form8k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
AXIOM
III, INC.
(Exact
Name of Registrant as Specified in Charter)
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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c/o
Eastern Concept Development Ltd.
Room
1701, 17/F, Henan Building
90
Jaffee Road, Wanchai
Hong
Kong SAR of the People’s Republic of
China
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(Address
of principal executive offices)
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Registrant’s
telephone number, including area code:
852-6873-0043
2341
Boston Road
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(Former
name or former address, if changed since last
report)
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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¨
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 DFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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¨
Pre-commencement
communications pursuant to Rule 13e-4 (c) under the Exchange Act
(17 CFR
240.13e-4(c))
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CURRENT
REPORT ON FORM 8-K
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Page
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Item
1.01.
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Entry
into a Material Definitive Agreement
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3
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Item
2.01.
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Completion
of Acquisition or Disposition of Assets
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3
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Share
Exchange Agreement
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3
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Organizational
Charts
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4
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5
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Description
of Axiom III’s Business
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6
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Description
of the Business of Eastern Concept
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6
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Management’s
Discussion and Analysis or Plan of Operations
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11
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Risk
Factors
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14
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Security
Ownership of Certain Beneficial Owners and Management
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19
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Directors
and Executive Officers
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19
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Executive
Compensation
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Certain
Relationships and Related Transactions
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Description
of Securities
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Item
5.02.
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Departure
of Directors or Principal Officers; Election of Directors; Appointment
of
Principal Officers
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Item
5.06.
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Change
in Shell Company Status
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23
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Item
9.01.
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Financial
Statements and Exhibits
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23
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Item
1.01 Entry into a Material Definitive
Agreement
Item
2.01 Completion of Acquisition or Disposition of
Assets
Share
Exchange Agreement
Introduction
In
this
transaction, Axiom III, Inc., a Nevada corporation (“AXIO”), and registrant
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), entered into a Share Exchange Agreement (the “Agreement”)
on October 10, 2007, between and among the AXIO, Duane Bennett, the Chief
Executive Officer and sole Director of AXIO (“Bennett”), Eastern Concept
Development Ltd., a corporation organized and existing under the laws of the
Hong Kong Special Administrative Region of the People’s Republic of China
(“Eastern Concept”), Mr. Benny Lee, the sole shareholder of Eastern Concept
(“Eastern Concept Shareholder”), Foshan Wanzhi Electron S&T Co., Ltd., a
corporation organized under the laws of the People’s Republic of China
(“Foshan”),and Jun Chen, the representative of the shareholders of Foshan
(“Foshan Shareholders”). Subsequently, Eastern Concept Corporate Consulting
(Shenzhen) Limited, a company organized and existing under the laws of the
People’s Republic of China and a wholly owned subsidiary of Eastern Concept
(“Eastern Concept Consulting”), entered into a Share Exchange Agreement, dated
November 6, 2007, with the shareholders of Foshan pursuant to which the
shareholders of Foshan agreed to exchange 100% of the share capital of Foshan
for a purchase price of approximately $1.3 million. The share exchange
transaction was consummated on November 9, 2007, and, as a result, Foshan became
a wholly owned subsidiary of Eastern Concept Consulting. This Current Report
on
Form 8-K contains the disclosure with respect to Foshan required by Form 10-SB
and a full audit of the financial statements of Foshan as well as pro forma
financial information with respect to AXIO and Foshan, all as required by Item
9.01 of Form 8-K. The Share Exchange Agreement is filed as Exhibit 2.2 hereto
and is incorporated herein by reference.
The
Agreement
AXIO,
Bennett, Eastern Concept, the Eastern Concept Shareholder, Foshan and the Foshan
Shareholders entered into the Agreement pursuant to which AXIO agreed to acquire
from the Eastern Concept Shareholder one hundred percent (100%) of all of the
issued and outstanding share capital of Eastern Concept (the “Eastern Concept
Share Capital”), in exchange for 35,351,667 shares of common stock of AXIO, or
70.7% of the total 50,000,000 issued and outstanding shares of common stock
of
AXIO after giving effect to the share exchange. As additional consideration,
the
Eastern Concept Shareholder agreed to pay $262,500 to the Northeast Nominee
Trust, which is the majority shareholder of AXIO. Bennett is the trustee of
the
Northeast Nominee Trust, whose corpus is held for the benefit of his children.
The Share Exchange Agreement is attached as Exhibit 2.1 hereto, and incorporated
by reference herein.
In
addition, pursuant to the terms and conditions of the Agreement:
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The
parties to the Agreement agreed that AXIO shall not consummate a
reverse
stock split or any similar reclassification or combination of its
common
stock for a period of one year from October 1,
2007.
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Bennett
and the Northeast Nominee Trust agreed to execute and deliver to
Eastern
Concept a Leak-Out Agreement which limits the ability of Bennett
and the
Northeast Nominee Trust to sell any portion of the 1,000,000 share
block
of AXIO common stock retained by Bennett as part of the transaction
for a
period of one year from the date thereof in excess of 10,000 shares
per
day on an absolute basis.
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On
the Closing Date, the Registrant paid and satisfied all of its
“liabilities” as such term is defined by U.S. GAAP as of the
closing.
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As
a
result of the exchange of a majority of AXIO’s common stock for all of the share
capital of Eastern Concept, the Eastern Concept Shareholder and his designee
have acquired majority control of the outstanding common stock of AXIO and
have
appointed their candidate to the Board of Directors at closing. The existing
director will continue to serve and will resign in compliance with Rule 14f-1
of
the Exchange Act. It is worth noting that Karol Kapinos had earlier
resigned from his position as a director of the Registrant, and Lawrence Nault
had earlier resigned from his position as President of the Registrant. Bennett
continued as a Director and was appointed as Chief Executive Officer of the
Registrant. A Form 8-K reporting these management changes was filed with the
Commission on October 11, 2007.
