficiencies that will have a negative effect on
our
profitability.
We
are dependent on certain key personnel and loss of our sole executive officer,
which would have a material adverse effect on our business and results of
operations.
Our
success is, to a certain extent, attributable to our sole executive officer,
Kwong Kai Shun. Kwong Kai Shun oversees the operation of our business. There
can
be no assurance that we will be able to retain Kwong Kai Shun or that he may
not
receive and/or accept competing offers of employment. The loss of Kwong Kai
Shun
could have a material adverse effect upon our business, financial condition,
and
results of operations.
Our
planned expansion into new international markets poses additional risks and
could fail, which could cost us valuable resources and affect our results of
operations.
We
plan
to expand sales of products into new international markets including developing
and developed countries, such as South America and Europe. These markets are
untested for our products and we face risks in expanding the business overseas,
which include differences in regulatory product testing requirements,
intellectual property protection (including patents and trademarks), taxation
policy, legal systems and rules, marketing costs, fluctuations in currency
exchange rates and changes in political and economic conditions.
RISKS
RELATED TO US DOING BUSINESS IN CHINA
All
of our assets are located in Hong Kong and China and substantially all of our
revenues are derived from our operations in Hong Kong and China, and changes
in
the political and economic policies of the PRC government could have a
significant impact upon the business we may be able to conduct in the PRC and
the results of operations and financial condition.
Our
business operations may be adversely affected by the current and future
political environment in the PRC. The PRC has operated as a socialist state
since the mid-1900s and is controlled by the Communist Party of China. The
Chinese government exerts substantial influence and control over the manner
in
which we must conduct our business activities. The PRC has only permitted
provincial and local economic autonomy and private economic activities since
1988. The government of the PRC has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy,
particularly the pharmaceutical industry, through regulation and state
ownership. Our ability to operate in China may be adversely affected by changes
in Chinese laws and regulations, including those relating to taxation, import
and export tariffs, raw materials, environmental regulations, land use rights,
property and other matters. Under current leadership, the government of the
PRC
has been pursuing economic reform policies that encourage private economic
activity and greater economic decentralization. There is no assurance, however,
that the government of the PRC will continue to pursue these policies, or that
it will not significantly alter these policies from time to time without notice.
Our
operations are subject to PRC laws and regulations that are sometimes vague
and
uncertain. Any changes in such PRC laws and regulations, or the interpretations
thereof, may have a material and adverse effect on our
business.
The
PRC’s
legal system is a civil law system based on written statutes, in which system
decided legal cases have little value as precedents unlike the common law system
prevalent in the United States. There are substantial uncertainties regarding
the interpretation and application of PRC laws and regulations, including but
not limited to the laws and regulations governing our business, or the
enforcement and performance of our arrangements with customers in the event
of
the imposition of statutory liens, death, bankruptcy and criminal proceedings.
The Chinese government has been developing a comprehensive system of commercial
laws, and considerable progress has been made in introducing laws and
regulations dealing with economic matters such as foreign investment, corporate
organization and governance, commerce, taxation and trade. However, because
these laws and regulations are relatively new, and because of the limited volume
of published cases and judicial interpretation and their lack of force as
precedents, interpretation and enforcement of these laws and regulations involve
significant uncertainties. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively. We are considered
a foreign persons or foreign funded enterprises under PRC laws, and as a result,
we are required to comply with PRC laws and regulations. We cannot predict
what
effect the interpretation of existing or new PRC laws or regulations may have
on
our businesses. If the relevant authorities find us in violation of PRC laws
or
regulations, they would have broad discretion in dealing with such a violation,
including, without limitation:
|
·
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revoking
our business and other licenses;
|
|
·
|
requiring
that we restructure our ownership or operations;
and
|
|
·
|
requiring
that we discontinue any portion or all of our
business.
|
Inflation
in the PRC could negatively affect our profitability and
growth.
While
the
Chinese economy has experienced rapid growth in recent years, such growth
has
been uneven among various sectors of the economy and in different geographical
areas of the country. Also, many observers believe that this rapid growth
cannot
continue at its current pace and that an economic correction may be imminent.
Rapid economic growth can also lead to growth in the money supply and rising
inflation. During the past two decades, the rate of inflation in China has
been
as high as approximately 20% and China has experienced deflation as low as
minus
2%. If prices for our products rise at a rate that is insufficient to compensate
for the rise in the costs of supplies such as raw materials, it may have
an
adverse effect on our profitability. In order to control inflation in the
past,
the PRC government has imposed controls on bank credits, limits on loans
for
fixed assets and restrictions on state bank lending. The implementation of
such
policies may impede economic growth. In October 2004, the People’s Bank of
China, the PRC’s central bank, raised interest rates for the first time in
nearly a decade and indicated in a statement that the measure was prompted
by
inflationary concerns in the Chinese economy. During 2007, the interest rate
was
increased from 5.67% to 7.83%. Repeated rises in interest rates by the central
bank could slow economic activity in China which could, in turn, materially
increase our costs and also reduce demand for our products.
Recent
PRC regulations relating to acquisitions of PRC companies by foreign entities
may create regulatory uncertainties that could restrict or limit our ability
to
operate.
The
PRC
State Administration of Foreign Exchange, or SAFE, issued a public notice in
January 2005 concerning foreign exchange regulations on mergers and acquisitions
in China. The public notice states that if an offshore company controlled by
PRC
residents intends to acquire a PRC company, such acquisition will be subject
to
strict examination by the relevant foreign exchange authorities. The public
notice also states that the approval of the relevant foreign exchange
authorities is required for any sale or transfer by the PRC residents of a
PRC
company’s assets or equity interests to foreign entities for equity interests or
assets of the foreign entities.
In
April
2005, SAFE issued another public notice further explaining the January notice.
In accordance with the April notice, if an acquisition of a PRC company by
an
offshore company controlled by PRC residents has been confirmed by a Foreign
Investment Enterprise Certificate prior to the promulgation of the January
notice, the PRC residents must each submit a registration form to the local
SAFE
branch with respect to their respective ownership interests in the offshore
company, and must also file an amendment to such registration if the offshore
company experiences material events, such as changes in the share capital,
share
transfer, mergers and acquisitions, spin-off transaction or use of assets in
China to guarantee offshore obligations. The April notice also provides that
failure to comply with the registration procedures set forth therein may result
in restrictions on our PRC resident shareholders and subsidiaries. Pending
the
promulgation of detailed implementation rules, the relevant government
authorities are reluctant to commence processing any registration or application
for approval required under the SAFE notices.
In
addition, on August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the
State-Owned Assets Supervision and Administration Commission of the State
Council, State Administration of Taxation, State Administration for Industry
and
Commerce, China Securities Regulatory Commission and SAFE, amended and released
the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises,
new foreign-investment rules which took effect September 8, 2006, superseding
much, but not all, of the guidance in the prior SAFE circulars. These new rules
significantly revise China’s regulatory framework governing onshore-offshore
restructurings and how foreign investors can acquire domestic enterprises.
These
new rules signify greater PRC government attention to cross-border merger,
acquisition and other investment activities, by confirming MOFCOM as a key
regulator for issues related to mergers and acquisitions in China and requiring
MOFCOM approval of a broad range of merger, acquisition and investment
transactions. Further, the new rules establish reporting requirements for
acquisition of control by foreigners of companies in key industries, and
reinforce the ability of the Chinese government to monitor and prohibit foreign
control transactions in key industries.
These
new
rules may significantly affect the means by which offshore-onshore
restructurings are undertaken in China in connection with offshore private
equity and venture capital financings, mergers and acquisitions. It is expected
that such transactional activity in China in the near future will require
significant case-by-case guidance from MOFCOM and other government authorities
as appropriate. It is anticipated that application of the new rules will be
subject to significant administrative interpretation, and we will need to
closely monitor how MOFCOM and other ministries apply the rules to ensure its
domestic and offshore activities continue to comply with PRC law. Given the
uncertainties regarding interpretation and application of the new rules, we
may
need to expend significant time and resources to maintain compliance, which
could divert the attention of our management and adversely affect our results
of
operations.
It
is
uncertain how our business operations or future strategy will be affected by
the
interpretations and implementation of the SAFE notices and new rules. Our
business operations or future strategy could be adversely affected by the SAFE
notices and the new rules. For example, we may be subject to a more stringent
review and approval process with respect to our foreign exchange activities,
which could limit our ability to acquire companies in the PRC, restricting
our
ability to expand our operations.
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. In addition, we are required to maintain records that accurately
and
fairly represent our transactions and have an adequate system of internal
accounting controls. Foreign companies, including some that may compete with
us,
are not subject to these prohibitions, and therefore may have a competitive
advantage over us. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in the PRC, and our executive
officers and employees have not been subject to the United States Foreign
Corrupt Practices Act prior to the completion of the Share Exchange. We can
make
no assurance 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.
Any
recurrence of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another
widespread public health problem, in the PRC could adversely affect our
employees, customers, and our ability to continue our operations, including
manufacturing and distribution.
A
renewed
outbreak of Severe Acute Respiratory Syndrome, Avian Flu or another widespread
public health problem in China, where all of our manufacturing facilities are
located and where all of our sales occur, could have a negative effect on our
operations. Our business is dependent upon our ability to continue to
manufacture our products. Such an outbreak could have an impact on our
operations as a result of:
|
·
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quarantines
or closures of some of our manufacturing facilities, which would
severely
disrupt our operations,
|
|
·
|
the
sickness or death of our key officers and employees,
and
|
|
·
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a
general slowdown in the Chinese
economy.
|
Any
of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.
A
downturn in the economy of the PRC may slow our growth and
profitability.
The
growth of the Chinese economy has been uneven across geographic regions and
economic sectors. There can be no assurance that growth of the Chinese economy
will be steady or that any downturn will not have a negative effect on our
business, especially if it results in either a decreased use of our products
or
in pressure on us to lower our prices.
Because
our business is located in the PRC, we may have difficulty establishing adequate
management, legal and financial controls, which we are required to do in order
to comply with U.S. securities law.
PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. Most of our middle and top management staff are not educated and
trained in the Western system. In addition, we may need to rely on a new and
developing communication infrastructure to efficiently transfer our information
from retail nodes to the headquarters. In addition, we may have difficulty
in
hiring and retaining a sufficient number of qualified employees to work in
the
PRC. As a result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. Therefore, we may,
in turn, experience difficulties in implementing and maintaining adequate
internal controls as required under Section 404 of the Sarbanes-Oxley Act of
2002. This may result in significant deficiencies or material weaknesses in
our
internal controls which could impact the reliability of our financial statements
and prevent us from complying with SEC rules and regulations and the
requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies,
weaknesses or lack of compliance could have a materially adverse effect on
our
business.
You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based upon U.S. laws,
including the federal securities laws or other foreign laws against us or our
management.
Most
of
our current operations are conducted in Hong Kong and China. Moreover all of
our
directors and officers are nationals and residents of Hong Kong and China.
All
or substantially all of the assets of these persons are located outside the
United States and in the PRC. As a result, it may not be possible to effect
service of process within the United States or elsewhere outside China upon
these persons. In addition, uncertainty exists as to whether the courts of
China
would recognize or enforce judgments of U.S. courts obtained against us or
our
officers and/or directors predicated upon the civil liability provisions of
the
securities law of the United States or any state thereof, or be competent to
hear original actions brought in China against us or such persons predicated
upon the securities laws of the United States or any state thereof.
RISKS
RELATED TO OUR CAPITAL STRUCTURE
The
price of our common stock may be volatile, and if an active trading market
for
our common stock does not develop, the price of our common stock may suffer
and
decline.
Prior
to
our initial public offering and listing of our common stock on the American
Stock Exchange on February 12, 2008, there has been no public market for our
securities in the United States. Accordingly, we cannot assure you that an
active trading market will develop or be sustained or that the market price
of
our common stock will not decline. The price at which our common stock will
trade after our initial public offering is likely to be highly volatile and
may
fluctuate substantially due to many factors, some of which are outside of our
control.
Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common
stock.
As
of
March 15, 2008, we had 24,684,649 shares of common stock outstanding, and our
certificate of incorporation permits the issuance of up to approximately
75,315,351additional shares of common stock. Thus, we have the ability to issue
substantial amounts of common stock in the future, which would dilute the
percentage ownership held by the existing investors.
Pursuant
to the terms of the Share Exchange, we registered the 2,250,348 shares of common
stock underlying shares of our Series A Convertible Preferred Stock issued
in an
equity financing, in addition to 1,703,017 shares held by other shareholders.
In
addition, we agreed to file a registration statement no later than 90 days
after
our securities become listed for trading on the American Stock Exchange to
register the Bonds, the 2,285,714 shares of our common stock, subject to
adjustment, issuable upon the conversion of the Bonds, the Bond Warrants, and
the 600,000 shares of our common stock, subject to adjustment, issuable upon
the
exercise of the Bond Warrants. We also intend to register the 200,000 shares
of
common stock issued in connection with our investor relations agreement that
we
entered into in February 2007. The preferred stockholders of the 2,250,348
registered shares are subject to a lock up agreement pursuant to which they
agreed not to sell their shares until our common stock began trading on the
American Stock Exchange, which occurred on February 12, 2008, after which their
shares will automatically be released from the lock up every 30 days on a pro
rata over a nine month period beginning on the date that is 30 days after
listing of the shares. All of the shares included in an effective registration
statement as described above may be freely sold and transferred, except if
subject to a lock up agreement.
In
connection with the public offering that we conducted on February 15, 2008,
in
which we issued 963,700 shares of freely tradable common stock, we, each of
our
directors and senior officers, and each holder of 5% or more of our common
stock
agreed, with limited exceptions, that we and they will not, without the prior
written consent of the offering’s underwriter, through February 12, 2008, among
other things, directly or indirectly, offer to sell, sell or otherwise dispose
of any of shares of our common stock or file a registration statement with
the
SEC. After the lock-up agreements, up to the shares that had been locked up
will
be eligible for future sale in the public market at prescribed times pursuant
to
Rule 144 under the Securities Act, or otherwise, sales of a significant number
of these shares of common stock in the public market could reduce the market
price of the common stock.
Further,
effective February 15, 2008, the SEC revised Rule 144, which provides a safe
harbor for the resale of restricted securities, shortening applicable holding
periods and easing other restrictions and requirements for resales by our
non-affiliates, thereby enabling an increased number of our outstanding
restricted securities to be resold sooner in the public market. Sales of
substantial amounts of our stock at any one time or from time to time by the
investors to whom we have issued them, or even the availability of these shares
for sale, could cause the market price of our common stock to
decline.
Our
principal stockholder has significant influence over us.
Our
largest shareholder, Kwong Kai Shun, who is also our Chairman of the Board,
Chief Executive Officer and Chief Financial Officer, beneficially owns or
controls approximately 84.0% of our outstanding shares as of January 1, 2008.
As
a result of his holding, this shareholder has a controlling influence in
determining the outcome of any corporate transaction or other matters submitted
to our shareholders for approval, including mergers, consolidations and the
sale
of all or substantially all of our assets, election of directors, and other
significant corporate actions. This shareholder also has the power to prevent
or
cause a change in control. In addition, without the consent of this shareholder,
we could be prevented from entering into transactions that could be beneficial
to us. The interests of this shareholder may differ from the interests of our
shareholders.
The
ability of our operating subsidiaries to pay dividends may be restricted due
to
foreign exchange control regulations of China.
The
ability of our operating subsidiaries to pay dividends may be restricted due
to
the foreign exchange control policies and availability of cash balance of our
operating subsidiaries. We expect in the future that a substantial portion
of
our revenue being earned and currency received may be denominated in Renminbi
(RMB). RMB is subject to the exchange control regulation in China, and, as
a
result, we may unable to distribute any dividends outside of China due to PRC
exchange control regulations that restrict our ability to convert RMB into
US
Dollars.
We
may not be able to achieve the benefits
we
expect
to result from the Share Exchange.
On
December 15, 2006, we entered into the Exchange Agreement with the sole
shareholder of Times Manufacture, pursuant to which we agreed to acquire 100%
of
the issued and outstanding securities of Times Manufacture in exchange for
shares of our common stock. On January 23, 2007, the Share Exchange closed,
Times Manufacture became our 100%-owned subsidiary and our sole business
operations became that of Times Manufacture. Also, the management and directors
of Times Manufacture became the management and directors of us and we changed
our corporate name from SRKP 9, Inc. to Asia Time Corporation.
We
may
not realize the benefits that we hoped to receive as a result of the Share
Exchange, which includes:
·
|
access
to the capital markets of the United
States;
|
·
|
the
increased market liquidity expected to result from exchanging stock
in a
private company for securities of a public company that may eventually
be
traded;
|
·
|
the
ability to use registered securities to make acquisition of assets
or
businesses;
|
·
|
increased
visibility in the financial
community;
|
·
|
enhanced
access to the capital markets;
|
·
|
improved
transparency of operations; and
|
·
|
perceived
credibility and enhanced corporate image of being a publicly traded
company.
|
There
can
be no assurance that any of the anticipated benefits of the Share Exchange
will
be realized in respect to our new business operations. In addition, the
attention and effort devoted to achieving the benefits of the Share Exchange
and
attending to the obligations of being a public company, such as reporting
requirements and securities regulations, could significantly divert management’s
attention from other important issues, which could materially and adversely
affect our operating results or stock price in the future.
In
connection with Mr. Kwong’s agreement to release, under certain conditions, up
to 2,326,000 shares of his common stock in our company to investors in our
January 2007 Private Placement, we recorded a compensation charge of
approximately $2.4 million for 2007.
In
connection with the Private Placement, Kwong Kai Shun, our Chairman of the
Board, Chief Executive Officer and Chief Financial Officer, entered into an
agreement (the “Escrow Agreement”) with the investors in the Private Placement
pursuant to which Mr. Kwong agreed to place 2,326,000 shares of his common stock
in escrow for possible distribution to the investors (the "Escrow Shares").
Pursuant to the Escrow Agreement, if our net income for 2006 or 2007, subject
to
specified adjustments, is less than $6.3 million or $7.7 million, respectively,
a portion, if not all, of the Escrow Shares will be transferred to the investors
based upon our actual net income, if any, for such fiscal years. We have
accounted for the Escrow Shares as the equivalent of a performance-based
compensatory stock plan between Mr. Kwong and us. Accordingly, during the year
ended December 31, 2007, we recorded a charge to operations of $2,433,650 to
recognize the grant date fair value of stock-based compensation in conjunction
with the Escrow Shares. The expense will have a negative effect on our results
of operations for 2007 and cause our net income to be reduced by $2.4 million
for the year. We may not realize a benefit from services provided under the
agreement that is comparable to such negative effect. As a result, our
operations may suffer and our stock price may decline.
If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.
Our
internal control over financial reporting may have weaknesses and conditions
that need to be addressed, the disclosure of which may have an adverse impact
on
the price of our common stock. We are required to establish and maintain
appropriate internal controls over financial reporting. Failure to establish
those controls, or any failure of those controls once established, could
adversely impact our public disclosures regarding our business, financial
condition or results of operations. Our failure of these controls could also
prevent us from maintaining accurate accounting records and discovering
accounting errors and financial frauds. In addition, management’s assessment of
internal controls over financial reporting may identify weaknesses and
conditions that need to be addressed in our internal controls over financial
reporting or other matters that may raise concerns for investors. Any actual
or
perceived weaknesses and conditions that need to be addressed in our internal
control over financial reporting, disclosure of management’s assessment of our
internal controls over financial reporting or disclosure of our public
accounting firm’s attestation to or report on management’s assessment of our
internal controls over financial reporting may have an adverse impact on the
price of our common stock.
Standards
for compliance with Section 404 of the Sarbanes-Oxley Act Of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting,
and
attestation of this assessment by our company’s independent registered public
accountants. The SEC extended the compliance dates for non-accelerated filers,
as defined by the SEC. Accordingly, we believe that the annual assessment of
our
internal controls requirement will first apply to our annual report for the
2007
fiscal year and the attestation requirement of management’s assessment by our
independent registered public accountants will first apply to our annual report
for the 2008 fiscal year. The standards that must be met for management to
assess the internal control over financial reporting as effective are new and
complex, and require significant documentation, testing and possible remediation
to meet the detailed standards. We may encounter problems or delays in
completing activities necessary to make an assessment of our internal control
over financial reporting. In addition, the attestation process by our
independent registered public accountants is new and we may encounter problems
or delays in completing the implementation of any requested improvements and
receiving an attestation of our assessment by our independent registered public
accountants. If we cannot assess our internal control over financial reporting
as effective, or our independent registered public accountants are unable to
provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.
We
recently completed a placement of convertible bonds that included a beneficial
conversion feature and are mandatorily redeemable and 600,000 warrants
exercisable at $0.0001 per share. The features of the bonds and the value of
the
warrants will have the effect of reducing our reported operating results during
the term of the bonds.
