WEB NEWS Comments & Business Outlook
WAVE SYNC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Stated in US Dollars)
(Unaudited)
For the three months
2016
2015
Revenue
$
3,000
$
-
Cost of revenues
-
-
Gross profit
$
3,000
$
-
Operating expenses
-
-
General and administrative expenses
231,693
199,832
231,693
199,832
Operating income
$
(228,693
)
$
(199,832
)
Other income (expenses)
Interest expense
(373
)
-
Interest income
24
23
Total other income/(expenses)
(349
)
23
Loss before income taxes
(229,042
)
(199,809
)
Income tax
-
-
Net loss
$
(229,042
)
$
(199,809
)
Other comprehensive loss
Foreign currency translation adjustment
3,431
(2,023
)
Comprehensive loss
$
(225,611
)
$
(201,832
)
Net loss per share
Basic
$
(0.01
)
$
(0.01
)
Diluted
$
(0.01
)
$
(0.01
)
Weighted average number of common shares outstanding
Basic
19,920,325
19,583,246
Diluted
19,920,325
19,583,246
Comments & Business Outlook
Item 8.01 Other Events
Wave Sync Corp. announced today that Guangdong Branch (“CCB Guangdong”) of China Construction Bank, one of China’s four major banks, launched a pilot program to issue new audio bank cards embedded with our inlays. Under this pilot program, audio cards with our inlays, once applied for by the end-users, will be issued and distributed by CCB Guangdong to some of its 25 million customers.
Comments & Business Outlook
WAVE SYNC CORP. (f/k/a China Bio-Energy Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in US Dollars)
For the years ended
2015
2014
Revenue
$
190,505
$
247,175
Cost of revenue
686
1,593
Gross profit
189,819
245,582
Operating expenses:
General and administrative expenses
1,666,641
1,458,325
Total operating expenses
1,666,641
1,458,325
Other income (expenses)
Interest expense
(2,271
)
-
Interest income
176
234
Other income
4,275
200
Total other income/(expenses)
2,180
434
Loss before income taxes
(1,474,642
)
(1,212,309
)
Income tax
-
11,559
Net loss
$
(1,474,642
)
$
(1,223,868
)
Other comprehensive loss
Foreign currency translation adjustment
(53,243
)
(193
)
Comprehensive loss
$
(1,527,885
)
$
(1,224,061
)
Net loss per share
Basic
$
(0.08
)
$
(0.07
)
Diluted
$
(0.08
)
$
(0.07
)
Weighted average number of common shares outstanding
Basic
19,117,511
17,205,182
Diluted
19,117,511
17,205,182
Management Discussion and Analysis
Revenue commenced during May 2015 from our audio banking card operations (including software and services). We earned revenues of $190,505 for the year ended December 31, 2015.
Comments & Business Outlook
Item 1.01 Entry into a Material Definitive Agreement
Share Purchase Agreement
Reference is made to Item 2.01 of this Current Report for a description of a Share Purchase Agreement, entered into on October 19, 2015 (the “Share Purchase Agreement”), and a related acquisition transaction (the “Acquisition”) by and between the Registrant, EGOOS BVI and the sole shareholder of EGOOS BVI.
As a result of the Acquisition, EGOOS BVI has become a wholly-owned subsidiary of the Registrant and business of the Registrant is now the business of EGOOS’ indirect, controlled subsidiaries Guangzhou Yuzhi, Shenzhen Exce-card and Guangzhou Rongsheng, corporations organized in the PRC.
Item 2.01 Completion of Acquisition or Disposition of Assets
The Share Purchase Agreement provides for an acquisition transaction (the “Acquisition”) in which the Registrant, through the issuance of a convertible note in the principal sum of Fifteen Million U.S. Dollars ($15,000,000) to EGOOS BVI’s sole shareholder, will acquire 100% of EGOOS BVI. Such note is convertible at a conversion price equal to $1.00 per share into 15,000,000 shares of the Company’s common stock, on a post Reverse Split (as defined below) basis, at noteholder’s election, at any time after 30 days following issuance of such note but prior to two year anniversary of the date of such note (the “Maturity Date”), provided that the Company has effectuated a reverse split of all of the issued and outstanding Common Stock as of the date of the issuance of the note (the “Reverse Split”). The outstanding principal amount of this note is payable on the Maturity Date, without interest, unless this note has been earlier converted. Upon conversion of the note (the “Conversion”), the existing shareholders of the Registrant will own an aggregate of 24.7% of the post-acquisition entity.
