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
For
the
fiscal year ended December 31, 2007
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from ________ to
________
Commission
File Number 0- 50164
INNOCOM
TECHNOLOGY HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada
|
|
87-0618756
|
|
(State
or other jurisdiction of
Incorporation
or organization)
|
|
(IRS
Employer Identification No.)
|
Unit
3506, Bank of America Tower
12
Harcourt Road
Central,
Hong Kong PRC
(Address
of principal executive offices)
(852)
3102 1602
(Issuer's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act: Common Stock ($0.001 par
value)
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 Exchange 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 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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No x
As
of
December 31, 2007, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was $3,697,705.25 based on the
closing sale price as reported on the Over-the-Counter Bulletin Board. As of
April 10, 2008, there were 37,898,251 shares of common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None
Innocom
Technology Holdings, Inc.
FORM
10-K
For
the
Year Ended December 31, 2007
TABLE
OF CONTENTS
|
PART
I
|
|
|
|
|
ITEM
1.
|
|
Business
|
2
|
|
ITEM
1A.
|
|
Risk
Factors
|
4
|
|
ITEM
1B.
|
Unresolved
Staff Comments
|
12
|
|
|
ITEM
2.
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Properties
|
12
|
|
ITEM
3.
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|
Legal
Proceedings
|
12
|
|
ITEM
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
12
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|
PART
II
|
|
|
|
|
ITEM
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
Purchases of Equity Securities
|
12
|
|
|
ITEM
6.
|
Selected
Financial Data
|
13
|
|
|
ITEM
7.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
ITEM
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
17
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|
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ITEM
8.
|
|
Financial
Statements and Supplementary Data
|
18
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|
ITEM
9.
|
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
|
19
|
|
ITEM
9A.
|
|
Controls
and Procedures
|
19
|
|
ITEM
9B.
|
Other
Information
|
19
|
|
|
|
|
|
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PART
III
|
|
|
|
|
ITEM
10.
|
|
Directors
and Executive Officers of the Registrant
|
20
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|
ITEM
11.
|
|
Executive
Compensation
|
22
|
|
ITEM
12.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
23
|
|
ITEM
13.
|
|
Certain
Relationships and Related Transactions
|
24
|
|
ITEM
14.
|
|
Principal
Accountant Fees and Services
|
24
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|
|
|||
|
PART
IV
|
|
||
|
ITEM
15
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|
Exhibits,
Financial Statement Schedules
|
25
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SIGNATURES
|
26
|
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements. These statements
relate to future events or our future financial performance. These statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance,
or achievements expressed or implied by forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events
or
results may differ materially.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. We undertake no duty to update any of the forward-looking statements
after the date of this report to conform such statements to actual results
or to
changes in our expectations.
Readers
are also urged to carefully review and consider the various disclosures made
by
us which attempt to advise interested parties of the factors which affect our
business, including without limitation the disclosures made in PART
I. ITEM 1A:. Risk Factors
and
PART
II. ITEM 6 "Management's Discussion and Analysis or Plan of
Operation"
included herein.
PART
I.
History
Innocom
Technology Holdings, Inc., (the "Company") was organized under the laws of
the
state of Nevada on June 26, 1998 under the name Dolphin Productions, Inc.,
The
Company has provided musical and other performance services for concerts and
public events. During the fiscal year ended September 30, 2003, the
Company determined to shift its emphasis away from the presentation of concerts
and toward the Internet marketing of recorded music. The Company has not
presented live musical concerts during then past two fiscal years. The
Company owns the rights to the domain name "dolphinproductions.net." The
Company has encountered substantial competitive, legal, technological and
financial obstacles to its entry into the business of marketing recorded music
through the Internet. The Company has not generated substantial revenues
from Internet marketing of musical properties.
On
March
30, 2006, pursuant to an Agreement and Plan of Reorganization dated March 15,
2006 among the Company, Innocom Technology Holdings Limited, a British Virgin
Islands corporation, (“Innocom”) and certain shareholders of Innocom, the
Company acquired 100% of Innocom’s issued and outstanding common stock making
Innocom a wholly owned subsidiary of the Company. As a result, the
Company, which previously had no material operations, has acquired the business
of Innocom which have two principal business lines: design and solution
provision for mobile phones, and trading of mobile phone handsets and related
components.
In
2006,
we change the name of the Company from Dolphin Production, Inc. to Innocom
Technology Holdings, Inc.
Due
to
keen competition, the Company ceased the business of design and solution
provision for mobile phone segment in the last quarter of 2006 and disposed
of
entire segment in May 2007 with a profit of US$599,544.
In
February 2007, we have established a wholly-foreign owned subsidiary company
to
acquire distressed land, factory building and equipments under receivership
from
municipal government. Deposits have been paid by installments. We expect to
complete the acquisition in near future. The factory will be used for assembling
mobile phones under the trade mark we purchased in May 2007 and components
parts
on OEM basis.
In
May
2007, we acquire a trade mark, namely “Tsinghua Unisplendour” for a period of 10
years.
In
2007,
we discontinue the registration of domain name
“dolphinproductions.net”.
Our
Business
We
provide sourcing of mobile phone handsets and components for customers on a
wholesale basis.
2
Customers
Our
customers include major mobile handset brand owners in China, such as TCL,
CECT,
Cosun Communications, Panda Communications and Zhejiang Holley Communication
Group Co., Ltd.
We
generate our revenue from sale of complete mobile handsets and component
parts.
Facilities
We
do not
own any land and building. We currently rent a 200 square meters office with
a
lease period of two years in Hong Kong as our headquarter office.
Employees
As
of
December 31, 2007, we employed approximately 4 full-time employees. The Company
does not have any collective bargaining agreements with its employees and we
consider our employee relations to be good.
Website
Access to our SEC Reports
Our
Internet website address is www.innocomtechnology.com. Through our Internet
website, we will make available, free of charge, the following reports as soon
as reasonably practicable after electronically filing them with, or furnishing
them to, the SEC: our Annual Reports on Form 10-K; our Quarterly Reports on
Form
10-Q; our Current Reports on Form 8-K; and amendments to those reports filed
or
furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934,
as
amended (the "Exchange Act"). Our Proxy Statements for our Annual Stockholder
Meetings are also available through our Internet website. Our Internet website
and the information contained therein or connected thereto are not intended
to
be incorporated into this Annual Report on Form 10-K.
You
may
also obtain copies of our reports without charge by writing to:
Attn:
Investor Relations
Unit
3506, Bank of America Tower
12
Harcourt Road
Central,
Hong Kong PRC
The
public may also read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or through
the SEC website at www.sec.gov. The Public Reference Room may be contact at
(800) SEC-0330. You may also access our other reports via that link to the
SEC
website.
3
Item
1A. Risk Factors
Our
sales and profitability depend on the continued growth of the mobile
communications industry as well as the growth of the new market segments within
that industry in which we have recently invested. If the mobile communications
industry does not grow as we expect, or if the new market segments on which
we
have chosen to focus and in which we have recently invested grow less than
expected, or if new faster-growing market segments emerge in which we have
not
invested, our sales and profitability may be adversely
affected.
Our
business depends on continued growth in mobile communications in terms of the
number of existing mobile subscribers who upgrade or simply replace their
existing mobile devices, the number of new subscribers and increased usage.
As
well, our sales and profitability are affected by the extent to which there
is
increasing demand for, and development of, value-added services, leading to
opportunities for us to successfully market mobile devices that feature these
services. These developments in our industry are to a certain extent outside
of
our control. For example, we are dependent on operators in highly penetrated
markets to successfully introduce services that cause a substantial increase
in
usage of voice and data. Further, in order to support a continued increase
in
mobile subscribers in certain low-penetration markets, we are dependent on
operators to increase their sales volumes of lower-cost mobile devices and
to
offer affordable tariffs. If operators are not successful in their attempts
to
increase subscriber numbers, stimulate increased usage or drive replacement
sales, our business and results of operations could be materially adversely
affected.
Our
industry continues to undergo significant changes. First, the mobile
communications, information technology, media and consumer electronics
industries are converging in some areas into one broader industry leading to
the
creation of new mobile devices, services and ways to use mobile devices. Second,
while participants in the mobile communications industry once provided complete
products and solutions, industry players are increasingly providing specific
hardware and software layers for products and solutions. As a result of these
changes, new market segments within our industry have begun to emerge and we
have made significant investments in new business opportunities in certain
of
these market segments, such as smart-phones, imaging, games, music and
enterprise mobility infrastructure. However, a number of the new market segments
in the mobile communications industry are still in early states of their
development, and it may be difficult for us to accurately predict which new
market segments are the most advantageous for us to focus on. As a result,
if
the segments on which we have chosen to focus grow less than expected, we may
not receive a return on our investment as soon as we expect, or at all. We
may
also forego growth opportunities in new market segments of the mobile
communications industry on which we do not focus.
Our
results of operations, particularly our profitability, may be adversely affected
if we do not successfully manage price erosion related to our
products.
In
the
future, if, for competitive reasons, we need to lower the selling prices of
certain of our products and if we cannot lower our costs at the same rate or
faster, this may have a material adverse effect on our business and results
of
operations, particularly our profitability. To mitigate the impact of mix shifts
on our profitability, we implement product segmentation with the aim of
designing appropriate features with an appropriate cost basis for each customer
segment. Likewise, we endeavor to mitigate the impact on our profitability
of
price erosion of certain features and functionalities by seeking to correctly
time the introduction of new products, in order to align such introductions
with
declines in the prices of relevant components. We cannot predict with any
certainty whether or to what extent we may need to lower prices for competitive
reasons again and how successful we will be in aligning our cost basis to the
pricing at any given point in time. Price erosion is a normal characteristic
of
the mobile devices industry, and the products and solutions offered by us are
also subject to natural price erosion over time. If we cannot reduce our costs
at the same rate, our business may be materially adversely affected. Although
we
may take actions to mitigate price erosion, such as strengthening the Company
brand in order to support a price premium over certain of our competitors,
there
can be no assurance that we will be successful in this regard.
We
must develop or otherwise acquire complex, evolving technologies to use in
our
business. If we fail to develop these technologies or to successfully
commercialize them as new advanced products and solutions that meet customer
demand, or fail to do so on a timely basis, it may have a material adverse
effect on our business, our ability to meet our targets and our results of
operations.
In
order
to succeed in our markets, we believe that we must develop or otherwise acquire
complex, evolving technologies to use in our business. However, the development
and use of new technologies, applications and technology platforms for our
mobile devices involves time, substantial costs and risks both within and
outside of our control. This is true whether we develop these technologies
internally, by acquiring or investing in other companies or through
collaboration with third parties.
The
technologies, functionalities and features on which we choose to focus may
not
achieve as broad or timely customer acceptance as we expect. This may result
from numerous factors including the availability of more attractive alternatives
or a lack of sufficient compatibility with other existing technologies, products
and solutions. Additionally, even if we do select the technologies,
functionalities and features that customers ultimately want, we or the companies
that work with us may not be able to bring them to the market at the right
time.
Furthermore,
as a result of ongoing technological developments, our products and solutions
are increasingly used together with components or layers that have been
developed by third parties, whether or not the Company has authorized their
use
with our products and solutions. However, such components, such as batteries,
or
layers, such as software applications, may not be compatible with our products
and solutions and may not meet our and our customers' quality, safety or other
standards. As well, certain components or layers that may be used with our
products may enable our products and solutions to be used for objectionable
purposes, such as to transfer content that might be hateful or derogatory.
The
use of our products and solutions with incompatible or otherwise substandard
components or layers, or for purposes that are inappropriate, is largely outside
of our control and could harm the Company brand.
4
We
need to understand the different markets in which we operate and meet the needs
of our customers, which include mobile network operators, distributors,
independent retailers and enterprise customers. We need to have a competitive
product portfolio, and to work together with our operator customers to address
their needs. Our failure to identify key market trends and to respond timely
and
successfully to the needs of our customers may have a material adverse impact
on
our market share, business and results of operations.
We
serve
a diverse range of customers, ranging from mobile network operators,
distributors, independent retailers to enterprise customers, across a variety
of
markets. In many of these markets, the mobile communications industry is at
different stages of development, and many of these markets have different
characteristics and dynamics, for example, in terms of mobile penetration rates
and technology, feature and pricing preferences. Establishing and maintaining
good relationships with our customers and understanding trends and needs in
their markets require us to constantly obtain and evaluate a complex array
of
feedback and other data. We must do this efficiently in order to be able to
identify key market trends and address our customers' needs proactively and
in a
timely manner. If we fail to analyze correctly and respond timely and
appropriately to customer feedback and other data, our business may be
materially adversely affected.
Certain
mobile network operators require mobile devices to be customized to their
specifications, by requesting certain preferred features, functionalities or
design, together with co-branding with the network operator's brand. We believe
that customization is an important element in gaining increased operator
customer satisfaction and we are working together with operators on product
planning as well as accelerating product hardware and software customization
programs. These developments may result in new challenges as we provide
customized products, such as the need for us to produce mobile devices in
smaller lot sizes, which can impede our economies of scale, or the potential
for
the erosion of the Company brand, which we consider to be one of our key
competitive advantages.
In
order
to meet our customers' needs, we need to introduce new devices on a timely
basis
and maintain a competitive product portfolio. For the Company, a competitive
product portfolio means a broad and balanced offering of commercially appealing
mobile devices with attractive features, functionality and design for all major
user segments and price points. If we do not achieve a competitive portfolio,
we
believe that we will be at a competitive disadvantage, which may lead to lower
revenue and lower profits.
The
competitiveness of our portfolio is also influenced by the value of the Company
brand. A number of factors, including actual or even alleged defects in our
products and solutions, may have a negative effect on our reputation and erode
the value of the Company brand.
Competition
in our industry is intense. Our failure to respond successfully to changes
in
the competitive landscape may have a material adverse impact on our business
and
results of operations.
The
markets for our products and solutions are intensely competitive. Industry
participants compete with each other mainly on the basis of the breadth and
depth of their product portfolios, price, operational and manufacturing
efficiency, technical performance, product features, quality, customer support
and brand recognition. We are facing increased competition from both our
traditional competitors in the mobile communications industry as well as a
number of new competitors, particularly from countries where production costs
tend to be lower. Some of these competitors have used, and we expect will
continue to use, more aggressive pricing strategies, different design approaches
and alternative technologies than ours. In addition, some competitors have
chosen a strategy of focusing on productization based on commercially available
technologies and components, which may enable them to introduce products faster
and with lower levels of research and development spending than the
Company.
As
a
result of developments in our industry, we also expect to face new competition
from companies in related industries, such as consumer electronics manufacturers
and business device and solution providers, including but not limited to Dell,
HP, Microsoft, Nintendo, Palm, Research in Motion and Sony. Additionally,
because mobile network operators are increasingly offering mobile devices under
their own brand, we face increasing competition from non-branded mobile device
manufacturers. If we cannot respond successfully to these competitive
developments, our business and results of operations may be materially adversely
affected.
Reaching
our sales, profitability, volume and market share targets depends on numerous
factors. These include our ability to offer products and solutions that meet
the
demands of the market and to manage the prices and costs of our products and
solutions, our operational efficiency, the pace of development and acceptance
of
new technologies, our success in the business areas that we have recently
entered, and general economic conditions. Depending on those factors, some
of
which we may influence and others of which are beyond our control, we may fail
to reach our targets and we may fail to provide accurate forecasts of our sales
and results of operations
.
A
variety
of factors discussed throughout these Risk Factors could affect our ability
to
reach our targets and give accurate forecasts. Although, we can influence some
of these factors, some of them depend on external factors that are beyond our
control. In our mobile device businesses, we seek to maintain healthy
levels of sales and profitability through offering a competitive portfolio
of
mobile devices, growing faster than the market, working to improve our
operational efficiency, controlling our costs, and targeting timely and successful
product introductions and shipments. The quarterly and annual sales and
operating results in our mobile device businesses also depend on a number of
other factors that are not within our control. Such factors include the global
growth in mobile device volumes, which is influenced by, among other factors,
regional economic factors, competitive pressures, regulatory environment, the
timing and success of product and service introductions by various market
participants, including network operators, the commercial acceptance of new
mobile devices, technologies and services, and operators' and distributors'
financial situations. Our sales and operating results are also impacted by
fluctuations in exchange rates and at the quarterly level by seasonality. In
developing markets, the availability and cost, through affordable tariffs,
of
mobile phone service compared with the availability and cost of fixed line
networks may also impact volume growth.