As
of the
Closing, Benny Lee was appointed as a Director, to serve together with Bennett,
and he was appointed to the offices of Chief Executive Officer, Chief Financial
Officer and Secretary of the Registrant. At Closing, Bennett resigned his office
as Chief Executive Officer and resigned his position as a director effective
upon the expiration of the ten day period after a Schedule 14F-1 has been mailed
to shareholders of record. Accordingly, the new Board of Directors consists
of
Mr. Benny Lee, as the sole director.
As
of the
date of the Agreement there are no material relationships between the Registrant
and any of its affiliates and Eastern Concept or Foshan, other than in respect
of the Agreement.
The
foregoing description of the Agreement does not purport to be complete and
is
qualified in its entirety by reference to the complete text of each such
agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by
reference.
Subsequent
to the closing under the Agreement, Eastern Concept Consulting entered into
a
Share Exchange Agreement, dated November 6, 2007, with the shareholders of
Foshan pursuant to which the shareholders of Foshan agreed to exchange 100%
of
the share capital of Foshan for the purchase price of approximately $1.34
million. The share exchange transaction was consummated on November 9, 2007,
and, as a result, Foshan became a wholly owned subsidiary of Eastern Concept
Consulting. This Current Report on Form 8-K contains the disclosure with respect
to Foshan required by Form 10-SB and a full audit of the financial statements
of
Foshan as well as pro forma financial information with respect to AXIO and
Foshan, all as required by Item 9.01 of Form 8-K. The Share Exchange Agreement
is filed as Exhibit 2.2 hereto and is incorporated herein by
reference.
As
used
in this Current Report on Form 8-K, all references to the “Company,” “we,” “our”
and “us” for periods prior to the closing of the Agreement refer to Foshan, and
references to the “Company,” “we,” “our” and “us” for periods subsequent to the
closing of the Agreement refer to the Registrant and its subsidiaries.
Information regarding AXIO, and Eastern Concept and Foshan, and the principal
terms of the transactions consummated hereby are set forth below.
Organizational
Charts
Set
forth
below is an organization chart of the entities that existed prior to the closing
of the Agreement and after the closing.
Before
Closing
After
Closing
Description
of Axiom III’s Business
Overview
AXIO
originally incorporated in Massachusetts as Axiom First Corporation on May
22,
2003. Northeast Nominee Trust owned 100% of Axiom First Corporation. AXIO also
created a second corporation, Axiom Second Corporation, which was also
incorporated in Massachusetts on May 22, 2003. Axiom First owned, and continues
to own, 100% of its subsidiary, Axiom Second Corporation. The next month, on
June 12, 2003 director Bennett deeded to Axiom Second Corporation the property
located at 80 Cochran Street in Chicopee, Massachusetts. In June 2004, AXIO
incorporated Axiom III, Inc., a Nevada corporation. By agreement dated June
30,
2004, Northeast Nominee Trust entered into a share exchange with Axiom III,
Inc., in which the trust exchanged its 100% ownership in Axiom First Corporation
for 2,500,000 shares of Axiom III, Inc., and Axiom III, Inc. assumed 100%
ownership of Axiom First Corporation and its subsidiary.
AXIO
is a
development stage company and currently owns one apartment building in Chicopee,
Massachusetts, near Springfield in western Massachusetts. It had planned to
continue in this line of business for the foreseeable future. However, the
opportunity to consummate a reverse merger with Eastern Concept came along
and
the sole Director of AXIO deemed this to be in the best interests of
shareholders. AXIO is currently authorized to issue 50,000,000 shares of common
stock and 5,000,000 shares of preferred stock. It currently has 14,648,333
shares of common stock, and no shares of preferred stock issued and
outstanding.
Description
of the Business of Eastern Concept
All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Agreement refer to Foshan, and references to the “Company,” “we,”
“our” and “us” for periods subsequent to the closing of the Agreement refer to
the Registrant and its subsidiaries.
Introduction
to the Business of Eastern Concept
Eastern
Concept was incorporated in Hong Kong with limited liability on June 29, 2007
with 10,000 authorized shares with a par value of HK$1. On incorporation, one
share of HK$1 each was issued at par for cash to provide initial working capital
for the Company. The Company is in the development stage and has not yet
commenced operations. It was capitalized at $1.36 million in cash and cash
equivalents for the purpose of making an acquisition of Foshan.
Eastern
Concept, through its wholly owned subsidiary, Eastern Concept Consulting, has
consummated an agreement to make an acquisition of the 100% of the share capital
of Foshan Wanzhi Electron S&T Co., Ltd., a corporation organized and
existing under the laws of the People’s Republic of China, from the Foshan
Shareholders. Item 9.01 of Form 8-K would require an audit of the operations
of
Foshan, together with disclosure at the Form 10-SB level about the operations
of
Foshan. What follows is the disclosure required by Form 8-K.
Introduction
to the Business of Foshan
Foshan
is
principally engaged in providing smart card payment systems and related
value-added services mainly in the Guangdong province of the People’s Republic
of China. Foshan is a “non-bank” card issuer/operator with support from the
municipal government and approval from the People’s Bank of China to collect
deposits as prepayment stored in the chip embedded in the card.
The
audited financial statements of Foshan are set forth in Exhibit 99.1 hereto.
They have been audited by Mazars CPA Limited attached to the financial
statements is a copy of the report of Mazars thereon.
Foshan
was founded in 2005 by Mr. Li Xinhao, an entrepreneur from Foshan, Guangdong
Province in the People’s Republic of China. He is committed to integrated smart
card business operations with the AIOMS Card. Foshan’s mission is to provide
people with a lifestyle of convenience, applicability and point accumulation
loyalty programs. The management team at Foshan is determined to build its
operations into one of the leaders in the AIOMS Card market.
Foshan
is
a successful operator of All-in-One Municipal Service Cards (AIOMS Card). The
AIOMS Card has a built-in microchip containing an electronic purse and other
applications which can accurately record the holder’s transaction details.