In
November 2007, we issued $8,000,000 Variable Rate Convertible Bonds due in
2012,
or the Bonds. The terms of Bonds include conversion features allowing the
holders to convert the Bonds into shares of our common stock. Certain of those
conversion features that allow for the reduction in conversion price upon the
occurrence of stated events constitute a “beneficial conversion feature” for
accounting purposes. In addition, we may be required to repurchase the Bonds
at
the request of the holders if certain events occur or do not occur, as set
forth
in the Trust Deed. If our common stock ceases to be listed on AMEX or there
is a
change of control of the company as defined in the Trust Deed, each holder
will
have the right to require us to redeem all or part of that holder’s Bonds. If on
or before November 13, 2008, the Bonds, Bond Warrants, and shares underlying
the
Bonds and Bond Warrants are not registered with the SEC, then holders of the
Bonds can require us to redeem the Bonds at 106.09% of the principal amount
of
the Bonds. In addition, at any time after November 13, 2010, each holder can
require us to redeem the Bonds at 126.51% of the principal amount of the Bonds
and we are required to redeem any outstanding Bonds at 150.87% of its principal
amount on November 13, 2012. If a triggering event occurs and we are requested
by the holders to repurchase all or a portion of the Bonds, we will be required
to pay cash to redeem all or a portion of the Bonds. Finally, in connection
with
the issuance of the Bonds, we issued the holder of the Bonds the Bond Warrants
exercisable at a per share exercise price of $0.0001.
The
accounting treatment related to the beneficial conversion and mandatory
redemption features of the Bonds and the value of the Bond Warrants will have
an
adverse impact on our results of operations for the term of the Bonds. The
application of Generally Accepted Accounting Principles will require us to
allocate $6,107,299 to the beneficial conversion feature of the Bonds and
$1,652,701 to the Bonds Warrants, which will be reflected in our financial
statements as an interest discount. In addition, we have determined that the
total redemption premium associated with the mandatory redemption feature of
the
Bonds is $4,069,600. All of the aforementioned amounts associated with the
beneficial conversion and mandatory redemption feature of the Bonds and the
value of the Bond Warrants will be amortized as additional interest expense
over
the term of the Bonds. This accounting will result in an increase in interest
expense in all reporting periods during the term of the Bonds, and, as a result,
reduce our net income accordingly.
Mandatory
redemption of the Bonds could have a material adverse effect on our liquidity
and cash resources.
If
we are
required to redeem all or any portion of the Bonds, this may have a material
adverse effect on our liquidity and cash resources, and may impair our ability
to continue to operate. If we are required to repurchase all or a portion of
the
Bonds and do not have sufficient cash to make the repurchase, we may be required
to obtain third party financing to do so, and there can be no assurances that
we
will be able to secure financing in a timely manner and on favorable terms,
which could have a material adverse effect on our financial performance, results
of operations and stock price. Furthermore, additional equity financing may
be
dilutive to the holders of our common stock, and debt financing, if available,
may involve restrictive covenants, and strategic relationships, if necessary
to
raise additional funds, and may require that we relinquish valuable rights.
We
will incur an expense charge of approximately $700,000 in the first quarter
of
2008 in connection with 200,000 shares of common stock issued for investor
relation services.
On
January 16, 2008, we entered into an investor relations agreement with Public
Equity Group Inc. pursuant to which we agreed to issue 200,000 shares of our
common stock to Public Equity Group Inc. In connection with the issuance of
200,000 shares of common stock, we expect to recognize a one-time charge to
operations in the first quarter of 2008 in an amount equal to approximately
$700,000, which is derived from valuing each share at $3.50, the per share
offering price in our February 2008 public offering. The expense will have
a
negative effect on our results of operations for 2008 and we may not realize
a
benefit from services provided under the agreement that is comparable to such
negative effect. As a result, our operations may suffer and our stock price
may
decline.
Our
common
stock may be considered a “penny stock,” and thereby be subject to additional
sale and trading regulations that may make it more difficult to
sell.
Our
common stock, which is not currently listed or quoted for trading, may be
considered to be a “penny stock” if it does not qualify for one of the
exemptions from the definition of “penny stock” under Section 3a51-1 of the
Securities Exchange Act for 1934, as amended (the “Exchange Act”) once, and if,
it starts trading. Our common stock may be a “penny stock” if it meets one or
more of the following conditions (i) the stock trades at a price less than
$5.00
per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it
is NOT quoted on the Nasdaq Capital Market, or even if so, has a price less
than
$5.00 per share; or (iv) is issued by a company that has been in business less
than three years with net tangible assets less than $5 million.
The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers participating in sales of our common stock will be
subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
promulgated under the Exchange Act. For example, Rule 15g-2 requires
broker-dealers dealing in penny stocks to provide potential investors with
a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document at least two business days before
effecting any transaction in a penny stock for the investor’s account. Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of
any
investor for transactions in such stocks before selling any penny stock to
that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor
and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide
the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor’s financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.
We
do not foresee paying cash dividends in the foreseeable future, and as a result,
our investors’ sole source of gain, if any, will depend on capital appreciation,
if any.
We
do not
currently plan to declare or pay any cash dividends on our shares of common
stock in the foreseeable future and we currently intend to retain any future
earnings for funding growth. As a result, you should not rely on an investment
in our securities if you require dividend income. Capital appreciation, if
any,
of our shares may be your sole source of gain for the foreseeable future.
Moreover, you may not be able to resell your shares in our company at or above
the price you paid for them. We paid cash dividends of $0, $2.4 million, and
$642,848 during the years ended December 31, 2007, 2006, and 2005
respectively.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
In
addition to our executive offices located at Room 1601-1604, 16/F., CRE Centre
889 Cheung Sha Wan Road, Kowloon, Hong Kong, we have offices at the following
locations:
Unit
B,
17/F, Tower 2,
Maritime
Bay,
No.
18
Pui Shing Road,
Tseung
Kwan O, Sai Kung,
NT
Car
Park
No. 77 on the Basement,
Maritime
Bay
Flat
F,
8/F Hoi Tsui Mansion,
Tower
16
Rivera Gardens,
Nos.
2-12
Yi Lok Street,
Tsuen
Wan,
NT
Car
Park
No. 46, 2/F Podium of
Podium
D
of Riviera Gardens
Flat
G,
59/F,
Tower
6
Banyan Garden,
No.
863
Lai Chi Kok Road
Kowloon
Car
Park
No. 270
2/F
of
Banyan Garden
Each
of
the above properties is owned by our subsidiary Billion Win International
Enterprise Ltd.
Item
3. Legal Proceedings
We
are
not a party to any material legal proceedings.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to the security holders to be voted on during the fourth
quarter of 2007.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Commencing
on February 12, 2008, our shares of common stock have been listed for trading
on
AMEX under the ticker symbol “TYM.” As of March 15, 2008, we had 32 registered
shareholders.
From
February 12, 2008, which was our first day of trading, through March 15, 2008,
the high and low sales price for our common stock on AMEX has been $8.70 and
$3.91 per share, respectively. On March 25, 2008, the closing sales price for
our common stock on AMEX was $4.90 per share.
The
price
of our common stock will likely fluctuate in the future. The stock market in
general has experienced extreme stock price fluctuations in the past few years.
In some cases, these fluctuations have been unrelated to the operating
performance of the affected companies. Many companies have experienced dramatic
volatility in the market prices of their common stock. We believe that a number
of factors, both within and outside its control, could cause the price of our
common stock to fluctuate, perhaps substantially. Factors such as the following
could have a significant adverse impact on the market price of our common
stock:
|
·
|
Our
ability to obtain additional financing and, if available, the terms
and
conditions of the financing;
|
|
·
|
Our financial position and results
of
operations;
|
|
·
|
Concern as to, or other evidence of,
the
reliability and efficiency of our products and services or our
competitors’ products and services;
|
|
·
|
Announcements of innovations or new
products
or services by us or our competitors;
|
|
·
|
U.S. federal and state governmental
regulatory
actions and the impact of such requirements on our
business;
|
|
·
|
The development of litigation against
us;
|
|
·
|
Period-to-period fluctuations in our
operating
results;
|
|
·
|
Changes in estimates of our performance
by any
securities analysts;
|
|
·
|
The issuance of new equity securities
pursuant
to a future offering or acquisition;
|
|
·
|
Changes in interest
rates;
|
|
·
|
Competitive developments, including
announcements by competitors of new products or services or significant
contracts, acquisitions, strategic partnerships, joint ventures or
capital
commitments;
|
|
·
|
Investor perceptions of us;
and
|
|
·
|
General economic and other national
conditions.
|
Dividend
Policy
We
do not
expect to declare or pay any further cash dividends on our common stock in
the
foreseeable future, and we currently intend to retain future earnings, if any,
to finance the expansion of our business. The decision whether to pay cash
dividends on our common stock will be made by our board of directors, in their
discretion, and will depend on our financial condition, operating results,
capital requirements and other factors that the board of directors considers
significant. We paid cash dividends of $0, $2.4 million, and $643,000 for the
years ended December 31, 2007, 2006, and 2005, respectively.
The
ability of our operating subsidiaries to pay dividends may be restricted due
to
the foreign exchange control policies and availability of cash balance of our
operating subsidiaries. We expect in the future that a substantial portion
of
our revenue being earned and currency received may be denominated in Renminbi
(RMB). RMB is subject to the exchange control regulation in China, and, as
a
result, we may unable to distribute any dividends outside of China due to PRC
exchange control regulations that restrict our ability to convert RMB into
US
Dollars.
Recent
sales of unregistered securities
On
November 13, 2007, we completed a financing transaction with ABN AMRO Bank
N.V.
(the “Subscriber”) under Regulation S of the Securities Act of 1933, as amended
(the “Securities Act”) and issued (i) $8,000,000 Variable Rate Convertible Bonds
due in 2012 (the “Bonds”) and (ii) 600,000 warrants to purchase an aggregate of
600,000 shares of our common stock, subject to adjustments for stock splits
or
reorganizations as set forth in the warrant, that expire in 2010 (the “Bond
Warrants”). The Bonds and Bond Warrants were offered and sold to the Subscriber
in reliance upon exemption from registration pursuant to Regulation S of the
Securities Act. We complied with the conditions of Rule 903 as promulgated
under
the Securities Act including, but not limited to, the following: (i) Subscriber
is a non-U.S. resident and has not offered or sold their shares in accordance
with the provisions of Regulation S; (ii) an appropriate legend was affixed
to
the securities issued in accordance with Regulation S; (iii) Subscriber has
represented that it was not acquiring the securities for the account or benefit
of a U.S. person; and (iv) Subscriber agreed to resell the securities only
in
accordance with the provisions of Regulation S, pursuant to a registration
statement under the Securities Act, or pursuant to an available exemption from
registration. We will refuse to register any transfer of the shares not made
in
accordance with Regulation S, after registration, or under an exemption.
On
January 23, 2007, pursuant to the terms of the Exchange Agreement entered into
by and between us, Times Manufacture & E-Commerce Corporation Limited
(“Times Manufacture”) and the sole shareholder of Times Manufacture, we issued
19,454,420 shares of common stock to Kwong Kai Shun, the sole shareholder of
Times Manufacture, in exchange for all of the issued and outstanding securities
of Times Manufacture. The securities were offered and issued to the sole
shareholder of Times Manufacture in reliance upon an exemption from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended, and
Rule
506 promulgated thereunder. Kwong Kai Shun was the principal executive officer
of Times Manufacture before the Share Exchange and became our principal
executive officer after the Share Exchange. The sole shareholder of Times
Manufacture qualified as an accredited investor (as defined by Rule 501 under
the Securities Act of 1933, as amended).
On
January 23, 2007, concurrently with the close of the Share Exchange, we
conducted an initial closing of a private placement transaction pursuant to
which we sold an aggregate of 1,749,028 shares of Series A Convertible Preferred
Stock at $1.29 per share. On February 9, 2007, we conducted a second and final
closing of the private placement pursuant to which we sold 501,320 shares of
Series A Convertible Preferred Stock at $1.29 per share. Accordingly, a total
of
2,250,348 shares of Series A Convertible Preferred Stock were sold in the
private placement for an aggregate of $2,902,946 (the “Private Placement”). Each
share of the Series A Convertible Preferred Stock is convertible into shares
of
common stock at a conversion price equal to the purchase price of such shares.
Upon liquidation, the holders of the Series A Convertible Preferred Stock shall
receive $1.29 per share of Series A Convertible Preferred Stock then held prior
to any other distribution or payment made to holders of the common stock. The
securities were offered and sold to investors in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder. Each of the persons and/or
entities receiving our securities qualified as an accredited investor (as
defined by Rule 501 under the Securities Act of 1933, as amended).
Transfer
Agent
The
transfer agent and registrar for our common stock is Corporate Stock Transfer.
Equity
Compensation Plan Information
As
of
December 31, 2007, we did not have an equity compensation plan.
Item
6. Selected Financial Data
The
following selected consolidated statement of operations data for each of the
years in the five-year period ended December 31, 2007 and the consolidated
balance sheet data as of year-end for each of the years in the five-year period
ended December 31, 2007 were derived from the audited consolidated financial
statements. Such selected financial data should be read in conjunction with
the
consolidated financial statements and the notes to the consolidated financial
statements starting on page F-1 and with Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Consolidated
Statement of Operations
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(in
thousands, except share and per share
amounts)
|
|
Net
sales
|
|
$
|
96,963
|
|
$
|
81,134
|
|
$
|
63,078
|
|
$
|
36,553
|
|
$
|
33,215
|
|
Cost
of sales
|
|
|
(83,120
|
)
|
|
(71,496
|
)
|
|
(57,026
|
)
|
|
(34,609
|
)
|
|
(31,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
13,843
|
|
$
|
9,637
|
|
$
|
6,052
|
|
$
|
1,944
|
|
$
|
1,262
|
|
Other
income
|
|
|
618
|
|
|
424
|
|
|
939
|
|
|
-
|
|
|
-
|
|
Depreciation
|
|
|
(332
|
)
|
|
(326
|
)
|
|
(259
|
)
|
|
(126
|
)
|
|
(18
|
)
|
Administrative
and other operating
expenses,
including stock based compensation
|
|
|
(4,595
|
)
|
|
(1,285
|
)
|
|
(1,436
|
)
|
|
(1,345
|
)
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
$
|
9,534
|
|
$
|
8,450
|
|
$
|
5,296
|
|
$
|
473
|
|
$
|
410
|
|
Fee
and costs related to reverse merger
|
|
|
(741
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
expense
|
|
|
(1,478
|
)
|
|
(1,060
|
)
|
|
(515
|
)
|
|
(165
|
)
|
|
(115
|
)
|
Other
income
|
|
|
233
|
|
|
238
|
|
|
156
|
|
|
28
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
$
|
7,548
|
|
$
|
7,628
|
|
$
|
4,937
|
|
$
|
336
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,978
|
)
|
|
(1,308
|
)
|
|
(912
|
)
|
|
(132
|
)
|
|
(55
|
)
|
Net
income
|
|
$
|
5,571
|
|
$
|
6,320
|
|
$
|
4,025
|
|
$
|
204
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
$
|
0.24
|
|
$
|
0.32
|
|
$
|
0.21
|
|
$
|
0.01
|
|
$
|
0.01
|
|
-
Diluted
|
|
$
|
0.22
|
|
$
|
0.32
|
|
$
|
0.21
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$
|
-
|
|
$
|
0.11
|
|
$
|
0.03
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
-
Diluted
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
|
|
As
of December 31,
|
|
Consolidated
Balance Sheets
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
(in
thousands)
|
|
Current
Assets
|
|
$
|
48,925
|
|
$
|
21,400
|
|
$
|
16,648
|
|
$
|
12,432
|
|
$
|
4,836
|
|
Total
Assets
|
|
|
51,451
|
|
|
24,096
|
|
|
18,533
|
|
|
13,866
|
|
|
4,876
|
|
Current
Liabilities
|
|
|
24,176
|
|
|
15,553
|
|
|
13,890
|
|
|
12,620
|
|
|
3,847
|
|
Total
Liabilities
|
|
|
24,578
|
|
|
15,585
|
|
|
13,890
|
|
|
12,620
|
|
|
3,847
|
|
Total
Stockholders' Equity
|
|
|
26,873
|
|
|
8,511
|
|
|
4,644
|
|
|
1,246
|
|
|
1,030
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Statements
The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this report. This
report contains forward-looking statements. The words “anticipated,” “believe,”
“expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and
similar expressions are intended to identify forward-looking statements. These
statements include, among others, information regarding future operations,
future capital expenditures, and future net cash flow. Such statements reflect
our management’s current views with respect to future events and financial
performance and involve risks and uncertainties, including, without limitation,
general economic and business conditions, changes in foreign, political, social,
and economic conditions, regulatory initiatives and compliance with governmental
regulations, the ability to achieve further market penetration and additional
customers, and various other matters, many of which are beyond our control.
Should one or more of these risks or uncertainties occur, or should underlying
assumptions prove to be incorrect, actual results may vary materially and
adversely from those anticipated, believed, estimated or otherwise indicated.
Consequently, all of the forward-looking statements made in this report are
qualified by these cautionary statements and there can be no assurance of the
actual results or developments.
Overview
We
are a
distributor of watch movements components used in the manufacture and assembly
of watches to a wide variety of timepiece manufacturers. There are two
categories of watch movements, quartz and mechanical. The main parts of an
analog quartz watch movement are the battery; the oscillator, a piece of quartz
that vibrates in response to the electric current; the integrated circuit,
which
divides the oscillations into seconds; the stepping motor, which drives the
gear
train; and the gear train itself, which makes the watch’s hands move. A digital
watch movement has the same timing components as an analog quartz movement
but
has no stepping motor or gear train. To a lesser extent we also distribute
complete analog-quartz and automatic watches with pricing between $20.00 to
$50.00. Manufacturing for these watches is currently outsourced to third party
factories in China.
Our
core
customer base consists primarily of large wholesalers, online retailers and
small and medium-sized watch manufacturers that produce watches primarily for
sale to customers in Hong Kong and China. To a lesser extent, we design watches
for manufacturers and exporters of watches and manufacture and distribute
complete watches primarily to online retailers and internet
marketers.
We
are
mainly engaged in watch movement distribution business in Hong Kong and China
which accounted for approximately 89% of our revenue for the year ended December
31, 2007. We have distribution centers and strategically located sales offices
throughout Hong Kong and the People’s Republic of China (“China” or “PRC”). We
distribute more than 350 products from over 30 vendors, including such market
leaders as Citizen Group, Seiko Corporation and Ronda AG, to a base of over
350
customers primarily through our direct sales force. As a part and included
in
our sale of watch movements, we provide a variety of value-added services,
including automated inventory management services, integration, design and
development, management, and support services.
Corporate
Structure
We
were
incorporated in the State of Delaware on January 3, 2006. We were originally
organized as a “blank check” shell company to investigate and acquire a target
company or business seeking the perceived advantages of being a publicly held
corporation. On January 23, 2007, we closed a share exchange transaction (“Share
Exchange”) pursuant to which we (i) issued 19,454,420 shares of our common stock
to acquire 100% equity ownership of Times Manufacture & E-Commerce
Corporation Limited, a British Virgin Islands corporation (“Times Manufacture”),
which has eight wholly-owned subsidiaries, (ii) assumed the operations of Times
Manufacture and its subsidiaries, and (iii) changed our name from SRKP 9, Inc.
to Asia Time Corporation. Times Manufacture also paid an aggregate of $350,000
to the stockholders of SRKP 9, Inc. Times Manufacture was founded in January
2002 and is based in Hong Kong.
With
respect to this discussion, the terms “we” and “our” refer to Asia Time
Corporation, its 100%-owned subsidiary Times Manufacture Times Manufacture
and
its subsidiaries, Times Manufacturing & E-Commerce Corporation Ltd., TME
Enterprise Ltd., Citibond Design Ltd. and Megamooch Online Ltd., each of which
is a British Virgin Islands corporation, and the Hong Kong corporate
subsidiaries Billion Win International Enterprise Ltd., Goldcome Industrial
Ltd., Citibond Industrial Ltd., and Megamooch International Ltd. Times
Manufacture was founded in March 2002 and is based in Hong Kong.
In
2005,
we re-aligned the structure and business functions of our subsidiaries to
clearly define the scopes our business objectives in order to strengthen our
ability to effectively conduct our business operations. Billion Win
International Enterprise Limited, or Billion Win, is our central sourcing
component. Billion Win, which is held indirectly through Times Manufacture,
procures and imports watch movements and distributes them to suppliers, volume
users in China, and two of our subsidiaries, Goldcome Industrial Limited, or
Goldcome, and Citibond Industrial Limited, or Citibond. Goldcome mainly focuses
it distributions to wholesalers and large manufacturers and Citibond focuses
on
distributions to small to medium size manufacturers. Megamooch International
Limited is a complete watch distributor and exporter targeting overseas buyers.