The closing of the Acquisition (the “Closing”) took place on October 19, 2015 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Share Purchase Agreement, the Registrant acquired all of the outstanding equity securities of EGOOS BVI from the sole shareholder of EGOOS BVI; and the shareholder of EGOOS BVI transferred and contributed all of his issued and outstanding shares of EGOOS BVI to the Registrant. In exchange, the Registrant issued to the sole shareholder of EGOOS BVI a convertible note, which may be converted into an aggregate of 15,000,000 Post-Split Common Shares of the Registrant. There is no material relationship between the sole shareholder of EGGOS BVI and/or EGOOS BVI, on one hand, and the Company and its affiliates or associates, on the other hand.
On August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitles Yigou to substantially all of the economic benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries. In addition, Yigou entered into certain agreements with each of Wenbin Yang, Ping Li, (collectively, the “Guangzhou Yuzhi shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provides Yigou with the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that pledges the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity ownership in Guangzhou Yuzhi and its Subsidiaries (EGOOS BVI, EGOOS HK, Guangzhou Yuzhi, Shenzhen Exce-card, Guangzhou Rongsheng and Yigou are collectively referred to herein as the “Group”).
A director and former CEO of the Company, Ms. Mei Yang, has since December 2013 worked as a vice president of Shenzhen Exce-Card, a wholly owned subsidiary of Guangzhou Yuzhi, which is indirectly wholly-controlled by EGOOS BVI. Ms. Yang therefore was on both sides of the Company’s transactions with EGOOS BVI. Ms. Yang does not hold any equity interest in EGOOS BVI or Shenzhen Exce-Card and received no consideration in connection with the Acquisition.
As all of the companies in the Group are under common control, this has been accounted for as a reorganization of entities and the financial statements have been prepared as if the reorganization had occurred retroactively. The Registrant has consolidated the operating results, assets and liabilities of Guangzhou Yuzhi and its Subsidiaries within its financial statements.
Reverse Merger Activity
Item 1.01 Entry into a Material Definitive Agreement
Share Purchase Agreement
Reference is made to Item 2.01 of this Current Report for a description of a Share Purchase Agreement, entered into on October 19, 2015 (the “Share Purchase Agreement”), and a related acquisition transaction (the “Acquisition”) by and between the Registrant, EGOOS BVI and the sole shareholder of EGOOS BVI.
As a result of the Acquisition, EGOOS BVI has become a wholly-owned subsidiary of the Registrant and business of the Registrant is now the business of EGOOS’ indirect, controlled subsidiaries Guangzhou Yuzhi, Shenzhen Exce-card and Guangzhou Rongsheng, corporations organized in the PRC.
Item 2.01 Completion of Acquisition or Disposition of Assets
The Share Purchase Agreement provides for an acquisition transaction (the “Acquisition”) in which the Registrant, through the issuance of a convertible note in the principal sum of Fifteen Million U.S. Dollars ($15,000,000) to EGOOS BVI’s sole shareholder, will acquire 100% of EGOOS BVI. Such note is convertible at a conversion price equal to $1.00 per share into 15,000,000 shares of the Company’s common stock, on a post Reverse Split (as defined below) basis, at noteholder’s election, at any time after 30 days following issuance of such note but prior to two year anniversary of the date of such note (the “Maturity Date”), provided that the Company has effectuated a reverse split of all of the issued and outstanding Common Stock as of the date of the issuance of the note (the “Reverse Split”). The outstanding principal amount of this note is payable on the Maturity Date, without interest, unless this note has been earlier converted. Upon conversion of the note (the “Conversion”), the existing shareholders of the Registrant will own an aggregate of 24.7% of the post-acquisition entity.