5
In
our
mobile networks business, we also seek to maintain healthy levels of sales
and
profitability and try to grow faster than the market. Our networks business's
quarterly and annual net sales and operating results can be affected by a number
of factors, some of which we can influence, such as our operational efficiency,
the level of our research and development investments and the deployment
progress and technical success we achieve under network contracts. Other
relevant factors include operator investment behavior, which can vary
significantly from quarter to quarter, competitive pressures and general
economic conditions although these are not within our control.
The
new
business areas that we have entered may be less profitable than we currently
foresee, or they may generate more variable operating results than we currently
foresee. We expect to incur short-term operating losses in certain of these
new
business areas given our early stage investments in research and development
and
marketing in particular. Also our efforts in managing prices and costs in the
long-term, especially balancing prices and volumes with research and development
costs, may prove to be inadequate.
Although
we may announce forecasts of our results of operations, uncertainties affecting
any of these factors, particularly during difficult economic conditions, render
our forecasts difficult to make, and may cause us not to reach the targets
that
we have forecasted, or to revise our estimates.
Our
sales and results of operations could be adversely affected if we fail to
efficiently manage our manufacturing and logistics without interruption, or
fail
to ensure that our products and solutions meet our and our customers' quality,
safety and other requirements and are delivered in
time.
Our
manufacturing and logistics are complex, require advanced and costly equipment
and include outsourcing to third parties. These operations are continuously
modified in an effort to improve manufacturing efficiency and flexibility.
We
may experience difficulties in adapting our supply to the demand for our
products, ramping up or down production at our facilities, adopting new
manufacturing processes, finding the most timely way to develop the best
technical solutions for new products, or achieving manufacturing efficiency
and
flexibility, whether we manufacture our products and solutions ourselves or
outsource to third parties. Such difficulties may have a material adverse effect
on our sales and results of operations and may result from, among other things:
delays in adjusting or upgrading production at our facilities, delays in
expanding production capacity, failure in our manufacturing and logistics
processes, failures in the activities we have outsourced, and interruptions
in
the data communication systems that run our operations. Also, a failure or
an
interruption could occur at any stage of our product creation, manufacturing
and
delivery processes, resulting in our products and solutions not meeting our
and
our customers' quality, safety and other requirements, or being delivered late,
which could have a material adverse effect on our sales, our results of
operations and reputation and the value of the Company brand.
We
depend on our suppliers for the timely delivery of components and for their
compliance with our supplier requirements, such as, most notably, our and our
customers' product quality, safety and other standards. Their failure to do
so
could adversely affect our ability to deliver our products and solutions
successfully and on time.
Our
manufacturing operations depend to a certain extent on obtaining adequate
supplies of fully functional components on a timely basis. Our principal supply
requirements are for electronic components, mechanical components and software,
which all have a wide range of applications in our products. Electronic
components include integrated circuits, microprocessors, standard components,
memory devices, cameras, displays, batteries and chargers while mechanical
components include covers, connectors, key mats and antennas. In addition,
a
particular component may be available only from a limited number of suppliers.
Suppliers may from time to time extend lead times, limit supplies or increase
prices due to capacity constraints or other factors, which could adversely
affect our ability to deliver our products and solutions on a timely basis.
Moreover, even if we attempt to select our suppliers and manage our supplier
relationships with scrutiny, a component supplier may fail to meet our supplier
requirements, such as, most notably, our and our customers' product quality,
safety and other standards, and consequently some of our products are
unacceptable to us and our customers, or we may fail in our own quality
controls. Moreover, a component supplier may experience delays or disruption
to
its manufacturing, or financial difficulties. Any of these events could delay
our successful delivery of products and solutions, which meet our and our
customers' quality, safety and other requirements, or otherwise adversely affect
our sales and our results of operations. Also, our reputation and brand value
may be affected due to real or merely alleged failures in our products and
solutions.
6
We
are developing a number of our new products and solutions together with other
companies. If any of these companies were to fail to perform, we may not be
able
to bring our products and solutions to market successfully or in a timely way
and this could have a material adverse impact on our sales and
profitability.
We
continue to invite the providers of technology, components or software to work
with us to develop technologies or new products and solutions. These
arrangements involve the commitment by each company of various resources,
including technology, research and development efforts, and personnel. Although
the target of these arrangements is a mutually beneficial outcome for each
party, our ability to introduce new products and solutions that meet our and
our
customers' quality, safety and other standards successfully and on schedule
could be hampered if, for example, any of the following risks were to
materialize: the arrangements with the companies that work with us do not
develop as expected, the technologies provided by the companies that work with
us are not sufficiently protected or infringe third parties' intellectual
property rights in a way that we cannot foresee or prevent, the technologies,
products or solutions supplied by the companies that work with us do not meet
the required quality, safety and other standards or customer needs, our own
quality controls fail, or the financial standing of the companies that work
with
us deteriorates.
Our
operations rely on complex and highly centralized information technology systems
and networks. If any system or network disruption occurs, this reliance could
have a material adverse impact on our operations, sales and operating
results.
Our
operations rely to a significant degree on the efficient and uninterrupted
operation of complex and highly centralized information technology systems
and
networks, which are integrated with those of third parties. Any failure or
disruption of our current or future systems or networks could have a material
adverse effect on our operations, sales and operating results. Furthermore,
any
data leakages resulting from information technology security breaches could
also
adversely affect us.
All
information technology systems are potentially vulnerable to damage or
interruption from a variety of sources. We pursue various measures in order
to
manage our risks related to system and network disruptions, including the use
of
multiple suppliers and available information technology security. However,
despite precautions taken by us, an outage in a telecommunications network
utilized by any of our information technology systems, virus or other event
that
leads to an unanticipated interruption of our information technology systems
or
networks could have a material adverse effect on our operations, sales and
operating results.
Our
products and solutions include increasingly complex technology involving
numerous new Our patented and other proprietary technologies, as well as some
developed or licensed to us by certain third parties. As a consequence,
evaluating the protection of the technologies we intend to use is more and
more
challenging, and we expect increasingly to face claims that we have infringed
third parties' intellectual property rights. The use of increasingly complex
technology may also result in increased licensing costs for us, restrictions
on
our ability to use certain technologies in our products and solution offerings,
and/or costly and time-consuming litigation. Third parties may also commence
actions seeking to establish the invalidity of intellectual property rights
on
which we depend.
Our
products and solutions include increasingly complex technology involving
numerous new Company patented and other proprietary technologies, as well as
some developed or licensed to us by certain third parties. As the amount of
such
proprietary technologies needed for our products and solutions continues to
increase, the number of parties claiming rights continues to increase and become
more fragmented within individual products, and as the complexity of the
technology and the overlap of product functionalities increases, the possibility
of more infringement and related intellectual property claims against us also
continues to increase. The holders of patents potentially relevant to our
product and solution offerings may be unknown to us, or may otherwise make
it
difficult for us to acquire a license on commercially acceptable terms. There
may also be technologies licensed to and relied on by us that are subject to
infringement or other corresponding allegations or claims by others which could
damage our ability to rely on such technologies.
In
addition, although we endeavor to ensure that companies that work with us
possess appropriate intellectual property rights or licenses, we cannot fully
avoid risks of intellectual property rights infringement created by suppliers
of
components and various layers in our products and solutions or by companies
with
which we work in cooperative research and development activities. Similarly,
we
and our customers may face claims of infringement in connection with our
customers' use of our products and solutions. Finally, as all technology
standards, including those used and relied on by us, include some intellectual
property rights, we cannot fully avoid risks of a claim for infringement of
such
rights due to our reliance on such standards. We believe that the number of
third parties declaring their intellectual property to be relevant to these
standards is increasing, which may increase the likelihood that we will be
subject to such claims in the future.
Any
restrictions on our ability to sell our products and solutions due to expected
or alleged infringements of third party intellectual property rights and any
intellectual property rights claims, regardless of merit, could result in
material losses of profits, costly litigation, the payment of damages and other
compensation, the diversion of the attention of our personnel, product shipment
delays or the need for us to develop non-infringing technology or to enter
into
royalty or licensing agreements. If we were unable to develop non-infringing
technology, or if royalty or licensing agreements were not available on
commercially acceptable terms, we could be precluded from making and selling
the
affected products and solutions. As new features are added to our products
and
solutions, we may need to acquire further licenses, including from new
and sometimes
unidentified owners of intellectual property. The cumulative costs of obtaining
any necessary licenses are difficult to predict and may over time have a
negative effect on our operating results.
7
In
addition, other companies may commence actions seeking to establish the
invalidity of our intellectual property, for example, patent rights. In the
event that one or more of our patents are challenged, a court may invalidate
the
patent or determine that the patent is not enforceable, which could harm our
competitive position. If any of our key patents are invalidated, or if the
scope
of the claims in any of these patents is limited by a court decision, we could
be prevented from licensing the invalidated or limited portion of our
intellectual property rights. Even if such a patent challenge is not successful,
it could be expensive and time consuming, divert management attention from
our
business and harm our reputation. Any diminution of the protection that our
own
intellectual property rights enjoy could cause us to lose some of the benefits
of our investments in R&D, which may have a negative effect on our results
of operations.
If
we are unable to recruit, retain and develop appropriately skilled employees,
we
may not be able to implement our strategies and, consequently, our results
of
operations may suffer.
We
must
continue to recruit, retain and through constant competence training develop
appropriately skilled employees with a comprehensive understanding of our
businesses and technologies. As competition for skilled personnel remains keen,
we seek to create a corporate culture that encourages creativity and continuous
learning. We are also continuously developing our compensation and benefit
policies and taking other measures to attract and motivate skilled personnel.
Nevertheless, we have encountered in the past, and may encounter in the future,
shortages of appropriately skilled personnel, which may hamper our ability
to
implement our strategies and harm our results of operations.
The
global networks business relies on a limited number of customers and large
multi-year contracts. Unfavorable developments under such a contract or in
relation to a major customer may affect our sales, our results of operations
and
cash flow adversely.
Large
multi-year contracts, which are typical in the networks industry, include a
risk
that the timing of sales and results of operations associated with these
contracts will be different than expected. Moreover, they usually require the
dedication of substantial amounts of working capital and other resources, which
impacts our cash flow negatively. Any non-performance by us under these
contracts may have significant adverse consequences for us because network
operators have demanded and may continue to demand stringent contract
undertakings such as penalties for contract violations.
Our
sales derived from, and assets located in, emerging market countries may be
adversely affected by economic, regulatory and political developments in those
countries. As sales from these countries represent an increasing portion of
our
total sales, economic or political turmoil in these countries could adversely
affect our sales and results of operations. Our investments in emerging market
countries may also be subject to other risks and
uncertainties.
We
generate sales from and have invested in various emerging market countries.
As
sales from these countries represent an increasing portion of our total sales,
economic or political turmoil in these countries could adversely affect our
sales and results of operations. Our investments in emerging market countries
may also be subject to risks and uncertainties, including unfavorable taxation
treatment, exchange controls, challenges in protecting our intellectual property
rights, nationalization, inflation, incidents of terrorist activity, currency
fluctuations, or the absence of, or unexpected changes in, regulation as well
as
other unforeseeable operational risks.
Allegations
of health risks from the electromagnetic fields generated by base stations
and
mobile devices, and the lawsuits and publicity relating to them, regardless
of
merit, could affect our operations negatively by leading consumers to reduce
their use of mobile devices or by causing us to allocate monetary and personnel
resources to these issues.
There
has
been public speculation about possible health risks to individuals from exposure
to electromagnetic fields from base stations and from the use of mobile devices.
While a substantial amount of scientific research conducted to date by various
independent research bodies has indicated that these radio signals, at levels
within the limits prescribed by public health authority safety standards and
recommendations, present no adverse effect to human health, we cannot
be certain
that future studies, irrespective of their scientific basis, will not suggest
a
link between electromagnetic fields and adverse health effects that would
adversely affect our sales and share price. Research into these issues is
ongoing by government agencies, international health organizations and other
scientific bodies in order to develop a better scientific and public
understanding of these issues.
Although
the Company products and solutions are designed to meet all relevant safety
standards and recommendations globally, no more than a perceived risk of adverse
health effects of mobile communications devices could adversely affect us
through a reduction in sales of mobile devices or increased difficulty in
obtaining sites for base stations, and could have a negative effect on our
reputation and brand value as well as harm our share price.
Changes
in various types of regulation in countries around the world could affect our
business adversely.
Our
business is subject to direct and indirect regulation in each of the countries
in which we, the companies with which we work or our customers do business.
As a
result, changes in various types of regulations applicable to current or new
technologies, products or services could affect our business adversely. For
example, it is in our interest that the Federal Communications Commission
maintains a regulatory environment that ensures the continued growth of the
wireless sector in the United States. In addition, changes in regulation
affecting the construction of base stations and other network infrastructure
could adversely affect the timing and costs of new network construction or
expansion and the commercial launch and ultimate commercial success of these
networks.
8
Moreover,
the implementation of new technological or legal requirements, such as the
requirement in the United States that all handsets must be able to indicate
their physical location, could impact our products and solutions, manufacturing
or distribution processes, and could affect the timing of product and solution
introductions, the cost of our production, products or solutions as well as
their commercial success. Finally, export control, tariff, environmental, safety
and other regulation that adversely affects the pricing or costs of our products
and solutions as well as new services related to our products could affect
our
net sales and results of operations. The impact of these changes in regulation
could affect our business adversely even though the specific regulations do
not
always directly apply to us or our products and solutions.
Our
future revenues and results of operations may be difficult to forecast and
results in prior periods may no be indicative of future
results.
At
times
in the past and in certain segments, our revenues have fluctuated on a quarterly
and annual basis as well as grown significantly and has decreased significantly.
Accurate predictions of future revenues are difficult because of the rapid
changes in the markets in which we operate.
Our
results of operations have fluctuated and may continue to fluctuate
significantly in the future as a result of a variety of factors, many of which
are beyond our control. These factors include:
|
·
|
the
addition of new clients or the loss of existing
clients;
|
|
·
|
changes
in fees paid by advertisers or other
clients;
|
|
·
|
the
introduction of new mobile technology services by us or our
competitors;
|
|
·
|
variations
in the levels of capital or operating expenditures and other costs
relating to the maintenance or expansion of our operations, including
personnel costs;
|
|
·
|
seasonality;
|
|
·
|
changes
in results of operations brought about by newly acquired businesses
or new
joint ventures, which may be exceedingly difficult to predict due
to
management's lack of history with such businesses or joint
ventures;
|
|
·
|
changes
in governmental regulation of mobile communications;
and
|
|
·
|
general
economic conditions.
|
Our
future revenues and results of operations may be difficult to forecast due
to
the above factors and the time we may need to adequately respond to any changes
in them. Our profit margins may suffer if we are unable to pass some of the
costs on to our customers. In addition, our expense levels are based in large
part on our investment plans and estimates of future revenues. Any increased
expenses may precede or may not be followed by increased revenues, as we may
be
unable to, or may elect not to, adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. As a result, we believe that
period-to-period and year-to-year comparisons of our results of operations
may
not be meaningful.
Acquisitions
may harm our financial results.
Acquisitions
have been part of our growth and may continue to be part of our growth in the
future. Our acquisitions may be of entire companies, certain assets of
companies, controlling interests in companies or of minority interests in
companies where we intend to invest as part of a strategic alliance. If we
are
not successful in integrating companies that we acquire or are not able to
generate adequate sales from the acquired entities, our business could be
materially and adversely affected.
We
depend on proprietary rights and we face the risk of
infringement.
Our
success and ability to compete are substantially dependent on our internally
developed technologies and trademarks, which we protect through a combination
of
copyright, trade secret and trademark law. Patent applications and trademark
applications we submit may not be approved. Even if they are approved, such
patents or trademarks may be successfully challenged by others or invalidated.
If our trademark registrations are not approved because third parties own such
trademarks, our use of such trademarks will be restricted unless we enter into
arrangements with such third parties that may be unavailable on commercially
reasonable terms.
We
generally enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and generally control access to and
distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or
use
our solutions or technologies. The steps we have taken may not prevent
misappropriation of our solutions or technologies, particularly in many foreign
countries in which we operate, where laws or law enforcement practices may
not
protect our proprietary rights as fully as in the United States.
9
We
have,
from time to time, been, and may in the future be, subject to claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties by us or by customers who employ our advertising solutions. We may
be
required, or may elect, to indemnify these parties against such claims. Such
claims and any resultant litigation could subject us to significant liability
for damages and could result in the invalidation of our proprietary rights.