Another two subsidiaries, TME Enterprise Ltd. and Citibond Design Ltd., are
responsible for complete watch design for manufacturers and exporters and
handles large volume watch movement transactions between buyers and sellers
solely on a commission basis. Megamooch Online Ltd. operations are focused
on
complete watch marketing and distribution, with manufacturing being outsourced,
and its concentrates on overseas markets.
Watch
Movement Segment
Presently,
Hong Kong does not generally have watch movement manufacturing. Watch movements
are largely imported from Japan and Switzerland. The revenue for the watch
movement segment of our business for the year ended December 31, 2007 was $86.4
million, with a gross profit $8.9 million, a 18.3% and 53.6% growth,
respectively, compared to $73.0 million revenue and $5.8 million gross profit
for the year ended December 31, 2006. The gross profit margin increased from
8.0% for the year ended December 31, 2006 to 10.3% for the year ended December
31, 2007, primarily due to more diversified products being promoted to customers
and higher selling prices, which primarily resulted of extended credit terms
to
our customers. We provide a wide product spectrum of products carrying major
brands as well as middle-low end China movements. We believe carrying a wide
product spectrum enables us to provide a convenient one-stop provider for our
customers, which may result in higher sales per customer. We began to target
small to medium manufacturers in mid-2005 and our customer base has expanded
to
more than 350 watch manufacturers. In addition, we have extended our credit
period from an average of 30 days to 60 days to major customers that have
maintained a history of timely settlement of receivables. We believe that this
extension lead to an increase of purchase orders from those customers. We review
the credit status of each customer and periodically adjust the credit period
to
specific customers in an attempt to maximize business with each customer without
suffering significant credit risk.
Complete
Watch Segment
Revenue
of our complete watch segment was $10.5 million for the year ended December
31,
2007, a 30.4% increase compared to the same period in 2006, in which revenue
was
$8.1 million. This segment contributed approximately 11% of our revenue in
2007,
as compared to 10% of revenue for the year ended December 31, 2006. We believe
the increase was primarily contributed to our offering of value-added design
services to our customers at no extra charge. Our main market positioning in
China is on the middle-class adult, daily, sporty and classy
design.
Recent
Events
February
2008 Public Offering
On
February 15, 2008, we completed an initial public offering consisting of 963,700
shares of our common stock. Our sale of common stock, which was sold indirectly
by us to the public at a price of $3.50 per share, resulted in net proceeds
of
approximately $2.7 million. These proceeds were net of underwriting discounts
and commissions, fees for legal and auditing services, and other offering costs.
Upon the closing of the initial public offering, we sold to the underwriter
warrants to purchase up to 83,800 shares of our common stock. The warrants
are
exercisable at a per share price of $4.20 and has a term of five
years.
January
2008 Investor Relations Agreement
In
addition, on January 16, 2008, we entered into a consulting agreement with
Public Equity Group Inc. Pursuant to the agreement, Public Equity Group will
provide us with business consulting and investor relation services, oversee
of
all of our investor public relation and related service providers, and monitor
our investor relation meetings with brokerage firms and brokers to develop
support for our stock and research coverage, in addition to strategic advice
and
other customary investor relation services. The agreement has a term of one
year, unless terminated earlier with 60-days prior written notice. As
consideration for entering in the agreement and compensation for Public Equity
Group’s services under the agreement, we agreed to issue 200,000 shares of our
common stock to Public Equity Group Inc. In connection with the issuance of
200,000 shares of common stock, we expect to recognize a one-time charge to
operations in the first quarter of 2008 in an amount equal to approximately
$700,000, which is derived from valuing each share at $3.50, which is the
offering price for our February 2008 public offering.
November
2007 Issuance of Bonds and Bond Warrants
On
November 13, 2007, we closed a financing transaction under Regulation S with
ABN
AMRO Bank N.V. (the “Subscriber”) issuing (i) US $8,000,000 Variable Rate
Convertible Bonds due 2012 (the “Bonds”) and (ii) warrants to purchase 600,000
shares of our common stock expiring 2010 (the “Warrants”). The financing
transaction was completed in accordance with a subscription agreement entered
into by us and the Subscriber dated October 31, 2007.
US
$8,000,000 Variable Rate Convertible Bonds
The
Bonds
were issued further to a trust deed between us and The Bank of New York, London
Branch, dated November 13, 2007 (the “Trust Deed”) and are represented by the
global certificate in the form as set forth in the Trust Deed. The Bonds are
subject to a paying and conversion agency agreement between us, The Bank of
New
York, and The Bank of New York, London Branch. The Bonds were subscribed at
a
price equal to 97% of their principal amount, which is the issue price of 100%
less a 3% commission to the Subscriber. The Terms and Conditions of the Bonds
(the “Terms”) contained in the Trust Deed, set forth, among other things, the
following terms:
|
·
|
Interest
.
The Bonds bear cash interest from November 13, 2007 at the rate of
6% per
annum for the first year after November 13, 2007 and 3% per annum
thereafter, of the principal amount of the Bonds.
|
|
·
|
Conversion
.
Each Bond is convertible at the option of the holder at any time
on and
after 365 days after the date our shares of common stock commence
trading
on the American Stock Exchange, which occurred on February 12, 2008
(the
“Listing Date”), into shares of our common stock at an initial per share
conversion price (“Conversion Price”) equal to the price per share at
which shares are sold in our public offering on the American Stock
Exchange (“AMEX”), which was $3.50 per share, subject to adjustment
according to the Terms of the Bonds. No Bonds may be converted after
the
close of business on November 13, 2012, or if such Bond is called
for
redemption before the maturity date, then up to the close of business
on a
date no later than seven business days prior to the date fixed for
redemption thereof.
|
|
·
|
Conversion
Price Adjustments
.
The number of shares of our common stock to be issued on conversion
of the
Bonds will be determined by dividing the principal amount of each
Bond to
be converted by the Conversion Price in effect at the conversion
date. The
Conversion Price is subject to adjustment in certain events, including
our
issuance of additional shares of common stock or rights to purchase
common
stock at a per share or per share exercise or conversion price,
respectively, at less than the applicable Conversion Price of the
Bonds.
If for the period of 20 consecutive trading days immediately prior
to
November 13, 2009 or September 29, 2012, the Conversion Price for
the
Bonds is higher than the average closing price for our shares, then
the
Conversion Price will be reset to such average closing price; provided
that, the Conversion Price will not be reset lower than 70% of the
then
existing Conversion Price. In addition, the Trust Deed provides that
the
Conversion Price of the Bonds cannot be adjusted to lower than $0.25
per
share of common stock (as adjusted for stock splits, stock dividends,
spin-offs, rights offerings, recapitalizations and similar events).
|
|
·
|
Mandatory
Redemptions
.
If on or before November 13, 2008, the Bonds, Warrants, and shares
underlying the Bonds and Warrants are not registered with the Securities
and Exchange Commission (the “SEC”), the holder of the Bonds can require
us to redeem the Bonds at 106.09% of their principal amount. Also,
at any
time after November 13, 2010, the holders of the Bonds can require
us to
redeem the Bonds at 126.51% of their principal amount. We are required
to
redeem any outstanding Bonds at 150.87% of its principal amount on
November 13, 2012.
|
Warrants
to Purchase 600,000 Shares of Common Stock
The
Warrants, which are evidenced by a warrant instrument entered into by and
between us and the Subscriber, dated November 13, 2007 (the “Warrant
Instrument”), are subject to the terms of a warrant agency agreement by and
among us, The Bank of New York and The Bank of New York, London Branch, dated
November 13, 2007 (the “Warrant Agency Agreement”). Pursuant to the terms and
conditions of the Warrant Instrument and Warrant Agency Agreement, the Warrants
are exercisable at $0.0001 per share and terminate on November 13, 2010. We
listed the shares underlying the Warrants on AMEX. In addition, we have agreed
to register the shares of common stock underlying the Warrants with the SEC
on
or prior to November 13, 2008 and will keep the registration effective until
30
days after the Warrants terminate.
Registration
Rights for Bonds, Warrants, and Underlying Shares
On
November 13, 2007, we and the Subscriber also entered into a registration rights
agreement pursuant to which we agreed to register the Bonds and Warrants, and
the shares of common stock underlying the Bonds and Warrants (the “Registrable
Securities”). We agreed to prepare and file with the SEC, no later than 90 days
after the Listing Date, a Registration Statement on Form S-1 (the “Registration
Statement”) to register the Registrable Securities and, as promptly as possible,
and in any event no later than 365 days after the Listing Date, cause that
Registration Statement, as amended, to become effective. In addition, we agreed
to list all Registrable Securities covered by the Registration Statement on
each
securities exchange on which similar securities issued by us are then listed.
The registration rights agreement does not provide for liquidated or specified
damages in the event we do not timely register the Registrable
Securities.
Accounting
for the Bond and Warrant Transaction
The
terms
of Bonds include conversion features allowing the holders to convert the Bonds
into shares of our common stock. Certain of those conversion features that
allow
for the reduction in conversion price upon the occurrence of stated events
constitute a “beneficial conversion feature” for accounting purposes. In
addition, we may be required to repurchase the Bonds at the request of the
holders if certain events occur or do not occur, as set forth in the Bond trust
deed. Upon the occurrence of any of the events that trigger a mandatory
redemption, as described above, and we are requested by the holders to
repurchase all or a portion of the Bonds, we will be required to pay cash to
redeem all or a portion of the Bonds.
The
accounting treatment related to the beneficial conversion and mandatory
redemption features of the Bonds and the value of the Bond Warrants will have
an
adverse impact on our results of operations for the term of the Bonds. The
application of Generally Accepted Accounting Principles will require us to
allocate $6,107,299 to the beneficial conversion feature of the Bonds and
$1,652,701 to the Bonds Warrants, which have been reflected in our financial
statements as an interest discount. Also, we have determined that the total
redemption premium associated with the mandatory redemption feature of the
Bonds
is $4,069,600. All of the aforementioned amounts associated with the beneficial
conversion and mandatory redemption feature of the Bonds and the value of the
Bond Warrants are being amortized as additional interest expense over the term
of the Bonds. This accounting will result in an increase in interest expense
in
all reporting periods during the term of the Bonds, and, as a result, reduce
our
net income accordingly. For the year ended December 31, 2007, we recorded
$345,461 in expenses related to the Bonds and Bond Warrants.
In
addition, if we are required to redeem all or any portion of the Bonds, this
may
have a material adverse effect on our liquidity and cash resources, and may
impair our ability to continue to operate. If we are required to repurchase
all
or a portion of the Bonds and do not have sufficient cash to make the
repurchase, we may be required to obtain third party financing to do so, and
there can be no assurances that we will be able to secure financing in a timely
manner and on favorable terms, which could have a material adverse effect on
our
financial performance, results of operations and stock price.
January
2007 Share Exchange and Private Placement
On
December 15, 2006, we entered into a share exchange agreement with the sole
shareholder of Times Manufacture. Pursuant to the share exchange agreement
(the
"Exchange Agreement") we agreed to issue shares of our common stock in exchange
for all of the issued and outstanding securities of Times Manufacture (the
"Share Exchange"). The Share Exchange closed on January 23, 2007. Upon the
closing of the Share Exchange and pursuant to the terms of the Exchange
Agreement, we issued an aggregate of 19,454,420 shares of our common stock
to
the sole shareholder of Times Manufacture in exchange for all of the issued
and
outstanding securities of Times Manufacture. Times Manufacture also paid an
aggregate of $350,000 to the stockholders of SRKP 9, Inc. In addition, prior
to
the closing of the Share Exchange and the Private Placement, as described below,
we effectuated a 1.371188519-for-one stock dividend such that there were
3,702,209 shares of common stock outstanding immediately prior to the Share
Exchange and Private Placement. We issued no fractional shares in connection
with the Share Exchange.
On
January 23, 2007, concurrently with the close of the Share Exchange, we
conducted an initial closing of a private placement transaction pursuant to
which we sold an aggregate of 1,749,028 shares of Series A Convertible Preferred
Stock at $1.29 per share. On February 9, 2007, we conducted a second and final
closing of the private placement pursuant to which we sold 501,320 shares of
Series A Convertible Preferred Stock at $1.29 per share. Accordingly, a total
of
2,250,348 shares of Series A Convertible Preferred Stock were sold in the
private placement for an aggregate gross proceeds of $2,902,946 (the "Private
Placement"). After commissions and expenses, we received net proceeds of
approximately $2.3 million in the Private Placement.
We
agreed
to and did register the common stock underlying the Series A Convertible
Preferred Stock sold in the Private Placement. The investors in the Private
Placement also entered into a lock up agreement pursuant to which they agreed
not to sell their shares until our common stock began trading on the American
Stock Exchange, which occurred on February 12, 2008, after which their shares
will automatically be released from the lock up every 30 days on a pro rata
over
a nine month period beginning on the date that is 30 days after listing of
the
shares.
In
connection with the Private Placement, Kwong Kai Shun, our Chairman of the
Board, Chief Executive Officer and Chief Financial Officer, entered into an
agreement (the “Escrow Agreement”) with the investors pursuant to which Mr.
Kwong agreed to place 2,326,000 shares of his common stock in escrow for
possible distribution to the investors (the "Escrow Shares"). Pursuant to the
Escrow Agreement, if our net income for 2006 or 2007, subject to specified
adjustments, as set forth in our filings with the SEC is less than $6.3 million
or $7.7 million, respectively, a portion, if not all, of the Escrow Shares
will
be transferred to the investors based upon our actual net income, if any, for
such fiscal years. We met these targets. We have accounted for the Escrow Shares
as the equivalent of a performance-based compensatory stock plan between Mr.
Kwong and us. Accordingly, during the year ended December 31, 2007, we recorded
$2,433,650 as a charge to operations to recognize the grant date fair value
of
stock-based compensation in conjunction with the Escrow Agreement, as described
above.
Critical
Accounting Policies and Estimates
Financial
Reporting Release No. 60 recommends that all companies include a discussion
of
critical accounting policies used in the preparation of their financial
statements. The Securities and Exchange Commission (“SEC”) defines critical
accounting policies as those that are, in management's view, most important
to
the portrayal of our financial condition and results of operations and those
that require significant judgments and estimates.
The
preparation of these consolidated financial statements requires our management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as the disclosure of contingent
assets and liabilities at the date of our financial statements. We base our
estimates on historical experience, actuarial valuations and various other
factors that we believe to be reasonable under the circumstances, the results
of
which form the basis for making judgments about the carrying value of assets
and
liabilities that are not readily apparent from other sources. Some of those
judgments can be subjective and complex and, consequently, actual results may
differ from these estimates under different assumptions or conditions. While
for
any given estimate or assumption made by our management there may be other
estimates or assumptions that are reasonable, we believe that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable
estimate or assumption would materially impact the financial statements. The
accounting principles we utilized in preparing our consolidated financial
statements conform in all material respects to generally accepted accounting
principles in the United States of America.
Impairment
of long-lived assets
The
long-lived assets held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. It is reasonably possible that these assets could become
impaired as a result of technology or other industry changes. Determination
of
recoverability of assets to be held and used is by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the
assets.
If
such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of
the carrying amount of fair value less costs to sell.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined on a first-in,
first-out basis and includes only purchase costs. There are no significant
freight charges, inspection costs and warehousing costs incurred for any of
the
periods presented. In assessing the ultimate realization of inventories,
management makes judgments as to future demand requirements compared to current
or committed inventory levels. We have vendor arrangements on the purchase
of
watch movements providing for price reduction paid in the form of additional
watch movements. The percentage of additional movements to be received by us
from these vendors is estimated and inventory costs are reduced to reflect
the
effect of these additional movements on the actual cost of the items in
inventory. During the years ended December 31, 2007, 2006, and 2005, we did
not
make any allowance for slow-moving or defective inventories.
We
evaluate our inventories for excess, obsolescence or other factors rendering
inventories as unsellable at normal gross profit margins. Write-downs are
recorded so that inventories reflect the approximate market value and take
into
account our contractual provisions with our suppliers governing price
protections and stock rotations. Due to the large number of transactions and
complexity of managing the process around price protections and stock rotations,
estimates are made regarding the valuation of inventory at market
value.
In
addition, assumptions about future demand, market conditions and decisions
to
discontinue certain product lines can impact the decision to write-down
inventories. If assumptions about future demand change and/or actual market
conditions are different than those projected by management, additional
write-downs of inventories may be required. In any case, actual results may
be
different than those estimated.
Trade
receivables
Trade
and
other receivables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision
for impairment. A provision for impairment of trade and other receivables is
established when there is objective evidence that we will not be able to collect
all amounts due according to the original terms of receivables. The amount
of
the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognized in the income
statement.
Foreign
currency translation
Our
consolidated financial statements are presented in United States dollars. Our
functional currency is the Hong Kong Dollar (HKD). Our consolidated financial
statements are translated into United States dollars from HKD at period-end
exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
Revenue
recognition
Sales
of
goods represent the invoiced value of goods, net of sales returns, trade
discounts and allowances. We recognize revenue when the goods are delivered
and
the customer takes ownership and assumes risk of loss, collection of the
relevant receivable is probable, persuasive evidence of an arrangement exists,
and the sales price is fixed or determinable. We provide pre- and post- sales
service to our customers related to inventory management information in order
to
facilitate and manage sales to customers. Our integration, design and
development and management services provide customers with watch design
assistance, components outsourcing or other project support, and are generally
completed prior to a sale and do not continue post-delivery. There is no
requirement that these services be provided for a sale to take place, nor is
there any objective or reliable evidence of a separate fair value, or if no
longer offered or ceased to be offered would a right of return be created for
the goods sold. We believe these services are part of the sales process and
are
not a customer deliverable, and are therefore charged to selling expense or
cost
of sales, as appropriate.
Deferred
income tax
Deferred
income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, if the
deferred income tax arises from initial recognition of an asset or liability
in
a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss, it is not
accounted for. Deferred income tax is determined using tax rates (and laws)
that
have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax assets is realized or
the
deferred income tax liability is settled.
Stock-based
compensation
Effective
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123R”), a revision to SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS 123R requires that we measure the cost of employee services
received in exchange for equity awards based on the grant date fair value of
the
awards, with the cost to be recognized as compensation expense in our financial
statements over the vesting period of the awards. Accordingly, we recognize
compensation cost for equity-based compensation for all new or modified grants
issued after December 31, 2005. We account for stock option and warrant grants
issued and vesting to non-employees in accordance with EITF 96-18, “Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services”, and EITF 00-18, “Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to
Other Than Employees”, whereas the value of the stock compensation is based upon
the measurement date as determined at either (a) the date at which a performance
commitment is reached or (b) at the date at which the necessary performance
to
earn the equity instruments is complete.
We
did
not recognize any stock-based compensation during the years ended December
31,
2006, 2005 and 2004. During the year ended December 31, 2007, we recorded
$2,433,650 as a charge to operations to recognize the grant date fair value
of
stock-based compensation in conjunction with the Escrow Agreement, as described
above.
Results
of Operations
The
following table sets forth certain items in our statement of operations as
a
percentage of net sales for the periods shown:
|
|
|
Year
ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
85.7
|
%
|
|
88.1
|
%
|
|
90.4
|
%
|
Gross
profit
|
|
|
14.3
|
%
|
|
11.9
|
%
|
|
9.6
|
%
|
Other
income
|
|
|
0.6
|
%
|
|
0.5
|
%
|
|
1.5
|
%
|
Depreciation
|
|
|
0.3
|
%
|
|
0.4
|
%
|
|
0.4
|
%
|
Administrative
and other operating
expenses,
including stock-based
compensation
|
|
|
4.7
|
%
|
|
1.6
|
%
|
|
2.3
|
%
|
Income
from operations
|
|
|
9.9
|
%
|
|
10.4
|
%
|
|
8.4
|
%
|
Fees
and costs related to reverse merger
|
|
|
0.8
|
%
|
|
-
|
|
|
-
|
|
Other
income
|
|
|
0.2
|
%
|
|
0.3
|
%
|
|
0.2
|
%
|
Interest
expenses
|
|
|
1.5
|
%
|
|
1.3
|
%
|
|
0.8
|
%
|
Income
before taxes
|
|
|
7.8
|
%
|
|
9.4
|
%
|
|
7.8
|
%
|
Income
taxes
|
|
|
2.0
|
%
|
|
1.6
|
%
|
|
1.4
|
%
|
Net
income
|
|
|
5.8
|
%
|
|
7.8
|
%
|
|
6.4
|
%
|
Comparison
of year ended December 31, 2007 (“Fiscal 2007”) with year ended
December 31, 2006 (“Fiscal 2006”)
Net
sales
for the year ended December 31, 2007 were $97.0 million compared to $81.1
million for the comparable period in 2006, an increase of 19.5%. This increase
was primarily due to the increased sales of watch movements and completed
watches. Net sales of watch movements for the year ended December 31, 2007
were
$86.4 million compared to $73.0 million for the comparable period in 2006 an
increase of 18.3%. The increase was primarily due to an increase of volume
of
sales from 97.8 million to 100.3 million pieces, an increase of 2.5%. The
increase in the volume of movements was primarily due to an increase in sale
of
high-end items. Sales of completed watches for the year ended December 31,
2007
was $10.5 million compared to $8.1 million for the comparable period in 2005,
an
increase of 30.4%. The increase was primarily due to an increase in sales volume
from 877,600 pieces for Fiscal 2006 compared to 1.2 million pieces for Fiscal
2007, an increase of 38.2%.