The closing of the Acquisition (the “Closing”) took place on October 19, 2015 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Share Purchase Agreement, the Registrant acquired all of the outstanding equity securities of EGOOS BVI from the sole shareholder of EGOOS BVI; and the shareholder of EGOOS BVI transferred and contributed all of his issued and outstanding shares of EGOOS BVI to the Registrant. In exchange, the Registrant issued to the sole shareholder of EGOOS BVI a convertible note, which may be converted into an aggregate of 15,000,000 Post-Split Common Shares of the Registrant. There is no material relationship between the sole shareholder of EGGOS BVI and/or EGOOS BVI, on one hand, and the Company and its affiliates or associates, on the other hand.
On August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitles Yigou to substantially all of the economic benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries. In addition, Yigou entered into certain agreements with each of Wenbin Yang, Ping Li, (collectively, the “Guangzhou Yuzhi shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provides Yigou with the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that pledges the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity ownership in Guangzhou Yuzhi and its Subsidiaries (EGOOS BVI, EGOOS HK, Guangzhou Yuzhi, Shenzhen Exce-card, Guangzhou Rongsheng and Yigou are collectively referred to herein as the “Group”).
Our director and former CEO, Ms. Mei Yang, has since December 2013 worked as a vice president of Shenzhen Exce-Card, a wholly owned subsidiary of Guangzhou Yuzhi. Ms. Yang does not hold any equity interest in EGOOS BVI or Shenzhen Exce-Card and received no consideration in connection with the Acquisition.
As all of the companies in the Group are under common control, this has been accounted for as a reorganization of entities and the financial statements have been prepared as if the reorganization had occurred retroactively. The Registrant has consolidated the operating results, assets and liabilities of Guangzhou Yuzhi and its Subsidiaries within its financial statements.
Comments & Business Outlook
WAVE SYNC CORP. (f/k/a China Bio-Energy Corp.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(Stated in US Dollars)
(Unaudited)
Three Months Ended September 30
Nine Months Ended September 30
2015
2014
2015
2014
Revenue
$
-
$
-
$
160,746
$
247,075
Cost of revenue
-
38,985
579
40,579
Gross profit
-
38,985
160,167
206,496
Operating expenses:
General and administrative expenses
260,405
-
978,867
1,133,588
Total operating expenses
260,405
-
978,867
(927,092
)
Other income (expenses)
Interest expense
(1,719
)
-
(1,719
)
-
Interest income
95
-
121
164
Other income
941
-
941
200
Total other income/(expenses)
(683
)
-
(657
)
364
Loss before income taxes
(261,088
)
(38,985
)
(819,357
)
(926,728
)
Income tax
-
-
-
9,533
Net loss
$
(261,088
)
$
(38,985
)
$
(819,357
)
$
(936,261
)
Other comprehensive loss
foreign currency translation adjustment
35,925
327,563
44,502
193
Comprehensive loss
$
(225,163
)
$
288,578
$
(774,855
)
$
(936,068
)
Net loss per share
Basic
$
-
$
-
$
-
$
-
Diluted
$
-
$
-
$
-
$
-
Weighted average number of common shares outstanding
Basic
98,405,005
38,405,005
94,668,741
38,405,005
Diluted
98,405,005
38,405,005
94,668,741
38,405,005
Comments & Business Outlook
Wave Sync Corp. (f/k/a China Bio-Energy Corp.)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(Stated in US Dollars)
(Unaudited)
Three Months Ended
Six Months Ended
2015
2014
2015
2014
Revenue
$
-
$
-
$
-
$
-
Operating expenses:
General and administrative expenses
79,591
15,625
470,878
340,850
Total operating expenses
79,591
15,625
470,878
340,850
Loss before income taxes
(79,591
)
(15,625
)
(470,878
)
(340,850
)
Provision for income tax
-
-
-
-
Net loss
$
(79,591
)
$
(15,625
)
(470,878
)
(340,850
)
Other comprehensive loss - foreign currency translation adjustment
-
-
-
-
Comprehensive loss
$
(79,591
)
$
(15,625
)
(470,878
)
(340,850
)
Net loss per share
Basic
$
(0.00
)
$
(0.00
)
(0.00
)
(0.01
)
Diluted
$
(0.00
)
$
(0.00
)
(0.00
)
(0.01
)
Weighted average number of common shares outstanding
Basic
98,405,005
38,405,005