Examples of the usages of AIOMS pre-store value Cards include, but are not
limited to, the following: VIP shopping cards, prepaid phone cards, municipal
travel cards, student security cards, corporate employee cards and lottery
sales
cards.
Currently,
Foshan has approximately 400,000 student card users, 250,000 corporate card
users and three million VIP merchant card users.
Foshan
has opened branches in the cities of Guangzhou, Foshan, Shenzhen, Dongguan,
Huizhou and Maoming within Guangdong Province, and has signed a contract to
open
branches in other major cities in China. It currently has 20 card equipment
and
software development staff members, five industrial service integration and
management personnel, 20 business and customer service personnel, and 40
technical representatives.
Since
its
establishment, Foshan has experienced significant growth in the market. With
rising demand for its products and services, Foshan intends to expand its
business scope to facilitate further expansion.
Detail
of Foshan’s Operations
Foshan
is
principally engaged in providing smart card payment systems and related
value-added services through the operation of the AIOMS Card. Each AIOMS card
has a built-in microchip containing an Electron S&T purse and other
applications which can accurately record the holder’s transactions details. The
government issues unique operating licenses of the all-in-one municipal cards
for the operator of each major city. Based on the current operating license
of
the AIOMS card in the city of Foshan, Foshan aims to build a clearance payment
and management system for the AIOMS cards as well as to offer value added
services including the fixed and mobile information channels.
Foshan
currently has approximately 400,000 student card users, 250,000 corporate card
users and 3 million VIP merchant card users. It generates revenue from merchant
discounts offering; prepaid card fees; and interest on stored value of the
AIOMS
cards. The AIOMS cards consist of 5 major operating areas of products and
services, they include:
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Government
services: offer payment services of social security; medical; government
reimbursement and transfer for applicable government
services;
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Municipal
utilities services: offer payment services of public transportation;
library and cultural facilities; and other public
services;
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E-money
services: offer petty Electron S&T payment services for
expenditures in merchant stores; fast food stores; and other available
member merchants;
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Data
providing services: offer database of services and consumption
patterns of users for analyzing effective consumer behaviors; offer
information distribution services such as SMS; email; website information
to targeted users according to businesses and institutions’
preferences.
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Value-added
services: offer specific services such as employee cards which allow
internal wage settlement, shopping payment and remote remittance;
student
cards which stores student academic results as well as government
subsidized assistances; and sales agent which includes prepaid phone
cards, game cards, and lottery
tickets.
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How
much Foshan Sells
Our
net
sales to unaffiliated customers for the fiscal year ended December 31, 2006
were
approximately $190,570, and for the six months ended June 30, 2007 were
approximately $304,057. All operating revenues were generated from providing
services of our smart card system to various third parties.
Where
Foshan Does Business
Currently,
Foshan operates its AIOMS card payment system and related value-added services
from its headquarter in Nanhai District, Foshan City, Guangdong Province, the
PRC, with population of over 7 million. There are several smart card operators
in China and the government intends to designate one operator in each of the
major cities. Existing operators include the ones in the cities of
Guangzhou; Zhuhai; Shanghai and Beijing.
Where
Foshan is Headed
Our
strategies for achieving continued success include:
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Acquire
operating licenses for other AIOMS card from the government in other
major
cities with no current operators, including targeted city of
Dongguan;
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Merge
and acquire existing AIOMS card businesses from current operators,
including the Guangzhou operator;
and
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Acquire
related value-added services businesses so as to provide turnkey
services
for card users.
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Revenue
forecast for the next three years
Revenue
generated from the AIOMS cards for the next three years are forecast to
be:
Foshan’s
sources of revenues
The
revenues of our AIOMS Cards operations will come from increased card usage
and
the development of new types of cards for sale. Additional sources including
the
following:
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Commissions
from petty payment and settlement for the citizen
cards;
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Monthly
maintenance fees from the student
cards;
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Commissions
from shopping and transfer services from the employee
cards;
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Commissions
from petty payment and settlement for the municipal travel
cards;
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Commissions
from consumption activities of the VIP merchant cards;
and
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Income
from providing database of consumption patterns to businesses and
institutions.
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Factors
that affect sales volumes for AIOMS cards include:
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World
gross domestic product growth
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Number
of AIOMS card operators acquired
and
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Development
of additional value-added services
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Factors
that affect the prices for AIOMS cards include:
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World
economic environment
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Relative
strength of the Chinese RMB
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Quality
of services provided
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Abundancy
of services provided
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Analysis
of the Markets
for Smart Cards and AIOMS Cards
Smart
cards, which are intended primarily for electronic payment and identification
purposes, are being used in a wide range of fields, particularly the public
transportation sector, and have become an important hi-tech means to facilitate
the development of urban transportation fee collections and management of
municipal infrastructure service sectors. Thanks to superb capabilities in
moving object identification and processing of non-contact integrated circuit
cards (“IC card”), the all-in-one public transportation card system has become
the largest application of non-contact cards. With the continued development
of
technologies, standards and applications/products, the all-in-one public
transportation card system, primarily through the means of non-contact cards,
has been thriving in China.
In
early
1998, the non-contact IC card based (including magnetic cards) automatic ticket
checking system was employed in the number 1 and 2 subway line in Shanghai.
This
proved to be a successful application of non-contact IC cards in the urban
rail
transportation sector. In the same year, the LEGIC non-contact IC traffic system
was deployed in Shenzhen and resulted in similar successes.
In
view
of the characteristics of the municipal traffic management systems in China
and
the applications of non-contact IC cards, the Chinese government has made great
efforts to integrate resources for public transportation infrastructure
development, construction, operation and management sectors. As a matter of
fact, the real purpose of municipal all-in-one cards is to allow reasonable
allocation and integration of the valuable resources in the public
transportation management and operation sectors, and to keep the public
transportation IC card payment system under the macro-control of the government.
While trying to do more with less, it is seeking to allow citizens (i.e., the
end users) to share the benefits of the all-in-one card system with the lowest
possible cost. The deployment of all-in-one card systems can also
comprehensively improve the management and service standards of the public
transportation sector.
