The accompanying notes are an integral part of these unaudited consolidated financial statements.
CHINA INTELLIGENCE INFORMATION SYSTEMS INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS CHINA VOIP & DIGITAL TELECOM, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
NOTE 1
GENERAL
China Intelligence Information Systems Inc. (“the Company” or “We”), formerly, Crawford Lake Mining, Inc. and China VoIP & Digital Telecom, Inc. acquired on August 17, 2006, all of the outstanding capital stock of Jinan Yinquan Technology Co. Ltd. (“Jinan Yinquan”) in exchange for the issuance of 40,000,000 shares of our common stock to the Jinan Shareholders and $200,000. Such shares are restricted in accordance with Rule 144 of the 1933 Securities Act. In addition, as further consideration for the acquisition, Apollo Corporation, the principal shareholder of the Company, agreed to cancel 11,750,000 post-split shares of its outstanding common stock. Based upon same, Jinan Yinquan became our wholly-owned subsidiary. Jinan Yinquan was established in Jinan in the People’s Republic of China (“the PRC”) in 2001. The exchange of shares with Jinan Yinquan has been accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of the Jinan Yinquan obtained control of the consolidated entity.
On May 7, 2008 (the “Closing Date”), Jinan Yinquan completed the acquisition of 80% of Beijing Power Unique Technologies Co., Ltd. (“BPUT”), a company incorporated under the laws of the People’s Republic of China, in accordance with the Investment Agreement.
On July 5, 2008, Jinan Yinquan acquired another 20% ownership of BPUT. BPUT therefore became 100% owned subsidiary of Jinan Yinquan on the same date.
The Company’s principal activities are developing and sales of computer software and hardware, digital video pictures system; and developing and sales of computer network and network audio devices. Before July 2009, the Company was focused on the Voice Over Internet Phone (“VOIP”) technology related business. In July 2009, the VOIP business was discontinued by China government and the company transitioned to focus on providing virtualization solutions and services. The Company initiated the virtualization business in 2008. Currently, the Company also focuses on the cloud computing
．
Now, the Company owns several virtualization-based products with independent intellectual property rights for education, info-security and cloud computing.
The virtualization business is primarily conducted through BPUT outside the Shandong area, while Yinquan is doing business primarily focusing on the Shangdong area.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Our functional currency is the Chinese Renminbi; however the accompanying financial statements have been translated and presented in United States Dollars ($).
The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2010. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principle of Consolidation
The accompanying consolidated financial statements include the accounts of China Intelligence Information Systems Inc. (the “Company”) and its 100% wholly-owned subsidiary Shandong Honest Management and Consulting Co. Ltd. The accompanying financial statements also include another two 100% wholly-owned subsidiaries of Jinan Yinquan Technology Co. Ltd. (“Jinan Yinquan”) and Beijing Power Unique Technologies Co., Ltd. (“BPUT”). All significant inter-company accounts and transactions have been eliminated in consolidation.
Foreign Currency Translation
The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company maintains books and records in their functional currency, being the primary currency of the economic environment in which the operations are conducted. In general, the Company translates the assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet, as component of comprehensive income in accordance with SFAS No. 130 (ASC 220), “Reporting Comprehensive Income” as a component of shareholders’ equity for the three months ended March 31, 2011 and 2010, the foreign currency translation loss was $519,015 and $89,108, respectively. The accumulated comprehensive foreign currency translation gain amounted to $503,863 and $1,022,878 as of March 31, 2011 and December 31, 2010, respectively.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
The company may purchase foreign exchange for settlement of "current account transactions", including payment of dividends to the company shareholders, without the approval of the State Administration for Foreign Exchange. The company may also retain foreign exchange in the company’s current account, subject to a ceiling approved by the State Administration for Foreign Exchange, to satisfy foreign exchange liabilities or to pay dividends. However, the Chinese government may change its laws or regulations and limit or eliminate the company’s ability to purchase and retain foreign currencies in the future.
Since a significant amount of the company future revenues will be denominated in Renminbi, the existing and any future restrictions on currency exchange may limit the company’s ability to utilize revenues generated in Renminbi to fund any business activities outside China or fund expenditures denominated in foreign currencies.
Allowance for Doubtful Accounts
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of March 31, 2011 and December 31, 2010, the allowances for doubtful accounts were $725,485 and $733,682, respectively.
Inventories
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. The Management compares the cost of inventories with the market value and allowance is made for writing down the inventories to their market value, if lower. As of March 31, 2011 and December 31, 2010, the reserves for obsolescence of inventory were $312,452 and $311,179, respectively.
Property, Plant & Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
|
Furniture and Fixtures
|
5-10 years
|
|
Equipment
|
5-10 years
|
|
Vehicles
|
10 years
|
|
Computer Hardware and Software
|
5 years
|
|
Building
|
20 years
|
Software development cost
Software development costs incurred prior to the establishment of technological feasibility are expensed. Software development costs incurred between the establishment of technological feasibility and product release are capitalized, if material, and amortized over the estimated economic life of the product, which is generally three years.
Equity investment
The equity method is used when the investor’s ownership interest gives it the ability to influence investee firm’s financial and operating policies. The appropriate percentage of a loss incurred by the investee is recognized immediately by the investor with the carrying value of the investment account also being reduced.
Impairment of Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (ASC 360). SFAS 144 (ASC 360) requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
Revenue Recognition
The Company markets products primarily through its subsidiaries and alliance system integrators. The Company’s products consist of virtualization technology related hardware, software, service and in-house developed software. The hardware includes serves, storage devices, virtualization desk-top devices and other hardware used during the virtualization projects implemented by the Company. The software indicates virtualization related software which is purchased from VMware and Vizioncore. The services including software maintenance and update, product training and consulting services. Self-developed software is developed by the Company for satisfying diverse demands from clients.
The Company’s revenue recognition policies are in compliance with the Statement of Position (SOP) 97-2,
Software Revenue Recognition
, as amended by SOP 98-4 and SOP 98-9. Under which, software revenue is recognized at the delivery but service and the maintenance revenue is recognized over the period of service contract. The service and maintenance revenue is recognized based upon fair value method regardless of contract terms.
Hardware and Software Revenue
|
|
·
|
The Company recognizes revenue relating to hardware and software when all of the following criteria are met
|
|
|
·
|
Persuasive evidence of the arrangement exists
|
|
|
·
|
Delivery has occurred or the service has been provided and the Company has no remaining obligations The fee is fixed or determinable
|
|
|
·
|
Collectability is probable
|
Sales through system integrators are evidenced by a master distribution agreement, together with purchase orders or equivalent, on a transaction-by-transaction basis.
Service Revenue
Services revenues consist of software maintenance and professional services. The Company recognizes software maintenance revenues ratably over the contract period, which typically ranges from one to five years. Professional services include design, implementation, and training. Professional services are not considered essential to the functionality of the Company’s products as these services do not alter the product capabilities. Professional services engagements performed for a fixed fee, for which the Company is able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours and direct expenses incurred. Professional services engagements that are on a time and materials basis are recognized based upon hours incurred. Revenues on all other professional services engagements are recognized upon completion.