Cost
of
sales consists of cost of purchases, net of discounts and returns. Cost of
sales
was $83.1 million for the year ended December 31, 2007 as compared to $71.5
million for the comparable period in 2006. The increase in total dollars was
attributable to higher costs associated with our products. Our increase in
revenue was 19.5% and our increase in cost of sales was 16.3% for Fiscal 2007,
as compared to Fiscal 2006. As a percentage of net sales, cost of sales
decreased to 85.7% for the year ended December 31, 2007 compared to 88.1% for
the comparable period in 2006. The decrease as a percentage of net sales was
attributable to improved economy of scale and more trading volume of watch
movements.
Gross
profit for the year ended December 31, 2007 was $13.8 million, or 14.3% of
net
sales, compared to $9.6 million, or 11.9% of net sales for the comparable period
in 2006. Management considers gross profit to be a key performance indicator
in
managing our business. Gross profit margins are usually a factor of product
mix
and demand for product. The increase of profit margin was primarily attributable
to a lower cost for the sales resulting from an increase in economies of scale
and (ii) higher mark-up prices that resulted from extended credit terms that
we
offered to our customers. Profit margin of movements as a percentage of net
sales had increased to 10.3% for the year ended December 31, 2007 as compared
to
8.0% of net sales for same period in 2006. There was a slight decrease of profit
margin for completed watches for the year ended December 31, 2007 to 46.5%
of
net sales as compared to 47.2% for the same period in 2006.
Other
income from operations was $617,913or 0.6% of net sales for Fiscal 2007, as
compared to $424,016, or 0.5% of net sales for Fiscal 2006. The increase in
other income from operations was attributable to a one-time income of $424,102
our sale of intangible assets and a rental income of $63,065 in Fiscal 2007,
which was the rent received from our company-owned properties.
Administrative
and other operating expenses were $4.6 million, or 4.7% of net sales for Fiscal
2007, as compared to $1.3 million, or 1.6% of net sales, for Fiscal 2006. The
increase in amount and as a percentage of net sales was primarily due to the
recognition of $2,433,650 of stock-based compensation in 2007 related to the
Escrow Shares provided by our CEO, Kwong Kai Shun, which were subject to the
achievement of defined annual net income for 2007 pursuant to the Private
Placement agreement entered into with our investors. The increase was also
attributable to an increase in professional fees related to reporting
requirements as a public company and additional employees and upgraded staff
benefits in the comparable period in 2007. Management considers these expenses
as a percentage of net sales to be a key performance indicator in managing
our
business.
Other
income from non-operating activities was $233,379, or 0.2% of net sales for
Fiscal 2007, which was consistent as compared to $237,571, or 0.3% of net sales
for Fiscal 2006. This income was mainly come from bank deposit interests and
had
no significant change over the comparable periods.
Interest
expense was $1.5 million for Fiscal 2007, as compared to $1.1 million for Fiscal
2006. The increase was primarily due to the interest and amortization on bonds
of $345,461 in Fiscal 2007.
Income
taxes for Fiscal 2007 were $2.0 million, or 2.0% of net sales, as compared
to
$1.3 million for Fiscal 2006, or 1.6% of net sales. The increase of effective
income tax rates from 17.1% for Fiscal 2006 to 19.3% for Fiscal 2007 was
primarily due to increase in the income not subject to tax by $30,537 and
increase in expense not deductible by $293,603.
Net
income for Fiscal 2007 was $5.6 million, compared to net income of $6.3 million
for Fiscal 2006, representing an 11.1% decrease.
Comparison
of year ended December 31, 2006 (“Fiscal 2006”) with year ended
December 31, 2005 (“Fiscal 2005”)
Net
sales
for the year ended December 31, 2006 were $81.1 million compared to $63.1
million for the comparable period in 2005, an increase of 28.6%. This increase
was largely due to the improved sales of watch movements and completed watches.
Sales of watch movements for the year ended December 31, 2006 were $73.0 million
compared to $58.8 million for the comparable period in 2005 an increase of
24.1%. The increase was primary due to the increase of volume from 72.9 million
to 97.8 million pieces, an increase of 34.2%. Sales of completed watches for
the
year ended December 31, 2006 was $8.1 million compared to $4.2 million for
the
comparable period in 2005, an increase of 90.9%.
Cost
of
sales consists of cost of purchases, net of discounts and returns. Cost of
sales
was $71.5 million for the year ended December 31, 2006 as compared to $57.0
million for the comparable period in 2005. As a percentage of net sales, cost
of
sales decreased to 88.1% for the year ended December 31, 2006 compared to 90.4%
for the comparable period in 2005. The increase in total dollars was
attributable to higher costs associated with our products and the decrease
as a
percentage of net sales was attributable to improved economy of scale and more
trading volume of watch movements. Our increase in revenue was 28.6% and our
increase in cost of sales was 25.4% for Fiscal 2006 compared to Fiscal
2005.
Gross
profit for the year ended December 31, 2006 were $9.6 million, or 11.9% of
net
sales, compared to $6.1 million, or 9.6% of net sales for the comparable period
in 2005. Management considers gross profit to be a key performance indicator
in
managing our business. Gross profit margins are usually a factor of product
mix
and demand for product. The increase of profit margin was primarily attributable
to i) the economies of scale, where we can get a lower cost for the sales,
and
ii) the improved profit margin by higher mark-up prices as a result of extended
credit terms to our customers. Together, the profit margin of movements as
a
percentage of net sales had increased to 8.0% for the year ended December 31,
2006 as compared to 6.4% of net sales for same period in 2005. There was a
slight decrease of profit margin for completed watches for the year ended
December 31, 2006 to 47.2% of net sales as compared to 53.8% for the same period
of 2005. This was primarily due to the increase of sales of basic units in
2006
which had a lower profit margin. However, this decrease was offset by the
increase of profit margin in movement segment, which accounted for 90% of the
total sales in 2006.
Other
income from operation was $424,016 or 0.5% of net sales for Fiscal 2006, as
compared to $938,573, or 1.5% of net sales for Fiscal 2005. The decrease in
income from operation was attributable to the lack of commission income in
Fiscal 2006 as compared to $771,432 in Fiscal 2005. This was the commission
received for connecting buyers and sellers in China. The decrease in income
from
operation was partially offset by a one time income of $210,594 derived from
the
selling of intangible assets and a rental income of $46,284 in Fiscal 2006,
which was the rent received from our company-owned properties.
Administrative
and other operating expenses were $1.3 million or 1.6% of net sales for
Fiscal 2006, as compared to $1.4 million, or 2.3% of net sales, for Fiscal
2005. The decrease as a percentage of net sales was primarily attributable
to
economies of scale. Management considers these expenses as a percentage of
net
sales to be a key performance indicator in managing our business.
Other
income from non-operation was $237,571 or 0.3% of net sales for Fiscal 2006,
as
compared to $156,199, or 0.3% of net sales for Fiscal 2005. The increase was
primarily due to the increase in bank interest, which was $208,854 for Fiscal
2006 and $76,358 for Fiscal 2005 partially offset by a decrease in other
interest income of $18,635 and $49,440 for Fiscal 2006 and Fiscal 2005
respectively.
Interest
expense increased to $1.1 million for Fiscal 2006, compared to $514,637 for
Fiscal 2005. This increase is primarily attributable to higher borrowing levels
to maintain adequate inventory, and higher borrowing rates. Further increases
in
borrowing rates would further increase our interest expense, which would have
a
negative effect on our results of operations.
Income
taxes for Fiscal 2006 were $1.3 million, or 1.6% of net sales, as compared
to
$911,687 for Fiscal 2005, or 1.4% of net sales. The decrease of effective income
tax rates from 18.5% for Fiscal 2005 to 17.1% for Fiscal 2006 is primarily
due
to increase in income not subject to tax by $30,000 and decrease in unused
tax
losses not recognized by $50,000 for Fiscal 2006. Unused tax losses not
recognized represents valuation allowances established to reduce deferred tax
assets to the amount expected to be realized.
Net
income for Fiscal 2006 was $6.3 million, compared to net income of $4.0 million
for Fiscal 2005.
Liquidity
and Capital Resources
To
provide liquidity and flexibility in funding our operations, we borrow amounts
under bank facilities and other external sources of financing. As of December
31, 2007, we had general banking facilities amounted to $22.2 million for
overdraft, letter of credit, trust receipt, invoice financing and export loans
granted by ten banks. Interest on the facilities ranged from minus 2.0 to 0.75%
over the Bank’s Best Lending Rate of Hong Kong (Prime Rate) or Hong Kong Inter
Bank Offered Rate (HIBOR). These banking facilities were secured by the
leasehold properties, time deposits and held-to maturity investments of the
group and personal guarantees executed by our Chairman of the
Board.
On
February 15, 2008, we completed an initial public offering consisting of 963,700
shares of our common stock. Our sale of common stock, which was sold indirectly
by us to the public at a price of $3.50 per share, resulted in net proceeds
of
approximately $2.7 million. These proceeds were net of underwriting discounts
and commissions, fees for legal and auditing services, and other offering costs.
Upon the closing of the initial public offering, we sold to the underwriter
warrants to purchase up to 83,800 shares of our common stock. The warrants
are
exercisable at a per share price of $4.20 and will expire if unexercised after
five years from the date of issuance.
On
November 13, 2007, we completed a financing transaction pursuant to which we
issued $8,000,000 Variable Rate Convertible Bonds that will be due in 2012.
The
Bonds were subscribed at a price equal to 97% of their principal amount, which
is the issue price of 100% less a 3% commission to the Subscriber of the Bonds.
The Bonds bear cash interest at the rate of 6% per annum for the first year
after November 13, 2007 and 3% per annum thereafter, of the principal amount
of
the Bonds. Each Bond is convertible at the option of the holder at any time
on
and after a date that is 365 days after February 12, 2008, which is the date
that our shares of common stock commence trading on the AMEX, at an initial
conversion price of $3.50. The conversion price is subject to adjustment in
certain events, including our issuance of additional shares of common stock
or
rights to purchase common stock at a per share or per share exercise or
conversion price, respectively, at less than the applicable per share conversion
price of the Bonds. If for the period of 20 consecutive trading days immediately
prior to November 13, 2009 or September 29, 2012, the conversion price for
the
Bonds is higher than the average closing price for the shares, then the
conversion price will be reset to such average closing price; provided that,
the
conversion price will not be reset lower than 70% of the then existing
conversion price. In connection with the issuance of the Bonds, we also issued
to the Subscriber warrants to purchase 600,000 shares of our common stock.
The
warrants were subscribed at a price of $0.0001 per warrant, are exercisable
at
$0.0001 per share, and terminate on November 13, 2010.
On
January 23, 2007, concurrently with the close of the Share Exchange, we
conducted an initial closing of a private placement transaction pursuant to
which we sold an aggregate of 1,749,028 shares of Series A Convertible Preferred
Stock at $1.29 per share. On February 9, 2007, we conducted a second and final
closing of the private placement pursuant to which we sold 501,320 shares of
Series A Convertible Preferred Stock at $1.29 per share. Accordingly, a total
of
2,250,348 shares of Series A Convertible Preferred Stock were sold in the
private placement for an aggregate gross proceeds of $2,902,946 (the “Private
Placement”). After commissions and expenses, we received net proceeds of
approximately $2.3 million in the Private Placement.
For
the
year ended December 31, 2007, net cash used by operating activities was $8.1
million, as compared to net cash provided in operating activities of $190,906
in
Fiscal 2006 and net cash used in operating activities of $445,644 in Fiscal
2005. The increase in net cash used by operating activities in Fiscal 2007
was
attributable to an increase in (i) cash used for accounts receivable of $6.2
million for Fiscal 2007 as compared to $3.4 million for Fiscal 2006, (ii)
prepaid expenses and other receivables of $5.6 million for Fiscal 2007 as
compared to $1.7 million for Fiscal 2006, (iii) inventories of $6.1 million
for
Fiscal 2007 as compared to $50,990 for Fiscal 2006 and (iv) income taxes payable
of $1.1 million for Fiscal 2007 as compared to $701,921 for Fiscal 2006;
partially offset by an increase in net income of 5.6 million for Fiscal 2007
as
compared to $6.3 million for Fiscal 2006 and an adjustment of $2.4 million
to
reconcile the net income for the stock-based compensation related to the Escrow
Shares. The increase in cash used for accounts receivable was primarily
attributable to the extended aging and an increase in net sales of 19.5% for
Fiscal 2007 as compared to Fiscal 2006. The increase in cash used for prepaid
expenses and other receivables was primarily attributable to an increase in
deposit paid from $1.5 million for Fiscal 2006 to $5.8 million for Fiscal 2007,
and the deposit for a potential acquisition of plant facilities, but no
acquisition has been completed as of the date of this report. The increase
in
inventories was due to an expected increase in demand of watch movements in
the
first quarter of 2008, in addition to an anticipated increase in sales of
mechanical movements, which require a higher inventory level than quartz
movements. The increase in income tax was due to the increase in net income,
and
the increase in net income was due to the improved profit margin of movements
segment as a result of improved economies of scale and increased selling
price.
Net
cash
provided in investing activities was $163,398 for the year ended December 31,
2007, as compared to net cash used in investing activities of $859,823 for
Fiscal 2006. The net cash provided in investing activities in Fiscal 2007 was
due to the proceeds from disposal of intangible assets of $589,893, partially
offset by the cash used in acquisition of manufacturing facilities for the
completed watches segment. The net cash used in investing activities in Fiscal
2006 reflected the acquisition of two properties for an aggregate of $618,025,
which were pledged for banking facilities and the acquisition of manufacturing
facilities for the completed watches segment, partially offset by the disposal
of an intangible asset of $300,849 and disposal of equipment of $2,031. The
net
cash used in investing activities in Fiscal 2005 was due to the acquisition
of a
property of $330,884 and a held-to-maturity investment fund that were pledged
for banking facilities, and the acquisition of plant and equipment of $243,504
and acquisition of furniture and fixtures.
Net
cash
provided by financing activities was $13.9 million for the year ended December
31, 2007 as compared to $204,116 and $1.2 million for the comparable period
in
2006 and 2005, respectively. The increase in net cash provided by financing
activities in Fiscal 2007 was due to (i) the proceeds from issuance of Series
A
Convertible Preferred Stock of $2.6 million, (ii) the issuance of convertible
bonds of $7.8 million, (iii) proceeds from new short-term bank loans of $5.4
million , and (iv) net advancement of other bank borrowings of 6.6 million,
partially offset by repayment of short-term bank loans $4.6 million and an
increase in restricted cash of $3.7 million as deposit to facilitate the bank
loans. The decrease in net cash provided by financing activities in Fiscal
2006
was attributable to dividends paid of $2.45 million as compared to $642,848
in
Fiscal 2005. The bank borrowing for Fiscal 2005 was increased to $10 million
as
compared to $7.4 million for Fiscal 2004.
For
Fiscal year 2007, 2006 and 2005, our inventory turnover was 8.9, 10.8 and 10.8
times, respectively. In 2005 and 2006 the turnover ratio is almost the same
at
10.8 times. The turnover ratio decrease in Fiscal 2007 as the order delivery
cycle time of our supplies has shortened, possibly allowing us to keep a lower
stock level with a decreased risk of stock shortages. The average days
outstanding of our accounts receivable at December 31, 2007 were 42 days, as
compared to 29 days and 24 days at December 31, 2006 and 2005. The increase
in
accounts receivable was due to the change in credit policy since 2005 where
credit terms of up to 60 days were given to customers who had good credit
history in order to improve our profit margin and competitiveness.
In
an
attempt to reduce our reliance on third-party watch movement manufacturers,
we
have plans to manufacture our own brands of quartz movements and mechanical
movements in-house. To manufacture our own brands of quartz and mechanical
movements in-house, we would need to acquire watch movement facilities in China
and invest in new equipment and research and development. We expect that up
to
$5.5 million will be required to obtain the equipment and facilities to
manufacture branded proprietary watch movements. Our plan to acquire
manufacturing facilities and equipment to manufacture our own brand of quartz
and mechanical movements in-house is still underway and we have identified
certain targets for negotiations and will disclose in due course. We also have
plans to expand our operation and sales force in China in 2008. Currently,
we
are looking for opportunities to establish our retail network in China through
teaming up with fashion, apparel or accessories chain stores in China to market
our completed watches in China. We may be required to raise the appropriate
amount of capital needed for our future operations from future equity sales
or
through debt financings. Failure to obtain funding when needed may force us
to
delay, reduce, or eliminate our plans to manufacture our own watch movement
parts. We may not be able to obtain additional financial resources when
necessary or on terms favorable to us, if at all, and any available additional
financing may not be adequate. Moreover, new equity securities issued in
financings, including any shares of Series A Convertible Preferred Stock or
any
new series of preferred stock authorized by our Board of Directors, may have
greater rights, preferences or privileges than our existing common stock. To
the
extent stock is issued or options and warrants are exercised, holders of our
common stock will experience further dilution.
Based
on
our current plans, we believe that cash on hand, cash flow from operations
and
funds available under our bank facilities will be sufficient to fund our capital
needs for the next 12 months. However, our ability to maintain sufficient
liquidity depends partially on our ability to achieve anticipated levels of
revenue, while continuing to control costs. If we did not have sufficient
available cash, we would have to seek additional debt or equity financing
through other external sources, which may not be available on acceptable terms,
or at all. Failure to maintain financing arrangements on acceptable terms would
have a material adverse effect on our business, results of operations and
financial condition.
Off-Balance
Sheet Arrangements
Other
than the Escrow Agreement and Escrow Shares, as described above, we do not
have
any off-balance sheet debt, nor do we have any transactions, arrangements or
relationships with any special purpose entities.
Contractual
Obligations
Other
than those commitments and obligations being entered into in the normal course
of business, we do not have any additional, material capital commitments and
obligations due to other parties.
Inflation
and Seasonality
Inflation
and seasonality have not had a significant impact on our operations during
the
last two fiscal years.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including any financial statements
for an interim period within that fiscal year. The provisions of this statement
should be applied prospectively as of the beginning of the fiscal year in which
this statement is initially applied, except in some circumstances where the
statement shall be applied retrospectively. We are currently evaluating the
effect, if any, of SFAS 157 on our financial statements. Management currently
does not believe the adoption of SFAS 157 will have a material impact on our
consolidated financial statements.
On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of SFAS No.
115” (“SFAS 159”). The fair value option established by SFAS 159 permits all
entities to choose to measure eligible items at fair value at specified election
dates. A business entity will report unrealized gains and losses on items for
which the fair value option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at each subsequent
reporting date. The fair value option: (a) may be applied instrument by
instrument, with a few exceptions, such as investments otherwise accounted
for
by the equity method; (b) is irrevocable (unless a new election date occurs);
and (c) is applied only to entire instruments and not to portions of
instruments. SFAS 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted
as
of the beginning of the previous fiscal year provided that the entity makes
that
choice in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS 157. We have not chosen to early adopt this statement.
Management currently does not believe the adoption of SFAS 159 will have a
material impact on our consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141(R)”), which requires an acquirer to measure the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being
the
excess value over the net identifiable assets acquired. SFAS 141(R) is effective
for financial statements issued for fiscal years beginning after December 15,
2008. Early adoption is prohibited. We do not anticipate that the adoption
of
the above standards will have a material impact on our current or future
consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”), which clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will
continue to be based on income amounts attributable to the parent. SFAS 160
is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The Company does not anticipate
that the adoption of the above standards will have a material impact on it
current or future consolidated financial statements.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
Credit
Risk.
We
are
exposed to credit risk from our cash at bank, fixed deposits and contract
receivables. The credit risk on cash at bank and fixed deposits is limited
because the counterparts are recognized financial institutions. Contract
receivables are subject to credit evaluations. As we are getting more new
customers and offering credit terms, financial efficiency, we believe that
cash
flow and controlling bad debt and late payment become more and more important.