In
addition, even if we prevail, such litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention, any of which could materially and adversely affect our business,
results of operations and financial condition. Any claims or litigation from
third parties may also result in limitations on our ability to use the
trademarks and other intellectual property subject to such claims or litigation
unless we enter into arrangements with the third parties responsible for such
claims or litigation, which may be unavailable on commercially reasonable terms,
if at all.
Future
currency fluctuations and restrictions on currency exchange may adversely affect
our business, including limiting our ability to convert Chinese renminbi into
foreign currencies and, if Chinese renminbi were to decline in value, reducing
our revenues in U.S. dollar terms.
Our
reporting currency is the U.S. dollar and our operations in China and Hong
Kong
use their respective local currencies as their functional currencies. The
majority of our revenues derived and expenses incurred are in currencies other
than the U.S. dollar. We are subject to the effects of exchange rate
fluctuations with respect to any of these currencies. We can offer no assurance
that these will be stable against the U.S. dollar or any other foreign
currency.
The
income statements of our international operations are translated into U.S.
dollars at the average exchange rates in each applicable period. To the extent
the U.S. dollar strengthens against foreign currencies, the translation of
these
foreign currencies denominated transactions results in reduced revenues,
operating expenses and net income for our international operations. Similarly,
to the extent the U.S. dollar weakens against foreign currencies, the
translation of these foreign currency denominated transactions results in
increased revenues, operating expenses and net income for our international
operations. We are also exposed to foreign exchange rate fluctuations as we
convert the financial statements of our foreign subsidiaries into U.S. dollars
in consolidation. If there is a change in foreign currency exchange rates,
the
conversion of the foreign subsidiaries' financial statements into U.S. dollars
will lead to a translation gain or loss which is recorded as a component of
other comprehensive income. In addition, we have certain assets and liabilities
that are denominated in currencies other than the relevant entity's functional
currency. Changes in the functional currency value of these assets and
liabilities create fluctuations that will lead to a transaction gain or loss.
We
have not entered into agreements or purchased instruments to hedge our exchange
rate risks, although we may do so in the future. The availability and
effectiveness of any hedging transactions may be limited and we may not be
able
to successfully hedge our exchange rate risks.
Changes
to existing accounting pronouncements, including SFAS 123R, or taxation rules
or
practices may adversely affect our reported results of operations or how we
conduct our business.
A
change
in accounting pronouncements or taxation rules or practices can have a
significant effect on our reported results and may even affect our reporting
of
transactions completed before the change is effective. Pursuant to SEC rules,
we
are required to implement the Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" ("SFAS 123R") starting in the first
quarter of 2006. SFAS 123R requires us to measure compensation costs for all
share-based compensation (including stock options and our employee stock
purchase plan, as currently constructed) at fair value and take compensation
charges equal to that value. The method that we use to determine the fair value
of stock options is based upon, among other things, the volatility of our
ordinary shares. The price of our ordinary shares has historically been
volatile. Therefore, the requirement to measure compensation costs for all
share-based compensation under SFAS 123R could negatively affect our
profitability and the trading price of our ordinary shares. SFAS 123R and the
impact of expensing on our reported results could also limit our ability to
continue to use stock options as an incentive and retention tool, which could,
in turn, hurt our ability to recruit employees and retain existing employees.
Other new accounting pronouncements or taxation rules and varying
interpretations of accounting pronouncements or taxation practice have occurred
and may occur in the future. This change to existing rules, future changes,
if
any, or the questioning of current practices may adversely affect our reported
financial results or the way we conduct our business.
While
we believe that we currently have adequate internal control procedures in place,
we are still exposed to potential risks from recent legislation requiring
companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act
of
2002.
While
we
believe that we currently have adequate internal control procedures in place,
we
are still exposed to potential risks from recent legislation requiring companies
to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. Under
the supervision and with the participation of our management, we have evaluated
our internal controls systems in order to allow management to report on our
internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We
have
performed the system and process evaluation and testing required in an effort
to
comply with the management certification requirements of Section 404. As a
result, we have incurred additional expenses and a diversion of management's
time. If we are not able to continue to meet the requirements of Section 404
in
a timely manner or with adequate compliance, we might be subject to sanctions
or
investigation by regulatory authorities, such as the SEC or the Nasdaq National
Market. Any such action could adversely affect our financial results and the
market price of our ordinary shares.
10
Our
stock price has been historically volatile and may continue to be volatile,
which may make it more difficult for you to resell shares when you want at
prices you find attractive.
The
trading price of our ordinary shares has been and may continue to be subject
to
considerable daily fluctuations. During the twelve months ended December 31,
2007, the closing sale prices of our ordinary shares on the Over-the-Counter
Bulletin Board ranged from $1.93 to $0.13 per share and the closing sale price
on April 11, 2008 was $0.30 per share. Our stock price may fluctuate in response
to a number of events and factors, such as quarterly variations in operating
results, announcements of technological innovations or new products and media
properties by us or our competitors, changes in financial estimates and
recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable, new
governmental restrictions or regulations and news reports relating to trends
in
our markets. In addition, the stock market in general, and the market prices
for
China-related and mobile phone-related companies in particular, have experienced
extreme volatility that often has been unrelated to the operating performance
of
such companies. These broad market and industry fluctuations may adversely
affect the price of our ordinary shares, regardless of our operating
performance.
We
may be classified as a passive foreign investment company, which could result
in
adverse U.S. tax consequences to U.S. investors.
Based
upon the nature of our income and assets, we may be classified as a passive
foreign investment company, or PFIC, by the United States Internal Revenue
Service for U.S. federal income tax purposes. This characterization could result
in adverse U.S. tax consequences to you. For example, if we are a PFIC, our
U.S.
investors will become subject to increased tax liabilities under U.S. tax laws
and regulations and will become subject to more burdensome reporting
requirements. The determination of whether or not we are a PFIC is made on
an
annual basis, and those determinations depend on the composition of our income
and assets, including goodwill, from time to time. Although in the past we
have
operated our business and in the future we intend to operate our business so
as
to minimize the risk of PFIC treatment, you should be aware that certain factors
that could affect our classification as PFIC are out of our control. For
example, the calculation of assets for purposes of the PFIC rules depends in
large part upon the amount of our goodwill, which in turn is based, in part,
on
the then market value of our shares, which is subject to change. Similarly,
the
composition of our income and assets is affected by the extent to which we
spend
the cash we have raised on acquisitions and capital expenditures. In addition,
the relevant authorities in this area are not clear and so we operate with
less
than clear guidance in our effort to minimize the risk of PFIC treatment.
Therefore, we cannot be sure whether we are not and will not be a PFIC for
the
current or any future taxable year. In the event we are determined to be a
PFIC,
our stock may become less attractive to U.S. investors, thus negatively
impacting the price of our stock.
We
may be exposed to infringement claims by third parties, which, if successful,
could cause us to pay significant damage awards.
Third
parties may initiate litigation against us alleging infringement of their
proprietary rights. In the event of a successful claim of infringement and
our
failure or inability to develop non-infringing technology or license the
infringed or similar technology on a timely basis, our business could be harmed.
In addition, even if we are able to license the infringed or similar technology,
license fees could be substantial and may adversely affect our results of
operations.
Our
failure to compete successfully may hinder our
growth.
The
markets for mobile technology and related products and services are intensely
competitive and such competition is expected to increase. Our failure to compete
successfully may hinder our growth. We believe that our ability to compete
depends upon many factors both within and beyond our control,
including:
|
·
|
the
development of new mobile
technology;
|
|
·
|
the
timing and market acceptance of new products and enhancements of
existing
services developed by us and our
competitors;
|
|
·
|
the
ability to attract and retain qualified
personnel;
|
|
·
|
changing
demands regarding customer service and
support;
|
|
·
|
shifts
in sales and marketing efforts by us and our competitors;
and
|
|
·
|
the
ease of use, performance, price and reliability of our services and
products.
|
Some
of
our competitors have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than ours. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves
or
with third parties to increase the ability of their products or services to
address the needs of our prospective clients. In addition, most online
advertising companies are seeking to broaden their business models, so that
companies that do not currently compete directly with us may decide to compete
more directly with us in the future. We may be unable to compete successfully
against current or future competitors.
11
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Our
principal executive offices are located at Unit 3506, Bank of America Tower,
12
Harcourt Road, Central, Hong Kong . In 2006, we began renting office facilities
consisting of approximately 200 square meters in Hong Kong, our current
headquarters, for a period of two (2) years on a month-to-month basis at $8,718
per month. During the twelve months ended December 31, 2007, total payments
for
all property rent was $104,581 (Fifteen months ended December 31, 2006:
$54,212)
We
periodically evaluate our facilities requirements. Some of our facilities are
sublet in whole or in part.
Item
3. Legal Proceedings
We
are
not involved in any material pending legal proceedings at this time, and
management is not aware of any contemplated proceeding by any governmental
authority.
Item
4. Submission of Matters to a Vote of Security Holders.
No
matters were submitted during the fourth quarter of the fiscal year covered
by
this report to a vote of security holders.
ITEM
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Our
common stock is traded on the Over-the-Counter Bulletin Board under the symbol
“INCM.OB”. As of April 11, 2008, there were: (i)260 shareholders of record,
without giving effect to determining the number of shareholders who hold shares
in "street name" or other nominee status; (ii) no outstanding options to
purchase shares of our common stock; (iii) outstanding 37,898,251 shares of
our
common stock, of which 3,938,508 shares are either freely tradeable or eligible
for sale under Rule 144 or Rule 144K, and (v) no shares subject to registration
rights.
The
following table sets forth, for the fiscal quarters indicated, the high and
low
closing prices as reported by the Over-the-Counter Bulletin Board. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
Sales
Price
|
|
High
|
Low
|
|||||
|
Fiscal
2007
|
|||||||
|
First
Quarter
|
$
|
1.93
|
$
|
0.45
|
|||
|
Second
Quarter
|
$
|
0.65
|
$
|
0.24
|
|||
|
Third
Quarter
|
$
|
0.99
|
$
|
0.16
|
|||
|
Fourth
Quarter
|
$
|
0.50
|
$
|
0.13
|
|||
|
|
|||||||
|
Fiscal
2006
|
|||||||
|
First
Quarter
|
$
|
2.30
|
$
|
1.00
|
|||
|
Second
Quarter
|
$
|
2.90
|
$
|
1.50
|
|||
|
Third
Quarter
|
$
|
2.30
|
$
|
1.75
|
|||
|
Fourth
Quarter
|
$ |
2.30
|
$ |
1.51
|
|||
Dividend
Policy
We
have
not paid, nor declared, any dividends since our inception and do not intend
to
declare any such dividends in the foreseeable future. Our ability to pay
dividends is subject to limitations imposed by Nevada law. Under Nevada law,
dividends may be paid to the extent that a corporation’s assets exceed its
liabilities and it is able to pay its debts as they become due in the usual
course of business.
Recent
Sales of Unregistered Securities
During
the year ended December 31, 2007, we did not issue any securities that were
not
registered under the Securities Act of 1933, as amended (the “Securities Act”).
12
Item
6. Selected Financial Data.
The
following tables summarize the consolidated financial data of Innocom Technology
Holdings, Inc. for the periods presented. You should read the following
financial information together with the information under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
our consolidated financial statements and the related notes to these
consolidated financial statements appearing elsewhere in this Form 10-K.
|
Year
ended September 30,
|
Fifteen
months ended December 31,
|
|
Year
ended December 31,
|
|
||||||||||||
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|||||
|
Revenue
|
$
|
2,000
|
$
|
0
|
$
|
1,201
|
$
|
52,722,732
|
$
|
2,241,726
|
||||||
|
Cost
of sales
|
0
|
0
|
(300
|
)
|
(48,806,531
|
)
|
0
|
|||||||||
|
Gross
profit
|
2,000
|
0
|
901
|
3,916,201
|
2,241,726
|
|||||||||||
|
Depreciation
and amortization
|
0
|
0
|
0
|
(505,557
|
)
|
(6,000,306
|
)
|
|||||||||
|
Selling
and distribution expenses
|
0
|
0
|
0
|
(156,591
|
)
|
0
|
||||||||||
|
General
and administrative expenses
|
(26,407
|
)
|
(14,111
|
)
|
(7,417
|
)
|
(353,552
|
)
|
(468,665
|
)
|
||||||
|
Other
income
|
0
|
0
|
11
|
126,437
|
592,696
|
|||||||||||
|
Interest
expense
|
0
|
(25
|
)
|
0
|
0
|
0
|
||||||||||
|
Income
before income tax
|
(24,407
|
)
|
(14,136
|
)
|
(6,505
|
)
|
3,026,938
|
(3,634,549
|
)
|
|||||||
|
Income
tax expense
|
(20
|
)
|
0
|
0
|
(574,777
|
)
|
0
|
|||||||||
|
Net
income attributable to the Shareholders of the
Company
|
$
|
(24,427
|
)
|
$
|
(14,136
|
)
|
$
|
(6,505
|
)
|
$
|
2,452,161
|
$
|
(3,634,549
|
)
|
||
|
Earnings
per Share — basic (US$)
|
$
|
(0.05
|
)
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
0.11
|
$
|
(0.10
|
)
|
||
|
Earnings
per Share — diluted (US$)
|
$
|
(0.05
|
)
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
0.11
|
$
|
(0.10
|
)
|
||
|
|
As
at September 30,
|
As
at December 31,
|
||||||||||||||
|
|
2003
|
2004
|
2005
|
2006
|
2007
|
|||||||||||
|
Cash
and cash equivalents
|
$
|
2,995
|
$
|
21,002
|
$
|
10,683
|
$
|
101,288
|
$
|
3,597
|
||||||
|
Total
current assets
|
3,725
|
21,732
|
10,683
|
14,885,879
|
30,233
|
|||||||||||
|
Total
assets
|
3,725
|
21,732
|
10,683
|
21,191,881
|
14,098,908
|
|||||||||||
|
Short-term
borrowings
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
|
Total
current liabilities
|
22,560
|
4,703
|
159
|
5,487,149
|
2,037,491
|
|||||||||||
|
Total
stockholders’ equity
|
(18,835
|
)
|
17,029
|
10,524
|
15,704,732
|
12,061,417
|
||||||||||
Item
7. Management's Discussion and Analysis of Financial Condition and Results
of
Operations.
The
information in this discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including statements regarding
our
capital needs, business strategy and expectations. Any statements contained
herein that are not statements of historical facts may be deemed to be
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expect", "plan",
"intend", "anticipate", "believe", "estimate", "predict", "potential" or
"continue", the negative of such terms or other comparable terminology. Actual
events or results may differ materially. We disclaim any obligation to publicly
update these statements, or disclose any difference between its actual results
and those reflected in these statements. The information constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
Overview
and Future Plan of Operations
In
2007,
our revenues dropped by 96% from $51,719,412
in 2006
to $2,241,726 in 2007 primarily
resulting from different accounting basis in recognition of income in respect
of
trading of mobile phone and related components..
In
2008,
the Company will strengthen our trading of mobile phones and related components.
We will also put the assembling production factory situated in Changzhou,
Jiangsu Province, China in commercial production. This factory will assembling
mobile phones under the purchased trade mark namely “Tsinghua Unisplendour” and
other mobile phone components on OEM basis.
Results
of Operations for the Year Ended December 31, 2007 and Fifteen Months ended
December 31, 2006
During
the twelve months ended December 31, 2007, we experienced a net loss of
$3,643,549.
The
loss is attributable to write off share based consulting fee of $5,637,887
during the year.
13
Revenue
The
following table sets forth our net revenues by each operational division for
the
year ended December 31, 2007 and fifteen months ended December 31,
2006:
|
Year
ended
December
31, 2007
|
|
Fifteen
months ended
December
31,2006
|
|
Variance
|
|
|
|||||||
|
Design
and Solution Provision for Mobile Phone
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
%
|
|||||
|
Trading
of Mobile Phone & Related Components
|
2,241,726
|
51,719,412
|
(49,477,686
|
)
|
-96
|
%
|
|||||||
|
|
$
|
2,241,726
|
$
|
51,719,412
|
$
|
(49,477,686
|
)
|
-96
|
%
|
||||
Design
and Solution Provision for Mobile Phone Segment Revenue
There
is
no revenue for our Design and Solution for Mobile Phone Segment for both the
year ended December 31, 2007 and fifteen months ended December 31, 2006 as
we
have ceased business of this segment since last quarter of 2006. The revenue
for
the fifteen months ended December 31, 2006 is netted with income from
discontinuous operations.