In-House Developed Software Revenue
There are two circumstances of the revenue recognition for in house developed software:
|
|
1.
|
Development cycle within one year
|
The Company recognizes revenue of internally development software when all of the following criteria are met:
|
|
·
|
Persuasive evidence of the arrangement exists
|
|
|
·
|
Delivery has occurred or the service has been provided and the Company has no remaining obligations The fee is fixed or determinable
|
|
|
·
|
Collectability is probable
|
|
|
2.
|
Development cycle is longer than one year
|
The revenue is recognized based on the percentage-of-completion method during the period of the contract.
Stock-Based Compensation
|
|
The Company accounts for stock based compensation in accordance with Statement No. 123R, Share-Based Payment (SFAS 123R) (ASC 718), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value.
|
Advertising
Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses most of advertising costs as incurred, but amortize the new product image’s designing costs.
Basic And Diluted Earnings Per Share (EPS)
Earnings per share are calculated in accordance with the Statement of Financial Accounting Standards No. 128 (SFAS No. 128) (ASC 260), “Earnings per share”. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted earnings per share were $0.005 for the three months ended March 31, 2011, and basic and diluted loss per share was $0.004 for the three months ended March 31, 2011 and 2010, respectively.
Income Taxes
The Company utilizes SFAS No. 109 (ASC 740), "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
The Company records a valuation allowance for deferred tax assets, if any, based on its estimates of its future taxable income as well as its tax planning strategies when it is more likely than not that a portion or all of its deferred tax assets will not be realized. If the Company is able to utilize more of its deferred tax assets than the net amount previously recorded when unanticipated events occur, an adjustment to deferred tax assets would increase the Company net income when those events occur. The Company does not have any significant deferred tax asset or liabilities in the PRC tax jurisdiction.
Accounting Changes and Error Corrections
In accordance with SFAS No. 154, “Accounting Changes and Error Corrections”, a change in accounting estimate, such as in a bad-debt allowance, a warranty liability, or the service life of an asset, is not an error. These estimates were based on the best information available at the time. These changes will continue to be treated prospectively, as under APB 20. However, if a change in estimate affects several future periods and materially affects the current period, disclosure of the effect of the change on current income from continuing operations, net income and the corresponding earnings-per-share figures is required.
Statement of Cash Flows
In accordance with SFAS No. 95 (ASC 230), “Statement of Cash Flows,” cash flows from the Company’s operations is based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
Recently Issued Accounting Standards
In January 2011, the FASB issued ASU 2011-01 an accounting pronouncement related to receivables (“FASB ASC Topic 310”), The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.
Reclassifications
Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year.
NOTE 3 CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general status of the PRC's economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments, which potentially subject to concentration of credit risk, consist of cash and cash equivalents as the same is not covered by insurance.
NOTE 4 LOANS RECEIVABLE
Loans receivable are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs. All of the loans receivable are due on demand and the company has not incurred any losses due to uncollectible receivable.
As of March 31, 2011 and December 31, 2010, the loans receivable comprise of the following:
|
|
|
March 31,
2011
|
|
|
December 31,
2010
|
|
|
Loan to unrelated party Shandong Sanyi, interest free, due on demand, unsecured
|
|
$
|
121,714
|
|
|
$
|
121,143
|
|
|
Loan to unrelated party Shenzhen Xindun Investment Consulting Firm, interest free, due on demand, unsecured
|
|
|
152,437
|
|
|
|
151,722
|
|
|
Loan to unrelated party Yinquan Chenye, interest free, due on demand, unsecured
|
|
|
381,092
|
|
|
|
379,305
|
|
|
Loan to unrelated party Shandong Zhengjin Investment Consulting Firm, interest free, due on demand, unsecured
|
|
|
-
|
|
|
|
151,722
|
|
|
Interest adjustment
|
|
|
(13,424
|
)
|
|
|
(13,361
|
)
|
|
Total
|
|
$
|
641,818
|
|
|
$
|
790,532
|
|
NOTE 5 OTHER CURRENT ASSETS
As of March 31, 2011 and December 31, 2010, the other current assets comprise of the following:
|
|
|
March 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Security deposit for short term loans and business development
|
|
$
|
877,114
|
|
|
$
|
1,020,614
|
|
|
Advances to employees and others
|
|
|
43,726
|
|
|
|
22,177
|
|
|
Advance to suppliers
|
|
|
249,646
|
|
|
|
296,078
|
|
|
Prepayment
|
|
|
10,051
|
|
|
|
16,254
|
|
|
Total
|
|
|
1,180,537
|
|
|
|
1,355,123
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for write off
|
|
|
(440,337
|
)
|
|
|
(382,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total other current assets, net
|
|
$
|
740,200
|
|
|
$
|
973,093
|
|
NOTE 6 LONG TERM RENT DEPOSIT & PREPAID EXPENSES
The balances of long term prepaid expenses as of March 31, 2011 and December 31, 2010 are summarized as follows:
|
|
|
March 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Prepaid image design
|
|
$
|
52,648
|
|
|
$
|
52,648
|
|
|
Rent deposit
|
|
|
77,274
|
|
|
|
77,274
|
|
|
Less: Amortization (Image design)
|
|
|
(26,526
|
)
|
|
|
(24,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long term prepaid expenses, net
|
|
$
|
103,396
|
|
|
$
|
105,828
|
|
During the year ended December 31, 2008, Power Unique (BPUT), one of the subsidiaries of the Company, incurred $46,978 image designing fees for its new product. In 2010, BPUT also incurred $5,670 Microsoft authorization fees for its new product. Such cost will be amortized over five years.
The amortization expense for the next three years after March 31, 2011 is as follows:
|
|
|
|
|
|
Amortization for the next three years is as follows :
|
|
|
|
|
2011
|
|
$
|
8,765
|
|
|
2012
|
|
|
11,053
|
|
|
2013
|
|
|
6,304
|
|
|
|
|
$
|
26,122
|
|
The amortization expense for the three months ended March 31, 2011 and 2010 were $2,922 and $2,350, respectively.
NOTE 7 PROPERTY AND EQUIPMENT, NET
The balances of the Company property and equipment as of March 31, 2011 and December 31, 2010 are summarized as follows:
|
|
|
March 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Electronic Equipment
|
|
$
|
422,605
|
|
|
$
|
433,555
|
|
|
Vehicles
|
|
|
391,717
|
|
|
|
389,880
|
|
|
Furniture and fixture
|
|
|
53,166
|
|
|
|
12,260
|
|
|
Office Building
|
|
|
1,126,605
|
|
|
|
1,101,872
|
|
|
|
|
|
1,994,093
|
|
|
|
1,937,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(607,546
|
)
|
|
|
(558,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
$
|
1,386,547
|
|
|
$
|
1,378,748
|
|
The depreciation expense for the three months ended March 31, 2011 and 2010 was $54,557 and $32,487 respectively.