We carry out thorough research through public filing records available on our
new customers, coupled with the employment of business intelligence information
provider, before extending any credit to new customers. Different levels of
credit periods and credit limits are granted to different customers according
to
their size, financial position, business position and payment history, among
other factors, in order to offer the right credit terms to our customers to
enhance competitiveness yet manage the risk. We have not recorded bad debt
since
inception.
Foreign
Currency Risk.
The
functional currency of our company is the Hong Kong Dollar (HKD). In the future,
we expect Renminbi (RMB) also to be a functional currency. Substantially all
of
our operations are conducted in the PRC. Our sales and purchases are conducted
within the PRC in HKD and in the future will include RMB. Conversion of RMB
into
foreign currencies is regulated by the People’s Bank of China through a unified
floating exchange rate system. Although the PRC government has stated its
intention to support the value of the RMB, there can be no assurance that such
exchange rate will not again become volatile or that the RMB will not devalue
significantly against the U.S. Dollar. Exchange rate fluctuations may adversely
affect the value, in U.S. Dollar terms, of our net assets and income derived
from its operations in the PRC. In addition, the RMB is not freely convertible
into foreign currency and all foreign exchange transactions must take place
through authorized institutions.
Country
Risk.
The
substantial portion of our business, assets and operations are located and
conducted in Hong Kong and China. While these economies have experienced
significant growth in the past twenty years, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit the overall economy
of
Hong Kong and China, but may also have a negative effect on us. For example,
our
operating results and financial condition may be adversely affected by
government control over capital investments or changes in tax regulations
applicable to us. If there are any changes in any policies by the Chinese
government and our business is negatively affected as a result, then our
financial results, including our ability to generate revenues and profits,
will
also be negatively affected.
Item
8. Financial Statements and Supplementary Data
The
information required by this Item 8 is incorporated by reference to the
Financial Statements of Asia Time Corporation beginning at page F-1 of this
Form
10-K.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item
9A. Controls and Procedures
Evaluation
of disclosure controls and procedures
As
of
December 31, 2007, our sole executive officer, who is our Chief Executive
Officer (CEO) and our Chief Financial Officer (CFO), performed an evaluation
of
the effectiveness of and the operation of our disclosure controls and procedures
as defined in
Rule
13a-15
(e)
or
Rule
15d-15
(e)
under
the Exchange Act. Based on that evaluation, our CEO/CFO concluded that our
disclosure controls and procedure as of December 31, 2007 had significant
deficiencies that caused our controls and procedures to be ineffective. These
deficiencies consisted of inadequate staffing and supervision that could lead to
the untimely identification and resolution of accounting and disclosure matters
and failure to perform timely and effective reviews. In addition, there are
deficiencies in the recording and classification of accounting transactions
and
a lack of personnel with expertise in US generally accepted accounting
principles and US Securities and Exchange Commission rules and
regulations.
We
are in
the process of improving our controls and procedures in an effort to remediate
these deficiencies through improving supervision, education, and training of
our
accounting staff. We have hired two third-party financial consultants to review
and analyze our financial statements and assist us improve our reporting of
financial information. Our management and Board of Directors, with assistance
from outside financial consultants, conducted a review and analysis of our
accounting treatment for (i) our inventory by adjusting watch movement costing
for the effects of vendor incentives from an as received basis to an accrual
basis, (ii) the share exchange transaction that we conducted in January 2007,
(iii) stock-based compensation related to an escrow agreement that our CEO/CFO
entered into with investors in our January 2007 private placement. Based on
the
review, we concluded that we misapplied accounting principles generally accepted
in the United States of America and we restated our financial statements for
the
periods over the past two years.
Management
intends to seek additional qualified in house accounting personnel, such as
a
chief financial officer, or third-party accounting personnel to ensure that
management will have adequate resources in order to attain complete reporting
of
financial information disclosures in a timely matter. We believe that the
remedial steps that we take will address the conditions identified by our
CEO/CFO as significant deficiencies in our disclosure controls and procedures.
Additional effort is needed to fully remedy these deficiencies and we are
continuing our efforts to improve and strengthen our control processes and
procedures.
We
also intend to engage outside consultants to assist us in assessing and
improving our internal controls and procedures.
We
believe that the remedial steps that we take will address the conditions
identified by our CEO/CFO as significant deficiencies in our disclosure controls
and procedures. We will continue to monitor the effectiveness of these new
internal policies. Our CEO/CFO believes that there are no material inaccuracies,
or omissions of material facts necessary to make the statements not misleading
in light of the circumstances in which they were made, in this Form
10-K.
Management’s
Annual Report on Internal Control over Financial Reporting
.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our 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
of
accounting principles generally accepted in the United States.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Therefore, even those systems determined to
be
effective can provide only reasonable assurance of achieving their control
objectives.
Our
management, with the participation of our CEO/CFO, evaluated the effectiveness
of our internal control over financial reporting as of December 31, 2007. In
making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework. Based on this evaluation, our
management, with the participation of CEO/CFO, concluded that, as of December
31, 2007, our internal control over financial reporting was
effective.
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.
Changes
in internal control over financial reporting
There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by Rule 13a-15(d) or Rule 15d-15(d)
under the Exchange Act that occurred during the quarter ended December 31,
2007
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item
9B. Other Information
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
The
information required by this Item 10 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end
of
the 120-day period immediately following the end of our 2007 fiscal year, or,
if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A,
not
later than the end of the 120-day period.
Item
11. Executive Compensation
The
information required by this Item 11 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end
of
the 120-day period immediately following the end of our 2007 fiscal year, or,
if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A,
not
later than the end of the 120-day period.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
information required by this Item 12 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end
of
the 120-day period immediately following the end of our 2007 fiscal year, or,
if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A,
not
later than the end of the 120-day period.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
The
information required by this Item 13 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end
of
the 120-day period immediately following the end of our 2007 fiscal year, or,
if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A,
not
later than the end of the 120-day period.
Item
14. Principal Accounting Fees and Services
The
information required by this Item 14 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end
of
the 120-day period immediately following the end of our 2007 fiscal year, or,
if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A,
not
later than the end of the 120-day period.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
1.
Financial Statements: See “Index to Consolidated Financial Statements” in Part
II, Item 8 of this Annual Report on Form 10-K.
2.
Financial Statement Schedule: Not applicable.
3.
Exhibits: The exhibits listed in the accompanying “Exhibit Index” are filed or
incorporated by reference as part of this Form 10-K.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized, in the city of Kowloon, Hong Kong,
on March 31, 2008.
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Asia
Time
Corporation
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/s/
Kwong Kai
Shun
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Kwong Kai Shun
Chief Executive Officer, Chief Financial Officer
and
Chairman of the
Board
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE
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TITLE
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DATE
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/s/
Kwong Kai Shun
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Chief
Executive Officer, Chief Financial Officer and Chairman of the Board
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March
31, 2008
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Kwong
Kai Shun
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(Principal
Executive
Officer; Principal Financial and Accounting Officer)
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/s/
Michael Mak
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Director
and Corporate Secretary
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March
31, 2008
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Michael
Mak
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/s/
Lee Siu Po
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Director
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March
31, 2008
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Lee
Siu Po
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Director
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March
31, 2008
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Dr.
Leung Ching Wah
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Director
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Wu
Hok Lun
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EXHIBIT
INDEX
Exhibit
No.
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Exhibit
Description
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2.1
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Share
Exchange Agreement, dated as of December 15, 2006, by and among the
Registrant, Kwong Kai Shun and Times Manufacture & E-Commerce
Corporation, Limited (incorporated by reference from Exhibit 2.1
to
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 29, 2007).
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3.1
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Certificate
of Incorporation (incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form 10-SB (File No. 000-51981) filed with
the
Securities and Exchange Commission on May 5, 2006).
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3.2
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Bylaws
(incorporated by reference from Exhibit 3.2 to the Registration Statement
on Form 10-SB (File No. 000-51981) filed with the Securities and
Exchange
Commission on May 5, 2006).
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3.3
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Articles
of Merger Effecting Name Change (incorporated by reference from Exhibit
3.3 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 29, 2007).
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3.4
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Certificate
Of Designations, Preferences And Rights Of Series A Convertible Preferred
Stock (incorporated by reference from Exhibit 3.4 to Current Report
on
Form 8-K filed with the Securities and Exchange Commission on January
29,
2007).
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4.1
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Specimen
Certificate of Common Stock (incorporated by reference to Exhibit
4.1 of
the Registrant's Registration Statement on Form SB-2 filed August
20,
2004).
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4.2
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Trust
Deed, dated November 13, 2007, by and between the Registrant and
The Bank
of New York, London Branch (incorporated by reference to Exhibit
4.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2007).
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4.3
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Paying
and Conversion Agency Agreement, dated November 13, 2007, by and
among the
Registrant, The Bank of New York, and The Bank of New York, London
Branch
(incorporated by reference to Exhibit 4.2 to the Current Report on
Form
8-K filed with the Securities and Exchange Commission on November
16,
2007).
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4.4
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Warrant
Instrument, dated November 13, 2007, by and between the Registrant
and ABN
AMRO Bank N.V. (incorporated by reference to Exhibit 4.3 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 16, 2007).
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4.5
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Warrant
Agency Agreement, dated November 13, 2007 among the Registrant, The
Bank
of New York and The Bank of New York, London Branch (incorporated
by
reference to Exhibit 4.4 to the Current Report on Form 8-K filed
with the
Securities and Exchange Commission on November 16,
2007).
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4.6
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Registration
Rights Agreement, dated November 13, 2007, by and between the Registrant
and ABN AMRO Bank N.V. (incorporated by reference to Exhibit 4.5
to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2007).
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10.1
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Form
of Subscription Agreement dated as of January 23, 2007 and February
9,
2007 (incorporated by reference from Exhibit 10.1 to Current Report
on
Form 8-K filed with the Securities and Exchange Commission on February
13,
2007).
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10.1(a)
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Form
of Amendment No. 1 dated as of July 20, 2007 to Subscription Agreement
(incorporated by reference from Exhibit 10.1(a) to Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
December
18, 2007).
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10.1(b)
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Form
of Amendment No. 2 dated as of December 16, 2007 to Subscription
Agreement
(incorporated by reference from Exhibit 10.1(b) to Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
December
18, 2007, 2008).
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10.2
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Form
of Agreement between Kwong Kai Shun and Investors of Series A Convertible
Preferred Stock (incorporated by reference from Exhibit 10.2 to
Registration Statement on Form S-1 filed with the Securities and
Exchange
Commission on September 26, 2007).
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10.2(a)
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Amendment
No. 1 to Agreement between Kwong Kai Shun and Investors of Series
A
Convertible Preferred Stock, dated June 30, 2007 (incorporated by
reference to Exhibit 10.2(a) of the Registration Statement on Form
S-1
filed with the Securities and Exchange Commission on September 26,
2007).
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10.2(b)
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Form
of Amendment No. 2 to Agreement between Kwong Kai Shun and Investors
of
Series A Convertible Preferred Stock (incorporated by reference to
Exhibit
10.2(b) of the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on December 18,
2007).
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10.3
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Subscription
Agreement, dated October 31, 2007, by and between the Registrant
and ABN
AMRO Bank N.V. (incorporated by reference to Exhibit 10.3 to the
Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 16, 2007).
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10.4
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Registration
Rights Agreement dated January 23, 2007 entered into by and between
the
Registrant and Affiliates of WestPark Capital, Inc. (incorporated
by
reference to Exhibit 10.4 of the Registration Statement on Form S-1
filed
with the Securities and Exchange Commission on December 18,
2007).
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21.1
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List
of Subsidiaries (incorporated by reference from Exhibit 21.1 to Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
January 29, 2007).
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31.1
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1*
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Certifications
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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*
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This
exhibit shall not be deemed "filed" for purposes of Section 18 of
the
Securities Exchange Act of 1934 or otherwise subject to the liabilities
of
that section, nor shall it be deemed incorporated by reference in
any
filing under the Securities Act of 1933 or the Securities Exchange
Act of
1934, whether made before or after the date hereof and irrespective
of any
general incorporation language in any
filings.
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ASIA
TIME CORPORATION
(FORMERLY
SRKP 9, INC.)
CONSOLIDATED
FINANCIAL STATEMENTS
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
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PAGE
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Report
of Independent Registered Public Accounting Firm
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F-2
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Consolidated
Balance Sheets
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F-3
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Consolidated
Statements of Operations
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F-5
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Consolidated
Statements of Stockholders’ Equity
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F-6
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Consolidated
Statements of Cash Flows
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F-7
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Notes
to Consolidated Financial Statements
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F-9
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Asia
Time
Corporation
(Formerly
SRKP 9, Inc.)
We
have
audited the accompanying consolidated balance sheets of Asia Time Corporation
(the “Company”) and its subsidiaries (collectively referred to as the “Group”)
as of December 31, 2007 and 2006, and the related consolidated statements of
operations, stockholders’ equity and cash flows for the years ended December 31,
2007, 2006 and 2005. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
and
its subsidiaries as of December 31, 2007 and 2006, and the consolidated results
of their operations and their cash flows for the years ended December 31, 2007,
2006 and 2005, in conformity with accounting principles generally accepted
in
the United States of America.
Dominic
K.F. Chan & Co
Certified
Public Accountants
Hong
Kong
March
20,
2008
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
BALANCE SHEETS
(Stated
in US Dollars)
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At
December 31,
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Notes
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2007
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2006
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$
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$
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ASSETS
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Current
Assets :
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Cash
and cash equivalents
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6,258,119
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316,621
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Restricted
cash
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8,248,879
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4,523,679
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Accounts
receivable
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14,341,989
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8,188,985
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Prepaid
expenses and other receivables
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7
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7,704,999
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2,101,133
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Tax
prepayment
|
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-
|
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767
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Inventories,
net
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8
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12,370,970
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6,246,185
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Prepaid
lease payments
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-
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22,958
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Total
Current Assets
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48,924,956
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21,400,328
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Deferred
tax assets
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6
|
|
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29,929
|
|
|
14,042
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|
Property
and equipment, net
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|
9
|
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|
1,891,709
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|
|
890,258
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Leasehold
lands
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|
|
10
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|
-
|
|
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895,322
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|
Held-to-maturity
investments
|
|
|
11
|
|
|
300,231
|
|
|
301,196
|
|
Intangible
assets
|
|
|
12
|
|
|
48,012
|
|
|
337,836
|
|
Restricted
cash
|
|
|
|
|
|
256,476
|
|
|
257,301
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
|
51,451,313
|
|
|
24,096,283
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|
|
|
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|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities :
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
|
1,310,809
|
|
|
770,360
|
|
Other
payables and accrued liabilities
|
|
|
13
|
|
|
132,507
|
|
|
190,358
|
|
Income
taxes payable
|
|
|
|
|
|
2,293,887
|
|
|
1,387,571
|
|
Bank
borrowings
|
|
|
15
|
|
|
20,438,479
|
|
|
13,205,167
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
|
|
|
24,175,682
|
|
|
15,553,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bond payables
|
|
|
16
|
|
|
345,461
|
|
|
-
|
|
Deferred
tax liabilities
|
|
|
6
|
|
|
56,953
|
|
|
31,711
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
|
|
|
24,578,096
|
|
|
15,585,167
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
20
|
|
|
|
|
|
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
BALANCE SHEETS
(Cont’d)
(Stated
in US Dollars)
|
|
|
|
At
December 31,
|
|
|
|
Notes
|
|
2007
|
|
2006
|
|
|
|
|
|
$
|
|
$
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
17
|
|
|
|
|
|
|
|
Par
value: US$0.0001
|
|
|
|
|
|
|
|
|
|
|
Authorized:
2007 - 10,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2007 - 2,250,348 issued
(2006
- none)
|
|
|
|
|
|
225
|
|
|
-
|
|
Common
stock
|
|
|
17
|
|
|
|
|
|
|
|
Par
value: US$0.0001
|
|
|
|
|
|
|
|
|
|
|
Authorized:
100,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2007 - 23,156,629 shares
(2006
- 19,454,420 shares)
|
|
|
|
|
|
2,316
|
|
|
1,946
|
|
Additional
paid-in capital
|
|
|
|
|
|
13,481,036
|
|
|
654,298
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
(28,404
|
)
|
|
7,470
|
|
Retained
earnings
|
|
|
|
|
|
13,418,044
|
|
|
7,847,402
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
26,873,217
|
|
|
8,511,116
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
51,451,313
|
|
|
24,096,283
|
|
See
notes
to consolidated financial statements
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENT OF OPERATIONS
(Stated
in US Dollars)
|
|
|
|
Year
ended December 31,
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
Net
sales
|
|
|
|
|
|
96,962,693
|
|
|
81,134,275
|
|
|
63,078,409
|
|
Cost
of sales
|
|
|
21
|
|
|
(83,119,825
|
)
|
|
(71,496,801
|
)
|
|
(57,026,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
13,842,868
|
|
|
9,637,474
|
|
|
6,052,373
|
|
Other
operating income
|
|
|
3
|
|
|
617,913
|
|
|
424,016
|
|
|
938,573
|
|
Depreciation
|
|
|
|
|
|
(332,153
|
)
|
|
(325,995
|
)
|
|
(259,127
|
)
|
Administrative
and other operating expenses
|
|
|
|
|
|
(4,595,126
|
)
|
|
(1,284,863
|
)
|
|
(1,436,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
|
|
|
9,533,502
|
|
|
8,450,632
|
|
|
5,295,750
|
|
Fees
and costs related to reverse merger
|
|
|
|
|
|
(741,197
|
)
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
4
|
|
|
233,379
|
|
|
237,571
|
|
|
156,199
|
|
Interest
expenses
|
|
|
5
|
|
|
(1,477,514
|
)
|
|
(1,060,536
|
)
|
|
(514,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
|
|
|
7,548,170
|
|
|
7,627,667
|
|
|
4,937,312
|
|
Income
taxes
|
|
|
6
|
|
|
(1,977,528
|
)
|
|
(1,307,728
|
)
|
|
(911,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
5,570,642
|
|
|
6,319,939
|
|
|
4,025,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
|
|
|
0.24
|
|
|
0.32
|
|
|
0.21
|
|
-
Diluted
|
|
|
|
|
|
0.22
|
|
|
0.32
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454,420
|
|
-
Diluted
|
|
|
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(Stated
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
other
|
|
|
|
|
|
|
|
Preferred
stock
|
|
Common
stock
|
|
paid-in
|
|
comprehensive
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
capital
|
|
income
|
|
earnings
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Balance,
January 1, 2005
|
|
|
-
|
|
|
-
|
|
|
19,454,420
|
|
|
1,946
|
|
|
652,488
|
|
|
412
|
|
|
591,059
|
|
|
1,245,905
|
|
Issuance
of shares
(Note
1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
Restructuring
(Note
1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(28,190
|
)
|
|
-
|
|
|
-
|
|
|
(28,190
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,025,625
|
|
|
4,025,625
|
|
Foreign
currency translation
adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,137
|
|
|
-
|
|
|
13,137
|
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,137
|
|
|
4,025,625
|
|
|
4,038,762
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(642,848
|
)
|
|
(642,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
19,454,420
|
|
|
1,946
|
|
|
654,298
|
|
|
13,549
|
|
|
3,973,836
|
|
|
4,643,629
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,319,939
|
|
|
6,319,939
|
|
Foreign
currency translation
adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,079
|
)
|
|
-
|
|
|
(6,079
|
)
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,079
|
)
|
|
6,319,939
|
|
|
6,313,860
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,446,373
|
)
|
|
(2,446,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
19,454,420
|
|
|
1,946
|
|
|
654,298
|
|
|
7,470
|
|
|
7,847,402
|
|
|
8,511,116
|
|
Originally
issued on Jan. 3, 2006; deemed issued on Jan. 23, 2007 for reverse
merger
purposes
|
|
|
-
|
|
|
-
|
|
|
2,700,000
|
|
|
270
|
|
|
(270
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Issued
in connection with 1.371188519 - for-1 retroactive stock
split
|
|
|
-
|
|
|
-
|
|
|
1,002,209
|
|
|
100
|
|
|
(100
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Adjustment
to SRKP 9 accounts
to
reflect reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,999
|
)
|
|
-
|
|
|
-
|
|
|
(7,999
|
)
|
Gross
proceeds from shares sold in offering - initial closing
|
|
|
1,749,028
|
|
|
175
|
|
|
-
|
|
|
-
|
|
|
2,053,009
|
|
|
-
|
|
|
-
|
|
|
2,053,184
|
|
Gross
proceeds from shares sold in offering - final closing
|
|
|
501,320
|
|
|
50
|
|
|
-
|
|
|
-
|
|
|
588,448
|
|
|
-
|
|
|
-
|
|
|
588,498
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,433,650
|
|
|
-
|
|
|
-
|
|
|
2,433,650
|
|
Stock
warrants & conversion feature
(Note
16)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,760,000
|
|
|
-
|
|
|
-
|
|
|
7,760,000
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,570,642
|
|
|
5,570,642
|
|
Foreign
currency translation
adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(35,874
|
)
|
|
-
|
|
|
(35,874
|
)
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(35,874
|
)
|
|
5,570,642
|
|
|
5,542,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
2,250,348
|
|
|
225
|
|
|
23,156,629
|
|
|
2,316
|
|
|
13,481,036
|
|
|
(28,404
|
)
|
|
13,418,044
|
|
|
26,873,217
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Stated
in US Dollars)
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
5,570,642
|
|
|
6,319,939
|
|
|
4,025,625
|
|
Adjustments
to reconcile net income to net cash
(used
in) provided by operating activities :
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
2,433,650
|
|
|
-
|
|
|
-
|
|
Amortization
of bond discount and bond interest
|
|
|
345,461
|
|
|
-
|
|
|
-
|
|
Amortization
of intangible assets
|
|
|
123,977
|
|
|
154,436
|
|
|
154,438
|
|
Amortization
of leasehold lands
|
|
|
-
|
|
|
23,247
|
|
|
7,968
|
|
Depreciation
|
|
|
332,153
|
|
|
325,995
|
|
|
259,127
|
|
Loss
on disposal of plant and equipment
|
|
|
5,411
|
|
|
7,715
|
|
|
-
|
|
Gain
on disposal of intangible assets
|
|
|
(425,256
|
)
|
|
(210,594
|
)
|
|
-
|
|
Income
taxes
|
|
|
1,977,528
|
|
|
1,307,728
|
|
|
911,687
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities :
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(6,176,551
|
)
|
|
(3,369,347
|
)
|
|
(1,445,937
|
)
|
Prepaid
expenses and other receivables
|
|
|
(5,583,145
|
)
|
|
(1,706,789
|
)
|
|
334,759
|
|
Inventories
|
|
|
(6,142,119
|
)
|
|
50,990
|
|
|
(2,421,140
|
)
|
Accounts
payable
|
|
|
542,798
|
|
|
(462,658
|
)
|
|
(573,017
|
)
|
Other
payables and accrued liabilities
|
|
|
(57,206
|
)
|
|
45,445
|
|
|
103,007
|
|
Income
taxes payable
|
|
|
(1,056,985
|
)
|
|
(701,921
|
)
|
|
(199,079
|
)
|
Unearned
revenue
|
|
|
—
|
|
|
(1,593,280
|
)
|
|
(1,603,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows (used in) provided by operating activities
|
|
|
(8,109,642
|
)
|
|
190,906
|
|
|
(445,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of leasehold lands
|
|
|
-
|
|
|
(618,025
|
)
|
|
(330,884
|
)
|
Acquisition
of held-to-maturity investments
|
|
|
-
|
|
|
-
|
|
|
(301,007
|
)
|
Acquisition
of property and equipment
|
|
|
(426,815
|
)
|
|
(544,678
|
)
|
|
(243,504
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
320
|
|
|
2,031
|
|
|
-
|
|
Proceeds
from disposal of intangible assets
|
|
|
589,893
|
|
|
300,849
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by (used in) investing activities
|
|
|
163,398
|
|
|
(859,823
|
)
|
|
(875,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from insurance of series A convertible preferred stock
|
|
|
2,641,682
|
|
|
-
|
|
|
-
|
|
Issuance
of convertible bonds
|
|
|
7,760,000
|
|
|
-
|
|
|
-
|
|
Proceeds
from new short-term bank loans
|
|
|
5,368,934
|
|
|
1,700,622
|
|
|
346,622
|
|
Repayment
of short-term bank loans
|
|
|
(4,636,670
|
)
|
|
(525,535
|
)
|
|
(408,211
|
)
|
Net
advancement of other bank borrowings
|
|
|
6,561,682
|
|
|
1,789,269
|
|
|
2,946,182
|
|
Increase
in restricted cash
|
|
|
(3,738,065
|
)
|
|
(484,997
|
)
|
|
(755,170
|
)
|
(Decrease)
increase in bank overdrafts
|
|
|
(21,484
|
)
|
|
199,893
|
|
|
(250,997
|
)
|
Advance
from a related party
|
|
|
(33,000
|
)
|
|
(28,763
|
)
|
|
(60,511
|
)
|
Dividends
paid
|
|
|
-
|
|
|
(2,446,373
|
)
|
|
(642,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by financing activities
|
|
|
13,903,079
|
|
|
204,116
|
|
|
1,175,067
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Cont’d)
(Stated
in US Dollars)
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,956,835
|
|
|
(464,801
|
)
|
|
(145,972
|
)
|
Effect
of foreign currency translation on cash and cash
equivalents
|
|
|
(15,337
|
)
|
|
1,332
|
|
|
14,575
|
|
Cash
and cash equivalents - beginning of year
|
|
|
316,621
|
|
|
780,090
|
|
|
911,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of year
|
|
|
6,258,119
|
|
|
316,621
|
|
|
780,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures for cash flow information :
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,197,386
|
|
|
1,060,536
|
|
|
514,637
|
|
Income
taxes
|
|
|
1,056,985
|
|
|
701,921
|
|
|
199,079
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
|
Asia
Time
Corporation (the “Company”), formerly SRKP 9, Inc., was incorporated in the
State of Delaware on January 3, 2006. Effective January 23, 2007, the Company
changed its name from SRKP 9, Inc. to Asia Time Corporation.