94,668,741
38,405,005
Diluted
98,405,005
38,405,005
94,668,741
38,405,005
Management Discussion and Analysis
Revenues for the three months ended June 30, 2015 and June 30, 2014 were 0. Revenues for the six months ended June 30, 2015 and six months ended June 30, 2014 were 0. Gross loss for the three months ended June 30, 2015 was 79,591, an increase of $63,966 or 400.9%, as compared to three months ended June 30, 2014. The increased loss was due to more general and administrative expenses. Gross loss for the six months ended June 30, 2015 was approximately $470,000, an increase of approximately $130,000, or 38% operating expenses for the six months ended June 30, as compared to six months ended June 30, 2014. The increase in gross loss reflected increased general and administrative expenses. Operating expenses for the three months ended June 30, 2015 increased 79,591, or 400.9%, as compared to the three months ended June 30, 2014. Operating expenses for the six months ended June 30, 2015 increased by approximately $130,000, or 38%. Operating expenses for the six months ended June 30, 2015 and 2014 were approximately $470,000 and $340,000. Our principal operating expense for the three and six months ended June 30, 2015 was administrative expenses. As a result of the foregoing, we sustained a net loss of $79,591 or $0.00 per share (basic and diluted), for the three months ended June 30, 2015 and a net loss of $470,878, or $0.00 per share (basic and diluted), for the six months ended June 30, 2015, as compared to net loss of $15,625, or $0.00 per share (basic and diluted), and $340,850, or $0.00 per share (basic and diluted), for the three and six months ended June 30, 2014, respectively.
Comments & Business Outlook
WAVE SYNC CORP. (F/K/A CHINA BIO-ENERGY CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended
2015
2014
Revenue
$
-
$
-
Operating expenses:
General and administrative expenses
391,287
325,225
Total operating expenses
391,287
325,225
Loss before income taxes
(391,287
)
(325,225
)
Provision for income tax
-
-
Net loss
$
(391,287
)
$
(325,225
)
Other comprehensive loss - foreign currency translation adjustment
-
-
Comprehensive loss
$
(391,287
)
$
(325,225
)
Net loss per share
Basic
$
(0.00
)
$
(0.00
)
Diluted
$
(0.00
)
$
(0.00
)
Weighted average number of common shares outstanding
Basic
98,405,005
58,405,005
Diluted
98,405,005
58,405,005
Comments & Business Outlook
Item 1.01 Entry into a Material Definitive Agreement
Reference is made to Item 2.01 of this Current Report for a description of a Share Purchase Agreement, entered into on October 19, 2015 (the “Share Purchase Agreement”), and a related acquisition transaction (the “Acquisition”) by and between the Registrant, EGOOS BVI and the sole shareholder of EGOOS BVI.
As a result of the Acquisition, EGOOS BVI has become a wholly-owned subsidiary of the Registrant and business of the Registrant is now the business of EGOOS’ indirect, controlled subsidiaries Guangzhou Yuzhi, Shenzhen Exce-card and Guangzhou Rongsheng, corporations organized in the PRC.
On October 19, 2015, Wave Sync Corp., formerly known as China Bio-Energy Corp.(the “Registrant” or the “Company”) entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS Mobile Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS Mobile Technology Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE” or “Yigou”), a foreign investment enterprise organized under the laws of the PRC, and which has, through various contractual agreements, management control and the rights to the profits of Guangzhou Yuzhi Information Technology Co., Ltd., a corporation organized under the laws of the PRC as a variable interest entity(“Guangzhou Yuzhi”), which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“Shenzhen Exce-card”), which owns 100% of Guangzhou Rongsheng Information Technology Co., Ltd., a Chinese corporation (“Guangzhou Rongsheng”, together with Guangzhou Yuzhi and Shenzhen Exce-card, is collectively referred to herein as “Guangzhou Yuzhi and its Subsidiaries”), and the sole shareholder of EGOOS BVI. Guangzhou Yuzhi and its Subsidiaries engage in research, development, marketing and distribution of audio bank card products.