So
far,
all-in-one municipal transportation card systems or the AIOMS cards have been
deployed or are being deployed in a number of major cities, including Shanghai,
Beijing, Guangzhou, Shenzhen, Dalian, Wuhan, Nanjing, Tianjin, Shenyang and
Foshan. There are also many smaller cities that are planning to deploy or have
deployed the AIOMS Card. Notably, with approximately 6 million cards issued
and
with coverage across all public transportation, subway, taxi and ferry sectors,
the AIOMS Card in Shanghai represents the most significant application of this
technology in providing guidance of operations in other cities.
The
well
regarded AIOMS Card is the Octopus system operating in Hong Kong, which has
proven to be a very successful case for the application, operation and
management. In Hong Kong, 13 million cards have been issued, totaling an annual
transaction volume of HKD 25 billion. The system is extensively used for payment
and petty-expenditures in the urban railway and public transportation sectors.
The Octopus system is today the primary payment means of Hong Kong citizens
for
public transportation services. In the meantime, the extensive use of pre-paid
cards (over 70% in the urban rail traffic sector) has greatly reduced the use
of
one-way tickets, substantially saving operation and management costs for the
system.
Worldwide,
all-one-one municipal transportation card systems have been deployed in
Singapore, London, Rome, Seoul/Pusan, Tokyo and a number of other cities.
Particularly in Singapore and Seoul/Pusan, the all-one-one municipal
transportation card system is being used on extremely large scales. The Octopus
system and other successful AIOMS Card systems around the world all share many
similarities, including: 1) they all started in the urban rail transportation
sector and later expanded into the public transportation system; 2) they all
attached significant importance to the settlement system, card issuance,
pre-payment deposit system and, particularly, the service functions of the
all-in-one card systems; and 3) they have been able to achieve an overall
balance of economic and social benefits for owners and operators of the systems
through market-oriented measures.
Competition
The
competition of the all-in-one municipal card industry in China is mainly derived
from the ability of acquiring operation licenses and attracting of clients
of
value-added services. Currently in the Chinese market, the management believes
that there is no other company implementing a similar AIOMS Card operation
model
as that of Foshan. However, a number of larger players are beginning to try
out
in the sector, and competitors are thus emerging, including:
1) AIOMS
Card operator -- Yangchengtong
Yangchengtong
in Guangzhou is engaged in the all-in-one public transportation card business
and its most distinct advantage is its large user base. However, it has notable
vulnerabilities due to limitation of historical corporate infrastructure, which
results in the inability of transforming its citizen cards into inscribed cards
for intra-industries operation. The company has experienced weak
performance in the past and is unable to make a desirable profit.
2) Jiaxiaotong
operators
While
electronic payment is stymied by a number of challenges in the municipal service
sector that is dominated by the “all-in-one public transportation cards,” the
“all-in-one education card”-dominated education payment sector is on the fast
track, due mainly to the support of government policies and market demands.
There are a large number of such operators nationwide. Most of these operators
are derived from companies formerly engaged in developing the IT structure
of
the education sector, and they maintain their advantages in terms of experience
in the education industry. However, with a vision limited to their existing
industry, they have not been able to obtain AIOMS Card operation licenses,
not
to mention crossing over the threshold of the overall capability needed for
the
operation of the AIOMS Card. Currently, most of these operators are
still making losses or are barely profitable. In view of their scales
and resources, no integrated operator with a similar communication, financial
and payment operation to that of Foshan is in the market or is expected to
emerge in the near future. This situation provides Foshan with abundant user
resources and valuable market opportunities.
3) Industry
leaders
With
the
expansion of the “all-in-one education card” in the municipal service card
sector, many industry leaders are incorporating the service into their core
business through cooperation programs. The service development experienced
of
Foshan shows that China Mobile, China Telecom and China Unicom have approved
“all-in-one education card” operators as the key content providers for their SMS
services. In the meantime, mainstream operators in both the telecom
and the cable broadband industries have accepted the “all-in-one education card”
as their key content provider partners. Industrial and Commercial Bank of China
and Bank of China view the smart student card operators in the “all-in-one
education card” sector as their core industrial partners. After the
implementation of pilot projects in initial stages, these industrial leaders
have found their own vulnerabilities in terms of industrial experience and
resource restrictions, and are turning towards cooperation with industrial
chains. They therefore pose little competitive threat.
Competitive
Advantages and Strategy
The
Company believes that its product formulations, price points, relationships,
infrastructure, proven quality control standards, and reputation represent
substantial competitive advantages. In particular, as compared with existing
rival products and services in the market, Foshan’s products have a number of
advantages:
1)
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Industrial
advantages: in addition to using the same municipal card license
that many
companies in the industries hold, Foshan also has card application
development and services experience, which have differentiated Foshan
from
its -rivals. In addition to the petty payment settlement
platform, Foshan also offers a portfolio of educational, medical,
business, and merchant service products, which most of its rivals
do
not. In general, Foshan holds distinct advantages in terms of
card management and operation, value-added services, and comprehensive
product series.
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2)
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Service
advantages: By leveraging the global service structure of Chigo Group
which is owned by a majority shareholder of Foshan, Foshan has established
an extensive service network that guarantees long-term stable
operations;
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3)
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Current
partners advantages:
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Chigo
Group (based in Guangdong Province): a well-known brand in the home
electrical appliance industry, with a well-established after-sales
service
network across China and other countries; the core partner of
Foshan;
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Watsons:
the popular chain store of Hutchison Whampoa, a listed company on
the Hong
Kong Stock Exchange, and a data service client of Foshan; has provided
Foshan with a database of more than 5 million VIP
customers;
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China
Unicom Foshan City Branch: our quality service provider and a long-term
strategic partner;
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China
Mobile Foshan City Branch: a long-term strategic partner;
and
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China
Telecom Foshan City Branch: a long-term strategic
partner.