Recapitalization
The
Company entered into an Exchange Agreement dated December 15, 2006 (the
“Exchange Agreement”) with Times Manufacture & E-Commerce Corporation
Limited, a British Virgin Islands corporation (“Times Manufacture”), and Kwong
Kai Shun, the sole shareholder of Times Manufacture (“Original Shareholder”).
The closing of the Exchange Agreement occurred on January 23, 2007.
The
Company effected a 1.371188519-for-one stock reverse split in the course of
the
share exchange process such that there were 3,702,209 shares of common stock
outstanding immediately prior to the closing of the Exchange Agreement. These
financial statements give retroactive effect to this share split.
At
the
closing of the Exchange Agreement, the Company acquired all of the capital
shares of Times Manufacture from the Original Shareholder, in exchange for
which
the Company issued 19,454,420 shares of its Common Stock to the Original
Shareholder. The 19,454,420 shares of common stock issued to the Original
Shareholder in conjunction with this transaction have been presented as
outstanding for all periods presented.
The
Original Shareholder of Times Manufacture acquired 84% of the Company’s issued
and outstanding common stock in conjunction with the completion of the Exchange
Agreement. Therefore, although Times Manufacture became the Company’s
wholly-owned subsidiary, the transaction was accounted for as a recapitalization
in the form of a reverse merger of Times Manufacture, whereby Times Manufacture
was deemed to be the accounting acquirer and was deemed to have retroactively
adopted the capital structure of SRKP 9, Inc. Since the transaction was
accounted for as a reverse merger, the accompanying consolidated financial
statements reflect the historical consolidated financial statements of Times
Manufacture for all periods presented, and do not include the historical
financial statements of SRKP 9, Inc. All costs associated with the reverse
merger transaction were expensed as incurred.
The
Company agreed to register the 1,999,192 shares of common stock that were held
by certain of the Company’s shareholders immediately prior to the closing of the
Exchange Agreement. If the Company fails to register 1,999,192 shares due to
failure on the part of the Company, additional shares of its common stock shall
be issued to the respective shareholders in the amount of 0.0333% of their
respective shares for each calendar day until the registration becomes
effective. There is no maximum potential consideration to be transferred in
connection with the registration of these shares. The Company agreed to file
a
registration statement no later than the tenth day after the end of the six
month period that immediately follows the filing date of the initial
registration statement (the "Required Filing Date"). The Company agreed to
use
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Cont’d)
|
reasonable
best efforts to cause such registration statement to become effective within
120
days after the Required Filing Date or the actual filing date, whichever is
earlier, or 150 days after the Required Filing Date or the actual filing date,
whichever is earlier, if the registration statement is subject to a full review
by the Securities and Exchange Commission (“SEC”). In addition, the Company
agreed to use its reasonable best efforts to maintain the registration statement
effective for a period of 24 months at the Company's expense.
Restructuring
For
the
purpose of the reverse takeover transaction (“RTO”), the companies comprising
the group underwent a restructuring in December 2005 (the “Restructuring”), and
the Company acquired all of the outstanding and issued shares of common stock
of
its subsidiaries (including Times Manufacturing & E-Commerce Corporation
Limited (“TMEHK”), Billion Win International Enterprise Limited (“BW”), Citibond
Industrial Limited (“CI”), Goldcome Industrial Limited (“GI”) and Megamooch
International Limited (“MI”)) from their then existing stockholders in
consideration for the issuance of 20,000 shares with a designated value of
$1.00
of the company’s voting common stock, representing 99.99% of the voting power in
the company.
Before
acquisition of TME HK group, TME HK acquired all of the outstanding and issued
shares of common stock of its subsidiaries (including BW, CI, GI and MI) from
their then existing stockholders in consideration for the issuance of 10,000
shares with a designated value of $1.00 of TME HK’s voting common
stock.
Corporate
Structure - Before Restructuring
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Cont’d)
|
Corporate
Structure - After Restructuring
Description
of business
The
Company and its subsidiaries (together, the “Group”) are engaged in sales to
distributors of completed watches and watch components.
Name
of company
|
|
Place
and date of incorporation
|
|
Issued
and fully paid capital
|
|
Principal
activities
|
Times
Manufacture & E-Commerce Corporation Ltd
|
|
British
Virgin Islands
March
21, 2002
|
|
US$20,002
Ordinary
|
|
Investment
holding
|
|
|
|
|
|
|
|
Times
Manufacturing & E-Commerce Corporation Ltd
(“TME
HK”)
|
|
British
Virgin Islands
January
2, 2002
|
|
US$20,000
Ordinary
|
|
Investment
holding
|
|
|
|
|
|
|
|
Billion
Win International Enterprise Ltd (“BW”)
|
|
Hong
Kong
March
5, 2001
|
|
HK$5,000,000
Ordinary
|
|
Trading
of watch components
|
|
|
|
|
|
|
|
Goldcome
Industrial Ltd (“GI”)
|
|
Hong
Kong
March
2, 2001
|
|
HK$10,000
Ordinary
|
|
Trading
of watch components
|
|
|
|
|
|
|
|
Citibond
Industrial Ltd (“CI”)
|
|
Hong
Kong
February
28, 2003
|
|
HK$1,000
Ordinary
|
|
Trading
of watch components
|
|
|
|
|
|
|
|
Megamooch
International Ltd (“MI”)
|
|
Hong
Kong
April
2, 2001
|
|
HK$100
Ordinary
|
|
Trading
of watches and watch components
|
|
|
|
|
|
|
|
TME
Enterprise Ltd
|
|
British
Virgin Islands
November
28, 2003
|
|
US$2
Ordinary
|
|
Investment
holding
|
|
|
|
|
|
|
|
Citibond
Design Ltd
|
|
British
Virgin Islands
August
1, 2003
|
|
US$2
Ordinary
|
|
Inactive
|
|
|
|
|
|
|
|
Megamooch
Online Ltd
|
|
British
Virgin Islands
June
6, 2003
|
|
US$2
Ordinary
|
|
Trading
of watches and watch components
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting
policies
|
The
accompanying consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”).
Principle
of Consolidation
The
consolidated financial statements include the accounts of Asia Time Corporation
and its subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use
of
estimates
The
preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management of the Group to
make a number of estimates and assumptions relating to the reported amounts
of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of
revenues and expenses during the period. Significant items subject to such
estimates and assumptions include the recoverability of the carrying amount
of
property and equipment, intangible assets; the collectibility of accounts
receivable; the realizability of deferred tax assets; the realizability of
inventories; and amounts recorded for contingencies. These estimates are often
based on complex judgments and assumptions that management believes to be
reasonable but are inherently uncertain and unpredictable. Actual results may
differ from those estimates.
Concentrations
of credit risk
Financial
instruments that potentially subject the Group to significant concentrations
of
credit risk consist principally of accounts receivable. The Group extends credit
based on an evaluation of the customer’s financial condition, generally without
requiring collateral or other security. In order to minimize the credit risk,
the management of the Group has delegated a team responsibility for
determination of credit limits, credit approvals and other monitoring procedures
to ensure that follow-up action is taken to recover overdue debts. Further,
the
Group reviews the recoverable amount of each individual trade debt at each
balance sheet date to ensure that adequate impairment losses are made for
irrecoverable amounts. In this regard, the directors of the Group consider
that
the Group’s credit risk is significantly reduced.
Restricted
cash
Certain
cash balances are held as security for short-term bank borrowings and are
classified as restricted cash in the Company’s balance sheets.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Accounts
receivable
Accounts
receivable are stated at original amount less an allowance made for doubtful
receivables, if any, based on a review of all outstanding amounts at the year
end. An allowance is also made when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms
of
the receivables. Bad debts are written off when identified. The Group extends
unsecured credit to customers in the normal course of business and believes
all
accounts receivable in excess of the allowances for doubtful receivables to
be
fully collectible. The Group does not accrue interest on trade accounts
receivable.
The
Group
has a credit policy in place and the exposure to credit risk is monitored on
an
ongoing basis credit evaluations are preferred on all customers requiring credit
over a certain amount.
During
the years ended December 31, 2007, 2006 and 2005, the Group did not experience
any bad debts and, accordingly, did not make any allowance for doubtful
debts.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined on a first-in,
first-out basis and includes only purchase costs. There are no significant
freight charges, inspection costs and warehousing costs incurred for any of
the
periods presented. In assessing the ultimate realization of inventories,
management makes judgments as to future demand requirements compared to current
or committed inventory levels. The Company has vendor arrangements on the
purchase of watch movements providing for price reduction paid in the form
of
additional watch movements. The percentage of additional movements to be
received by the Company from these vendors is estimated and inventory costs
are
reduced to reflect the effect of these additional movements on the actual cost
of the items in inventory. During the years ended December 31, 2007, 2006 and
2005, the Company did not make any allowance for slow-moving or defective
inventories.
Leasehold
lands
Leasehold
lands, representing upfront payment for land use rights, are capitalized at
their acquisition cost and amortized using the straight-line method over the
lease terms.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Intangible
assets
Intangible
assets with limited useful lives are stated at cost less accumulated
amortization and accumulated impairment losses.
Amortization
of intangible assets is provided using the straight-line method over their
estimated useful lives as follows:
Trademarks
|
|
|
20
|
%
|
Websites
|
|
|
20
|
%
|
Held-to-maturity
investments
The
Company’s policies for investments in debt and equity securities are as
follows:
Non-derivative
financial assets with fixed or determinable payments and fixed maturities that
the company has the positive ability and intention to hold to maturity are
classified as held-to-maturity securities. Held-to-maturity securities are
initially recognized in the balance sheet at fair value plus transaction costs.
Subsequently, they are stated in the balance sheet at amortized cost using
the
effective interest method less any identified impairment losses.
Investments
are recognized/derecognized on the date the Company commits to
purchase/sell
the investments or they expire.
Property
and equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation
of property and equipment is provided using the straight-line method over their
estimated useful lives as follows:-
Land
and buildings
|
|
|
over
the unexpired lease term
|
|
Furniture
and fixtures
|
|
|
20
- 25
|
%
|
Office
equipment
|
|
|
25
- 33
|
%
|
Machinery
and equipment
|
|
|
25
- 33
|
%
|
Moulds
|
|
|
33
|
%
|
Motor
vehicles
|
|
|
25
- 33
|
%
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Property
and equipment
(Cont’d)
Property
and equipment, and intangible assets subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at the lower
of
the carrying amount or fair value less costs to sell, and are no longer
depreciated.
Revenue
recognition
Sales
of
goods represent the invoiced value of goods, net of sales returns, trade
discounts and allowances.
The
Company recognizes revenue when the goods are delivered and the customer takes
ownership and assumes risk of loss, collection of the relevant receivable is
probable, persuasive evidence of an arrangement exists, and the sales price
is
fixed or determinable. The Company provides pre and post sales service to its
customers related to inventory management information in order to facilitate
and
manage sales to customers. By providing such services to keep track of
customers’ inventory levels, the Company can manage and replenish inventory
levels on a timely basis. The Company’s integration, design and development and
management services provide customers with watch design assistance, components
outsourcing or other project support, and are generally completed prior to
a
sale and do not continue post-delivery. There is no requirement that these
services be provided for a sale to take place, nor is there any objective or
reliable evidence of a separate fair value, or if no longer offered or ceased
to
be offered would a right of return be created for the goods sold. The Company
believes these services are part of the sales process and are not a customer
deliverable, and are therefore charged to selling expense or cost of sales,
as
appropriate.
Advertising
and promotion expenses
Advertising
and promotion expenses are charged to expense as incurred.
For
the
year ended December 31, 2007, no advertising and promotion expenses were
incurred.
Advertising
and promotion expenses amounted to $2,502 and $19,718 during 2006 and 2005,
respectively, and are included in administrative and other operating expenses.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
In
June
2006, the FASB issued FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of Statement of Financial
Accounting Standards No. 109
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in tax positions. This
interpretation requires that an entity recognizes in the consolidated financial
statements the impact of a tax position, if that position is more likely than
not of being sustained upon examination, based on the technical merits of the
position. The adoption of FIN 48 did not have any impact on the Group’s results
of operations or financial condition for the year ended December 31, 2007.
As of
the date of the adoption of FIN 48, the Group has no material unrecognized
tax
benefit which would favorably affect the effective income tax rate in future
periods. The Group has elected to classify interest and penalties related to
unrecognized tax benefits, if and when required, as part of income tax expense
in the consolidated statements of operations.
Comprehensive
income
Other
comprehensive income refers to revenues, expenses, gains and losses that under
U.S. GAAP are included in comprehensive income but are excluded from net income
as these amounts are recorded as a component of stockholders’ equity. The
Company’s other comprehensive income represented foreign currency translation
adjustments.
Foreign
currency translation
The
functional currency of the Group is Hong Kong dollars (“HK$”). The Group
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 dates. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or losses
arising from foreign currency transactions are included in the determination
of
net income for the respective periods.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Foreign
currency translation
For
financial reporting purposes, the financial statements of the Group which are
prepared using the functional currency have been translated into United States
dollars. Assets and liabilities are translated at the exchange rates at the
balance sheet dates and revenue and expenses are translated at the average
exchange rates and stockholders’ equity is translated at historical exchange
rates. Any translation adjustments resulting are not included in determining
net
income but are included in foreign exchange adjustment to other comprehensive
income, a component of stockholders’ equity.
|
|
2007
|
|
2006
|
|
2005
|
|
Year
end HK$ : US$ exchange rate
|
|
|
7.7980
|
|
|
7.7730
|
|
|
7.7535
|
|
Average
yearly HK$ : US$ exchange rate
|
|
|
7.8014
|
|
|
7.7783
|
|
|
7.7778
|
|
Fair
value of financial instruments
The
carrying values of the Group’s financial instruments, including cash and cash
equivalents, restricted cash, trade and other receivables, deposits, trade
and
other payables approximate their fair values due to the short-term maturity
of
such instruments. The carrying amounts of borrowings approximate their fair
values because the applicable interest rates approximate current market
rates.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Basic
and diluted earnings per share
The
Company computes earnings per share (“EPS’) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128
requires companies with complex capital structures to present basic and diluted
EPS. Basic EPS is measured as the income or loss available to common
shareholders divided by the weighted average common shares outstanding for
the
period. Diluted EPS is similar to basic EPS but presents the dilutive effect
on
a per share basis of potential common shares (e.g., convertible securities,
options, and warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common shares that
have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
The
calculation of diluted weighted average common shares outstanding for the year
ended December 31, 2007 is based on the estimate fair value of the Company’s
common stock during such periods applied to warrants and options using the
treasury stock method to determine if they are dilutive. The Convertible Bond
is
included on an “as converted “basis when these shares are dilutive.
The
following tables are a reconciliation of the weighted average shares used in
the
computation of basic and diluted earnings per share for the periods
presented:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
5,570,642
|
|
|
6,319,939
|
|
|
4,025,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454420
|
|
Effect
of dilutive securities
|
|
|
2,464,687
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
0.24
|
|
|
0.32
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
0.22
|
|
|
0.32
|
|
|
0.21
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Comparative
amounts
Certain
amounts included in the prior years consolidated financial statements have
been
reclassified to conform to the current year’s presentation. These
reclassifications had no effect on reported total assets, liabilities,
shareholders’ equity, or net income.