Trading
of Mobile Phone and Related Components Segment Revenue
During
the year ended December 31, 2007, we derived $2,241,726 revenue from our Trading
of Mobile Phone and Related Component operations, representing a decrease in
revenue of $49,477,686 or 96% decrease from the comparable fifteen months ended
December 31, 2006 in which revenue from Trading of Mobile Phone and Related
Components amounting to $51,719,412.
The
decrease is due to different accounting policy in recognition of income in
respect of trading mobile phones and related components. During 2007, we trade
mobile phones and related components on commission basis. As a result, net
revenues, at a rate of 6% based on the gross amount of $36,729,800 billed to
the
customers, are recorded as the Company’s income.
Cost
of Sales
Cost
of
Sales by Segment for Year Ended December 31, 2007 and Fifteen Months Ended
December 31, 2006 are set out as follows:
|
Year
ended December 31, 2007
|
|
Fifteen
months ended December 31,2006
|
|
Variance
|
|
||||||||
|
Design
and Solution Provision for Mobile Phone
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
%
|
|||||
|
Trading
of Mobile Phone & Related Components
|
-
|
48,088,619
|
(48,088,619
|
)
|
-100
|
%
|
|||||||
|
|
$ | - |
$
|
48,088,619
|
$
|
(48,088,619
|
)
|
-100
|
%
|
||||
As
a
result of cessation of business in respect of design and solution provision
for
mobile phone as well as trading cost being netted with billed cost as revenue,
the Company does not have any cost of sales for 2007.
Design
and Solution Provision for Mobile Phone Segment
For
fifteen months ended December 31, 2006, cost of sales for our Design and
Solution Provision for Mobile Phone Segment
were netted with the income from discontinuous operation.
Trading
of Mobile Phone and Related Components Segment
Cost
of
sales for our Trading of Mobile Phone and Related Components Segment
for fifteen months ended December 2006 were $48,088,619.
14
Selling
and Administrative Expenses
Selling
and Administrative Expenses (excluding depreciation, amortization of long-term
deferred charges, amortization of intangible assets and loss on disposal of
plant and equipment) by Segment for year ended December 31, 2007 and fifteen
months ended December 31, 2006 are summarized as follows:
|
Year
ended December 31, 2007
|
|
Fifteen
months ended December 31, 2006
|
|
Variance
|
|
||||||||
|
Design
and Solution Provision for Mobile Phone
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
%
|
|||||
|
Trading
Mobile Phone & Related Components
|
468,665
|
397,045
|
71,620
|
18.04
|
%
|
||||||||
|
|
$
|
468,665
|
$
|
397,045
|
$
|
71,620
|
18.04
|
%
|
|||||
Selling,
general and administrative expenses increased by $71,620 to $468,665 for year
ended December 31, 2007 as compared to $397,045 for the fifteen months ended
December 31, 2006. The increase in expenses was primarily attributable to
increase in full time employees from 2 to 4..
Design
and Solution Provision for Mobile Phones
There
is
no administrative expenses for our Design and Solution for Mobile Phone Segment
for both the year ended December 31, 2007 and fifteen months ended December
31,
2006 as we have ceased business of this segment since last quarter of 2006.
The
selling and administrative expenses for the fifteen months ended December 31,
2006 are netted into income from discontinued operations.
Trading
of Mobile Phone and Related Components
Selling,
general and administrative expenses increased by $71,620 to $468,665 for year
ended December 31, 2007 as compared to $397,045 for the fifteen months ended
December 31, 2006. The increase in expenses was primarily attributable to
increase in full time employees from 2 to 4.
Depreciation,
Amortization of Long-term Deferred Charges, Amortization of Intangible Assets,
and Loss on Disposal of Plant and Equipment
Below
table set out the components of non-cash items:
|
Year
ended
December
31, 2007
|
Fifteen
months ended December 31, 2006
|
||||||
|
Loss
on disposal of plant and equipment
|
$
|
8,088
|
$
|
-
|
|||
|
Depreciation
|
4,665
|
6,586
|
|||||
|
Amortization
of intangible assets
|
357,754
|
-
|
|||||
|
Amortization
of long-term deferred consultancy fee
|
5,637,887
|
292,270
|
|||||
|
$
|
6,008,394
|
$
|
298,856
|
||||
The
depreciation policy adopted in 2007 was consistent with that adopted in
2006.
The
increase in amortization of intangible assets as we have acquired trade mark
for
our mobile phones during the year ended December 31, 2007. The amortization
is
made over purchase period of 10 years.
The
increase in amortization of long-term deferred charges during the year ended
December 31, 2007 as we have terminated certain service agreements because
no
services were rendered to the Company during 2007.
15
Other
Income (Expense)
Total
other income for both periods presented was immaterial and consisted of the
following:
|
Year
ended
December
31, 2007
|
Fifteen
months ended December 31, 2006
|
||||||
|
Other
income
|
|||||||
|
Interest
income
|
$
|
1,240
|
$
|
1,154
|
|||
|
Gain
on disposal of subsidiaries
|
599,544
|
-
|
|||||
|
$
|
600,784
|
$
|
1,154
|
||||
|
Interest
expense
|
$
|
-
|
$
|
-
|
|||
For
the
year ended December 31, 2007, miscellaneous other income primarily includes
gain
on disposal of subsidiaries. For the fifteen months ended December 31, 2006,
other than interest income there is no miscellaneous other income.
Net
Loss
Net
loss
for 2007 was $3,634,549 compared
to net profit of $2,452,161 in 2006. Loss is primarily attributed to write-off
of long-term deferred consultancy fee.
Net
Loss by Segment For Year Ended December 31, 2007 and Fifteen Months Ended
December 2006
|
Year
ended December 31, 2007
|
Fifteen
Months ended December 31, 2006
|
Variance
|
|
||||||||||
|
Design
& Solution Provision for Mobile Phone
|
$
|
599,544
|
$
|
90,892
|
$
|
508,652
|
560
|
%
|
|||||
|
Trading
Mobile Phone & Related Components
|
(4,234,093
|
)
|
2,361,269
|
(6,595,362)-
|
279
|
%
|
|||||||
|
|
$
|
(3,634,549
|
)
|
$
|
2,452,161
|
$
|
(6,086,710)-
|
248
|
%
|
||||
Design
and Solution Provision for Mobile Phones
The
net
profit of $599,544 in our Design and Solution Provision for Mobile Phone segment
resulted from disposal of the segment.
Trading
of Mobile Phone and Related Components
The
net
loss of $4,234,093 in our Trading of Mobile Phone and Related Component segment
is primarily due to write of long-term deferred charges.
Trends,
Events, and Uncertainties
Product
life cycle of a mobile phone design solution has been shortened as mobile phones
have become fashionable products. Few licensed manufacturer is willing to design
a solution from scratch. As a result, gross profit margin for design and
solution provision for mobile phones is squeezed from the peak of 70% to not
more than 15%. Thus, we ceased this segment in last quarter of 2006 and disposed
of in May 2007.
In
2007
fiscal year, we focus on establishing our assembling plant in Changzhou, Jiangsu
Province, China. In February 2007 have established wholly-foreign owned
subsidiary company to acquire land, building and equipment forfeited by bank
through municipal government. Deposits have been paid and trial production
has
been completed. We look forward to put the plant in commercial production in
second quarter of 2008 upon receiving relevant licenses. We will assembling
mobile phones under the purchased trade mark namely “Tsinghua Unisplendour” and
other mobile phone components on OEM basis.
16
Liquidity
and Capital Resources for the Twelve Month Period Ended December 31, 2007 and
2006
Cash
flows from operating activities
We
experienced positive cash flows provided by operations in the amount of
$2,456,180 for the year ended December 31, 2007.
We
experienced positive cash flows provided by operations in the amount of
$7,850,597 for the fifteen months ended December 31, 2006.
Cash
flows from investing activities
During
2007, we purchase a 10-year trade mark for $5,960,775 and pay $8,448,584
deposits for acquisition of plant and equipment, part of which financed by
repayment receipt for amount due from a related party.
Cash
flows from financing activities
During
2007, there are no financing activities.
Liquidity
On
a
long-term basis, our liquidity will be dependent on establishing profitable
operations, receipt of revenues, additional infusions of capital and additional
financing. If necessary, we may raise capital through an equity or debt
offering. The funds raised from this offering will be used to develop and
execute our business plan. However, there can be no assurance that we will
be
able to obtain additional equity or debt financing in the future, if at all.
If
we are unable to raise additional capital, our growth potential will be
adversely affected. Additionally, we will have to significantly modify our
plans.
Critical
Accounting Policies
The
financial statements are prepared in accordance with accounting principles
generally accepted in the U.S., which requires us to make estimates and
assumptions in certain circumstances that affect amounts reported in the
accompanying financial statements and related footnotes. In preparing these
financial statements, management has made its best estimates and judgments
of
certain amounts included in the financial statements, giving due consideration
to materiality. We do not believe there is a great likelihood that materially
different amounts would be reported related to the accounting policies described
below. However, application of these accounting policies involves the exercise
of judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates.
Details
of critical accounting policies are set out in notes to the financial statements
included in Item 8.
Foreign
Exchange Risk
While
our
reporting currency is the U.S. Dollar, all of our consolidated revenues and
consolidated costs and expenses are denominated in Renminbi. All of our assets
are denominated in RMB except for cash. As a result, we are exposed to foreign
exchange risk as our revenues and results of operations may be affected by
fluctuations in the exchange rate between U.S. Dollars and RMB. If the RMB
depreciates against the U.S. Dollar, the value of our RMB revenues, earnings
and
assets as expressed in our U.S. Dollar financial statements will decline. We
have not entered into any hedging transactions in an effort to reduce our
exposure to foreign exchange risk.
Inflation
Inflationary
factors such as increases in the cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net revenues if the
selling prices of our products do not increase with these increased
costs.
Item
8. Financial Statements and Supplementary Data.
INNOCOM
TECHNOLOGY HOLDINGS, INC.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
||||
|
Report
of Independent Registered Public Accounting Firm, Zhong Yi (Hong
Kong)
C.P.A. Company Limited
|
F-2
|
|||
|
Report
of Independent Registered Public Accounting Firm, Dominic K.F. Chan
&
Co
|
F-3
|
|||
|
Consolidated
Balance Sheets
|
F-4
|
|||
|
Consolidated
Statements of Operations And Comprehensive (Loss) Income
|
F-5
|
|||
|
Consolidated
Statements of Cash Flows
|
F-6
|
|||
|
Consolidated
Statements of Stockholders’ Equity
|
F-7
|
|||
|
Notes
to Consolidated Financial Statements
|
F-8
to F-25
|
|||
18
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Stockholders of
Innocom
Technology Holdings, Inc.
We
have
audited the accompanying consolidated balance sheet of Innocom Technology
Holdings, Inc. and its subsidiaries (“the Company”) as of December 31, 2007 and
the related consolidated statements of operations and comprehensive (loss)
income, cash flows and stockholders’ equity for the year ended December 31,
2007. The financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2007 and the results of operations and cash flows for the year ended
December 31, 2007 and in conformity with accounting principles generally
accepted in the United States of America.
|
Zhong
Yi (Hong Kong) C.P.A. Company Limited
|
|||
|
Certified
Public Accountants
|
|||
|
Hong
Kong, China
April
14, 2008
|
F-2
To
the
Board of Directors and Stockholders of
Innocom
Technology Holdings, Inc.
(Formerly
Dolphin Productions, Inc.)
We
have
audited the accompanying consolidated balance sheet of Innocom Technology
Holdings, Inc. (the “Company”) and its subsidiaries (collectively referred as
the “Group”) as of December 31, 2006, and the related consolidated income
statement, stockholders’ equity and cash flows for the period from October 1,
2005 to December 31, 2006. 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, 2006, and the consolidated results of their
operations and their cash flows for the period from October 1, 2005 to December
31, 2006, in conformity with accounting principles generally accepted in the
United States of America.
|
/s/
Dominic K.F. Chan & Co.
|
|||
|
Dominic
K.F. Chan & Co
|
|||
|
Certified
Public Accountants
Hong
Kong
May
16, 2007
|
F-3
INNOCOM
TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2007 AND 2006
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
As
of December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
3,597
|
$
|
101,288
|
|||
|
Accounts
receivable, trade
|
-
|
2,675,456
|
|||||
|
Prepaid
expenses and other receivables
|
26,636
|
6,056,640
|
|||||
|
Amount
due from a related party
|
-
|
6,052,495
|
|||||
|
Total
current assets
|
30,233
|
14,885,879
|
|||||
|
Non-current
assets:
|
|||||||
|
Investment
in an unconsolidated entity
|
8,463,464
|
-
|
|||||
|
Intangible
assets, net
|
5,603,129
|
-
|
|||||
|
Long-term
deferred charges, net
|
-
|
5,639,730
|
|||||
|
Plant
and equipment, net
|
2,082
|
666,272
|
|||||
|
TOTAL
ASSETS
|
$
|
14,098,908
|
$
|
21,191,881
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable, trade
|
$
|
-
|
$
|
1,552,095
|
|||
|
Amount
due to a related party
|
128
|
-
|
|||||
|
Deferred
revenue
|
400,290
|
-
|
|||||
|
Income
tax payable
|
1,439,376
|
1,440,280
|
|||||
|
Other
payables and accrued liabilities
|
197,697
|
2,494,774
|
|||||
|
Total
current liabilities
|
2,037,491
|
5,487,149
|
|||||
|
TOTAL
LIABILITIES
|
$
|
2,037,491
|
$
|
5,487,149
|
|||
|
Commitments
and contingencies
|
$ | $ | |||||
|
Stockholders’
equity:
|
|||||||
|
Common
stock, $0.001 par value; 50,000,000 shares authorized; 37,898,251
shares
and 37,898,251 shares issued and outstanding as of December 31, 2007
and
2006
|
37,898
|
37,898
|
|||||
|
Additional
paid-in capital
|
6,901,232
|
6,901,232
|
|||||
|
Accumulated
other comprehensive income
|
171,652
|
180,418
|
|||||
|
Retained
earnings
|
4,950,635
|
8,585,184
|
|||||
|
Total
stockholders’ equity
|
12,061,417
|
15,704,732
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
14,098,908
|
$
|
21,191,881
|
|||
See
accompanying notes to consolidated financial statements.
F-4
INNOCOM
TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
FOR
THE YEAR ENDED DECEMBER 31, 2007 AND THE PERIOD
FROM
OCTOBER 1, 2005 TO DECEMBER 31, 2006
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
Year
ended
December
31, 2007
|
|
|
Period
from October 1, 2005 to December 31, 2006
|
||||
|
REVENUES,
NET
|
$
|
2,241,726
|
$
|
51,719,412
|
|||
|
COST
OF REVENUES
|
-
|
48,088,619
|
|||||
|
GROSS
PROFIT
|
2,241,726
|
3,630,793
|
|||||
|
Operating
expenses:
|
|||||||
|
Sales
and marketing
|
-
|
129,299
|
|||||
|
General
and administrative
|
6,468,971
|
566,602
|
|||||
|
Total
operating expenses
|
6,468,971
|
695,901
|
|||||
|
(LOSS)
INCOME FROM OPERATIONS
|
(4,227,245
|
)
|
2,934,892
|
||||
|
Other
income (expense):
|
|||||||
|
Interest
income
|
1,240
|
1,154
|
|||||
|
Loss
from disposal of plant and equipment
|
(8,088
|
)
|
-
|
||||
|
(LOSS)
INCOME BEFORE INCOME TAX
|
(4,234,093
|
)
|
2,936,046
|
||||
|
Income
tax expenses
|
-
|
(574,777
|
)
|
||||
|
(LOSS)
INCOME FROM CONTINUING OPERATIONS
|
(4,234,093
|
)
|
2,361,269
|
||||
|
INCOME
FROM DISCONTINUED OPERATIONS
|
-
|
90,892
|
|||||
|
GAIN
FROM DISPOSAL OF DISCONTINUED OPERATIONS
|
599,544
|
-
|
|||||
|
NET
(LOSS) INCOME
|
$
|
(3,634,549
|
)
|
$
|
2,452,161
|
||
|
Other
comprehensive (loss) income:
|
|||||||
|
-
Foreign currency translation (loss) gain
|
(8,766
|
)
|
131,329
|
||||
|
COMPREHENSIVE
(LOSS) INCOME
|
$
|
(3,643,315
|
)
|
$
|
2,583,490
|
||
|
Income
from continuing operation per share - basic and diluted
|
$
|
(0.11
|
)
|
$
|
0.11
|
||
|
Income
from discontinued operation per share - basic and diluted
|
0.01
|
$
|
0.00
|
||||
|
Net
(loss) income per share - Basic and diluted
|
$
|
(0.10
|
)
|
$
|
0.11
|
||
|
Weighted
average number of shares outstanding during the year/period - Basic
and
diluted
|
37,898,251
|
21,398,394
|
See
accompanying notes to consolidated financial statements.