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In
comparison to Chinese competitors, the Company believes it possesses superior
technological expertise, products, marketing knowledge, and global
relationships.
Growth
Strategy
The
Company’s vision is to become one of the market leaders in the AIOMS Card
Industry which offers superior value-added services for card users. Management
intends to grow the Company’s business by pursuing the following
strategies:
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Grow
capacity and capabilities in line with market demand
increases
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Enhance
leading-edge technology through continuous innovation, research and
study
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Continue
to improve operational efficiencies and use of nearly all technical
advantages.
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·
|
Further
expand into higher value-added segments of the smart card
industry.
|
·
|
Build
a strong market reputation to foster and capture future growth in
China.
|
Existing
Facilities
Foshan
is
located at Feng Gang Road, Lishui, Nanhai District, Foshan City, Guangdong
Province, the People’s Republic of China, with a total office space of
approximately 9,000 square feet.
Sales
and Marketing
Foshan
has a current sales and marketing force of 20 personnel, whom are reported
to
Foshan’s headquarter in Nanhai District, Foshan City and are designated to our
consumers’ offices from time to time for after-sales support. Foshan’s marketing
strategy is to explore applications for specific regions and industries as
follows:
1)
|
In
the education industry, Foshan is going to leverage on the government
policy and adopt a business model of low profit margin to supply
and
provide free equipment as well as equity investment to expand our
customer
base in the all-in-one education card sector. Correlating with
the new curriculum reform and the college enrollment examination
system
reform, we are going to cooperate with industrial leaders to a) expand
our
portfolios with applications for student performance assessment and
general performance assessment, b) increase the scope of education
services and to improve the loyalty program of all-in-one education
card
users; and c) solidify our leadership in the all-in-one education
card
sector;
|
2)
|
Foshan
based on its existing operations in the student card sector to expand
its
business into a number of other sectors, including transportation,
retail,
cultural and medical, and to promote the development and operation
of
AIOMS Cards through building up of industrial
applications;
|
3)
|
We
will develop and expand the customer base for electronic payment
and issue
a “Minhang Card”, a high-end electronic payment card for municipal
services through collaboration with communication operators including
China Mobile, China Telecom and China Unicom, and financial companies
including MasterCard, Bank of China and Industrial and Commercial
Bank of
China, as well as commercial players including Watsons and Chigo.
Eventually, we will be able to deliver high-margin electronic payment
products to enable interaction of high-quality resources and integration
of services;
|
4)
|
We
will leverage on the business opportunities of the 2008 Beijing Olympic
Games and the 2010 Guangzhou Asian Games to expand the scope of AIOMS
Card
and penetrate additional regions in the near
future.
|
Intellectual
Property
Foshan
owns the operating right from the Chinese government for the all-in-one
municipal smart card system in Foshan City, Guangdong Province, the People’s
Republic of China.
Customers
For
the
twelve month period from January 1, 2005 through December 31, 2006, the Company
achieved revenues of $190,570. During the same time period, the Company’s top
five customers – ranked by the sales amount sold to each customer – contributed
$190,570 in revenues. The following table depicts the top five customers for
the
twelve-month period from January 1, 2006 through December 31, 2006.
Name
of Customer
|
|
Sales
|
|
%
of Total Sales
|
Guangzhou
Watson’s
|
|
$68,261
|
|
35.82%
|
Guangzhou
Southern Polytechnic University
|
|
$67,801
|
|
35.58%
|
Guangdong
Zhi Gao Air Conditioning CO. Ltd.
|
|
$41,278
|
|
21.66%
|
Dongguan
Waiting Lounge
|
|
$7,655
|
|
4.02%
|
Foshan
Nanhai Guijiang First Secondary School
|
|
$5,575
|
|
2.92%
|
Regulation
The
Company is subject to regulation by both the PRC central government and by
local
government agencies. Since its inception, the Company has been in
compliance with applicable regulations.
All
all-in-one municipal smart card operators are required to have operating
licenses for the operating right in designated cities in the People’s Republic
of China.
Legal
Proceedings
Foshan
is
not aware of any significant pending legal proceedings against it.
Property
Foshan
does not own any real property. As mentioned above, it leases
approximately 9,000 square feet of office space in Foshan
City.
Employees
Foshan
has 45 full time and 40 part time employees.
Forward-Looking
Statements
This
Current Report on Form 8-K contains forward-looking statements. To the extent
that any statements made in this Report contain information that is not
historical, these statements are essentially forward-looking. Forward-looking
statements can be identified by the use of words such as “expects,” “plans,”
“will,” “may,” “anticipates,” believes,” “should,” “intends,” “estimates,” and
other words of similar meaning. These statements are subject to risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties are outlined in
“Risk Factors” and include, without limitation, AXIO’s ability to raise
additional capital to finance its activities; the effectiveness, profitability,
and the marketability of its products; legal and regulatory risks associated
with the Agreement; the future trading of the common stock of AXIO; the ability
of AXIO to operate as a public company; its ability to protect its proprietary
information; general economic and business conditions; the volatility its
operating results and financial condition; its ability to attract or retain
qualified senior management personnel and research and development staff; and
other risks detailed from time to time in its filings with the SEC, or
otherwise.
Information
regarding market and industry statistics contained in this Report is included
based on information available to AXIO that it believes is accurate. It is
generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. AXIO has not reviewed
or
included data from all sources, and cannot assure investors of the accuracy
or
completeness of the data included in this Report. Forecasts and other
forward-looking information obtained from these sources are subject to the
same
qualifications and the additional uncertainties accompanying any estimates
of
future market size, revenue and market acceptance of products and services.
AXIO
does not undertake any obligation to publicly update any forward-looking
statements. As a result, investors should not place undue reliance on these
forward-looking statements.
Management’s
Discussion and Analysis or Plan of Operations
All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Agreement refer to Eastern Concept, and references to the
“Company,” “we,” “our” and “us” for periods subsequent to the closing of the
Agreement refer to the Registrant and its subsidiaries.