Interest
rate risk
The
Group
is exposed to interest rate risk arising from short-term variable rate
borrowings from time to time. The Group’s future interest expense will fluctuate
in line with any change in borrowing rates. The Group does not have any
derivative financial instruments as of December 31, 2007 and 2006 and
believes its exposure to interest rate risk is not material.
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”), a revision to SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS 123R requires that the Company measure the cost of employee
services received in exchange for equity awards based on the grant date fair
value of the awards, with the cost to be recognized as compensation expense
in
the Company’s financial statements over the vesting period of the awards.
Accordingly, the Company recognizes compensation cost for equity-based
compensation for all new or modified grants issued after December 31, 2005.
The
Company did not have equity awards outstanding at December 31,
2005.
The
Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with EITF 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”, and EITF 00-18, “Accounting Recognition for Certain
Transactions involving Equity Instruments Granted to Other Than Employees”,
whereas the value of the stock compensation is based upon the measurement date
as determined at either (a) the date at which a performance commitment is
reached or (b) at the date at which the necessary performance to earn the equity
instruments is complete.
The
Company did not recognize any stock-based compensation during the years ended
December 31, 2006 and 2005. During the year ended December 31, 2007, the Company
recorded $2,433,650 as a charge to operations to recognize the grant date fair
value of stock-based compensation in conjunction with the Escrow Agreement
described at Note 17.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Recent
accounting pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including any financial statements
for an interim period within that fiscal year. The provisions of this statement
should be applied prospectively as of the beginning of the fiscal year in which
this statement is initially applied, except in some circumstances where the
statement shall be applied retrospectively. The Company is currently evaluating
the effect, if any, of SFAS 157 on its financial statements. Management
currently does not believe the adoption of SFAS 157 will have a material impact
on the Group’s consolidated financial statements.
On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of
SFAS No. 115” (“SFAS 159”). The fair value option established by SFAS 159
permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity will report unrealized gains and
losses on items for which the fair value option has been elected in earnings
(or
another performance indicator if the business entity does not report earnings)
at each subsequent reporting date. The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election
date occurs); and (c) is applied only to entire instruments and not to portions
of instruments. SFAS 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted
as
of the beginning of the previous fiscal year provided that the entity makes
that
choice in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS 157. Management currently does not believe the adoption
of
SFAS 159 will have a material impact on the Group’s consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS 141(R)”), which requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
the
acquiree at their fair values on the acquisition date, with goodwill being
the
excess value over the net identifiable assets acquired. SFAS 141(R) is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The Company does not
anticipate that the adoption of the above standards will have a material impact
on it current or future consolidated financial statements
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”), which clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will
continue to be based on income amounts attributable to the parent. SFAS 160
is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The Company does not
anticipate that the adoption of the above standards will have a material impact
on it current or future consolidated financial statements
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
3.
|
Other
operating income
|
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Commission
income
|
|
|
-
|
|
|
-
|
|
|
771,432
|
|
Gain
on disposal of intangible assets
|
|
|
424,103
|
|
|
210,594
|
|
|
-
|
|
License
fee of intangible assets
|
|
|
130,745
|
|
|
167,138
|
|
|
167,141
|
|
Rental
income
|
|
|
63,065
|
|
|
46,284
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617,913
|
|
|
424,016
|
|
|
938,573
|
|
|
|
|
Year
ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Bank
interest income
|
|
|
214,217
|
|
|
208,854
|
|
|
76,358
|
|
Dividend
income
|
|
|
11,957
|
|
|
8,977
|
|
|
4,481
|
|
Insurance
compensation
|
|
|
-
|
|
|
-
|
|
|
8,325
|
|
Net
exchange gains
|
|
|
3,335
|
|
|
1,078
|
|
|
1,302
|
|
Other
interest income
|
|
|
25
|
|
|
18,635
|
|
|
49,440
|
|
Sundry
income
|
|
|
3,845
|
|
|
27
|
|
|
16,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,379
|
|
|
237,571
|
|
|
156,199
|
|
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Interest
on trade related bank loans
|
|
|
1,066,581
|
|
|
981,184
|
|
|
457,983
|
|
Interest
and amortization on bonds
|
|
|
345,461
|
|
|
-
|
|
|
-
|
|
Interest
on short-term bank loans
|
|
|
22,267
|
|
|
25,322
|
|
|
6,254
|
|
Interest
on bank overdrafts
|
|
|
42,654
|
|
|
54,030
|
|
|
45,302
|
|
Interest
on other loans
|
|
|
551
|
|
|
-
|
|
|
5,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,477,514
|
|
|
1,060,536
|
|
|
514,637
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Hong
Kong profits tax
|
|
$
|
|
$
|
|
$
|
|
Current
year
|
|
|
1,968,120
|
|
|
1,311,479
|
|
|
948,933
|
|
Over
provision in prior year
|
|
|
-
|
|
|
(21,408
|
)
|
|
(37,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,968,120
|
|
|
1,290,071
|
|
|
911,687
|
|
Deferred
taxes
|
|
|
9,408
|
|
|
17,657
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977,528
|
|
|
1,307,728
|
|
|
911,687
|
|
The
Company’s subsidiaries operating in Hong Kong are subject to profits tax of
17.5% on the estimated assessable profits during the years.
The
Company’s subsidiaries that are incorporation in the British Virgin Islands are
not subject to income taxes under that jurisdiction.
A
reconciliation of income tax expense to the amount computed by applying the
Hong
Kong statutory tax rate to the income before taxes in the consolidated income
statement is as follows:
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Income
before taxes
|
|
|
7,548,170
|
|
|
7,627,667
|
|
|
4,937,312
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes at Hong Kong
|
|
|
|
|
|
|
|
|
|
|
income
tax rate
|
|
|
1,320,929
|
|
|
1,334,842
|
|
|
864,030
|
|
Change
in valuation allowance
|
|
|
4,150
|
|
|
486
|
|
|
50,918
|
|
Non-taxable
items
|
|
|
(74,407
|
)
|
|
(43,870
|
)
|
|
(14,147
|
)
|
Non-deductible
items
|
|
|
726,856
|
|
|
7,363
|
|
|
27
|
|
Others
|
|
|
-
|
|
|
8,907
|
|
|
45,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977,528
|
|
|
1,307,728
|
|
|
911,687
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
The
major
components of deferred tax recognized in the consolidated balance sheets
as of
December 31, 2007, 2006 and 2005 are as follows:
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Temporary
difference on accelerated tax
|
|
|
|
|
|
|
|
depreciation
on plant and equipment
|
|
|
27,024
|
|
|
17,669
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities, net
|
|
|
27,024
|
|
|
17,669
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
(29,929
|
)
|
|
(14,042
|
)
|
|
-
|
|
Net
deferred tax liabilities
|
|
|
56,953
|
|
|
31,711
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,024
|
|
|
17,669
|
|
|
-
|
|
Deferred
tax assets of the Company relating to the tax effect of the change in valuation
allowance of the Company has not been accounted for in the financial statements
for the years ended December 31, 2007, 2006 and 2005 as management determined
that it was more likely than not that these tax losses would not be utilized
in
the foreseeable future. There was no other significant unprovided deferred
taxation of the Company at the balance sheet dates.
7.
|
Prepaid
expenses and other
receivables
|
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Rental
receivable
|
|
|
-
|
|
|
46,314
|
|
|
-
|
|
Interest
receivable
|
|
|
24,696
|
|
|
20,218
|
|
|
-
|
|
Purchase
deposits
|
|
|
7,553,332
|
|
|
1,530,372
|
|
|
361,221
|
|
Sales
proceeds of intangible assets receivable
|
|
|
-
|
|
|
301,042
|
|
|
-
|
|
Other
deposits and prepayments
|
|
|
126,971
|
|
|
203,187
|
|
|
33,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,704,999
|
|
|
2,101,133
|
|
|
394,236
|
|
The
purchase deposits represented advanced payments to suppliers for merchandises
of
inventories.
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Merchandises,
at cost - completed watches
|
|
|
2,148,638
|
|
|
1,745,648
|
|
|
3,630,754
|
|
Merchandises,
at cost - watch movements
|
|
|
10,222,332
|
|
|
4,500,537
|
|
|
2,682,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,370,970
|
|
|
6,246,185
|
|
|
6,313,622
|
|
No
inventories were written off during the years ended December 31, 2007, 2006
and
2005.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
9.
|
Property
and equipment
|
|
|
|
At
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
1,188,043
|
|
|
242,350
|
|
|
104,008
|
|
Furniture
and fixtures
|
|
|
488,901
|
|
|
492,866
|
|
|
478,811
|
|
Office
equipment
|
|
|
146,752
|
|
|
145,911
|
|
|
137,410
|
|
Machinery
and equipment
|
|
|
320,595
|
|
|
321,626
|
|
|
128,974
|
|
Moulds
|
|
|
774,558
|
|
|
384,665
|
|
|
230,863
|
|
Motor
vehicles
|
|
|
74,475
|
|
|
45,928
|
|
|
26,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,993,324
|
|
|
1,633,346
|
|
|
1,106,441
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
68,525
|
|
|
8,441
|
|
|
2,542
|
|
Furniture
and fixtures
|
|
|
331,751
|
|
|
237,508
|
|
|
140,271
|
|
Office
equipment
|
|
|
128,165
|
|
|
100,612
|
|
|
68,766
|
|
Machinery
and equipment
|
|
|
157,294
|
|
|
93,475
|
|
|
32,447
|
|
Moulds
|
|
|
379,548
|
|
|
276,936
|
|
|
153,139
|
|
Motor
vehicles
|
|
|
36,332
|
|
|
26,116
|
|
|
26,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101,615
|
|
|
743,088
|
|
|
423,540
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
1,119,518
|
|
|
233,909
|
|
|
101,466
|
|
Furniture
and fixtures
|
|
|
157,150
|
|
|
255,358
|
|
|
338,540
|
|
Office
equipment
|
|
|
18,587
|
|
|
45,299
|
|
|
68,644
|
|
Machinery
and equipment
|
|
|
163,301
|
|
|
228,151
|
|
|
96,527
|
|
Moulds
|
|
|
395,010
|
|
|
107,729
|
|
|
77,724
|
|
Motor
vehicles
|
|
|
38,143
|
|
|
19,812
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,891,709
|
|
|
890,258
|
|
|
682,901
|
|
Depreciation
expenses included in administrative and other operating expenses for the years
ended 2007, 2006 and 2005 are $332,153, $325,995, $259,127
respectively.
As
at
December, 2006, 2005 and 2004, the carrying amount of land and buildings pledged
as security for the Group’s banking facilities amounted to $1,121,531, $233,909
and $101,466 respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cost
|
|
|
949,514
|
|
|
949,514
|
|
|
331,924
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
-
|
|
|
(31,234
|
)
|
|
(7,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to property and equipment
|
|
|
(949,514
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
-
|
|
|
918,280
|
|
|
323,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Analyzed
for reporting purposes as:
|
|
|
|
|
|
|
|
|
|
|
Current
asset
|
|
|
-
|
|
|
22,958
|
|
|
7,993
|
|
Non-current
asset
|
|
|
-
|
|
|
895,322
|
|
|
315,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
918,280
|
|
|
323,932
|
|
Amortization
expenses included in administrative and other operating expenses for the years
ended 2007, 2006 and 2005 are $Nil, $23,247 and $7,968
respectively.
As
at
December, 2007, 2006 and 2005, the carrying amount of leasehold lands pledged
as
security for the Group’s banking facilities amounted to $Nil, $918,280, $323,932
respectively.
11.
|
Held-to-maturity
investments
|
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Hang
Seng Capital Guarantee Investment Fund
|
|
|
|
|
|
|
|
|
|
|
-
30,000 units at $10 each, interest rate at 10.5% in 3.75
years
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
300,231
|
|
|
301,196
|
|
|
301,954
|
|
As
at
December, 2007, 2006 and 2005, the carrying amount of held-to-maturity
investments pledged as security for the Group’s banking facilities amounted to
$300,231, $301,196 and $301,954 respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
Trademarks
|
|
|
200,051
|
|
|
200,695
|
|
|
201,199
|
|
Websites
|
|
|
-
|
|
|
421,459
|
|
|
573,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,051
|
|
|
622,154
|
|
|
774,617
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
152,039
|
|
|
112,389
|
|
|
72,431
|
|
Websites
|
|
|
-
|
|
|
171,929
|
|
|
118,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,039
|
|
|
284,318
|
|
|
190,468
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
48,012
|
|
|
88,306
|
|
|
128,768
|
|
Websites
|
|
|
-
|
|
|
249,530
|
|
|
455,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,012
|
|
|
337,836
|
|
|
584,149
|
|
Amortization
expenses included in administrative and other operating expenses for the years
ended 2007, 2006 and 2005 are $ 92,884, $154,436 and $154,438
respectively.
Estimated
aggregate future amortization expenses for the succeeding three years as of
December 31, 2007 were as follows:
13.
|
Other
payables and accrued
liabilities
|
|
|
|
At
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Accrued
expenses
|
|
|
92,249
|
|
|
181,352
|
|
|
145,249
|
|
Sales
deposits received
|
|
|
40,258
|
|
|
9,006
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,507
|
|
|
190,358
|
|
|
145,249
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
14.
|
Advance
from a related
party
|
Advance
from a related party for working capital is as follows:
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Advance
from a director
|
|
|
-
|
|
|
-
|
|
|
28,854
|
|
The
above
advance is interest-free, unsecured and has no fixed repayment
terms.
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Secured:
|
|
|
|
|
|
|
|
Bank
overdrafts repayable on demand
|
|
|
528,451
|
|
|
551,714
|
|
|
352,577
|
|
Repayable
within one year
|
|
|
|
|
|
|
|
|
|
|
Short
term bank loans
|
|
|
2,223,290
|
|
|
1,469,866
|
|
|
294,764
|
|
Other
trade related bank loans
|
|
|
17,686,738
|
|
|
11,183,587
|
|
|
9,416,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,438,479
|
|
|
13,205,167
|
|
|
10,064,129
|
|
As
of
December 31, 2007, the Company’s banking facilities are composed of the
following:
Facilities
granted
|
|
|
Granted
|
|
|
|
|
|
Unused
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Bank
overdrafts
|
|
|
695,662
|
|
|
528,451
|
|
|
167,211
|
|
Other
short terms bank loans
|
|
|
2,223,290
|
|
|
2,223,290
|
|
|
-
|
|
Other
trade related facilities
|
|
|
22,151,579
|
|
|
17,686,738
|
|
|
4,464,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,070,531
|
|
|
20,438,479
|
|
|
4,632,052
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
15.
|
Bank
borrowings
(Cont’d)
|
As
of
December 31, 2007, the above short-term banking borrowings were secured by
the
following:
|
(a)
|
first
fixed legal charge over leasehold land and buildings with carrying
amounts
of $1,152,189 (note 10 and 11);
|
|
(b)
|
charge
over restricted cash of totally $8,505,354;
|
|
(c)
|
charge
over held-to-maturity investments of $300,231 (note 11);
and
|
|
(d)
|
personal
guarantee executed by a director of the
Company;
|
|
(e)
|
Other
financial covenant:-
|
The
bank
borrowings require one of the Company’s subsidiaries to be secured by an
Insurance Policy of $256,476 and a director as the insured party.
The
bank
borrowings require one of the Company’s subsidiaries to maintain a minimum net
worth of $5,257,758.
The
Company was in compliance with this requirement at December 31,
2007.
The
interest rates of short-terms bank loans were at 6.25% to 8.00% per annum with
various maturity rates.
The
interest rates of other trade related bank loans were at Hong Kong Prime Rate
minus 0.75% to 2% per annum.
16.
|
Convertible
Bonds and Bond Warrants
|
On
November 13, 2007, the Company completed a financing transaction with ABN AMRO
Bank N.V. (the “Subscriber ”) issuing (i) $8,000,000 Variable Rate Convertible
Bonds due in 2012 (the “Bonds”) and (ii) warrants to purchase an aggregate of
600,000 shares of our common stock, subject to adjustments for stock splits
or
reorganizations as net forth in the warrant, that expire in 2010 (the “Warrants
“).
The
Bonds
were subscribed at a price equal to 97% of their principal amount, which is
the
issue price of 100% less a 3% commission to the Subscriber. The Bonds were
issued pursuant to, and are subject to the terms and conditions of, a trust
deed
dated November 13, 2007, as amended, between us and The Bank of New York, London
Branch (the “Trust Deed “). The Bonds are also subject to a paying and
conversion agency agreement dated November 13, 2007 between us, The Bank of
New
York, and The Bank of New York, London Branch. The terms and conditions of
the
Bonds, as set forth in the Trust Deed include, among other thing, the following
terms:
Interest
Rate.
The Bonds bear cash interest from November 13, 2007 at the rate of 6%
per annum for the first year after November 13, 2007 and 3% per annum
thereafter, of the principal amount of the Bonds.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
16.
|
Convertible
Bonds and Bond Warrants
(Cont’d)
|
Conversion
.
Each
Bond is convertible at the option of the holder at any time on a date that
is
365 days after the date that our securities are traded on the American Stock
Exchange (“AMEX”) through March 28, 2012, into shares of our common stock at an
initial conversion price equal to the price per share at which shares are sold
in our proposed initial public offering of common stock on the American Stock
Exchange (“AMEX”) with minimum gross proceeds of $2,000,000. If no initial
public offering occurs prior to conversion, the conversion price per share
will
be $2.00, subject to adjustment in accordance with the terms and conditions
of
the Bonds. The conversion price was adjusted to $3.5 based on the Company’s
initial public offering completed in February 2008. The conversion price is
subject to adjustment in certain events, including our issuance of additional
shares of common stock or rights to purchase common stock at a per share or
per
share exercise or conversion price, respectively, at less than the applicable
per share conversion price of the Bonds. If for the period of 20 consecutive
trading days immediately prior to April 12, 2009 or February 18, 2012, the
conversion price for the Bonds is higher than the average closing price for
the
shares, then the conversion price will be reset to such average closing price;
provided that, the conversion price will not be reset lower than 70% of the
then
existing conversion price. In addition, the Trust Deed provides that the
conversion price of the Bonds cannot be adjusted to lower than $0.25 per share
of common stock (as adjusted for stock splits, stock dividends, spin-offs,
rights offerings, recapitalizations and similar events).
Mandatory
Redemptions
. If on or before November 13, 2008, either (i) our common stock
(including the shares of common stock issuable upon conversion of the Bonds
and
exercise of the Warrants) are not listed on AMEX OR (ii) the Bonds, Warrants,
and shares underlying the Bonds and Warrants are not registered with the
Securities and Exchange Commission (the “SEC”), then holders of the Bonds can
require us to redeem the Bonds at 106.09% of the principal amount. In addition,
at any time after November 13, 2010, holders of the Bonds can require us to
redeem the Bonds at 126.51% of the principal amount. The Company is required
to
redeem any outstanding Bonds at 150.87% of its principal amount on November
13,
2012.
On
November 13, 2007, the Company entered into a warrant instrument with the
Subscriber pursuant to which the Subscriber purchased the Warrants from us
(the
“Warrants Instrument”). The Warrants, which are represented by a global
certificate, are also subject to a warrant agency agreement by and among us,
The
Bank of New York and The Bank of New York, London Branch dated November 13,
2007
(the “Warrant Agency Agreement”). Pursuant to the terms and conditions of the
Warrant Instrument and the Warrant Agency Agreement, the Warrants vested on
November 13, 2007 and will terminate on November 13, 2010. The Bond Warrants
are
exercisable at a per share exercise price of $0.01. The Company has agreed
to
list the Warrant on AMEX, or any alternative stock exchange by November 13,
2008.
On
November 13, 2007 the Company also entered into a registration rights agreement
with the Subscriber pursuant to which the Company agreed to include the Bonds,
the Warrants, and the shares of common stock underlying the Bonds and Warrants
in a pre-effective amendment to registration statement that the Company have
on
file with the SEC. Subsequently, the Company verbally agreed with the Subscriber
not to include the Subscriber’s securities in this registration statement and to
register them in a separate registration statement to be filed promptly after
the effective date of this registration statement.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
16.
|
Convertible
Bonds and Bond Warrants
(Cont’d)
|
At
November 13, 2007, the date of issuance, the Company determined the fair value
of the Bonds to be $7,760,000. The warrants and the beneficial conversion
feature were $1,652,701 and $6,107,299 respectively, which were determined
under
the Black-Scholes valuation method. They are included under stockholders’ equity
as additional paid in capital-stock warrants and additional paid in
capital-beneficial conversion feature respectively in accordance with guidance
of APB 14 and EITF No. 98-5.Accordingly, the interest discount on the warrants
and beneficial conversion feature were recorded, and are being amortized by
the
interest method of 5 years. The Beneficial Conversion Feature was calculated
using a $2 conversion price. The conversion rate effective with the Company’s
initial public offering in February 2008 increased to $3.5. This change in
the
conversion rate will result in a reduction of the Beneficial Conversion Feature
by approximately $4 million dollars and will result in a reduction in additional
paid in capital and increase the bonds payable. The overall result in a
reduction in bond discounts.