The Share Purchase Agreement provides for an acquisition transaction (the “Acquisition”) in which the Registrant, through the issuance of a convertible note to EGOOS BVI’s sole shareholder, will acquire 100% of EGOOS BVI. Such note is convertible into 15,000,000 shares of the Company’s common stock, on a post Reverse Split (as defined below) basis, at noteholder’s election, at any time after 30 days following issuance of such note but prior to two year anniversary of the date of such note, provided that the Company has effectuated a reverse split of all of the issued and outstanding Common Stock as of the date of the issuance of the note (the “Reverse Split”). Upon conversion of the note, the existing shareholders of the Registrant will own an aggregate of 24.7% of the post-acquisition entity.
The closing of the Acquisition (the “Closing”) took place on October 19, 2015 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Share Purchase Agreement, the Registrant acquired all of the outstanding equity securities of EGOOS BVI from the sole shareholder of EGOOS BVI; and the shareholder of EGOOS BVI transferred and contributed all of his issued and outstanding shares of EGOOS BVI to the Registrant. In exchange, the Registrant issued to the sole shareholder of EGOOS BVI a convertible note, which may be converted into an aggregate of 15,000,000 Post-Split Common Shares of the Registrant.
On August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitles Yigou to substantially all of the economic benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries. In addition, Yigou entered into certain agreements with each of Wenbin Yang, Ping Li, (collectively, the “Guangzhou Yuzhi shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provides Yigou with the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that pledges the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity ownership in Guangzhou Yuzhi and its Subsidiaries (EGOOS BVI, EGOOS HK, Guangzhou Yuzhi, Shenzhen Exce-card, Guangzhou Rongsheng and Yigou are collectively referred to herein as the “Group”).
Comments & Business Outlook
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Years.
The Company’s common stock will continue to be quoted on the OTC Pink under the ticker symbol “CHIO” until FINRA assigns a new ticker symbol upon its approval of the name change.
A copy of the Certificate of Amendment is attached hereto as Exhibit 3.1 and is incorporated by reference herein.
Comments & Business Outlook
China Bio-Energy Corp.
Audited Statements of Operations and Comprehensive Loss
For the years ended December 31, 2014, 2013, 2012, and 2011, and
For the six months ended December 31, 2010
(Stated in US Dollars)
For the years ended December 31,
For the six months
2014
2013
2012
2011
2010
Revenue
$
-
$
-
$
-
-
$
-
Cost of revenue
-
-
-
-
-
Gross profit
-
-
-
-
-
General and administrative expenses
972,100
354,480
1,595,510
2,343,339
150
Impairment loss
-
-
-
-
9,742,657
Total operating expenses
972,100
354,480
1,595,510
2,343,339
9,742,807
Loss from operation
(972,100
)
(354,480
)
(1,595,510
)
(2,343,339
)
(9,742,807
)
Other income/(expenses)
200
-
-
242
-
Total other expenses
200
-
-
242
-
Loss before income taxes
(971,900
)
(354,480
)
(1,595,510
)
(2,343,097
)
(9,742,807
)
Provisions for income tax
-
-
-
-
-
Net loss
$
(971,900
)
$
(354,480
)
$
(1,595,510
)
(2,343,097
)
$
(9,742,807
)
Other comprehensive income
-
-
-
-
-
Comprehensive loss
$
(971,900
)
$
(354,480
)
$
(1,595,510
)
(2,343,097
)
$
(9,742,807
)
Loss per share
Basic
$
(0.02
)
$
(0.01
)
$
(0.05
)
(0.08
)
$
(0.36
)
Diluted
$
(0.02
)
$
(0.01
)
$
(0.05
)
(0.08
)
$
(0.36
)
Weighted average shares outstanding
Basic
44,103,635
38,405,005
33,722,846
28,329,640
27,194,159
Diluted
44,103,635
38,405,005
33,722,846
28,329,640
27,206,482
Management Discussion and Analysis
Revenues for the year ended December 31, 2012 and 2011 were 0.