The
following discussion highlights the principal factors that have affected our
financial condition and results of operations as well as our liquidity and
capital resources for the periods described. This discussion contains
forward-looking statements. Please see “Special cautionary statement concerning
forward-looking statements” and “Risk factors” for a discussion of the
uncertainties, risks and assumptions associated with these forward-looking
statements. The operating results for the periods presented were not
significantly affected by inflation.
Company
Overview
Foshan
is
principally engaged in providing smart card payment systems and related
value-added services mainly in the Guangdong province of the People’s Republic
of China. Foshan was founded in 2005 by Mr. Li Xinhao, an entrepreneur from
Foshan, Guangdong Province in the People’s Republic of China. He is committed to
integrated business operations with the AIOMS Card, also known as the All-in-One
Municipal Service Card. AIOMS Cards include, but are not limited to, the
following: VIP shopping cards, prepaid phone cards, municipal travel cards,
student cards, corporate employee cards and lottery sales cards. Foshan is
a
successful operator of All-in-One Municipal Service Cards (AIOMS
Card). Currently, Foshan has approximately 400,000 student card
users, 250,000 corporate card users and 3 million VIP merchant card
users.
The
MD&A discussion set forth below is based on the audited financial statements
of Foshan as of June 30, 2007, December 31, 2006 and December 31, 2005 and
the
related consolidated statements of operations, shareholders' equity and cash
flows for the six months ended June 30, 2007, the year ended December 31, 2006
and the period from November 4, 2005 (date of incorporation) to December 31,
2005. A copy of these financial statements is attached as Exhibit 99.1
hereto.
Six
Months Beginning on January 1, 2007 and Ending on June 30,
2007.
Revenues:
|
$304,057
|
Cost
of Service Rendered:
|
$189,698
|
General
and Administrative Expenses:
|
$40,473
|
Income
from Operations:
|
$73,886
|
Interest
and Sundry Income:
|
$815
|
Income
Before Taxes:
|
$74,701
|
Net
Profit:
|
$54,851
|
Liquidity
and Capital Resources
As
of
June 30, 2007, cash and bank balances totaled $185,946.
The
negative working capital during the period was $(213,403), comprised of cash
and
bank balances of $185,946, trade receivables from third parties of $27,421,
trade receivable from a related party of $21,481, prepayments and deposits
of
$4,584, income tax recoverable of $5,898 and inventories of $18,701, less trade
payables to third parties of $37,170, accrued charges and other payables of
$295,515, amounts due to related parties of $16,544 and temporary receipts
of
$128,205. Net cash provided by operating activities during the period amounted
to $134,696. Net cash provided by investing activities amounted to $60,544.
Net
cash used in financing activities amounted to $(24,696).
Fiscal
Year from January 1, 2006 to December 31, 2006
Revenues:
|
$190,570
|
Cost
of Service Provided:
|
$169,809
|
General
and Administrative Expenses:
|
$12,109
|
Income
from Operations:
|
$8,651
|
Interest
Income:
|
$159
|
Income
Before Income Taxes:
|
$8,810
|
Net
Income:
|
$6,287
|
Liquidity
and Capital Resources
As
of
December 31, 2006, cash and bank balances totaled $15,402.
The
negative working capital during the year was $(79,812), comprised cash and
bank
balances of $15,402, trade receivables from third parties of $5,797, trade
receivable from a related party of $3,946 and prepayments and deposits of $734,
less trade payables to third parties of $8,414, accrued charges and other
payables of $53,956, amounts due to related parties of $41,239 and income taxes
payable of $2,082. Net cash provided by operating activities during the year
amounted to $60,581. Net Cash used by investing activities amounted to
($1,368,469). Net cash provided by financing activities amounted to
$1,245,047.
Critical
Accounting Policies and Estimates
The
discussion and analysis of Foshan’s financial condition presented in this
section are based upon the audited financial statements of Foshan, which have
been prepared in accordance with the generally accepted accounting principles
in
the United States. During the preparation of the financial statements, Foshan
was required to make estimates and judgments that affect the reported amounts
of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, Foshan evaluates its estimates
and
judgments, including those related to investments, fixed assets, income taxes
and other contingencies. Foshan bases its estimates on historical experience
and
on various other assumptions that it believes are reasonable under current
conditions. Actual results may differ from these estimates under different
assumptions or conditions.
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policy,” Foshan identified the most
critical accounting principals upon which its financial status depends. Foshan
determined that those critical accounting principles are related to the use
of
estimates, inventory valuation, revenue recognition, income tax and impairment
of intangibles and other long-lived assets. Foshan presents these accounting
policies in the relevant sections in this management’s discussion and analysis,
including the Recently Issued Accounting Pronouncements discussed
below.
Off-Balance
Sheet Arrangements. Foshan has not entered into any financial guarantees or
other commitments to guarantee the payment obligations of any third parties.
Foshan has not entered into any derivative contracts that are indexed to
Foshan’s shares and classified as shareholder’s equity or that are not reflected
in Foshan’s financial statements. Furthermore, Foshan does not have any retained
or contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity. Foshan does
not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to the Company or engages
in
leasing, hedging or research and development services with Foshan.
Inflation.
Foshan believes that inflation has not had a material effect on its operations
to date.
Income
Taxes. Foshan has adopted Statement of Financial Accounting Standards No.
109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition
of deferred income tax liabilities and assets for the expected future tax
consequences of temporary differences between income tax basis and financial
reporting basis of assets and liabilities. Provision for income taxes consist
of
taxes currently due plus deferred taxes. Since Foshan had no operations within
the United States there is no provision for US income taxes and there are no
deferred tax amounts as of August 7, 2007. The charge for taxation is based
on
the results for the year as adjusted for items, which are non-assessable or
disallowed. It is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount
of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit. In principle, deferred
tax liabilities are recognized for all taxable temporary differences, and
deferred tax assets are recognized to the extent that it is probably that
taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled.