F-5
INNOCOM
TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEAR ENDED DECEMBER 31, 2007 AND THE PERIOD
FROM
OCTOBER 1, 2005 TO DECEMBER 31, 2006
(Currency
expressed in United States Dollars (“US$”))
|
Year
ended December 31, 2007
|
|
Period
from October 1, 2005 to
December 31, 2006 |
|||||
|
Cash
flows from operating activities:
|
|||||||
|
(Loss)
income from continuing operations
|
$
|
(4,234,093
|
)
|
$
|
2,361,269
|
||
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
|||||||
|
Depreciation
|
4,665
|
213,287
|
|||||
|
Amortization
of long-term deferred charges
|
5,637,887
|
292,270
|
|||||
|
Amortization
of intangible assets
|
357,754
|
-
|
|||||
|
Loss
on disposal of plant and equipment
|
8,088
|
-
|
|||||
|
Change
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable, trade
|
1,458,289
|
6,606,933
|
|||||
|
Inventories
|
-
|
299,097
|
|||||
|
Prepaid
expenses and other receivables
|
55,185
|
(4,916,134
|
)
|
||||
|
Accounts
payable, trade
|
(1,334,983
|
)
|
1,269,749
|
||||
|
Deferred
revenue
|
400,411
|
-
|
|||||
|
Income
tax payable
|
-
|
590,143
|
|||||
|
Other
payables and accrued liabilities
|
102,977
|
1,043,091
|
|||||
|
Net
cash provided by operating activities
|
2,456,180
|
7,759,705
|
|||||
|
Net
cash provided by discontinued operations
|
-
|
90,892
|
|||||
|
Cash
flows from investing activities:
|
|||||||
|
Amount
due from a related party
|
6,050,515
|
(8,869,787
|
)
|
||||
|
Amount
due to a related party
|
128
|
-
|
|||||
|
Payments
to the investment in an unconsolidated entity
|
(8,448,584
|
)
|
-
|
||||
|
Purchase
of intangible assets
|
(5,960,775
|
)
|
-
|
||||
|
Purchase
of plant and equipment
|
(3,331
|
)
|
(66,701
|
)
|
|||
|
Net
cash used in investing activities
|
(8,362,047
|
)
|
(8,936,488
|
)
|
|||
|
Proceeds
from disposal of subsidiaries, net of cash balance
|
5,808,243
|
-
|
|||||
|
Net
cash provided by discontinued operations
|
5,808,243
|
-
|
|||||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from issuance of common stocks
|
-
|
1,075,782
|
|||||
|
Issuing
expenses
|
-
|
(124,653
|
)
|
||||
|
Net
cash provided by financing activities
|
-
|
951,129
|
|||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(67
|
)
|
131,329
|
||||
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(97,691
|
)
|
(3,433
|
)
|
|||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
101,288
|
104,721
|
|||||
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$
|
3,597
|
$
|
101,288
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
|
Cash
paid for income taxes
|
$
|
-
|
$
|
-
|
|||
|
Cash
paid for interest expenses
|
$
|
1,149
|
$
|
-
|
|||
See
accompanying notes to consolidated financial statements
F-6
INNOCOM
TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR
THE YEAR ENDED DECEMBER 31, 2007 AND THE PERIOD
FROM
OCTOBER 1, 2005 TO DECEMBER 31, 2006
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
Common
stock
|
|||||||||||||||||||
|
No.
of share
|
Amount
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
income
|
Retained
earnings (accumulated
deficits)
|
Total
stockholders’
equity
|
||||||||||||||
|
Balance
as of October 1, 2005
|
770,000
|
$
|
770
|
$
|
55,231
|
$
|
49,089
|
$
|
6,133,023
|
$
|
6,238,113
|
||||||||
|
Issuance
of common stock
|
1,398,251
|
1,398
|
1,074,384
|
-
|
-
|
1,075,782
|
|||||||||||||
|
Recapitalization
|
32,162,500
|
32,163
|
(32,163
|
)
|
-
|
-
|
-
|
||||||||||||
|
Issuance
of common stock in lieu of professional fee
|
567,500
|
567
|
-
|
-
|
-
|
567
|
|||||||||||||
|
Exercise
of share options
|
3,000,000
|
3,000
|
5,929,000
|
-
|
-
|
5,932,000
|
|||||||||||||
|
Share
issuing costs
|
-
|
-
|
(125,220
|
)
|
-
|
-
|
(125,220
|
)
|
|||||||||||
|
Net
income for the period
|
-
|
-
|
-
|
-
|
2,452,161
|
2,452,161
|
|||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
131,329
|
-
|
131,329
|
|||||||||||||
|
Balance
as of December 31, 2006
|
37,898,251
|
37,898
|
6,901,232
|
180,418
|
8,585,184
|
15,704,732
|
|||||||||||||
|
Net
loss for the year
|
-
|
-
|
-
|
-
|
(3,634,549
|
)
|
(3,634,549
|
)
|
|||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
(8,766
|
)
|
-
|
(8,766
|
)
|
|||||||||||
|
Balance
as of December 31, 2007
|
37,898,251
|
$
|
37,898
|
$
|
6,901,232
|
$
|
171,652
|
$
|
4,950,635
|
$
|
12,061,417
|
||||||||
See
accompanying notes to consolidated financial statements.
F-7
INNOCOM
TECHNOLOGY HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2007 AND THE PERIOD
FROM
OCTOBER 1, 2005 TO DECEMBER 31, 2006
(Currency
expressed in United States Dollars (“US$”))
1. ORGANIZATION
AND BUSINESS BACKGROUND
Innocom
Technology Holdings, Inc. (the “Company” or “INCM”) was incorporated in the
State of Nevada on June 26, 1998. On June 20, 2006, the Company changed its
name
from “Dolphin Productions, Inc.” to “Innocom Technology Holdings,
Inc.”
On
March
30, 2006, the Company completed an Agreement and Plan of Reorganization (the
“Agreement”) with Innocom Technology Holdings Limited, a British Virgin Islands
corporation (“ITHL”) and Mr. Hui Yan Sui William, the sole shareholder of the
100% of the capital shares of ITHL, (“Original Shareholder”). Pursuant to the
Agreement, the Company acquired all of ITHL’s capital shares (the “ITHL Shares”)
from the Original Shareholder, and the Original Shareholder transferred and
contributed all of his ITHL Shares to the Company. In exchange, the Company
issued 32,162,500 shares of its Common Stock to the Original
Shareholder.
As
a
result of the closing of the Agreement, ITHL became the wholly owned subsidiary
of the Company and became the Company’s main operational business. The Exchange
transaction, for accounting and financial reporting purposes, is deemed to
be a
reverse takeover transaction (“RTO”).
The
RTO
has been accounted for as a recapitalization of the Company whereby the
historical financial statements and operations of ITHL become the historical
financial statements of the Company, with no adjustment to the carrying value
of
the assets and liabilities. The accompanying consolidated financial statements
reflect the recapitalization of the stockholders’ equity as if the transaction
occurred as of the beginning of the first period presented.
On
October 1, 2005, the companies comprising ITHL group consummated the
restructuring (the “Re-structuring”) for the purpose of RTO, ITHL acquired all
of the outstanding and issued shares of common stock of its subsidiaries
(including Chinarise Capital (International) Ltd. (“CCIL”), Next Giant
International Limited (“NGIL”) and Sky Talent Development Limited (“STDL”)) from
their then existing stockholders by exchange of its voting common
stock.
For
the
year ended December 31, 2007, the Company, through its subsidiaries is engaged
in trading of mobile phone handsets and components and provision of design
and
solution for mobile phone.
On
May
16, 2007, ITHL, a wholly-subsidiary of the Company entered a Share Purchase
Agreement with a Purchaser for the disposal of its wholly-owned subsidiary,
NGIL, the holding company of BUCTCL, in a consideration of RMB44 million
(approximately $5,640,000). The consideration receivable is assigned from the
Purchaser to a third party. The Purchaser agreed that ITHL reserved the right
of
priority to license from the Purchaser the mobile phone handset design solutions
already completed prior to the completion of the agreement under the terms
and
conditions subject to further negotiations.
On
July
1, 2007, the Company acquired a non-operating company, Pender for a cash
consideration of $1.
On
November 1, 2007, the Company established a company, FWIL respectively, which
was incorporated in British Virgin Islands on July 11, 2007. Its major principal
activity is an investment holding.
F-8
As
of
December 31, 2007, details of the Company’s subsidiaries are described
below:
|
Name
of company
|
Place
and date of incorporation
|
|
Issued
and fully paid
capital
|
|
Principal
activities
|
|
|
|
|
|
|
|||
|
Innocom
Technology Holdings Limited (“ITHL”)
(Formerly
Wisechamp Group Limited)
|
British
Virgin Islands
July
12, 2005
|
US$1
ordinary
|
Investment
holding
|
|||
|
|
|
|
|
|||
|
Chinarise
Capital (International) Ltd. (“CCIL”)
|
British
Virgin Islands
January
28, 2003
|
US$1
ordinary
|
Trading
of mobile phone handsets and components
|
|||
|
|
|
|
|
|||
|
Sky
Talent Development Limited (“STDL”)
|
British
Virgin Islands
September
8, 2005
|
US$1
ordinary
|
Investment
holding
|
|||
|
|
|
|
|
|||
|
Innocom
Mobile Technology Limited (“IMTL”)
|
Hong
Kong
June
21, 2006
|
HK$2,000,000
ordinary
|
Inactive
|
|||
|
|
|
|
|
|||
|
Pender
Holdings Ltd. (“Pender”)
|
British
Virgin Islands
August
15, 2003
|
US$1
ordinary
|
Trading
of mobile phone handsets and components
|
|||
|
|
|
|
|
|||
|
Favor
Will International Ltd. (“FWIL”)
|
British
Virgin Islands
July
11, 2007
|
US$1
ordinary
|
Investment
holding
|
INCM
and
its subsidiaries are hereinafter referred to as (the “Company”).
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
|
·
|
Basis
of presentation
|
These
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America.
|
·
|
Use
of estimates
|
In
preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities
in
the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
|
·
|
Basis
of consolidation
|
F-9
The
consolidated financial statements include the financial statements of INCM
and
its subsidiaries.
All
significant inter-company balances and transactions within the Company have
been
eliminated upon consolidation
The
results of subsidiaries acquired or disposed of during the periods are included
in the consolidated financial statement from the effective date of acquisition
or up to the effective date of disposal.
|
·
|
Cash
and cash equivalents
|
Cash
and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
|
·
|
Accounts
receivable
|
Accounts
receivable are recorded at the invoiced amount and do not bear interest. The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and determined based on managements’ assessment of known
requirements, aging of receivables, payment history, the customers’ current
credit worthiness and the economic environment. As of December 31, 2007 and
2006, no allowance for doubtful accounts was required.
|
·
|
Intangible
assets
|
Intangible
assets include trademarks purchased from a third party. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill
and Other Intangible Assets”
(“SFAS
No. 142”), intangible assets with finite useful lives related to developed
technology, customer lists, trade names and other intangibles are being
amortized on a straight-line basis over the estimated useful life of the related
asset.
These
assets are carried at cost less accumulated amortization and are amortized
on a
straight-line basis over their estimated useful lives of 10 years beginning
at
the time the related trademarks are granted.
|
·
|
Plant
and equipment, net
|
Plant
and
equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Depreciation is calculated on the straight-line
basis
over the following expected useful lives from the date on which they become
fully operational:
|
Depreciable
life
|
||||
|
Building
improvement
|
2
years
|
|||
|
Furniture,
fixtures and office equipment
|
5
years
|
|||
|
Computer
hardware and software
|
5
years
|
|||
|
Machinery
and equipment
|
5
years
|
|||
|
Motor
vehicles
|
5
years
|
|||
F-10
Expenditure
for repairs and maintenance is expensed as incurred. When assets have retired
or
sold, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in the results of
operations.
|
·
|
Valuation
of long-lived assets
|
Long-lived
assets primarily include property and equipment and intangible assets. In
accordance with SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”,
the
Company periodically reviews long-lived assets for impairment whenever events
or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable or that the useful lives are no longer
appropriate. Each impairment test is based on a comparison of the undiscounted
cash flows to the recorded value of the asset. If an impairment is indicated,
the asset is written down to its estimated fair value based on a discounted
cash
flow analysis. Determining the fair value of long-lived assets includes
significant judgment by management, and different judgments could yield
different results. There has been no impairment as of December 31, 2007 or
2006.
|
·
|
Revenue
recognition
|
In
accordance with the SEC’s Staff Accounting Bulletin No. 104, Revenue
Recognition,
the
Company records revenue when services are received by the customers and realized
the amounts net of provisions for discounts, allowance and taxes which are
recognized at the time of services performed.
Starting
from 2007, the Company has changed its role from a principal to an agent in
trading activities of mobile phone handsets & related components. The
Company recognizes its revenue on a net basis in compliance with EITF 99-19,
“Reporting
Revenues Gross as a Principal versus Net as an Agent” (“EITF
99-19”), because the Company:
| (1) |
determined
that it no longer operates as the primary obligor in the trading
activities,
|
| (2) |
typically
is not responsible for damages to goods,
|
| (3) |
bears
no credit and inventory risk,
|
| (4) |
earns
commission income at a fixed rate of the gross amount billed to the
customer.
|
For
the
year ended December 31, 2007, the Company recognizes $2,241,726 as net revenues,
at a rate of 6% based on the gross amount of $36,729,800 billed to the
customers.
During
the period from October 1, 2005 to December 31, 2006, the Company follows
guidance of EITF 99-19 and records revenues on a gross basis since the Company
has the risks and rewards of ownership, latitude in selection of vendors and
pricing, and bears all credit risk.
|
·
|
Advertising
cost
|
The
Company expenses advertising costs as incurred in accordance with SOP 93-7
“Reporting
for Advertising Costs”.
Advertising expenses of $0 and $644 were incurred for the year ended December
31, 2007 and the period from October 1, 2005 to December 31, 2006, respectively.
F-11
|
·
|
Research
and development costs
|
Research
and development costs mainly related to labor cost incurred in the development
of new products and manufacturing methods and are charged to expense as
incurred. No such cost was incurred for the year ended December 31, 2007 and
the
period from October 1, 2005 to December 31, 2006.
|
·
|
Comprehensive
(loss) income
|
SFAS
No.
130,
“Reporting Comprehensive Income”,
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income as defined includes
all changes in equity during a period from non-owner sources. Accumulated
comprehensive income, as presented in the accompanying consolidated statements
of stockholders’ equity consists of changes in unrealized gains and losses on
foreign currency translation. This comprehensive income is not included in
the
computation of income tax expense or benefit.
|
·
|
Income
taxes
|
The
Company accounts for income tax using SFAS No. 109 “Accounting
for Income Taxes”,
which
requires the asset and liability approach for financial accounting and reporting
for income taxes. Under this approach, deferred income taxes are provided for
the estimated future tax effects attributable to temporary differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases, and for the expected future tax benefits from loss
carry-forwards and provisions, if any. Deferred tax assets and liabilities
are
measured using the enacted tax rates expected in the years of recovery or
reversal and the effect from a change in tax rates is recognized in the
consolidated statement of operations and comprehensive income in the period
of
enactment. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some portion of, or
all
of the deferred tax assets will not be realized.