NOTE 8 LONG TERM INVESTMENT
On July 20, 2010, the Board of Jinan Yinquan approved the Investment to Shandong Yinquan Investment Holding Limited (Yinquan Holding). The capital contribution is $1,932,860 (RMB13,000,000), which takes account of 27% of the shareholder interest of Yinquan Holding. The main purpose of the investment is for Yinquan Holding to establish China Cloud Computing Science Park in Nanhai New Areas of Wendeng City. The city is located in Shandong Province. The investment was accounted for as an equity method investment as the Company has exercised significant influence over the operating and financial policies of Yinquan Holding.
The balances of the Company’s equity investment in Yinquan Holding at March 31, 2011 and December 31, 2010 are summarized as follows:
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Net loss YTD
|
|
$
|
(38,999
|
)
|
|
$
|
(31,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CIIS's interest (27%), current year
|
|
$
|
(10,530
|
)
|
|
$
|
(8,485
|
)
|
|
CIIS's interest (27%), prior year
|
|
|
(8,485
|
)
|
|
|
-
|
|
|
Investment in Yinquan Holding at cost
|
|
|
1,932,860
|
|
|
|
1,932,860
|
|
|
Net book value
|
|
$
|
1,913,845
|
|
|
$
|
1,924,375
|
|
As of March 31, 2011 and December 31, 2011, respectively, the Company recorded a short term receivable from Jinan Yinquan amounting to $2,210,332 and $1,077,227.
NOTE 9 INTANGIBLE ASSET
Intangible asset mainly comprised of a set of software in Jinan Yangquan acquired from third parties and a set of software from Power Unique. Those sets of software acquired from third parties are used for the core technology of the Company’s software business. They are amortized over a life of five years. Intangible assets comprised of following at March 31, 2011 and December 31, 2010:
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Software, cost
|
|
$
|
5,714,116
|
|
|
$
|
5,687,327
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated Amortization
|
|
|
(1,156,248
|
)
|
|
|
(815,254
|
)
|
|
Less: Impairment
|
|
|
(1,337,834
|
)
|
|
|
(1,331,562
|
)
|
|
Intangible asset, net
|
|
$
|
3,220,034
|
|
|
$
|
3,540,511
|
|
The Company discontinued its VoIP business in 2009. The intangible assets used in the discontinued business were impaired in reference to the market price.
The amortization expenses for the next three years after March 31, 2011 are as follows:
|
|
|
|
|
|
Amortization for the next three years is as follows :
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
1,023,387
|
|
|
2012
|
|
|
1,364,516
|
|
|
2013
|
|
|
832,131
|
|
|
Total
|
|
$
|
3,220,034
|
|
The amortization expense for the year ended March 31, 2011 and 2010 was $330,432 and $37,125, respectively.
NOTE 10 SHORT TERM LOANS
As of March 31, 2011 and December 31, 2010, the Company had short-term loans balanced at $4,573,101and $2,579,275, respectively. The short terms loans comprised of the following:
The Company has an approved line of credit up to the amount of $762,184 and $758,610 from Qilu Bank as of March 31, 2011 and December 31, 2010, respectively. The line of credit expires on April 9, 2011. The line is secured by Shandong Wuerde Security Company with a flexible interest rate which equals to 30% above the benchmark interest rate set up by the People’s Bank of China. The Company used the full line of credit as of March 31, 2011. On April 9, 2011, the short-term loan of $762,184 was paid off to Qilu Bank.
The Company has an approved line of credit up to the amount of $457,310 and $455,166 from China CITIC Bank as of March 31, 2011 and December 31, 2010, respectively. The line, expiring on June 3, 2011, is secured by Shandong Kexin Security Company with a flexible interest rate which equals to the benchmark interest rate of People’s Bank of China. The Company used the full line of credit as of March 31, 2011 and December 31, 2010.
The Company has an approved line of credit up to the amount of $1,524,367, fully utilized, from Jinan Runfeng Rural Cooperation Bank as of March 31, 2011. The line is un-secured with a flexible interest rate which equals to 1.5 times of the benchmark interest rate set up by the benchmark interest rate of People’s Bank of China. The Company used the full line of the credit as of March 31, 2011.
The Company has a short-term loan in the amount of $609,747 from Wendeng PowerUnique (a third-party) as of March 31, 2011. The loan has a 5-month term that expires on August 30, 2011. The loan is unsecured with a zero interest rate.
The Company has a short-term loan in the amount of $762,184 from Shandong Zhengjin Investment Management Company (a third-party) as of March 31, 2011. The loan is unsecured with a zero interest rate, and expires on April 30, 2011. On April 28, 2011, the short-term third party loan of $762,184 was paid off to Shandong Zhengjin Investment Management Company.
The Company has a short-term loan in the amount of $457,310 from Zhengjin Investment (a third-party) as of March 31, 2011. The loan is unsecured with zero interest free and expires on July 13, 2011.
For the three months ended March 31, 2011 and 2010, the Company had interest expense of $67,340 and $52,275, respectively.
NOTE 12 – SENIOR SECURITY NOTE
On December 21, 2007, the Company issued a senior debenture to Castlerigg Master Investments Ltc. in the amount of $5,000,000 that accrues interest at 8.75% per annum and is due on December 21, 2010. In addition, the Company also issued to Castlerigg three series of warrants, titled Series A Warrant, Series B Warrant and Series C Warrant (collectively the “Warrants”) to purchase 21,459,038 shares of the Company’s common stock. The Warrants are exercisable at price per share of $.5627 and are subject to economic anti-dilution protection. The Series A Warrant is exercisable for 8,885,730 shares of the Company’s common stock and expires the date eighty four (84) months after the earlier of (A) such time as all of the Registrable Securities (as defined in the Registration Rights Agreement) are available for resale pursuant to an effective Registration Statement and (B) two (2) years after December 21, 2007. The Series B Warrant is exercisable for 6,220,011 shares of the Company’s common stock and expires on the date on which the Notes issued pursuant to the Securities Purchase Agreement are no longer issued and outstanding. The Series C Warrant is exercisable for 6,353,297 shares of the Company’s common stock and expires on the date sixty (60) months after the first time the Company elects a Company Optional Redemption.
The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes equal to 130% of the Conversion Rate with (i) issuable upon conversion of the Notes, (ii) upon exercise of the Warrants, without taking into account any limitations on the Conversion of the Notes or exercise of the Warrants set forth in the Notes and Warrants, respectively) and (iii) as Interest Shares pursuant to the terms of the Notes. As of December 31, 2009, the Company did not have enough authorized and unissued common stock to reserve 130% shares. This amount is due subject to default.
Per EITF 00-19, paragraph 4, these convertible debentures do not meet the definition of a “conventional convertible debt instrument” since the Company does not have sufficient unissued authorized share capital. The Company is required to increase the authorized share capital which is not within the control of the Company. Therefore, the convertible debenture is considered “non-conventional,” which means that the conversion feature must be bifurcated from the debt and shown as a separate derivative liability. This beneficial conversion liability was calculated to be nil on March 31, 2010 and December 31, 2009. In addition, since the Company does not have enough number of unissued authorized shares of common stock, it is assumed that the Company could never have enough authorized and unissued shares to settle the conversion of the warrants into common stock. Therefore, the warrants issued in connection with this transaction have been reported as liability at December 31, 2009 in the accompanying balance sheet with a fair value of $2,163,195.