Deferred tax is charged or credited in the income statement, except when it
related to items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when they related to income taxes levied by the same taxation
authority and the Company intends to settle current tax assets and liabilities
on a net basis.
Recently
Issued Accounting Pronouncements
In
September 2006, the SEC issued SAB No. 108 (“SAB 108”), which provides guidance
on the process of quantifying financial statement misstatements. In SAB 108,
the
SEC staff establishes an approach that requires quantification of financial
statements errors, under both the iron-curtain and the roll-over methods, based
on the effects of the error on each of the Company’s financial statements and
the related financial statement disclosures. SAB 108 is generally effective
for
annual financial statements in the first fiscal year ending after November
15,
2006. The transition provisions of SAB 108 permits existing public companies
to
record the cumulative effect in the first year ending after November 15, 2006
by
recording correcting adjustments to the carrying values of assets and
liabilities as of the beginning of that year with the offsetting adjustment
recorded to the opening balance of retained earnings. Management does not expect
that the adoption of SAB 108 would have a material effect on the Company’s
financial position or results of operations.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106, and 132I” (“SFAS 158”).
SFAS 158 requires an employer to recognize the over funded or under funded
status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in unrestricted
net
assets of a not-for-profit organization. The standard also requires an employer
to measure the funded status of a plan as of the date of its year-end statement
of financial position, with limited exceptions.
An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and to
provide the required disclosures as of the end of the fiscal year ending after
December 15, 2006. An employer without publicly traded equity securities is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year ending
after June 15, 2007. The adoption of SFAS 158 is not expected to have a material
effect on the Company’s financial position or results of
operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair values, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. This Statement
shall be effective for financial statements issued for fiscal years beginning
after November 25, 2007, and interim periods within those fiscal years. SFAS
157
applies under other existing accounting pronouncements that require or permit6
fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements. However,
the application of this statement may change the current practice for fair
value
measurements. The Company is currently evaluating the impact of adopting SFAS
157 on its financial position and results of operations.
In
July
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to
take
on a tax return (including a decision whether to file or not to file a return
in
a particular jurisdiction). The accounting provisions of FIN 48 are effective
for fiscal years beginning after December 15, 2006. The Company is currently
assessing whether adoption of this Interpretation will have an impact on its
financial position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”), which permits entities
to choose to measure financial instruments and certain other items at fair
value
that are not currently required to be measured at fair value. SFAS 159 will
be
effective for the Company on January 1, 2008. The Company does not expect that
the adoption of SFAS 159 will have a material impact on its financial
statements.
Cautionary
Factors That May Affect Future Results
This
Current Report on Form 8-K and other written reports and oral statements made
from time to time by AXIO may contain so-called “forward-looking statements,”
all of which are subject to risks and uncertainties. One can identify these
forward-looking statements by their use of words such as “expects,” “plans,”
“will,” “estimates,” “forecasts,” “projects” and other words of similar meaning.
One can identify them by the fact that they do not relate strictly to historical
or current facts. These statements are likely to address AXIO’s growth strategy,
financial results and product and development programs. One must carefully
consider any such statement and should understand that many factors could cause
actual results to differ from AXIO’s forward-looking statements. These factors
include inaccurate assumptions and a broad variety of other risks and
uncertainties, including some that are known and some that are not. No
forward-looking statement can be guaranteed and actual future results may vary
materially.
AXIO
does
not assume the obligation to update any forward-looking statement. One should
carefully evaluate such statements in light of factors described in AXIO’s
filings with the SEC, especially on Forms 10-KSB, 10-QSB and 8-K. Listed below
are some important factors that could cause actual results to differ from
expected or historic results. One should understand that it is not possible
to
predict or identify all such factors. Consequently, the reader should not
consider any such list to be a complete list of all potential risks or
uncertainties.
Risk
Factors
Investing
in AXIO’s common stock involves a high degree of risk. Prospective investors
should carefully consider the risks described below, together with all of the
other information included or referred to in this Current Report on Form 8-K,
before purchasing shares of AXIO’s common stock. There are numerous and varied
risks, known and unknown, that may prevent the Registrant from achieving its
goals. The risks described below are not the only ones AXIO will face. If any
of
these risks actually occurs, AXIO’s business, financial condition or results of
operation may be materially adversely affected. In such case, the trading price
of the AXIO’s common stock could decline and investors in AXIO’s common stock
could lose all or part of their investment. The risks and uncertainties
described below are not exclusive and are intended to reflect the material
risks
that are specific to AXIO, material risks related to Foshan’s industry and
material risks related to companies that undertake a public offering or seek
to
maintain a class of securities that is registered or traded on any exchange
or
over-the-counter market.
AXIO’s
future revenues will be derived from the sale of smart cards known as AIOMs
cards in several cities of Guangdong Province and elsewhere. There are numerous
risks, known and unknown, that may prevent AXIO from achieving its goals
including, but not limited to, those described below. Additional unknown risks
may also impair AXIO’s financial performance and business operations. AXIO’s
business, financial condition and/or results of operations may be materially
adversely affected by the nature and impact of these risks. In such case,
the market value of AXIO’s securities could be detrimentally affected, and
investors may lose part or all of their investment. Please refer to the
information contained under “Business” in this report for further details
pertaining to AXIO’s business and financial condition.
Risks
Related To Our Company
If
AXIO does not obtain financing when needed, its business will
fail.
AXIO
predicts that Foshan will need approximately $10 million to implement its
business plan and meet its capital expenditure needs over the next three years.
AXIO currently does not have any arrangements for additional financing and
it
may not be able to obtain financing when required. Obtaining additional
financing would be subject to a number of factors, including the market prices
for AXIO’s products, production costs, the availability of credit, prevailing
interest rates and the market prices for AXIO’s common stock.
The
success of AXIO’s business depends upon the continuing contributions of Benny
Lee, its Chief Executive Officer and other key personnel and its ability to
attract other employees to expand the business, whereas the loss of key
individuals or AXIO’s inability to attract new employees could have a negative
impact on AXIO’s business.