Effective
January 1, 2007, the Company also adopts Financial Accounting Standards Board
("FASB") Interpretation No. (FIN) 48, "Accounting
for Uncertainty in Income Taxes"
and FSP
FIN 48-1, which amended certain provisions of FIN 48. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in financial statements
in
accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 requires that the Company determine whether the benefits
of
the Company's tax positions are more likely than not of being sustained upon
audit based on the technical merits of the tax position. The provisions of
FIN
48 also provide guidance on de-recognition, classification, interest and
penalties, accounting in interim periods and disclosure. In connection with
our
adoption of FIN No. 48, we analyzed the filing positions in all of the federal
and state jurisdictions where we are required to file income tax returns, as
well as all open tax years in these jurisdictions. There was no impact on our
condensed consolidated financial statements upon adoption of FIN No. 48 on
January 1, 2007. The Company did not have any unrecognized tax benefits and
there was no effect on the financial condition or results of operations for
the
year ended December 31, 2007 as a result of implementing FIN 48, or FIN
48-1. In accordance with FIN48, the Company adopted the policy of
recognizing interest and penalties, if any, related to unrecognized tax
positions as income tax expense. The tax years 2004 - 2007 remain subject to
examination by major tax jurisdictions.
F-12
|
·
|
Net
(loss) income per share
|
The
Company calculates net (loss) income per share in accordance with SFAS No.
128,“Earnings
per Share”.
Basic
(loss) income per share is computed by dividing the net (loss) income by the
weighted-average number of common shares outstanding during the year. Diluted
(loss) income per share is computed similar to basic (loss) income per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock
equivalents had been issued and if the additional common shares were
dilutive.
|
·
|
Foreign
currencies translation
|
Transactions
denominated in currencies other than the functional currency are translated
into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional currency using
the applicable exchange rates at the balance sheet dates. The resulting exchange
differences are recorded in the statement of operations.
The
reporting currency of the Company is the United States dollar (“US$”). The
Company’s subsidiaries operating in Hong Kong maintained their books and records
in its local currency, Hong Kong Dollars (“HK$”), which are functional
currencies as being the primary currency of the economic environment in which
these entities operate.
In
general, assets and liabilities are translated into US$, in accordance with
SFAS
No. 52, “Foreign
Currency Translation”,
using
the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the year. The gains and losses
resulting from translation of financial statements of foreign subsidiaries
are
recorded as a separate component of accumulated other comprehensive income
within the statement of stockholders’ equity.
Translation
of amounts from HK$ into US$ has been made at the following exchange rates
for
the respective year/period:
|
2007
|
2006
|
||||||
|
Year
end RMB:US$ exchange rate
|
7.3141
|
7.8003
|
|||||
|
Average
rates RMB:US$ exchange rate
|
7.5633
|
7.9637
|
|||||
|
Year
end HK$:US$ exchange rate
|
7.8049
|
7.7593
|
|||||
|
Average
rates HK$:US$ exchange rate
|
7.8026
|
7.7499
|
|||||
|
·
|
Stock-based
compensation
|
The
Company adopts SFAS No. 123 (revised 2004), "Share-Based
Payment"
("SFAS
No. 123(R)") using the fair value method. Under
SFAS No. 123(R), the stock-based compensation is measured using the
Black-Scholes Option-Pricing model on the date of grant under the modified
prospective method. The fair value of stock-based compensation that are expected
to vest are recognized using the straight-line method over the requisite service
period.
F-13
|
·
|
Retirement
plan costs
|
Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expenses in the consolidated statements of operation
and comprehensive (loss) income as and when the related employee service is
provided.
|
·
|
Related
parties
|
Parties,
which can be a corporation or individual, are considered to be related if the
Company has the ability, directly or indirectly, to control the other party
or
exercise significant influence over the other party in making financial and
operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
|
·
|
Segment
reporting
|
SFAS
No.
131 “Disclosures
about Segments of an Enterprise and Related Information”
establishes standards for reporting information about operating segments on
a
basis consistent with the Company’s internal organization structure as well as
information about geographical areas, business segments and major customers
in
the financial statements. In 2007, the Company operates in one reportable
segment in Hong Kong.
|
·
|
Fair
value of financial instruments
|
The
Company values its financial instruments as required by Statement of Financial
Accounting Standard (SFAS) No. 107, “Disclosures
about Fair Value of Financial Instruments”.
The
estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies. The
estimates presented herein are not necessarily indicative of amounts that the
Company could realize in a current market exchange.
The
Company’s financial instruments primarily consist of cash and cash equivalents,
accounts receivable, prepaid expenses and other receivable, advance to a related
party, accounts payable, income tax payable, other payables and accrued
liabilities.
As
of the
balance sheet dates, the estimated fair values of the financial instruments
were
not materially different from their carrying values as presented due to the
short term maturities of these instruments and that the interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at respective year ends.
|
·
|
Recent
accounting pronouncements
|
The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.
F-14
In
September 2006, the FASB issued SFAS No. 157, "Fair
Value Measurements" ("SFAS
No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles ("GAAP"),
and
expands disclosures about fair value measurements. This statement applies under
other accounting pronouncements that require or permit fair value measurement
where the FASB has previously determined that under those pronouncements fair
value is the appropriate measurement. This statement does not require any new
fair value measurements but may require companies to change current practice.
This statement is effective for those fiscal years beginning after November
15,
2007 and to the interim periods within those fiscal years. The Company believes
that SFAS No. 157 should not have a material impact on the consolidated
financial position or results of operations
In
February 2007, the FASB issued SFAS No. 159, "The
Fair Value Option for Financial Assets and Financial Liabilities"
("SFAS
No. 159"). SFAS No. 159 permits entities to choose to measure, on an
item-by-item basis, specified financial instruments
and certain other items at fair value. Unrealized gains and losses on items
for
which the fair value option has been elected are required to be reported in
earnings at each reporting date. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007, the provisions of which are required to
be
applied prospectively. The Company believes that SFAS 159 should not have a
material impact on the consolidated financial position or results of operations.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations", or
SFAS
No. 141R. SFAS No. 141R will change the accounting for business combinations.
Under SFAS No. 141R, an acquiring entity will be required to recognize all
the
assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS No. 141R will change the accounting
treatment and disclosure for certain specific items in a business combination.
SFAS No. 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Accordingly, any business
combinations the Company engages in will be recorded and disclosed following
existing GAAP until January 1, 2009. The Company expects SFAS No. 141R will
have
an impact on accounting for business combinations once adopted but the effect
is
dependent upon acquisitions at that time. The Company is still assessing the
impact of this pronouncement.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements--An Amendment of ARB No. 51,
or
SFAS No. 160".
SFAS
No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company believes that SFAS 160 should not have a material
impact on the consolidated financial position or results of
operations.
|
3.
|
DISCONTINUED
OPERATIONS
|
On
May
16, 2007, the Company entered into an agreement to sell its wholly-owned
subsidiary, NGIL, the holding company of BUCTCL (“Beijing Operation”), its
business in the provision
of design & solution for mobile phone
in the
PRC to a third party, effective May 17, 2007. The sale closed on May 17, 2007
and the Company recognized a gain on disposal of subsidiaries of $599,544,
representing the excess of purchase consideration received at closing over
the
book value of assets sold. The Company received total purchase price
consideration of RMB44 million (approximately $5,640,000). The Company was
paid
$2,796,034 at closing to settle with the amount due from a
shareholder.
F-15
Total
revenues related to the discontinued operations were $0 and $1,003,320 for
the
year ended December 31, 2007 and the period from October 1, 2005 to December
31,
2006, respectively. There were no assets or liabilities of Beijing Operation
in
the consolidated balance sheets as of December 31, 2007 and 2006 and the results
of operations have been reclassified as income from discontinued operations
in
the consolidated statements of operations for all dates and periods
presented.
|
4.
|
ACCOUNTS
RECEIVABLE, NET
|
The
majority of the Company’s sales are on credit terms and in accordance with terms
specified in the contracts governing the relevant transactions. The Company
evaluates the need of an allowance for doubtful accounts based on specifically
identified amounts that management believes to be uncollectible. If actual
collections experience changes, revisions to the allowance may be required.
Based upon the aforementioned criteria, no allowance for doubtful accounts
is
provided for the year ended December 31, 2007 and the period from October 1,
2005 to December 31, 2006.
|
5.
|
PREPAID
EXPENSES AND OTHER
RECEIVABLES
|
|
As
of December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
Purchase
deposits paid
|
$
|
-
|
$
|
259,662
|
|||
|
Other
deposits and prepayments
|
26,636
|
63,899
|
|||||
|
Other
receivables
|
-
|
5,733,079
|
|||||
|
$
|
26,636
|
$
|
6,056,640
|
||||
|
6.
|
AMOUNT
DUE FROM (TO) A RELATED
PARTY
|
As
of
December 31, 2007, a balance of $128 due to a director and a major shareholder
of the Company, Mr. William Hui, represented temporary advance to the Company
which was unsecured, interest-free and has no fixed repayment term. The imputed
interest on the amount due to a stockholder was not significant.
As
of
December 31, 2006, the amount due from a related party was comprised of
temporary advances made to Mr. William Hui, a shareholder of the Company. The
advance to a shareholder was unsecured, and non-interest bearing and had no
fixed repayment terms.
F-16
|
7.
|
INVESTMENT
IN AN UNCONSOLIDATED
ENTITY
|
The
Company has established a new company in the PRC, which was incorporated as
a
limited liability company on January 19, 2007, under the laws of the PRC and
its
registered capital was amounted to RMB156,006,000 (equivalent to US$20,000,000).
Its principal activity was the manufacturing and trading of mobile products
and
components
As
of
December 31, 2007, the establishment of a new company was not effectively
completed by the local government. Approximately $8,463,464 was incurred in
the
establishment of a new company and the addition of plant and equipment to the
assembly line of mobile phone handset was recorded as deposit in investment.
These amounts will be considered in conjunction with the consolidation of a
new
subsidiary in a business combination under SFAS 141 upon its completion in
2008.
|
8.
|
INTANGIBLE
ASSETS
|
|
As
of December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
Trademarks
|
$
|
5,960,775
|
$
|
-
|
|||
|
Less:
accumulated amortization
|
(357,754
|
)
|
-
|
||||
|
Less:
foreign translation difference
|
108
|
-
|
|||||
|
Net
book value
|
$
|
5,603,129
|
$
|
-
|
|||
Amortization
expense for the year ended December 31, 2007 was $357,754. The estimated
aggregate amortization expense for each of the five succeeding years follows:
2008: $596,253; 2009: $596,253; 2010: $596,253; 2011: $596,253; 2012:
$596,253.
|
9.
|
LONG-TERM
DEFERRED CHARGES
|
|
As
of December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
Fair
value of share options granted for share based expenses - consulting
fee
|
$
|
5,932,000
|
$
|
5,932,000
|
|||
|
Less:
accumulated amortization
|
(5,930,157
|
)
|
(292,270
|
)
|
|||
|
Less:
foreign translation difference
|
(1,843
|
)
|
-
|
||||
|
Net
book value
|
$
|
-
|
$
|
5,639,730
|
|||
F-17
On
November 19, 2007, the Board of Directors approved the termination of certain
service agreements because no services were rendered to the Company during
2007.
Consistent with SFAS No. 123(R), “Share-Based
Payment”
using
the fair value method, the Company immediately recognized as expense, over
the
requisite service period.
Amortization
expense for the year ended December 31, 2007 and the period from October 1,
2005
to December 31, 2006 was $5,637,887 and $292,270, respectively.
|
10.
|
PLANT
AND EQUIPMENT, NET
|
Plant
and
equipment, net consisted of:
|
As
of December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
Building
improvements
|
-
|
215,825
|
|||||
|
Furniture,
fixtures and office equipment
|
-
|
183,454
|
|||||
|
Computer
hardware and software
|
-
|
357,445
|
|||||
|
Machinery
and equipment
|
$
|
3,331
|
$
|
699,235
|
|||
|
Motor
vehicles
|
-
|
64,358
|
|||||
|
3,331
|
1,520,317
|
||||||
|
Less:
accumulated depreciation
|
(1,249
|
)
|
(854,045
|
)
|
|||
|
Net
book value
|
$
|
2,082
|
$
|
666,272
|
|||
Depreciation
expense for the year ended December 31, 2007 and the period from October 1,
2005
to December 31, 2006 was $4,665 and $213,287, respectively.
|
11.
|
OTHER
PAYABLES AND ACCRUED
LIABILITIES
|
Other
payables and accrued liabilities consisted of the followings:
|
As
of December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
Accrued
expenses
|
$
|
197,697
|
$
|
129,885
|
|||
|
Other
payables
|
-
|
1,696,218
|
|||||
|
Customers
deposit
|
-
|
668,671
|
|||||
|
$
|
197,697
|
$
|
2,494,774
|
||||
F-18
|
12.
|
GENERAL
AND ADMINISTRATIVE EXPENSE
|
General
and administrative expense consisted of the followings:
|
Year
ended
December
31, 2007
|
Period
from
October
1, 2005
to
December
31, 2006
|
||||||
|
Amortization
for long-term deferred charge
|
$
|
5,637,887
|
$
|
292,270
|
|||
|
Amortization
for intangible assets
|
357,754
|
-
|
|||||
|
Professional
fee
|
90,415
|
54,962
|
|||||
|
Rent
expense
|
122,124
|
53,698
|
|||||
|
Salaries
|
79,863
|
47,821
|
|||||
|
Others
operating expense
|
180,928
|
117,851
|
|||||
|
$
|
6,468,971
|
$
|
566,602
|
||||
|
13.
|
INCOME
TAXES
|
The
Company is registered in the United States of America and has operations in
four
tax jurisdictions: United States of America, British Virgin Island, Hong Kong
and the PRC. The components of (loss) income before income taxes are as
follows:
|
Year
ended December 31, 2007
|
Period
from
October
1, 2005
to
December
31, 2006
|
||||||
|
Continuing
operations in tax jurisdictions from:
|
|||||||
|
Hong
Kong
|
$
|
1,257,733
|
$
|
3,284,096
|
|||
|
British
Virgin Islands
|
237,831
|
(256
|
)
|
||||
|
United
States of America
|
(5,729,657
|
)
|
(347,794
|
)
|
|||
|
(4,234,093
|
)
|
2,936,046
|
|||||
|
Discontinued
operations in tax jurisdictions from:
|
|||||||
|
Hong
Kong
|
599,544
|
-
|
|||||
|
The
PRC
|
-
|
90,892
|
|||||
|
(Loss)
income before income taxes
|
$
|
(3,634,549
|
)
|
$
|
3,026,938
|
||
United
States of America
The
Company is registered in the State of Neveda and is subjected to United States
of America tax law.
As
of
December 31, 2007, the U.S. operation incurred $5,729,657 of net operating
losses available for federal
tax purposes, which are available to offset future taxable income. The net
operating loss carry forwards begin to expire in 2027. The Company has provided
for a full valuation allowance for any future tax benefits from the net
operating loss carryforwards as the management believes it is more likely than
not that these assets will not be realized in the future.
F-19
British
Virgin Island
Under
the
current BVI law, the Company is not subject to tax on income.
Hong
Kong
For
the
year ended December 31, 2007, all of its net revenue are generated from its
agency business and those incomes are considered offshore income and are
exempted from Hong Kong profits tax. For the period from October 1, 2005 to
December 31, 2006, income tax expense represents Hong Kong profits tax of
$574,777 for the subsidiary operating in Hong Kong. Hong Kong profits tax rate
is 17.5% on the subsidiary's estimated assessable profits arising in Hong Kong
during the periods presented. A reconciliation of income before income taxes
to
the effective tax rate for the Hong Kong subsidiary as follows:
|
Year
ended December 31, 2007
|
Period
from
October
1, 2005
to
December
31, 2006
|
||||||
|
Income
before income taxes
|
$
|
1,857,277
|
$
|
3,026,938
|
|||
|
Statutory
income tax rate
|
17.5
|
%
|
17.5
|
%
|
|||
|
Income
tax expense at statutory tax rate
|
325,023
|
529,714
|
|||||
|
Non-deductible
expenses for income tax purposes
|
-
|
60,969
|
|||||
|
Non-taxable
income for income tax purposes
|
(325,023
|
)
|
-
|
||||
|
Tax
exemption granted to PRC subsidiary
|
-
|
(15,906
|
)
|
||||
|
Income
tax expense at effective tax rate
|
$
|
-
|
$
|
574,777
|
|||
Its
effective income tax rates for the year ended December 31, 2007 and the period
from October 1, 2005 to December 31, 2006 were 0% and 18%.
For
the
year ended December 31, 2007, no income tax expense for Hong Kong profits tax
is
provided for as the Company’s income neither arises in, nor is derived form Hong
Kong under its tax law.