On January 5, 2010, the Company entered into a Securities Redemption and Pay-off Agreement (the “Settlement Agreement”) with Castlerigg Master Investments, Ltd. (the “Investor”). The Settlement Agreement sets forth certain terms with respect to the satisfaction by the Company of obligations owed to the Investor under various agreements entered into between the Company and the Investor (the “Financing Agreements”).
Pursuant to the Settlement Agreement, the Investor has agreed to accept $3,000,000 from the Company in exchange for the redemption of the 2008 Note and the 2008 Warrants, but only upon the terms and conditions expressly set forth in the Settlement Agreement, including the Company’s completion of certain conditions precedent set forth in Section 3 of the Settlement Agreement (the “Conditions”). Upon the satisfaction of the Conditions and the closing of the Settlement Agreement, (i) the Company shall pay to the Investor $3,000,000, (ii) the Investor and the Company will release each other from all claims related to the Financing Agreements as of the date of the Settlement Agreement, (iii) the Investor will transfer and convey to the Company the 2008 Note and 2008 Warrants, and (iv) the Company shall redeem from the Investor the 2008 Note and the 2008 Warrants.
Prior to the closing of the Settlement Agreement, the Investor is converting a portion of the 2008 Note for 1,000,000 shares of the Company’s Common Stock pursuant to the terms of the 2008 Note. The issuance of these shares is one of the Conditions required to be completed prior to closing.
On April 14, 2010, the Company entered into an Amended and Restated Securities Redemption and Pay-off Agreement (the “Amended and Restated Settlement Agreement”) to amend and restate the Settlement Agreement to, among other things, extend the termination date specified therein in consideration for a payment by the Company to the Investor of $50,000 on the date of the Amended and Restated Settlement Agreement.
Pursuant to the Amended and Restated Settlement Agreement, the Investor has agreed to accept $2,950,000 from the Company in exchange for the redemption of the 2008 Note and the 2008 Warrants, but only upon the terms and conditions expressly set forth in the Amended and Restated Settlement Agreement, including the Company’s completion of certain conditions precedent set forth in Section 3 of the Amended and Restated Settlement Agreement (the “Conditions”). Upon the satisfaction of the Conditions and the closing of the Amended and Restated Settlement Agreement, (i) the Company shall pay to the Investor $2,950,000, (ii) the Investor and the Company will release each other from all claims related to the Securities Purchase Agreement, as amended, the 2008 Note and the 2008 Warrants as of the date of the Amended and Restated Settlement Agreement, (iii) the Investor will transfer and convey to the Company the 2008 Note and 2008 Warrants and (iv) the Company shall redeem from the Investor the 2008 Note and the 2008 Warrants.
In addition, pursuant to the Amended and Restated Settlement Agreement, since January 5, 2010, the Company shall have duly delivered to the Investor an aggregate of 1,100,000 shares of Common Stock pursuant to the Conversion Notice. The issuance of these shares is one of the Conditions required to be completed prior to closing.
On July 29, 2010, the Company entered into a Second Amended and Restated Securities Redemption and Pay-Off Agreement (the “Second Amended and Restated Settlement Agreement”) with), to extend the termination date in consideration for a payment by the Company to the Investor of an aggregate of $850,000.
The Company paid the $2,150,000 balance due under the Settlement Agreement, as amended, on August 16, 2010 in exchange for the redemption of the 2008 Note and the 2008 Warrants. The Investor and the Company released each other from all claims related to the Securities Purchase Agreement, as amended, the 2008 Note and the 2008 Warrants. In addition, pursuant to the Settlement Agreement, as amended, since January 5, 2010, the Company delivered to the Investor an aggregate of 1,100,000 shares of Common Stock pursuant the terms of the 2008 Note. Under the Settlement Agreement, as amended, the Investor will also return the shares of common stock and original certificate of trademarks that were pledged in 2007.
In summary, the Company paid $3,000,000 and issued 1,100,000 shares of common stock in total to redeem previous convertible notes and series A, B, C and D warrants. As a result of the redemption of the convertible debt and cancellation of series A,B,C and D warrants, the company recorded a gain on settlement of debt amounted to $1,910,000, a return to equity of $2,163,195 for cancellation of warrants and a BCF expense of $1,620,370for the three months ended March 31, 2010.
NOTE 13 OTHER PAYABLE
As of March 31, 2011 and December 31, 2010, other payable consisted of the following:
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Payable for office purchase
|
|
$
|
162,621
|
|
|
$
|
161,859
|
|
|
Others
|
|
|
227,396
|
|
|
|
308,302
|
|
|
Total
|
|
$
|
390,017
|
|
|
$
|
480,161
|
|
The payable for office purchase represents the amount for the company’s purchased of office space in Yike Building.
NOTE 14 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities as of March 31, 2011 and December 31, 2010 are summarized as follows:
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Accrued staff payroll and welfare
|
|
$
|
27,551
|
|
|
$
|
27,422
|
|
|
Tax payables
|
|
|
302,451
|
|
|
|
406,343
|
|
|
Advance from customers
|
|
|
224,456
|
|
|
|
-
|
|
|
Accrued expenses
|
|
|
63,024
|
|
|
|
62,970
|
|
|
Deposits
|
|
|
-
|
|
|
|
45,798
|
|
|
Total
|
|
$
|
617,482
|
|
|
$
|
542,533
|
|
NOTE 15 DUE TO RELATED PARTIES
Due to related party were $20,000 and $64,269 as of March 31, 2011 and December 31, 2010, respectively. Due to related party amount represents $20,000 payable to former beneficial owner of Crawford Lake Mining Inc. in 2011. The payables are unsecured, non-interest bearing and payable on demand.
NOTE 16 STATUTORY RESERVES
Statutory reserves are made on an annual basis. As stipulated by the Company Law of the People’s Republic of China (PRC) executed on 2006, net income after taxation can only be distributed as dividends after appropriation has been made for the following:
1. Making up cumulative prior years’ losses, if any;
2.Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;
3.Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “Statutory common welfare fund”, which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; (The reserve is no more required for the foreign invested enterprises since 2006); and
4. Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting.
According to the new Company Law of the People’s Republic of China (PRC) executed in 2006, the Company is not required to reserve the “Statutory common welfare fund”. Accordingly, the Company did not reserve the common welfare fund in 2010.
In accordance with the Chinese Company Law, the company has to allocate 10% of its net income after tax to surplus. The statutory reserves are made on an annual basis. As a result the company did not allocate any reserve funds in the periods in 2011.