As a result of the foregoing, we had a net loss of approximately $1,595,000, or $0.05 per share (basic and diluted) for 2012 compared to net loss of approximately $2,343,000, or $0.08 per share (basic and diluted), for 2011.
Investor Alert
During the Company’s fiscal years ended December 31, 2009 and December 31, 2008 and the subsequent period through the Dismissal Date: (i) there were no disagreements between the Company and Malone Bailey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures which, if not resolved to Malone Bailey’s satisfaction, would have caused Malone Bailey to make reference in connection with Malone Bailey’s opinion to the subject matter of the disagreement; and (ii) there were no reportable events as the term described in Item 304(a)(1)(iv) of Regulation S-K disclosing that, except as reported on the Company’s Current Report on Form 8-K, filed with the SEC on April 22, 2011, Malone Bailey notified the Company on March 30, 2011 that during Malone Bailey’s revenue and account receivables confirmation process, Malone Bailey discovered that Fujian Union Oil & Chemistry Ltd., allegedly one of the Company’s customers during the fiscal years of 2008, 2009 and 2010, did not conduct transactions with the Company as recorded in the Company’s books. The Company formed an independent committee and conducted a thorough investigation with respect to this matter. Based on such investigation, the committee concluded that the aforementioned transactions were entered into by the Company and a PRC resident who wrongfully presented himself as one of Union Oil’s authorized representatives and the Company recorded the related revenues as received from Union Oil based on those transactions.
On December 1, 2011, the Company provided Malone Bailey with a copy of the disclosures that the Company is making in response to Item 4.01 on this Form 8-K, and has requested that Malone Bailey furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements and, if not, stating the respects in which it does not agree. The Company intends to file such letter from Malone Bailey upon receipt via an amendment to this Current Report.
CFO Trail
On June 17, 2011 , Ms. Jingmei Weng submitted to the Board of Directors (the “Board”) of China Bio-Energy Corp. (the “Company”) her resignation as director and Chief Financial Officer of the Company, which became effective on June 17, 2011. Ms. Weng confirmed that her resignation was not due to any disagreement with the Company. The Company has provided Ms. Weng with a copy of the disclosures it is making in response to this Item 5.02 and has requested Ms. Weng to furnish us as promptly as possible a letter addressed to the Company stating whether she agrees with the statements made in this Form 8-K in response to this Item 5.02 and, if not, to state the respects in which she does not agree. We received a response letter from Ms. Weng which is filed as Exhibit 99.1 herein.
On June 18, 2011, the Board appointed Mr. Ming Yi as director and Chief Financial Officer of the Company to fill the vacancies resulting from Ms. Jingmei Weng’s resignation as director and CFO of the Company.
The biographical information of Mr. Yi is set forth below:
Mr. Yi has extensive experience in finance, business administration and public accounting in diverse industries including retail/wholesale distribution, financial services and manufacturing. Prior to his joining the Company, Mr. Yi served as a senior manager in Qi He Certified Public Accountants Co.Ltd. from September 2009 to April 2011. He worked as a senior accountant in the Assurance & Advisory Business Services department of Ernst & Young LLP from 2007 to 2009 and as an accountant and supervisor in N.G. Australia pty Ltd., an Australian company engaged in hotel and catering business. Mr. Yi received his Bachelor’s degree in Accounting from School of Business Administrations of Liaoning University in 2001. He obtained a Master degree in Accounting and Finance from Victory University, Australia in 2006. Mr.Yi is a Certified Public Account in Australia.
On June 17, 2011, Mr. Ming Yi and the Company entered into an employment agreement which is filed as Exhibit 10.1 to this Current Report (the “Agreement”). The Agreement provides for an initial term of three (3) years and an annual base compensation of RMB 1,088,000 (approximately $168,026). The Agreement also contains a 12 month post-termination non-competition covenant and standard confidentiality provisions. The foregoing summary of the Agreement is qualified in its entirety by reference to the Agreement filed as an exhibit to this Current Report.