The
PRC
The
Company’s subsidiary in the PRC, BUCTCL is subjected to the Enterprise Income
Tax governed by the Income Tax Law of the People’s Republic of China, at a
statutory rate of 33%, which comprises 30% national income tax and 3% local
income tax. There was no provision for income tax expense for the year ended
December 31, 2007 since the operating result of BUCTCL was no longer included
in
the result
of
operation from the effective date of its disposal.
F-20
|
14.
|
NET
(LOSS) INCOME PER SHARE
|
Basic
net
(loss) income per share is computed using the weighted average number of the
ordinary shares outstanding during the year. Diluted net (loss) income per
share
is computed using the weighted average number of ordinary shares and ordinary
share equivalents outstanding during the year. Pursuant to stock exchange
transaction on March 30, 2006, the weighted average number of common shares
issued and outstanding was adjusted to account for the effects of the stock
exchange transaction as a reverse acquisition.
The
following table sets forth the computation of basic and diluted net (loss)
income per share for the year ended December 31, 2007 and the period from
October 1, 2005 to December 31, 2006:
|
Year
ended December 31, 2007
|
Period
from
October
1, 2005
to
December
31, 2006
|
||||||
|
Basis
and diluted net (loss) income per share calculation
|
|||||||
|
Numerator:
|
|||||||
|
-
Net (loss) income in computing basic net income per share
|
$
|
(3,634,549
|
)
|
$
|
2,452,161
|
||
|
Denominator:
|
|||||||
|
-
Weighted average common stock outstanding
|
37,898,251
|
21,398,394
|
|||||
|
Basic
and diluted net (loss) income per share
|
$
|
(0.10
|
)
|
$
|
0.11
|
||
|
15.
|
CAPITAL
TRANSACTIONS
|
| (1) |
During
March 2006, the Company issued 32,162,500 shares to acquire entire
interest in ITHL.
|
| (2) |
During
April 2006, the Company issued 567,500 shares in lieu of professional
fee
for acquisition of ITHL.
|
| (3) |
During
the period 2006, the Company issued 1,398,251 shares of its restricted
common stock for total proceeds of $1,075,782 before issuing
expenses.
|
| (4) |
During
November 2006, the Company issued 3,000,000 shares upon exercise
of rights
under the share options. The fair value of the services for the grant
is
appraised at $5,932,000 based on Black-Scholes Model by an independent
valuer.
|
As
a
result, the number of outstanding shares of the Company’s common stock was
37,898,251 shares.
F-21
|
16.
|
PENSION
PLANS
|
Hong
Kong
The
Company 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 Company’s
subsidiaries operating in Hong Kong at 5% of the participants’ relevant income
with a ceiling of HK$20,000. The participants are entitled to 100% of The
Company’s contributions together with accrued returns irrespective of their
length of service with The Company, but the benefits are required by law to
be
preserved until the retirement age of 65. The total contributions made for
MPF
Scheme were $3,141 and $622 for the year ended December 31, 2007 and for the
period from October 1, 2005 to December 31, 2006, respectively.
The
PRC
Under
the
PRC Law, full-time employees of BUCTCL, a subsidiary in the PRC are entitled
to
staff welfare benefits including medical care, welfare subsidies, unemployment
insurance and pension benefits through a China government-mandated
multi-employer defined contribution plan. The Company’s subsidiary in the PRC is
required to accrue for these benefits based on certain percentages of the
employees’ salaries.
The
aggregate amount of such employee benefits were $0 and $4,156 for the years
ended December 31, 2007 and the period from October 1, 2005 to December 31,
2006, respectively.
|
17.
|
SEGMENT
INFORMATION
|
The
Company’s business units have been aggregated into two reportable segments: (1)
Trading of mobile phone handsets and components and (2) Provision of design
and
solution for mobile phone. The Company operates these segments in the PRC and
Hong Kong and all of the identifiable assets of the Company are located in
the
PRC and Hong Kong during the period presented.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 2). The Company had no
inter-segment sales for the year ended December 31, 2007 and the period from
October 1, 2005 to December 31, 2006. The Company’s reportable segments are
strategic business units that offer different products and services. They are
managed separately because each business requires different technology and
marketing strategies.
F-22
Summarized
financial information concerning the Company’s reportable segments is shown in
the following table for the year ended December 31, 2007 and the period from
October 1, 2005 to December 31, 2006:
|
Year
ended December 31, 2007
|
||||||||||
|
Provision
of design & solution for mobile phone
|
Trading
of mobile phone handsets & related components
|
Total
|
||||||||
|
Revenue,
net
|
$
|
-
|
$
|
2,241,726
|
$
|
2,241,726
|
||||
|
Depreciation
|
-
|
4,665
|
4,665
|
|||||||
|
Amortization
|
-
|
5,995,641
|
5,995,641
|
|||||||
|
Income
from discontinued operations
|
599,544
|
-
|
599,544
|
|||||||
|
Net
loss
|
-
|
(4,234,093
|
)
|
(4,234,093
|
)
|
|||||
|
Total
assets
|
$
|
-
|
$
|
14,098,908
|
$
|
14,098,908
|
||||
During
2007, the business in the provision of design and solution for mobile phone
was
discontinued upon the disposal of the subsidiaries.
|
Period
from October 1, 2005 to December 31, 2006
|
||||||||||
|
Provision
of design & solution for mobile phone
|
Trading
of mobile phone handsets & related components
|
Total
|
||||||||
|
Operating
revenues
|
$
|
1,003,320
|
$
|
51,719,412
|
$
|
52,722,732
|
||||
|
Cost
of revenues
|
(717,912
|
)
|
(48,088,619
|
)
|
(48,806,531
|
)
|
||||
|
Gross
profit
|
285,408
|
3,630,793
|
3,916,201
|
|||||||
|
Depreciation
|
-
|
213,287
|
213,287
|
|||||||
|
Amortization
|
-
|
292,270
|
292,270
|
|||||||
|
Income
from discontinued operations
|
90,892
|
-
|
90,892
|
|||||||
|
Net
income
|
-
|
2,361,269
|
2,361,269
|
|||||||
|
Total
assets
|
$
|
-
|
$
|
21,191,881
|
$
|
21,191,881
|
||||
For
the
period from October 1, 2005 to December 31, 2006, the Company’s operations are
primarily in Hong Kong and China and the Company’s sales, gross profit and total
assets attributable to other geographical areas are less than 10% of the
consolidated totals for the period ended December 31, 2006.
|
18.
|
CONCENTRATION
AND RISK
|
(a) Major
customers
For
the
year ended December 31, 2007, 100% of the Company’s assets were located in Hong
Kong and 100% of the Company’s revenues were generated from customers located in
the PRC and Hong Kong.
For
the
year ended December 31, 2007, one single customer represented more than 10%
of
the Company’s revenue and accounts receivable, respectively. As of December 31,
2007, this customer accounts for both 100% of revenues amounting to $2,241,726
and $0 of accounts receivable, respectively.
F-23
For
the
period from October 1, 2005 to December 31, 2006, the customer who accounted
for
10% or more of revenues of the Company are presented as follows:
|
|
Period
from October 1, 2005 to December 31, 2006
|
|||||||||
|
|
Revenues
|
Percentage
of
revenues
|
Trade
accounts Receivable
|
|||||||
|
Customer
A
|
$
|
51,719,411
|
98
|
%
|
$
|
2,424,111
|
||||
(b) Credit
risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition, but does not require collateral to support such
receivables.
(c) Exchange
rate risk
The
Company cannot guarantee that the current exchange rate will remain steady;
therefore there is a possibility that the Company could post the same amount
of
net income for two comparable periods and because of the fluctuating exchange
rate actually post higher or lower profit depending on exchange rate of HK$
converted to US$ on that date. The exchange rate could fluctuate depending
on
changes in political and economic environments without notice.
|
19.
|
COMMITMENT
AND CONTINGENCIES
|
(a) Operating
lease commitment
The
Company leases an office premise under a non-cancelable operating lease for
a
period of 2 years due June 30, 2008. Costs incurred under this operating lease
are recorded as rent expense and totaled approximately $104,581 and $54,212
for
the year ended December 31, 2007 and the period from October 1, 2005 to December
31, 2006.
|
Year
ending December 31,
|
|
|||
|
2008
|
$
|
52,275
|
||
(b) Capital
commitment
As
of
December 31, 2007, the Company has the following capital
commitments:
Planned
acquisition of land and building
The
Company has entered into a Provisional agreement dated September 29, 2006 to
purchase land and building in PRC to establish an assembly line of mobile phone
handset. There is a definitive sale and purchase agreement entered up to the
date of this report. As of December 31, 2007, the Company has contracted for
plant and equipment amounting to $7,240,248 (RMB52,955,898), of which $3,517,582
(RMB25,727,949) was paid to the vendors.
F-24
Planned
establishment of a joint venture
The
Company has entered into a Memorandum of Understanding (“MOU”) dated February
27, 2007 with a Korean listed company. Pursuant to this MOU, both parties are
willing to set up a joint venture in PRC to promote a 3-D mobile contents
platform. There is no definitive joint venture agreement entered up to the
date
of this report.
Planned
acquisition of a company
The
wholly-owned subsidiary of the Company, ITHL, has entered into a Letter of
Intent (“LOI”) dated February 12, 2007 with a third party. Pursuant to this LOI,
ITHL intends to acquire 100% interest of Shanghai BODA Electronic Co., Ltd.
There is no definitive equity transfer agreement entered up to the date of
this
report.
|
20.
|
COMPARATIVE
FIGURES
|
Certain
amounts in the prior periods presented have been reclassified to conform to
the
current period financial statement presentation.
F-25
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Based
on
their evaluation as of December 31, 2007, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
(as
definded in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of
1934, as amended) were sufficiently effective to ensure that the information
required to be disclosed by us in this Annual Report on Form 10-K was recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and instructions for Form 10-K.
ITEM
9A. Controls and Procedures
Management’s
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
Securities Exchange Act of 1934, as amended). Our management assessed 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.’ Our management has concluded that,
as of December 31, 2007, our internal control over financial reporting is
effective based on these criteria.
There
were no changes in our internal controls over financial reporting during the
quarter ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect our internal controls over financial
reporting.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter
how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within Innocom Technology Holdings, Inc. have been
detected.
On
February 15, 2007, the Company filed with the Commission a Form 8-K
stating
that the Company’s wholly-owned subsidiary Innocom Technoloy Holdings Limited
(“ITHL”) had entered into a Letter of Intent (“LOI”) with Shanghai Broadband
Science and Technology Co., Ltd. (“Shanghai Technology”). Pursuant to the LOI,
ITHL acquired 100% interest in BODA Electronic Co., Ltd. (“BODA”) from Shanghai
Technology, Suzhou
Country Core Technology Co., Ltd. (“Suzhou Technology”) and Nanjing Broadband
Science and Technology Co., Ltd ( “Nanjing Technology”) and Shanghai Technology
indicates its consent to sell all of the equities of BODA owned by itself and,
as the shareholder of Suzhou Technology and Nanjing Technology, to convey of
the
surplus of the equities of BODA from Suzhou Technology and Nanjing Technology
to
ITHL. The entire equity interest of BODA is held by Shanghai Technology,
Suzhou Technology and Nanjing Technology with 64.35%, 20% and 15.65%
shareholdings respectively. Shanghai Technology and ITHL agree to inspect
and collate the accounts of BODA and adjust some accounts if needed and to
make
further consultation about the date of the purchase of BODA and the substantial
procedures such as diligent inspections and assessments. BODA operates as
a value-added solution provider in the mobile phone market in
China.
On
March
5, 2007, the Company filed with the Commission a Form 8-K stating that it had
entered into a Memorandum of Understanding (“MOU”) with Industry Community
On-line Service Co., Ltd. (“ICOLS”). Pursuant to the MOU, the Company and ICOLS
are willing to set up a joint venture in China to promote the 3D mobile contents
platform (GNEX) of ICOLS in the Chinese market. In addition to the 3D mobile
contents platform (GNEX), both parties will consider cooperation on the business
of full 3D on-line games, SI & IT outsourcing, 3D solid LCD module, etc.
On
March
7, 2007, the Company filed with the Commission a Form 8-K stating that it had
appointed two (2) new non-executive directors to serve on the Board of
Directors.
Tay,
Siew
Leng, who is 39 years old, is the Managing Director and one of the founders
of
Superior Precision Engineering (Wuxi) Co., Ltd. Prior to establishment of SPE,
Mr. Tay was the Executive Director of the Toyoplas Group from July 2000 to
July
2005. During the period from 1993 to 2000, Mr. Tay held various positions in
Daiho Group and was the manager of the company from 1995 to 2000 in Business
Development and Production Control Department. Before joining Daiho group,
he was the Department Head of a High School in Malaysia. Mr. Tay holds a Masters
degree in Business Administration from Strathclyde Graduate Business School,
Scotland.
Qian
Jian
Yu, Mike who is 43 years old, is the General Manager and founder of Shanghai
Boda Electronics Co., Ltd. (“Boda”). Prior to the establishment of Boda in
September 2001, Mr. Qian worked for Arrow Electronics China Limited from 1998
to
2001. From 1986 to 1998, Mr. Qian worked for the Shanghai Space Bureau. Mr.
Qian
graduated from Nanjing University in 1986.
19
On
March
13, 2007, the Company filed with the Commission a Form 8-K stating in
anticipation of a planned presentation by the Company to a group of potential
investors during the March 2007 China Investor Tour in Shenzhen, China, the
Company was disclosing its planned presentation materials in order to avoid
the
selective disclosure of any material nonpublic information at the Conference.
Further, the Company discussed that on March 7, 2007, the Company’s wholly-owned
subsidiary Innocom Technology Holdings Limited (“ITHL”) had entered into a
Memorandum of Understanding (“MOU”) with Maxmore Limited, Mr. Hui Yan Sui
William, Mr. Tay Siew Leng and Mr. Asaba Masaya (collectively the “Sellers”).
Pursuant to the MOU, ITHL acquired 71.5% interest in Superior Precision
Engineering Co. Limited (“SPE”) and the Sellers intend to sell their
shareholdings in SPE to ITHL. SPE provides manufacturing service including
tooling design and fabrication, injection molding, spraying, printing, laser
making and sub-assembly. Mr. Hui Yan Sui William and Mr. Tay Siew Leng are
related parties to the Registrant.
On
March
19, 2007, the Company filed with the Commission a Form 8-K stating the Company’s
wholly-owned subsidiary Innocom Technology Holdings Limited (“ITHL”) had entered
into a distribution agreement with Shangai BODA Electronics Co., Ltd. (“BODA”)
whereby BODA appointed ITHL as its exclusive distributor for its in-house
developed analogy television mobile phone (the “TV Mobile Phone”) for overseas
markets. Pursuant to the Agreement, ITHL shall distribute the TV Mobile Phone
to
oversea markets (meaning the world market except Mainland China but inclusive
of
Hong Kong Special Administration Region of the PRC, Macau Special Administration
Region of the PRC and the Republic of China or Taiwan) for an indefinite term
until either party calls for the termination of the Agreement, after one (1)
year from the date of the Agreement, by giving 180 days prior written notice
to
the other party. Commission to ITHL shall be further negotiated and set on
contract by contract basis.
On
March
29, 2007, the Company filed with the Commission a Form 8-K stating that Mr.
Roland Lam, Chief Financial Officer of the Company resigned from his position.
Mr. Lam stated personal reasons for his resignation. The Company anticipates
appointing a new Chief Financial Officer in the near future.
PART
III.
Item
10. Directors, Executive Officers and Corporate Governance.
DIRECTORS
AND EXECUTIVE OFFICERS
Our
directors and officers, as of December 31, 2007, are set forth below. The
directors hold office for their respective term and until their successors
are
duly elected and qualified. Vacancies in the existing Board are filled by a
majority vote of the remaining directors. The officers serve at the will of
the
Board of Directors.
|
Name
|
|
Age
|
|
Position
|
|
Director
Since
|
|
Hui
Yan Sui, William
|
42
|
Chairman
and Chief Executive Officer
|
2006
|
|||
|
Tang
Chin Pang, Eric
|
46
|
Executive
Director
|
2006
|
|||
|
Tan
Ah Mee
|
61
|
Non-executive
Director
|
2006
|
|||
|
Lau
Yiu Nam, Eric
|
48
|
Non-executive
Director
|
2006
|
|||
|
Tay,
Siew Leng
|
40
|
Non-executive
Director
|
2007
|
|||
|
Qian
Jian Yu, Mike
|
44
|
Non-executive
Director
|
2007
|
|||
|
Cheung
Wai Hung
|
53
|
Chief
Financial Controller
|
2007
|
Hui
Yan
Sui, William, age 42, has approximately 20 years experience in industrial
management. In 1986, Mr. Hui established Yat Lung Industrial Limited (Yat
Lung), a company that manufactures cassette and video tapes. Mr. Hui is
currently a director of Yat Lung. In 2002, Yat Lung became a wholly owned
subsidiary of Swing Media Technology Group Limited (Swing Media), an investment
holding company that manufactures and trades cassette tapes, video tapes, VCD's,
CDR's and DVDR's through its subsidiaries. From January 2002 until May
2003, Mr. Hui served as Chairman and Chief Executive Officer of Swing Media.