Balances of Statutory reserves as of March 31, 2011 and December 31, 2010 are as follows:
|
Balance of statutory reserve at December 31, 2010
|
|
$
|
228,633
|
|
|
Change during 2011
|
|
|
-
|
|
|
Balance of statutory reserve at March 31, 2011
|
|
$
|
228,633
|
|
NOTE 17 SHARES TO BE CANCELLED
Pursuant to the term sheet, on July 18, 2007, the Company issued 1,200,000 shares to Downshire Capital Inc. and its assigned parties as first installment for financing assistance. While according to the term sheet, $3 million USD should be received by the company before August 15, 2007, otherwise, Downshire Capital and its designed investors need to return the 1,200,000 shares and the Registrant will cancel it accordingly.
As of August 21, 2007, Downshire Capital Inc. was not able to complete the financing before closing deadline according to the term sheet signed with the Registrant on July 17, 2007. After further negotiation, both parties could not reach further agreement to extend the term sheet and the term sheet was terminated accordingly. The stock transfer agent of the Company has put restriction on the stock to trade. The Company requested its stock transfer agent to cancel the shares and 200,000 shares were cancelled as of December 31, 2010. However, Downshire Capital Inc. did not return the remaining certificates to stock transfer agent as of December 31, 2010. The remaining one million shares have been classified as “Shares to be cancelled” in the accompanying financial statements.
On March 16, 2011, our transfer agent cancelled certificate No. 1583 issued to Downshire Capital Inc. for 1,000,000 shares. As a result, we do not have any shares classified as “Shares to be cancelled”.
NOTE 18
INCOME
TAXES
The Company is registered in the State of Nevada and has operations in primarily two tax jurisdictions – the PRC and the United States. For the operation in the PRC and the U.S., the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. The Company has no net deferred tax assets as of March 31, 2011 and 2010.
The operation in PRC is approved as hi-tech software company and enjoys 15% income tax rate pursuant to State Tax notice No. 2007(63) and No. 2008(21) because being a foreign invested company.
The Company utilizes ASC 740 (SFAS No. 109), “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Consolidated pre-tax income (loss) consists of the following:
|
|
Three Months ended March 31,
|
|
|
|
2011
|
|
2010
|
|
|
US operations
|
$
|
(63,350
|
)
|
$
|
114,428
|
|
|
Foreign operations
|
|
373,086
|
|
|
(311,511
|
)
|
|
|
$
|
309,736
|
|
|
(197,083
|
)
|
The Components of the provision for income taxes are as follows:
|
|
|
Three Months ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
$
|
589,831
|
|
|
Foreign
|
|
$
|
55,963
|
|
|
|
-
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
|
|
|
Foreign
|
|
|
-
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(55,963
|
)
|
|
|
(589,831
|
)
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate as of March 31, 2011 and 2010:
|
For the Three Months ended March 31, 2011
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
15%
|
|
|
34%
|
|
|
Total
|
|
|
Pretax income
|
|
$
|
373,086
|
|
|
|
|
|
$
|
(63,350
|
)
|
|
|
|
|
$
|
309,736
|
|
|
Expected income tax expense (benefit)
|
|
|
55,963
|
|
|
|
15
|
%
|
|
|
(21,539
|
)
|
|
|
(34
|
%)
|
|
|
34,424
|
|
|
Interest expense on BCF
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(55,963
|
)
|
|
|
(15
|
%)
|
|
|
21,539
|
|
|
|
34
|
%
|
|
|
(34,424
|
)
|
|
Actual tax expense
|
|
$
|
-
|
|
|
|
0
|
%
|
|
$
|
-
|
|
|
|
0
|
%
|
|
$
|
-
|
|
|
For the Three Months ended March 31, 2010
|
|
China
|
|
|
United States
|
|
|
|
|
|
|
|
15%
|
|
|
34%
|
|
|
Total
|
|
|
Pretax loss
|
|
$
|
(311,511
|
)
|
|
|
|
|
$
|
114,428
|
|
|
|
|
|
$
|
(197,083
|
)
|
|
Expected income tax benefit
|
|
|
(46,727
|
)
|
|
|
(15
|
%)
|
|
|
38,906
|
|
|
|
34
|
%
|
|
|
(7,821
|
)
|
|
Interest expense on BCF
|
|
|
-
|
|
|
|
|
|
|
|
550,926
|
|
|
|
34
|
%
|
|
|
550,926
|
|
|
Change in derivative liability
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
46,727
|
|
|
|
15
|
%
|
|
|
(589,831
|
)
|
|
|
(34
|
%)
|
|
|
(543,104
|
)
|
|
Actual tax expense
|
|
$
|
-
|
|
|
|
0
|
%
|
|
$
|
-
|
|
|
|
0
|
%
|
|
$
|
-
|
|
The Company’s U.S. operations have deferred taxes in the form of net operating losses (“NOLs”). However due to the uncertainty that some or all of the deferred tax assets will not be realized in the coming years, the Company recorded a full valuation allowance against its nominal deferred tax assets and thus had no deferred tax on a net basis for the three months ended March 31, 2011 and 2010, respectively.
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Tax Assets
|
|
$
|
652,860
|
|
|
$
|
1,037,791
|
|
|
Less : Valuation Allowance
|
|
|
(652,860
|
)
|
|
|
(1,037,791
|
)
|
|
Net Deferred Tax Asset
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 19 OPERATING LEASE
The Power Unique leases its office space in Beijing China under an operating lease starting from January 25, 2008 and expiring January 24, 2012. Jinan Yinquan’s office lease expired in May 2008 and the company purchased the office space in June 2008. Jinan Yinquan does not incur any rent expense.
Rent expense under the operating leases was approximately $116,261 and $15,360 during the three months ended March 31, 2011 and 2010, respectively.
The rent expenses for the next three years after March 31, 2011 are as follows:
|
2011
|
|
$
|
298,562
|
|
|
2012
|
|
|
392,506
|
|
|
2013
|
|
|
210,365
|
|
|
Total
|
|
$
|
901,432
|
|
Power Unique signed a lease to rent four units with total 1,246 square meters of office space in Yuanyang Guanghua Center on June 8, 2010. Two of the units have a three-year term starting from August 2010 to August 2013. The other two units have 33-month lease term starting in November 2010.
NOTE 20 GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern. However, the Company has accumulated deficit of $3,985,815 and $4,295,551 as of March 31, 2011 and December 31, 2010, respectively. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future operations, The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) to continue actively seeking additional funding and restructure the acquired subsidiaries to increase profits and minimize the liabilities; 2) seek governmental funds support.
Note 21 SUBSEQUENT EVENTS
On April 7, 2011, the company borrowed a short-term loan in the amount of $1,224,402 from China Construction Bank. The loan has a one year term that expires on April 6, 2012. The loan is unsecured with a flexible interest rate which equals to 15% above the benchmark interest rate set up by the People’s Bank of China.
On April 9, 2011, the company paid off the short-term loan of $762,184 to Qilu Bank.
On April 27, 2011, the company secured a line of credit up to the amount of $768,510 from Qilu Bank. The line of credit expires on April 27, 2012. The line of credit has a flexible interest rate which equals to 50% above the benchmark interest rate set up by the People’s Bank of China.
On April 28, 2011, the company paid off the short-term third party loan of $762,184 to Shandong Zhengjin Investment Management Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.