Investor Alert
An
email transmitted to the Company by Malone Bailey LLP, the Company’s independent accountant, on March 30 indicated that during Malone Bailey’s revenue and account receivables confirmation process, Malone Bailey discovered that Fujian Union Oil & Chemistry Ltd. (“Union Oil”), allegedly
one of the Company’s customers during the fiscal years of 2008, 2009 and 2010, did not conduct transactions with the Company as recorded in the Company’s books . The aforementioned transactions were entered into by the Company and a PRC resident who presented himself as one of Union Oil’s authorized representatives and conducted business under the name of Union Oil. Based on those transactions, the Company recorded the related revenues. In the fiscal years of 2008, 2009 and 2010, the Company recorded sales revenues associated with “Union Oil” of approximately $0.6 million, $0.6 million, and $2.45 million respectively, which comprised approximately 7%, 4% and 8% of our annual revenues for each such fiscal year, respectively. Our Chairman of the Board, Mr. Xinfeng Nie, had been the sole contact person with this customer. As a result, Mr. Xinfeng Nie submitted to our Board of Directors on April 6, 2011 his resignation as Chairman of the Board, which was accepted by our Board on April 6, 2011 and will become effective on May 1, 2011.
Investor Alert
On March 30, 2011, China Bio-Energy Corp. received notice from Malone Bailey, the independent auditor of the Company, that it has
discovered accounting irregularities in the books and records of the Company during its annual audit process. In addition, Malone Bailey recommended to management of the Company that appropriate steps be taken by the Company to conduct an independent investigation with respect to such irregularities and the Company’s record keeping and financial reporting processes.
Auditor trail
On February 17, 2011, the Board of Directors of China Bio-Energy, formerly known as China INSonline Corp., in connection with the Company’s recent acquisition of Ding Neng Holdings Limited (“Ding Neng Holdings”), approved the dismissal of Friedman LLP , as the Company’s independent auditor, effective as of February 17, 2011.
During the Company’s fiscal year ended June 30, 2010, Friedman’s audit reports on the Company's financial statements did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except that Friedman’s audit report on the Company’s June 30, 2010 audited consolidated financial statements contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.
Concurrent with the decision to dismiss Friedman as the Company’s independent auditor, the Board of Directors of the Company elected to continue Ding Neng Holdings’ existing relationship with Malone Bailey, LLP (“Malone”) and appointed Malone as the Company’s independent auditor on February 17, 2011.
Reverse Merger Activity
On February 10, 2011 Ding Neng Bio-tech became a public entity via a
reverse merger transaction .
Company Snapshot:
engaged in the production, refinement and distribution of biodiesel fuel
Industry Snapshot:
China’s biodiesel industry is still in its infancy stage and dominated by small-scale operators using animal fats or used cooking oil as feedstock. In 2007, there were more than 2,000 biodiesel production plants in China, most of which were small scale producers making between 100 to 20,000 metric tons (“MT”) per year. However, the prospect of government support is attracting larger market entrants as well as foreign investment. Compared with the ethanol sector, the biodiesel industry is largely unregulated and there is significant involvement from the private sector.
The increase in biodiesel production in China is fueled by China’s rapid economic growth, which requires ever increasing use of transport fuel, estimated to grow at an annual rate of 5.1% through 2030. China now imports more than 50% of the oil products it consumes. The Chinese National Bureau of Statistics predicts that by 2020 it will import more than 60% of its oil. For reasons both economic and strategic, the PRC government has committed itself to increasing the supply of non-petroleum based transportation fuel in order to reduce its dependence on foreign oil. To date, ethanol has been the greatest beneficiary of this policy as it was the first mover in the Chinese biofuel industry, but ethanol competes with food supply for its feedstock, and the government has also placed a high priority on independence in food supply. As a result, the expansion of ethanol plants has been restricted. However, biodiesel has more feedstock options that do not compete with food supply (although it may compete for arable land in some places), and is often made from food refuse. Base on those characteristics, biodiesel is expected to enjoy a larger market share in the Chinese biofuel market in the near future.