Mr. Hui resigned as CEO of Swing Media in May 2003 and retains his
position as Chairman. Swing Media is a company listed on the Singapore
Stock Exchange Dealings and Automated Quotation System (the “SGX-SESDAQ”).
In 2003, Mr. Hui established Chinarise Capital (International) Limited
(Chinarise), a company that trades mobile phone handsets and components in
Hong
Kong . He is currently the director of Chinarise.
Tang
Chin
Pang, Eric, age 46, has been our Chief Financial Officer since October 2005.
Before joining us in October 2005, Mr. Tang is the corporate consultant for
three years. From 1984 to 2001, Mr. Tang worked at Deloitte Touche Tohmatsu
for
seventeen years, including his last position as an audit senior manager. Mr.
Tang graduated from Hong Kong Shue Yan College in 1984. He is a fellow of the
Association of Chartered Certified Accountants and an associate member of the
Hong Kong Institute of Certified Public Accountants.
20
Dr.
Tan
Ah Mee, age 61, holds Doctor of Philosphy from International Management Centre,
Buckingham, United Kingdom. Dr. Tan is Ex-Rotarian (Chartered) of Rotary Club
of
Tebrau, Jogn Baru and Elected Council Member of the Sinagpore Confederation
of
Industries (1998 - 2000), He is director of Heng Da Investments Pte. Limited,
Ingmedia Pte. Limited and Yorkshire Capital Pte. Limited
Lau
Yiu
Nam , Eric, age 48, was admitted as a barrister in England and Australia .
Mr.
Lau returned to Hong Kong in 1983 and was employed in the Attorney General's
Chambers as Crown Counsel before he went into private practice in 1996.
Currently, Mr. Lau is the Head of his Chambers in Hong Kong which comprised
of
over 15 barristers practicing in commercial and civil litigation. He is
independent non-executive director of Swing Media.
Tay,
Siew
Leng, age 40, is the Managing Director and one of the founders of Superior
Precision Engineering (Wuxi) Co., Ltd. Prior to establishment of SPE, Mr. Tay
was the Executive Director of the Toyoplas Group from July 2000 to July 2005.
During the period from 1993 to 2000, Mr. Tay held various positions in Daiho
Group and was the manager of the company from 1995 to 2000 in Business
Development and Production Control Department. Before joining Daiho group,
he was the Department Head of a High School in Malaysia. Mr. Tay holds a Masters
degree in Business Administration from Strathclyde Graduate Business School,
Scotland.
Qian
Jian
Yu, Mike, age 44, is the General Manager and founder of Shanghai Boda
Electronics Co., Ltd. (“Boda”). Prior to the establishment of Boda in
September 2001, Mr. Qian worked for Arrow Electronics China Limited from 1998
to
2001. From 1986 to 1998, Mr. Qian worked for the Shanghai Space Bureau. Mr.
Qian
graduated from Nanjing University in 1986.
Cheung
Wai Hung, Eddie, age 53, has been a branch manager of Shanghai Commercial Bank
Limited for the past 12 years up to May 14, 2007. Mr. Cheung possesses a
Bachelor degree of Commerce from Curtin University of Technology, Perth W.
Australia, in 1998.
(a)
Significant Employees
Other
than our officers, there are no employees who are expected to make a significant
contribution to our corporation.
(b)
Family Relationships
Our
directors currently have terms which will end at our next annual meeting of
the
stockholders or until their successors are elected and qualify, subject to
their
prior death, resignation or removal. Officers serve at the discretion of the
Board of Directors. There are no family relationships among any of our directors
and executive officers. There are no family relationships among our officers,
directors, or persons nominated for such positions.
LEGAL
PROCEEDINGS
No
officer, director, or persons nominated for these positions, and no promoter
or
significant employee of our corporation has been involved in legal proceedings
that would be material to an evaluation of our management.
AUDIT
COMMITTEE
The
Board
does not have standing audit committee.
CODE
OF
ETHICS
The
Company does not have a Code of Ethics.
COMPLIANCE
WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers and beneficial holders of more than 10% of our common
stock to file with the Commission initial reports of ownership and reports
of
changes in ownership of our equity securities. As of the date of this Report,
the Company is in the process of reviewing all transactions that may cause
initial reports of ownership or changes in ownership to be filed on Form 3
(Initial Statement of Beneficial Ownership), Form 4 (Changes in Beneficial
Ownership) and Form 5 (Annual Statement of Changes in Beneficial Ownership)
which is required to be filed under applicable rules of the Commission.
21
Item
11. Executive Compensation
COMPENSATION
DISCUSSION AND ANALYSIS
Background
and Compensation Philosophy
Our
board
of
directors
consists
of seven individuals:
(1)
William Hui Yan Sui, our Chief Executive Officer, Chairman of the Board and
beneficial owner of 60.97% of our common stock; (2) Tang Chin Pang, Eric, our
Executive Director; (3) Cheung Wai Hung, Eddie, our Chief Financial Officer;
(4)
Tan Ah Mee, a non-executive director; (5) Lau Yiu Nam, Eric, a non-executive
director; (6) Tay, Siew Leng, a non-executive director; and (7) Qian Jian Yu,
Mike, a non-executive director. Our board
of
directors
have
historically determined the compensation to be paid to our
executive officers based on our
financial and operating performance and prospects, the level of compensation
paid to similarly situated executives in comparably sized companies and
contributions made by the officers’ to our
success.
Each of the named officers will be measured by a series of performance criteria
by the board of directors,
or the
compensation committee when it is established, on
a
yearly basis. Such criteria will be set forth based on certain objective
parameters such as job characteristics, required professionalism, management
skills, interpersonal skills, related experience, personal performance and
overall corporate performance.
Our
board
of
directors
have
not
adopted or established a formal policy or procedure for determining the amount
of compensation paid to our executive officers. Mr. Sui, Mr. Pang and Mr. Hung
have
been
and may continue to be involved when our board of directors deliberate
compensation issues related
to their
compensation.
As
our
executive leadership and board
of
directors
grow,
our
board
of
directors
may
decide to form a compensation committee charged with the oversight of executive
compensation plans, policies and programs.
Elements
of Compensation
We
provide our executive officers solely with a base salary to compensate them
for
services rendered during the year. Our policy of compensating our executives
with a cash salary has served us
well.
Because of our history of attracting and retaining executive talent, we do
not
believe it is necessary at this time to provide our executives discretionary
bonuses, equity incentives, or other benefits in
order
for
us
to
continue to be successful.
Base
Salary
The
yearly base salary of Mr. Cheung Wai Hung for the 2007 was $33,654.00. Mr.
Hui
Yan Sui and Mr. Tang Chin Pang received no salary in 2007.
Discretionary
Bonus
We
have
not provided our executive officers with any discretionary bonuses at the moment
but our board
of
directors
may
consider the necessity of such scheme in the future based on our
financial and operating performance and prospects, the level of compensation
paid to similarly situated executives in comparably sized companies and
contributions made by the officers’ to our
success.
Equity
Incentives
We
have not
established equity based incentive program and have not granted stock based
awards as a component of compensation. In the future, we may adopt and establish
an equity incentive plan pursuant to which awards may be granted if our
board
of
directors
determines that it is in the best interests
of
our
stockholders
and the
Company
to do
so.
Retirement
Benefits
Our
executive officers are not presently entitled to company-sponsored retirement
benefits.
Perquisites
We
have
not provided our executive officers with any material perquisites and other
personal benefits and, therefore, we do not view perquisites as a significant
or
necessary element of our executive’s compensation.
Deferred
Compensation
We
do not
provide our executives the opportunity to defer receipt of annual
compensation.
22
SUMMARY
COMPENSATION TABLE
The
following table sets forth the cash and non-cash compensation for the years
indicated earned by or awarded to Hui Yan Sui, William, our Chief Executive
Officer, Tang Chin Pang, Eric, our Chief Financial Officer, and our other
executive officers and employees whose total cash compensation exceeded
$100,000, or the Named Executive Officers and employees, in fiscal year 2007.
Summary
Compensation Table
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||
|
Hui
Yan Sui, William
Chief
Executive Officer; Director
|
2007
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Tang
Chin Pang, Eric
Executive
Director
|
2007
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Cheung
Wai Hung, Eddie
Chief
Financial Officer
|
2007
|
33,654
|
-
|
-
|
-
|
33,654
|
|||||||||||||
No
directors and offices have service contact with the Company or its subsidiary
companies.
Compensation
of Directors
There
is
no compensation awarded to or paid to the directors during 2007.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Beneficial
ownership is shown as of April 11, 2008, for shares held by (i) each person
or
entity known to us to be the beneficial owner of more than 5% of our issued
and
outstanding shares of common stock based solely upon a review of filings made
with the Commission and our knowledge of the issuances by us, (ii) each of
our
directors, (iii) our Chief Executive Officer and our three other most highly
compensated officers whose compensation exceeded $100,000 during the fiscal
year
ended December 31, 2007, or the Named Executive Officers, and (iv) all of our
current directors and executive officers as a group. Unless otherwise indicated,
the persons listed below have sole voting and investment power with respect
to
the shares and may be reached at Unit 3506, Bank of America Tower, 12 Harcourt
Road, Central, Hong Kong, PRC.
Security
Ownership - Certain Beneficial Owners
There
are
no Beneficial Owners outside of management that own more than 5% of the issued
and outstanding shares of common stock. Please see the table below for certain
beneficial ownership by management.
|
Amount
|
|||||||||||||
|
And
|
Percentage
|
||||||||||||
|
Nature
of
|
of
Class
|
||||||||||||
|
Beneficial
|
Beneficially
|
||||||||||||
|
Beneficial
Owner (including address)
|
Title
of class
|
Ownership
(1)
|
Total
|
Owned
|
|||||||||
|
Hui
Yan Siu William (2)
|
Common
|
23,107,430
|
D |
23,107,430
|
60.97
|
%
|
|||||||
|
Cheung
Wai Hung, Eddie (2)
|
Common
|
-0-
|
-0-
|
-0-
|
%
|
||||||||
|
Tang
Chin Pang, Eric (2)
|
Common
|
-0-
|
-0-
|
-0-
|
%
|
||||||||
|
Dr.
Tan Ah Mee (2)
|
Common
|
-0-
|
-0-
|
-0-
|
%
|
||||||||
|
Lau
Yiu Nam, Eric (2)
|
Common
|
-0-
|
-0-
|
-0-
|
%
|
||||||||
|
Tay
Siew Leng (2)
|
Common
|
-0-
|
-0-
|
-0-
|
%
|
||||||||
|
Qian
Jian Yu, Mike (2)
|
Common
|
-0-
|
-0-
|
-0-
|
%
|
||||||||
|
Total
|
Common
|
23,107,430
|
23,107,430
|
60.97
|
%
|
||||||||
23
Notes:
|
(1)
|
-
(D) stands for direct ownership; (I) stands for indirect
ownership
|
|
(2)
|
All
officers and directors use the Company’s address, Unit 3506, Bank of
America, Tower, 12 Harcourt Road, Central, Hong
Kong.
|
Changes
in Control
There
are
no arrangements, known to the Registrant, including any pledge by any person
of
securities of the Registrant which may at a subsequent date result in a change
in control of the Registrant.
Securities
Authorized for Issuance Under Equity Compensation Plans
There
is
no equity or option granted during 2007.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Certain
Relationships and Related Transactions
As
of
December 31, 2007, a balance of $128 due to a director and a major shareholder
of the Company, Mr. William Hui, represented temporary advance to the Company
which was unsecured, interest-free and has no fixed repayment term. The imputed
interest on the amount due to a stockholder was not significant.
Director
Independence
Are
any
of the non-executive directors independent pursuant to Item 407(a)(4)(1) of
Regulation S-K?
Item
14. Principal Accountant Fees and Services.
The
following is a summary of the fees billed to us by Zhong Yi (Hong Kong) C.P.A.
Company Limited (“Zhong”), the Company’s current auditors and Dominic K.F. Chan
& Co., the Company’s former auditors (“Chan” for the services rendered
during fifteen months ended December 31, 2006 and the first three quarters
of
the fiscal year 2007) for professional services rendered for the year ended
December 31, 2007 and fifteen months ended December 31, 2006:
|
Year
ended December 31, 2007
|
Fifteen
months ended December 31, 2006
|
|||||||||
|
Service
|
Zhong
|
Chan
|
Chan
|
|||||||
|
Audit
Fees
|
$
|
64,981
|
$
|
25,434
|
$
|
54,962
|
||||
|
|
||||||||||
|
Audit
Related
|
||||||||||
|
Fees
|
0
|
0
|
0
|
|||||||
|
|
||||||||||
|
Tax
Fees
|
0
|
0
|
0
|
|||||||
|
|
||||||||||
|
All
Other Fees
|
0
|
0
|
0
|
|||||||
|
|
||||||||||
|
TOTAL
|
$
|
64,981
|
$
|
25,434
|
$
|
54,962
|
||||
Audit
fees consist of the aggregate fees billed for services rendered for the audit
of
our annual financial statements, the reviews of the financial statements
included in our Forms 10-QSB and for any other services that are normally
provided by our independent auditors in connection with our statutory and
regulatory filings or engagements.
Audit
related fees consist of the aggregate fees billed for professional services
rendered for assurance and related services that reasonably related to the
performance of the audit or review of our financial statements that were not
otherwise included in Audit Fees.
Tax
fees
consist of the aggregate fees billed for professional services rendered for
tax
compliance, tax advice and tax planning. These services include assistance
regarding federal, state and local tax compliance and consultation in connection
with various transactions and acquisitions.
24
All
other
fees consist of the aggregate fees billed for products and services provided
by
our independent auditors and not otherwise included in Audit Fees, Audit Related
fees or Tax Fees.
Item
15. Exhibits, Financial Statement Schedules.
(a)
Financial Statements
The
financial statements are set forth under Item 8 of this Annual Report on
Form 10-K. Financial statement schedules have been omitted since they are either
not required, not applicable, or the information is otherwise
included.
(b)
Exhibits
|
3.1
|
Articles
of Incoporation (Filed with the Commission on January 29, 2003 as
Exhibit
1 to the Form 10-SB.)
|
|
3.2
|
Bylaws
(Filed with the Commission on January 29, 2003 as Exhibit 2 to the
Form
10-SB.)
|
|
21
|
Subsidiaries
List (filed herewith)
|
|
24
|
Power
of Attorney (filed herewith) (see signature page)
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to 13a-14 and 15d-14 of the Exchange
Act (filed herewith)
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to 13a-14 and 15d-14 of the Exchange
Act (filed herewith)
|
|
32.1
|
Certificate
pursuant to 18 U.S.C. ss. 1350 for Hui Yan Siu, William, Chief Executive
Officer (filed herewith)
|
|
Certificate
pursuant to 18 U.S.C. ss. 1350 for Cheung Wai Hung, Eddie, Chief
Financial
Officer (filed herewith)
|
25
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.
|
INNOCOM
TECHNOLOGY HOLDINGS, INC.
|
|||
|
Dated:
April 15, 2008
|
/s/
William Yan Sui Hui
|
||
|
William Yan Sui Hui,
Chief Executive Officer
(Principal
executive officer)
|
|
Dated:
April 15, 2008
|
/s/
Eddie Cheung Wai Hung
|
||
|
Eddie
Cheung Wai Hung,
Chief
Financial Officer
(Principal
financial officer)
|
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 indicated by the dates.
| /s/ William Hui Yan Sui | /s/ Eric Tang Chin Pang | ||
|
Yan Sui Hui, William Director |
Tang Chin Pang, Eric, Director |
||
| Dated: April 15, 2008 | Dated: April 15, 2008 |
26