Except as otherwise indicated by the context, all references in this annual report to (i) “CIISI,” the “Company,” “we,” “us” or “our” are to China Intelligence Information Systems, Inc., a Nevada corporation, and its direct and indirect subsidiaries; (ii) “Jinan Yinquan” are to our subsidiary Jinan Yinquan Technology Co. Ltd., a corporation incorporated in the People’s Republic of China; (iii) “BPUT” are to our subsidiary Beijing PowerUnique Technologies Co., Ltd., a corporation incorporated in the People’s Republic of China; (iv) “Securities Act” are to the Securities Act of 1933, as amended; (v) “Exchange Act” means the Securities Exchange Act of 1934, as amended; (vi) “RMB” are to Renminbi, the legal currency of China; (vii) “U.S. dollar,” “$” and “US$” are to the legal currency of the United States; (viii) “China” and “PRC” are to the People’s Republic of China; and (ix) “SEC” are to the United States Securities and Exchange Commission.
BUSINESS OVERVIEW
China Intelligence Information Systems, Inc. (the “Company”), formerly known as China VoIP & Digital Telecom Inc., develops and provides virtualization and cloud computing solutions and services. The Company owns several virtualization-based products with independent intellectual property rights for education, info-security and cloud computing.
On August 17, 2006, we acquired all of the outstanding capital stock of Jinan Yinquan Technology Co. Ltd. (“Jinan Yinquan”) in exchange for the issuance of 40,000,000 shares of our common stock to the Jinan Yinquan’s shareholders and $200,000 as the cost of going public. Such shares are restricted in accordance with Rule 144 of the Securities Act. In addition, as further consideration for the acquisition, Apollo Corporation, the principal shareholder of the Company, agreed to cancel 11,750,000 post-split shares of its outstanding common stock. As a result, Jinan Yinquan became our wholly-owned subsidiary.
Jinan Yinquan is an equity joint venture established in Jinan in the People’s Republic of China (“the PRC”) in 2001. The exchange of shares with Jinan Yinquan has been accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of Jinan Yinquan obtained control of the consolidated entity. Accordingly, the merger of the two companies has been recorded as a recapitalization of Jinan Yinquan, with Jinan Yinquan being treated as the continuing entity. The historical financial statements presented are those of Jinan Yinquan.
On May 7, 2008 (the “Closing Date”), Jinan Yinquan completed the acquisition of Beijing PowerUnique Technologies Co., Ltd. (“BPUT”), a company incorporated under the laws of the PRC, in accordance with an Investment Agreement. On the Closing Date, Jinan Yinquan invested RMB4, 000,000 into BPUT; and BPUT issued 80% of the shares of BPUT to Jinan Yinquan. On the Closing Date, Jinan Yinquan became the controlling shareholder of BPUT. BPUT is a software company located in Beijing specializing in enterprise application software research and development. It creates reliable, secure as well as efficient information technology platforms for enterprise clients. BPUT is committed to providing the highest quality solutions to enterprises in both information security and virtual technology.
On July 5, 2008, Jinan Yinquan acquired the remaining 20% ownership of BPUT by paying another RMB 4,000,000 to BPUT’s original shareholders. BPUT therefore became a 100% owned subsidiary of Jinan Yinquan.
Before July 2009, the Company was focused on the Voice Over Internet Phone (“VOIP”) technology related business. In July 2009, following political riots in Urumqi, the capital of the Xinjiang Uygur Autonomous region, the Chinese government issued an order to block VoIP business. The Company’s telecom service business suffered tremendously. We did not anticipate this order, nor did the Company expect such a long duration of the suspension of VoIP services. As a result, the Company discontinued its VOIP business in October 2009
The virtualization business is primarily conducted through BPUT outside of the Shandong area, while Jinan Yinquan primarily focuses on the Shangdong area. Jinan Yinquan and BPUT are the leaders in the applied virtual technology field in China. In May 2008, BPUT became an official Technology Alliance Partner (TAP) of VMware (NYSE: VMW). In addition, BPUT also obtained VMware Community Source and VMware VAC qualifications and is a VMware Premier Partner. VMware is the global leader in virtualization solutions from the desktop to the data center. Customers of all sizes rely on VMware to reduce capital and operating expenses, ensure business continuity, strengthen security and go green. VMware has more than 160,000 customers worldwide and all Fortune 100 enterprises are using the mature virtual technology of VMware. The alliance partnership allows BPUT to leverage VMware’s advanced virtual technology in the information security products marketplace in order to broaden its product offerings and strengthen its competitive advantage.
After Jinan Yinquan launched both the virtualization application technology and IBCC service platform in 2008, its virtualization technology and its IBCC service platform have been endorsed as the designated virtualization application technology product and the designated communications service platform for the 11th National Games of the PRC (the “National Games”), respectively. Jinan Yinquan implemented the virtualization technology in the National Games dedicated data center. The virtualization technology significantly reduced system purchases and operating costs. It also improved the reliability and manageability of the system and safeguarded the information used during the National Games. In addition, the IBCC service platform was run as the sub-website of the National Games’ official website for athletes, coaches, staff, volunteers and sponsors so they may enjoy unified communication services including an online office system, telephone, SMS, Email, fax, conference call and video conference.
Reorganization
In 2010, we consummated a series of transaction which resulted in us becoming the sole shareholder of Shandong Honest Management Consulting Co., Ltd., (“Honest”), which, in turn, is the sole shareholder of Jinan Yinquan and BPUT. The purpose of these transactions is for the Company to enjoy preferential policies provided by the Chinese Government to the local hi-tech and software companies.
On December 31, 2009, our Board of Directors authorized our acquisition of 100% of the shares of Honest,, a company incorporated and operated under the laws of the People’s Republic of China, for a purchase price of RMB35,464,934.21 (Approx. $5,187,055). After the acquisition, which was effective on August 3, 2010, Honest became the wholly-owned subsidiary of the Company.
On December 31, 2009, our Board of Directors authorized our sale of our 100% ownership in Jinan Yinquan to Honest for a price of RMB34, 464,934.21 (Approx. $5,040,797). After the transfer, which was effective on August 24, 2010, Jinan Yinquan became the wholly-owned subsidiary of Honest. Honest retains the right to manage Jinan Yinquan and continue to develop its business operations. The purpose of this transfer was to foster the development of Jinan Yinquan in China, since the Chinese government offers stronger support to local companies.
On August 24, 2010, BPUT acquired 1% of the outstanding shares of Jinan Yinquan at a price of RMB291, 774.16.
On September 20, 2010, Jinan Yinquan transferred its 9.09% of the outstanding shares of BPUT to Honest at a price of RMB1, 000,000.