As
addressed in an earlier paragraph under Mandatory Redemptions, the Company
will
redeem each bond at 150.87% of its principal amount on November 13, 2012 (the
maturity date). On the basis of this commitment, the Company has determined
the
total redemption premium to be $4,069,600, which is an addition to the original
face value of the Bonds of $8,000,000. This redemption premium is to be
amortized to interest expense over the term of the Bonds by the interest method.
Interest expense on the accretion of redemption premium for the period from
November 13, 2007 to December 31, 2007 amounted to $65,333 as disclosed in
the
following schedule of Convertible Bonds Payable.
Because
of the fact that the $8,000,000 Variable Rate Convertible Bonds contain three
separate securities and yet merged into one package, the bond security must
identify its constituents and establish the individual value as determined
by
the Issuer as follows:
(1)
|
|
|
Convertible
Bonds
|
|
$
|
8,000,000
|
|
(2)
|
|
|
Bond
Discount
|
|
$
|
240,000
|
|
(3)
|
|
|
Warrants
|
|
$
|
1,652,701
|
|
(4)
|
|
|
Beneficial
Conversion Feature
|
|
$
|
6,107,299
|
|
The
above
items (2), (3), and (4) are to be amortized to interest expense over the term
of
the Bonds by the effective interest method as disclosed in the table below.
The
Convertible Bonds Payable, net consists of the following:-
Year
ending December 31, 2007
|
|
$
|
|
Convertible
Bonds Payable
|
|
|
8,000,000
|
|
Less:
Interest discount - Warrants
|
|
|
(1,652,701
|
)
|
Less:
Interest discount - Beneficial conversion feature
|
|
|
(6,107,299
|
)
|
Less:
Bond discount
|
|
|
(240,000
|
)
|
Accretion
of interest discount - Warrant
|
|
|
44,374
|
|
Accretion
of interest discount - Beneficial conversion feature
|
|
|
163,977
|
|
Amortization
of bond discount to interest expense
|
|
|
6,444
|
|
6%
Interest Payable
|
|
|
65,333
|
|
Accretion
of redemption premium
|
|
|
65,333
|
|
|
|
|
|
|
Net
|
|
|
345,461
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
17.
|
Common
stock and
convertible
preferred
stock
|
The
Company conducted a private placement (“Private Placement”) pursuant to
subscription agreements (the “Subscription Agreement”) entered into by the
Company and certain investors. Pursuant to the Private Placement, the Company
sold an aggregate of 2,250,348 shares of Series A Convertible Preferred Stock
(“Series A Preferred Stock”) at $1.29 per share for aggregate gross proceeds of
$2,902,947.
At
the
initial closing of the Private Placement on January 23, 2007, the Company sold
an aggregate of 1,749,028 shares of Series A Preferred Stock. At the second
and
final closing of the Private Placement on February 9, 2007, the Company sold
an
aggregate of 501,320 shares of Series A Preferred Stock.
The
shares of the Company’s Series A Preferred Stock are convertible into shares of
common stock at a conversion price equal to the share purchase price, subject
to
adjustments. Accordingly, each share of Series A Preferred Stock is initially
convertible into one share of common stock.
If
the
Company at any time prior to the first trading day on which the common stock
is
quoted on the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq
Global Market or the New York Stock Exchange (each a “Trading Market”) sells or
issues any shares of common stock in one or a series of transactions at an
effective price less than such conversion price where the aggregate gross
proceeds to the Company are at least $1,000,000, then the aforementioned
conversion price shall be reduced to such effective price. Each share of
Series A Convertible Preferred Stock shall automatically convert into
shares of common stock if (i) the closing price of the common stock on the
Trading Market for any 10 consecutive trading day period exceeds $3.00 per
share, (ii) the shares of common stock underlying the Series A
Convertible Preferred Stock are subject to an effective registration statement,
and (iii) the daily trading volume of the common stock on a Trading Market
exceeds 25,000 shares per day for 10 out of 20 prior trading days.
The
Company agreed to file a registration statement covering the common stock
underlying the Series A Convertible Preferred Stock sold in the Private
Placement within 30 days of the closing of the Share Exchange pursuant to the
Subscription Agreement with each investor. The Company agreed to a penalty
provision with respect to its obligation to register the Series A Convertible
Preferred Stock. If the Company fails to register the Series A Convertible
Preferred Stock due to failure on the part of the Company, the Company will
pay
to the holders of Series A Convertible Preferred Stock a cash payment equal
to
0.0333% of the purchase price of their respective shares for each business
day
of the failure. There is no maximum potential consideration to be transferred.
The Company is required to file the registration statement no later than 30
days
after the consummation of the Private Placement and agreed to use reasonable
best efforts to cause such Registration Statement to become effective within
150
days after the closing of the Private Placement, or 180 days if the Registration
Statement is subject to a full review by the SEC. The Company is also required
to use its reasonable best effort to maintain the Registration Statement
effective for a period of 24 months at the Company's expense.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
17.
|
Common
stock and
convertible
preferred
stock
(Cont’d)
|
The
investors in the Private Placement also entered into a lock-up agreement
pursuant to which they agreed not to sell their shares until our common stock
begins to be listed or quoted on the New York Stock Exchange, American Stock
Exchange, NASDAQ Global Market, NASDAQ Capital Market or the OTC Bulletin Board,
after which their shares will automatically be released from the lock up every
30 days on a pro rata over a nine month period beginning on the date that is
30
days after listing or quotation of the shares.
In
connection with the Private Placement, in January and February 2007, Kwong
Kai
Shun, the Company's Chairman of the Board, Chief Executive Officer and Chief
Financial Officer, entered into an agreement (the “Escrow Agreement”) with the
investors in the Private Placement pursuant to which Mr. Kwong agreed to place
2,326,000 shares of his common stock in escrow for possible distribution to
the
investors (the "Escrow Shares"). Pursuant to the Escrow Agreement, if the
Company's net income for 2006 or 2007 (subject to specified adjustments) as
set
forth in its filings
with
the
SEC is less than $6,300,000 or $7,700,000, respectively, a portion, if not
all,
of the Escrow Shares will be transferred to the investors based upon the
Company's actual net income, if any, for such fiscal years. In addition, Mr.
Kwong has agreed to purchase all of the shares of Series A Preferred Stock
then
held by such investors at a per share purchase price of $1.29 if the Company's
common stock fails to be listed or quoted for trading on the American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the New York
Stock Exchange on or before June 30, 2007, which has been subsequently extended
to March 31, 2008. The number of shares that Mr. Kwong will distribute to
shareholders will be determined by the number of shares of common stock that
have not been sold by the investors, multiplied by the shortfall in a valuation
agreed upon by the parties. The agreed upon shortfall in valuation is calculated
using the $1.29 purchase price per share of the common stock, the actual amount
of net income for either 2006 or 2007 (subject to specified adjustments) and
a
price earnings ratio set at 5 for 2006 and 4 for 2007. In no circumstances
will
Mr. Kwong be required to distribute in excess of 2,326,000 shares. In the event
that Mr. Kwong transfers any shares to investors, it is anticipated that the
transfer will be effected under an exemption from registration pursuant to
the
Securities Act of 1933, as amended.
The
Company has accounted for the Escrow Shares as the equivalent of a
performance-based compensatory stock plan between the Company and Mr. Kwong.
Accordingly, the Company determined the fair value of the stock-based
compensation related to the Escrow Shares by employing a binomial tree model,
which is commonly used to value performance-based equity compensation packages.
The valuation model used a volatility factor of 57%, a risk-free interest rate
of 5.7%, and weekly steps to incorporate various possible scenarios for net
income and common stock price. The probability at each quarter-end represents
the probability of achieving the annual 2006 and 2007 net income targets
specified in the Escrow Agreement. This quarterly probability is a time-weighted
average of the implicit probabilities of achieving each net income target.
The
probabilities are calculated using multi-period scenario analyses through a
backward induction tree, which generated an aggregate fair value for the Escrow
Shares of $2,433,650. The inputs to the valuation mode were based on actual
quarterly net income and estimates made by the Company that the required annual
net income would be equaled or exceeded.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
17.
|
Common
stock and
convertible
preferred
stock
(Cont’d)
|
As
the
performance conditions under this compensatory stock plan relate to the
attainment of specific defined net income milestones for both 2006 and 2007,
the
Company has determined that the appropriate period over which to recognize
the
charge to operations for the aggregate fair value of this compensatory stock
plan of $2,433,650 is the 11-month period from February 2007 through December
2007, which is the period of vesting (which is equivalent to the period of
benefit), since this is the period in which the Escrow Shares are subject to
the
Escrow Agreement.
The
Company met the 2006 and 2007 net income requirement of $6,300,000 and
$7,700,000 respectively, and the Escrow Shares would be fully returned to Mr.
Kwong on April 1, 2008.
If
the
Company pays a stock dividend on the shares of common stock, subdivide
outstanding shares of common stock into a larger number of shares, combine,
through a reverse stock split, outstanding shares of the common stock into
a
smaller number of shares or issues, in the event of a reclassification of shares
of the common stock, any shares of capital stock, then the conversion price
of
the Series A Preferred Stock will be adjusted as follows: the conversion price
will be multiplied by a fraction, of which (i) the numerator will be the number
of shares of common stock outstanding immediately before one of the events
described above and (ii) the denominator will be the number of shares of common
stock outstanding immediately after such event.
Holder
of
the Series A Convertible Preferred Stock have the right to one vote per share
of
common stock issuable upon conversion of the shares underlying any shares of
Preferred Stock outstanding as of the record date for purposes of determining
which holders have the right to vote with respect to any matters brought to
a
vote before the Company’s holders of common stock.
In
the
event of any liquidation, dissolution, or winding up of the Company, the holders
of the Series A Convertible Preferred Stock are entitled to receive in
preference to the holders of common stock an amount per share of $1.29 plus
any
accrued but unpaid dividends. If the Company’s assets are insufficient to pay
the above amounts in full, then all of the Company’s assets will be ratably
distributed among the holders of the Series A Convertible Preferred Stock in
accordance with the respective amounts that would be payable on such shares
if
all amounts payable were paid in full.
There
are
no additional specific dividend rights or redemption rights of holders of the
Series A Convertible Preferred Stock.
If
the
Company redeems or acquired any shares of the Series A Convertible Preferred
Stock are converted, those shares will resume the status of authorized but
unissued shares of preferred stock and will no longer be designated as Series
A
Convertible Preferred Stock.
As
long
as any shares of Series A Convertible Preferred Stock are outstanding, the
Company cannot alter or adversely change the powers, preference or rights given
to the Series A Convertible Preferred Stock holders, without the affirmative
vote of those holders.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
18.
|
Concentration
of credit
|
A
substantial percentage of the Group's sales are made to the following customers.
Details of the customers accounting for 10% or more of total net revenue are
as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Company
A
|
|
|
11
|
%
|
|
12
|
%
|
|
24
|
%
|
Company
B
|
|
|
-
|
|
|
11
|
%
|
|
11
|
%
|
Details
of the accounts receivable from the one customer with the largest receivable
balances at December 31, 2007 and 2006 are as follows:
|
|
Percentage
of accounts receivable
|
|
|
|
2007
|
|
2006
|
|
Company
A
|
|
|
22
|
%
|
|
18
|
%
|
The
Group
participates in a defined contribution pension scheme under the Mandatory
Provident Fund Schemes Ordinance “MPF Scheme” for all its eligible employees in
Hong Kong.
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 Group’s
subsidiary 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
Group’s contributions together with accrued returns irrespective of their length
of service with the Group, but the benefits are required by law to be preserved
until the retirement age of 65. The only obligation of the Group with respect
to
MPF Scheme is to make the required contributions under the plan.
The
assets of the schemes are controlled by trustees and held separately from those
of the Group. Total pension cost was $20,265, $18,749 and $18,802 during 2007,
2006 and 2005, respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
20.
|
Commitments
and contingencies
|
Operating
leases commitments
The
Group
leases office premises under various non-cancelable operating lease agreements
that expire at various dates through years 2008, with an option to renew the
lease. All leases are on a fixed repayment basis. None of the leases includes
contingent rentals. Minimum future commitments under these agreements payable
as
of December 31, 2007 are as follows:
Year
ending December 31
|
|
$
|
|
2008
|
|
|
70,047
|
|
Rental
expenses for the years ended 2007, 2006 and 2005 were $90,295, $103,624 and
$138,262 respectively.
SFAS
No. 131,
Disclosures
about Segments of an Enterprise and Related Information
,
establishes standards for reporting information about operating segments in
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing
performance.
For
management purposes, the Group is currently organized into two major principal
activities - trading of watch movements (components) and trading of completed
watches. These principal activities are the basis on which the Group reports
its
primary segment information.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
21.
|
Segment
Information
(Cont’d)
|
For
the
year ended December 31, 2007
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
|
|
|
86,414,118
|
|
|
10,548,575
|
|
|
-
|
|
|
96,962,693
|
|
Cost
of sales
|
|
|
(77,473,063
|
)
|
|
(5,646,762
|
)
|
|
-
|
|
|
(83,119,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,941,055
|
|
|
4,901,813
|
|
|
-
|
|
|
13,842,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,072,410
|
)
|
|
(913,394
|
)
|
|
(2,941,475
|
)
|
|
(4,927,279
|
)
|
Other
operating income
|
|
|
63,064
|
|
|
554,849
|
|
|
-
|
|
|
617,913
|
|
Income
from operations
|
|
|
7,931,709
|
|
|
4,543,268
|
|
|
(2,941,475
|
)
|
|
9,533,502
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
(741,197
|
)
|
|
(741,197
|
)
|
Non-operating
income
|
|
|
233,379
|
|
|
-
|
|
|
-
|
|
|
233,379
|
|
Interest
expenses
|
|
|
(1,132,053
|
)
|
|
-
|
|
|
(345,461
|
)
|
|
(1,477,514
|
)
|
Income
before income taxes
|
|
|
7,033,035
|
|
|
4,543,268
|
|
|
(4,028,133
|
)
|
|
7,548,170
|
|
Significant
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Gain on disposal of intangible assets
|
|
|
-
|
|
|
(425,256
|
)
|
|
-
|
|
|
(425,256
|
)
|
-
Depreciation
|
|
|
180,034
|
|
|
152,119
|
|
|
-
|
|
|
332,153
|
|
-
Amortization of intangible assets
|
|
|
-
|
|
|
123,977
|
|
|
-
|
|
|
123,977
|
|
Segment
assets
|
|
|
45,349,351
|
|
|
6,101,962
|
|
|
-
|
|
|
51,451,313
|
|
Total
expenditures for additions to long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Property and equipment
|
|
|
426,815
|
|
|
-
|
|
|
-
|
|
|
426,815
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
21.
|
Segment
Information
(Cont’d)
|
For
the
year ended December 31, 2006
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
|
|
|
73,047,632
|
|
|
8,086,643
|
|
|
-
|
|
|
81,134,275
|
|
Cost
of sales
|
|
|
(67,228,452
|
)
|
|
(4,268,349
|
)
|
|
-
|
|
|
(71,496,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
5,819,180
|
|
|
3,818,294
|
|
|
-
|
|
|
9,637,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,396,289
|
)
|
|
(214,569
|
)
|
|
-
|
|
|
(1,610,858
|
)
|
Other
operation income
|
|
|
46,264
|
|
|
377,752
|
|
|
-
|
|
|
424,016
|
|
Income
from operations
|
|
|
4,469,155
|
|
|
3,981,477
|
|
|
-
|
|
|
8,450,632
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
237,571
|
|
|
-
|
|
|
-
|
|
|
237,571
|
|
Interest
expenses
|
|
|
(1,060,536
|
)
|
|
-
|
|
|
-
|
|
|
(1,060,536
|
)
|
Income
before income taxes
|
|
|
3,646,190
|
|
|
3,981,477
|
|
|
-
|
|
|
7,627,667
|
|
Significant
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Gain on disposal of fixed asset
|
|
|
(210,594
|
)
|
|
-
|
|
|
-
|
|
|
(210,594
|
)
|
-
Depreciation
|
|
|
159,003
|
|
|
166,992
|
|
|
-
|
|
|
325,995
|
|
-
Amortization of intangible assets
|
|
|
-
|
|
|
154,436
|
|
|
-
|
|
|
154,436
|
|
-
Amortization of leasehold lands
|
|
|
23,247
|
|
|
-
|
|
|
-
|
|
|
23,247
|
|
Segment
assets
|
|
|
19,766,313
|
|
|
4,329,970
|
|
|
-
|
|
|
24,096,283
|
|
Total
expenditures for additions to long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Property and equipment
|
|
|
776,252
|
|
|
386,451
|
|
|
-
|
|
|
1,162,703
|
|
-
Acquisition of held-to-maturity investments
|
|
|
301,007
|
|
|
-
|
|
|
-
|
|
|
301,007
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
21.
|
Segment
Information
(Cont’d)
|
For
the
year ended December 31, 2005
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
|
|
$
|
|
Sales
|
|
|
58,843,209
|
|
|
4,235,200
|
|
|
-
|
|
|
63,078,409
|
|
Cost
of sales
|
|
|
(55,069,673
|
)
|
|
(1,956,363
|
)
|
|
-
|
|
|
(57,026,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,773,536
|
|
|
2,278,837
|
|
|
-
|
|
|
6,052,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,270,239
|
)
|
|
(424,957
|
)
|
|
-
|
|
|
(1,695,196
|
)
|
Other
operating income
|
|
|
771,431
|
|
|
167,142
|
|
|
-
|
|
|
938,573
|
|
Income
from operations
|
|
|
3,274,728
|
|
|
2,021,022
|
|
|
|
|
|
5,295,750
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
156,199
|
|
|
-
|
|
|
-
|
|
|
156,199
|
|
Interest
expenses
|
|
|
(514,637
|
)
|
|
-
|
|
|
-
|
|
|
(514,637
|
)
|
Income
before income taxes
|
|
|
2,916,290
|
|
|
2,021,022
|
|
|
|
|
|
4,937,312
|
|
Significant
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Depreciation
|
|
|
183,180
|
|
|
75,947
|
|
|
-
|
|
|
259,127
|
|
-
Amortization of intangible assets
|
|
|
-
|
|
|
154,438
|
|
|
-
|
|
|
154,438
|
|
-
Amortization of leasehold lands
|
|
|
7,968
|
|
|
-
|
|
|
-
|
|
|
7,968
|
|
Segment
assets
|
|
|
13,678,951
|
|
|
5,078,308
|
|
|
-
|
|
|
18,757,259
|
|
Total
expenditures for additions to long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Property and equipment
|
|
|
574,388
|
|
|
-
|
|
|
-
|
|
|
574,388
|
|
The
Group’s operations are primarily in Hong Kong and China and the Group’s sales,
gross profit and total assets attributable to other geographical areas are
less
than
10%
of
the Group’s corresponding consolidated totals for the years ended December,
2007, 2006 and 2005 consequently, no segment information by geographical areas
is presented.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
On
January 16, 2008, the Company entered into a consulting agreement with Public
Equity Group Inc. Pursuant to the agreement, Public Equity Group will provide
the Company with business consulting and investor relation services and other
related services. The agreement has a term of one year, unless terminated
earlier with 60-days prior written notice. As consideration for entering in
the
agreement and compensation for Public Equity Group’s services under the
agreement, the Company will issue 200,000 shares of its common stock to Public
Equity Group Inc. In connection with the issuance of 200,000 shares of common
stock, we expect to recognize a one-time charge to operations in the first
quarter of 2008 in an amount equal to approximately $700,000, which is derived
from valuing each share at $3.50, the offering price in our public
offering.
On
February, 12, 2008, the company’s common stock commenced trading on the American
Stock Exchange.
On
February 15, 2008, the Company issued 963,700 shares of common stock upon the
closing of an initial public offering. The Company’s sale of common stock, which
was sold indirectly by the Company to the public at a price of $3.50 per share,
resulted in net proceeds of approximately $2.7 million. These proceeds were
net
of underwriting discounts and commissions, fees for legal and auditing services,
and other offering costs. Upon the closing of the initial public offering,
the
Company sold to the underwriter warrants to purchase up to 83,800 shares of
its
common stock. The warrants are exercisable at a per share price of $4.20 and
has
a term of five years.