During the past decade, the Chinese government has launched a series of policy initiatives in support of the biofuel market. In 2005, the Standing Committee of the National People’s Congress passed “The Renewable Energy Law of the People’s Republic of China”. The legislation aims to “promote the development and utilization of renewable energy, improve the energy structure, diversify energy supplies, safeguard energy security, protect the environment and realize the sustainable development of the economy and society.” This legislation states that fuel retail businesses must begin to include “biological liquid fuel”, or biofuels, in their enterprises or they will be fined.
Post Merger Share Calculation :
1,150,000: Pre reverse merger outstanding shares (Adjusted for a 1 for 40 reverse stock split)
25,875,000: Newly issued shares of Common Stock
GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions: 27,025,000
Financial Snapshot: December Year End
2009 vs. 2008
Revenues:$15.3 million vs $9.4 million
Net Income: $2.1 million vs. $1.2 million
Nine Months 2010 vs 2009
Revenues: $24.4 million vs. $11.5 million
Net Income: $6.2 million vs. $1.8 million
Pro Forma Valuation : using current price of $2.50 and new share count
Trailing EPS: $0.20
Trailing P/E: 12.3
Comments & Business Outlook
Our Growth Strategy
Increase manufacturing, sales and distribution capabilities through potential acquisitions and organic growth;
Enhance R&D efforts to improve biodiesel production technology and efficiency and to develop new biodiesel products (such as solid bio-fuel and other specialty bio-fuels);
Continue to search for and develop alternative feedstock (such as microalgae) to enhance the availability of raw materials; and
Strengthen relationships with key suppliers.
Reverse Merger Activity
On November 12, 2010, China INSOnline Corp. entered into a Share Exchange Agreement with Ding Neng Holdings Limited, a British Virgin Islands holding company (“Ding Neng Holdings”), which owns (i) 100% of Ding Neng Bio-technology Co., Limited, a Hong Kong company, which owns (ii) 100% of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd., a foreign investment enterprise organized under the laws of the People’s Republic of China, or PRC, and which has, through various contractual agreements (VIE) , management control and the rights to the profits of Fujian Zhangzhou Dingneng Bio-technology Co., Ltd., a corporation organized under the laws of the PRC, which engages in the production, refinement and distribution of bio-diesel fuel in southern China. The Share Exchange Agreement provides for an acquisition transaction in which the Company through the issuance of shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition, will acquire 100% of Ding Neng Holdings. Ding Neng Holdings indirectly owns 100% of the outstanding capital stock of Fuhua, which has, through various contractual agreements (VIE) , management control and the rights to the profits of Ding Neng Bio-tech and establishes Ding Neng Bio-tech as a variable interest entity, with Fuhua as the beneficiary.
In addition to the Acquisition, the Share Exchange Agreement requires that a reverse stock split precede the completion of the Acquisition. The reverse stock split is primarily because the NASDAQ Stock Market has indicated that based on the Company’s lack of business operations, it is categorized as a “public shell.” Based on this status, the post-acquisition entity must meet the initial listing requirements of the NASDAQ Capital Market which requires a minimum bid price of $4.00 per share. To assist the post-acquisition entity in meeting this minimum bid requirement, the Company will effect a reverse stock split of a ratio between 1:20 and 1:40 prior to the consummation of the Acquisition.
Deal Flow
Dingneng Bio-Technology Co. Ltd. (“Dingneng”) has
retained Maxim Group (“Maxim”), a New York based investment banking, securities and investment management firm to represent Dingneng in the previously announced transaction to acquire common shares of CHIO through merger, direct exchange or any other form in one or a series of mutually agreed upon transactions. CHIO is currently working closely with Maxim and other professionals to proceed forward on such proposed transaction.
Investor Alert
During the quarter ended June 30, 2010, the Company began winding down its operations . During the fourth quarter ended June 30, 2010, the Company did not have any operating income. The weak economic market, which resulted in a significant decline in revenues of all areas of the Company’s business, led to the Company’s decision to wind down its operations. Thus, the Company currently has no business operations and is considered a shell company. Management is currently looking to either sell shares of the Company to a third party through a reverse acquisition or complete a business combination or other similar transaction.