The following chart reflects our organizational structure after the consummation of the reorganization:
Virtualization Business
The Company’s main businesses are:
|
|
1.
|
Development and Promotion of Server Virtualization Technology;
|
|
|
2.
|
Virtual Desktop Infrastructures (VDI);
|
|
|
3.
|
Disaster Tolerance Backup and Management Technology under Virtualization Infrastructure;
|
|
|
4.
|
Information Technology Outsourcing services of virtualization products and technology (ITO);
|
|
|
5.
|
Info-security Storage Products;
|
|
|
6.
|
Development and Promotion of Cloud Computing Platform;
|
|
|
7.
|
Cloud Computing products and consultation, solution services for large-scale enterprises and government departments;
|
|
|
8.
|
Cloud Computing services for SME and individuals.
|
Jinan Yinquan is focusing on the virtualization market in the Shandong area, while BPUT is focusing on the large enterprise client market and also exploring the markets outside of the Shandong area.
Since 2008, the Company’s integral virtualization solutions and services have obtained strong support from the Chinese government, and the Company has several breakthroughs in the virtualization field. We have developed the:
|
·
|
Virtualization Technology Application Engineering Research Center of Shandong Province supported by the Department of Science & Technology of Shandong Province;
|
|
·
|
Shandong Virtualization Technology Promotion and Application Center supported by the Department of Information Industry of Shandong Province; and
|
|
·
|
Virtualization Technology Laboratory supported by the Department of Information Industry of Shandong Province.
|
Certifications and Awards:
BPUT is qualified as a
VMware Technology Alliance Partner (TAP),
VMware Community Source (VCS),
VMware Premier Partner (VPN),
VMware Authorized Training Center (VATC) and
VMware Authorized Consultant (VAC).
BPUT is also the VIP Partner and Platinum Partner of Vizioncore. It has completed the localization of Vizioncore’s software in China.
Jinan Yinquan has received the following certifications: ,
|
|
l
|
Hi-tech Enterprise authorized by the Science and Technology Department of Shandong Province;
|
|
|
l
|
Double-software certified Enterprise by the Information Industry Department of Shandong Province;
|
|
|
l
|
SME Technology Innovation Fund Implementation Enterprise by the Ministry of Science and Technology;
|
|
|
l
|
Virtualization Technology Application Engineering Research Center of Shandong Province supported by the Department of Science & Technology of Shandong Province;
|
|
|
l
|
Shandong Virtualization Technology Promotion and Application Center supported by the Department of Information Industry of Shandong Province;
|
|
|
l
|
Virtualization Technology Laboratory supported by the Department of Information Industry of Shandong Province;
|
|
|
l
|
Cloud Computing R&D and Promotion Center of Shandong Province;
|
|
|
l
|
Internet of Things R&D and Promotion Center of Shandong Province;
|
|
|
l
|
The Model E-Commerce Company of Shandong granted by Shandong Information Industry Department;
|
Jinan Yinquan’s Virtualization Technology for Data Center received the “2008 Shandong Province Outstanding Energy Saving Achievement” award from the government; and Jinan Yinquan has passed ISO9001 Quality Certification, ISO 27001 information security certification , China System Integration Qualification Level 3 and the CMMI Level 3 Appraisal.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenues
.
During the three months ended March 31, 2011, we recorded revenues of $2,607,184, an increase of $1,446,845, or 125% compared to $1,160,339 during the same period of 2010. The revenue details are listed below:
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License sales
|
|
$
|
1,083,885
|
|
|
$
|
388,161
|
|
|
$
|
695,724
|
|
|
|
179.24
|
%
|
|
Consulting - software development
|
|
|
1,243,237
|
|
|
|
2,728
|
|
|
|
1,240,510
|
|
|
|
45479.80
|
%
|
|
Hardware sales
|
|
|
247,907
|
|
|
|
759,115
|
|
|
|
(511,208
|
)
|
|
|
(67.34
|
%)
|
|
Training and other
|
|
|
32,155
|
|
|
|
10,335
|
|
|
|
21,820
|
|
|
|
211.12
|
%
|
|
Net revenues
|
|
$
|
2,607,184
|
|
|
$
|
1,160,339
|
|
|
$
|
1,446,845
|
|
|
|
124.69
|
%
|
During the three months ended March 31, 2011, the license sales contributed $1,083,885 in revenue compared to $388,161 in the same period of 2010. The virtualization market has been developing in China and increased sales reflect more demand from customers. Meanwhile, software development contributed $1,243,237, or 48% of the revenue for the three months ended March 31, 2011, an increase from only $2,728 as of March 31, 2010. The main reason for such increase was due to the cloud computing platform developed by us in China and that we started doing related business in the first quarter of 2011. The revenue from hardware sales declined from $759,115 for the three months ended March 31, 2010 to $247,907 in the same period of 2011. The decline in hardware sales was that we reduced our focus on this area due to its low gross margin. The revenue from training and other parts increased to $32,155 in the three months ended March 31, 2011 compared with $10,335 for the three months ended March 31, 2010, as a result of the increased sales in virtualization products and services.
Cost of Revenues
.
Cost of revenues during the three months ended March 31, 2011 was $1,252,655, an increase of $303,090 or 32%, compared to $949,565 during the same period of 2010, as a result of the continued marketing expansion strategy of the new virtualization business. The cost details are listed below:
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
|
License sales
|
|
$
|
742,915
|
|
|
$
|
271,380
|
|
|
$
|
471,536
|
|
|
|
173.75
|
%
|
|
Consulting - software development
|
|
|
246,369
|
|
|
|
-
|
|
|
|
246,369
|
|
|
|
-
|
|
|
Hardware sales
|
|
|
256,845
|
|
|
|
678,185
|
|
|
|
(421,340
|
)
|
|
|
(62.13
|
%)
|
|
Training and other
|
|
|
6,525
|
|
|
|
-
|
|
|
|
6,525
|
|
|
|
-
|
|
|
Cost of revenue
|
|
$
|
1,252,655
|
|
|
$
|
949,565
|
|
|
$
|
303,090
|
|
|
|
31.92
|
%
|
Gross Profit
.
The gross profit was $1,354,529 during the three months ended March 31, 2011, an increase of $1,143,755, or 543%, from $210,774 in the same period of 2010. The increased gross profit during the quarter was due to significantly increased revenues from the successful operation of our virtualization business and cloud computing platform. The gross margin for the three months ended March 31, 2011 increased to 52.0% from 18.2% in the same period of 2010.
Selling, General and Administrative Expenses
.
Selling, general and administrative expenses were $751,122 during the three months ended March 31, 2011, an increase of $132,201, or 21%, compared to $618,921 during the same period of 2010. The increase was mainly because we made inventory revaluation reserves for the purchased products in the previous period. As a percent of total revenue, selling, general and administrative expenses were 28.8% in the three months ended March 31, 2011 compared to 53.3% in the same period last year.
Depreciation and Amortization Expenses
.
Depreciation and amortization expenses were $384,989 during the three month period ended March 31, 2011, an increase of $309,092, or 407%, compared to $75,897 in the same period of 2010. Higher depreciation and amortization expenses were driven by the new cloud computing platform developed in the third quarter of 2010.
Operating Profit (Loss)
.
We recorded an operating profit of $218,418, an increase of $702,462 during the three months ended March 31, 2011, compared to operating loss of $484,044 during the same period of 2010. The operating profit was driven by higher revenue derived from the virtualization business and promoting of the cloud computing platform.
Other Income (expense).
Other income primarily included the interest expense of $67,340 and other financial income of $169,188 during the three months ended March 31, 2011. During the three months ended March 31, 2010, the Company recorded gain on settlement of debt of $1,910,000, interest expenses of $52,257, change in derivative liability of $1,620,370 and other financial income of $49,606.
Loss from Equity Investment
.
During the third quarter of 2010, Yinquan purchased a 27% equity interest in Shandong Yinquan Holdings. During the three months ended March 31, 2011, the loss from this investment was $10,530.
Net Income (Loss)
.
As a result of the factors described above, our net income increased $506,819 to $309,736 during the three months ended March 31, 2011 from a net loss of $197,083 for the same period of 2010.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2011, the Company's cash was $438,799 as compared to $923,973 as of March 31, 2010.
At March 31, 2011, we had a working capital deficit of $1,106,412, as compared with a working capital deficiency of approximately $1,222,773 at December 31, 2010.
During the three months ended March 31,2011 period, we used approximately $1.5 million in our operations, as compared with cash flow used in operations of $172,218 in the same period of 2010. Our cash flow used in operations for 2011 reflected cash used for inventories and other assets. In 2010, we had a change in derivatives and a lower cash amount used for inventories.
Cash flow generated in investing activities was $70,902 in the three months ended March 31, 2011, as compared with cash flow used in investing activities for the same period of 2010 of $293,503. The principal investing activity in the three months ended March 31, 2011 was proceeds from short-term loans. Cash funds used in investing activities was for payment of short-term loans during the same period in 2010. For the three months ended March 31, 2011, our cash flow from financing activities was proceeds from short term loans of approximately $2.0 million, compared with proceeds from short term loans of approximately $1.3 million for the three months ended March 31, 2010.
We have also financed our operations using short term loans and lines of credit as follows:
We had a line of credit up to the amount of $762,184 and $758,610 from Qilu Bank as of March 31, 2011 and
December
31, 2010, respectively. The Company used the full line of credit as of
March
31, 2011. On April 9, 2011, the short-term loan of $762,184 was paid off to Qilu Bank.
We have a line of credit up to the amount of $457,310 and $455,166 from China CITIC Bank as of March 31, 2011 and
December
31, 2010, respectively. The line, expiring on June 3, 2011, is secured by Shandong Kexin Security Company with a flexible interest rate which equals to the benchmark interest rate of People’s Bank of China. We used the full line of credit as of March 31, 2011 and
December
31, 2010.
We have a line of credit up to the amount of $1,524,367, fully utilized, from Jinan Runfeng Rural Cooperation Bank as of March 31, 2011. The line is unsecured with a flexible interest rate which equals to 1.5 times of the benchmark interest rate set up by the benchmark interest rate of People’s Bank of China. We used the full line of the credit as of March 31, 2011.
We have a short-term loan in the amount of $609,747 from Wendeng PowerUnique (a third-party) as of March 31, 2011. The loan has a 5-month term that expires on August 30, 2011. The loan is unsecured with a zero interest rate.
We had a short-term loan in the amount of $762,184 from Shandong Zhengjin Investment Management Company (a third-party) as of March 31, 2011. On April 28, 2011, the short-term third party loan of $762,184 was paid off to Shandong Zhengjin Investment Management Company.
We have a short-term loan in the amount of $457,310 from Zhengjin Investment (a third-party) as of March 31, 2011. The loan is unsecured with zero interest free and expires on July 13, 2011.
On April 7, 2011, we borrowed a short-term loan in the amount of $1,224,402 from China Construction Bank. The loan has a one year term that expires on April 6, 2012. The loan is unsecured with a flexible interest rate which equals to 15% above the benchmark interest rate set up by the People’s Bank of China.
For the three months ended March 31, 2011 and 2010, We had interest expense of $67,340 and $52,275, respectively.
Management believes that the Company’s profitability and increases in revenue will help ensure our continued operations for the next 12 months, but there can be no assurance that our profitability will continue.
CRITICAL ACCOUNTING POLICIES
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Senior management has discussed the development and selection of these critical accounting policies and their disclosure in this Report with our Board of Directors. We believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: revenue recognition; allowance for doubtful accounts; income taxes; stock-based compensation; asset impairment
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff accounting bulletin (“SAB”) 104 (ASC 605), Revenue Recognition and ASC 985-605, Software Revenue Recognition. Generally, revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.
The Company recognizes revenue from the sale of hardware and software when a non-cancelable, non-contingent agreement has been signed, the hardware and software products have been delivered, no uncertainties exists surrounding product acceptance, fees from the agreement are fixed and determinable and collection is probable. Any revenues from software arrangements with multiple elements are allocated to each element of the arrangement based on the relative fair values using specific objective evidence as defined in the standards. If no such objective evidence exists, revenues from the arrangements are not recognized until the entire arrangement is completed and accepted by the customer. Once the amount of the revenue for each element is determined, the Company recognizes revenues as each element is completed and accepted by the customer. For arrangements that require significant production, modification or customization of software, the entire arrangement is accounted for by the percentage of completion method, in conformity with the standards.
Revenue from maintenance agreements is deferred and recognized ratably over the term of the maintenance agreement, which typically ranges from one to three years.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customer's industry as well as general economic conditions, among other factors.
Income Taxes
We account for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrease this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period.
The Company operates in several countries. As a result, we are subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.
We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.
Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with Statement No. 123R, Share-Based Payment (SFAS 123R) (ASC 718), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value.
Asset Impairment
We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate.
RECENT ACCOUNTING PROUNCEMENTS
In January 2011, the FASB issued ASU 2011-01 an accounting pronouncement related to receivables (“FASB ASC Topic 310”), The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.
OFF-BALANCE SHEET ARRANGEMENTS
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not applicable to smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report.
Under Rule 13a-15(e) and 15d-15(e), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
During the three months ended March 31, 2011, there has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Under Rule 13a-15(e) and 15d-15(e), the term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
|
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
|
|
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
|
|
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
|
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not aware of any litigation pending or threatened by or against the Company.
Item 1A. Risk Factors
Not applicable to smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4
.
(Removed and Reserved)
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
|
Exhibit Number
|
|
Description of Exhibit
|
|
|
|
|
|
31.1*
|
|
Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended
|
|
31.2*
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended
|
|
|
|
|
|
32.1*
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
|
|
|
|
|
|
32.2*
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
|
*Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CHINA INTELLIGENCE INFORMATION SYSTEMS INC.
|
|
|
|
|
By:
|
/s/ Li Kunwu
|
|
|
Li Kunwu
|
|
|
Chief Executive Officer (Principal Executive Officer)
|
|
|
|
|
|
Date: May 16 , 2011
|
|
|
|
|
|
|
By:
|
/s/ Li Kunwu
|
|
|
Li Kunwu
|
|
|
Chief Financial Officer (Principal Accounting and Financial Officer)
|
|
|
|
|
|
Date: May 16 , 2011
|
Register to chat with like-minded investors on our interactive forums.
Hot Features
Premium