AXIO
relies heavily on the services of Mr. Benny Lee, the Chief Executive Officer.
Loss of the services of Mr. Lee would adversely impact AXIO’s operations. AXIO
believes that its future success will depend upon its ability to retain its
key
employee and its ability to attract and retain other skilled financial and
managerial personnel. For example, AXIO presently does not have any directors
or
officers experienced with public company SEC reporting and financial reporting
requirements and AXIO will be required to engage such persons, and independent
directors, in order to satisfy the quotation standards of the Over the Counter
Bulletin Board on which AXIO’s common stock is traded (not currently required by
OTCBB or SEC). In addition, as a result of failure to engage qualified personnel
AXIO may be unable to meet its responsibilities as a public reporting company
under the rules and regulations of the SEC. AXIO does not currently
maintain any “key man” life insurance with respect to its key
employee.
Future
sales of AXIO’s equity securities will dilute existing
stockholders.
To
fully
execute its long-term business plan, AXIO may need to raise additional equity
capital in the future. Such additional equity capital, when and if it is raised,
would result in dilution to AXIO’s existing stockholders.
Subject
to its receipt of the additional capital required, AXIO plans to grow very
rapidly, which will place strains on management and other
resources.
AXIO
plans to grow rapidly and significantly expand its operations. This growth
will
place a significant strain on management systems and resources. AXIO will not
be
able to implement its business strategy in a rapidly evolving market without
an
effective planning and management processes. AXIO has a short operating history
and has not implemented sophisticated managerial, operational and financial
systems and controls. AXIO is required to manage multiple relationships with
various strategic partners, and other third parties. These requirements will
be
strained in the event of rapid growth or in the number of third party
relationships, and AXIO’s systems, procedures or controls may not be adequate to
support AXIO’s operations and management may be unable to manage growth
effectively. To manage the expected growth of AXIO’s operations and personnel,
AXIO will be required to significantly improve or replace existing managerial,
financial and operational systems, procedures and controls, and to expand,
train
and manage its growing employee base. AXIO will be required to expand its
finance, administrative and operations staff. AXIO may be unable to complete
in
a timely manner the improvements to its systems, procedures and controls
necessary to support future operations, management may be unable to hire, train,
retain, motivate and manage required personnel and management may be unable
to
successfully identify, manage and exploit existing and potential market
opportunities.
Risks
Related to Our Industry
Market
risks
The
AIOMS
Card market in China is known for its large size, numerous value-added services
and highly diversified demands. Our business plan has taken full consideration
of the current situation and the trends for AIOMS Cards in China. With a
business model of “joint study, joint development and interest sharing”, we seek
to improve our acceptance rate in the market and mobilize the resources
available to satisfy different demands and minimize market risks.
The
risk of disconnection of internal links
The
disconnection of internal management links would result in operational risks.
During the management process, we will make the best plan to promote
comprehensive quality management and implement the PDCA Cycle. By ensuring
the
management of every link, we plan to avoid management risks.
Cost
control risks
We
will
implement scientific accounting for costs and keep a tight control over the
implementation costs of our various smart card projects and out-of-budget
expenses to keep cost increases within a controllable scope.
Competition
risks
As
the
ancient Chinese said, know the enemy and know yourself, and you can fight a
hundred battles with no danger of defeat. Service quality is the life-or-death
core for AIOMS Card operations, and we will adopt targeted competition
strategies, and introduce greater innovation and better quality products to
differentiate ourselves from market competitors.
Management
risks
The
exit
of personnel, particularly key employees would result in management risks for
the company. Therefore, in our management practice, we will do our best to
ensure the integration of system-based management with mechanism-based
management, rigid management with flexible management, so that we can encourage
our employees to grow together with the company while maintaining strict
requirements and management. We will give particular care to our key employees
in our daily operations. In the middle/later stages, we will consider granting
them options, so that key employees will voluntarily link their own career
development with the future of the company.
Bankruptcy
risks
Should
the company be overburdened with debts, it might face a risk of bankruptcy.
Therefore, we will take precautions not to incur any unnecessary debt. The
borrowing of any necessary major debt shall be discussed and approved by the
Board of Directors. Careful study and practical repayment plans shall be made
before the borrowing of any debt.
Risks
Related to Doing Business in the PRC
Foshan
faces the risk that changes in the policies of the PRC government could have
a
significant impact upon the business Foshan may be able to conduct in the PRC
and the profitability of such business.
The
PRC’s
economy is in a transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on the economic conditions of the PRC. The PRC government
has confirmed that economic development will follow the model of a market
economy. Under this direction, Foshan believes that the PRC will continue to
strengthen its economic and trading relationships with foreign countries and
business development in the PRC will follow market forces. While Foshan believes
that this trend will continue, there can be no assurance that this will be
the
case. A change in policies by the PRC government could adversely affect Foshan’s
interests by, among other factors: changes in laws, regulations or the
interpretation thereof, confiscatory taxation, restrictions on currency
conversion, imports or sources of supplies, or the expropriation or
nationalization of private enterprises. Although the PRC government has been
pursuing economic reform policies for more than two decades, there is no
assurance that the government will continue to pursue such policies or that
such
policies may not be significantly altered, especially in the event of a change
in leadership, social or political disruption, or other circumstances affecting
the PRC’s political, economic and social life.
The
PRC laws and regulations governing Foshan’s current business operations are
sometimes vague and uncertain. Any changes in such PRC laws and regulations
may
have a material and adverse effect on Foshan’s business.
There
are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing Foshan’s business, or the enforcement and performance of Foshan’s
arrangements with customers in the event of the imposition of statutory liens,
death, bankruptcy and criminal proceedings. Foshan and any future subsidiaries
are considered foreign persons or foreign funded enterprises under PRC laws,
and
as a result, Foshan is required to comply with PRC laws and regulations. These
laws and regulations are sometimes vague and may be subject to future changes,
and their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New
laws
and regulations that affect existing and proposed future businesses may also
be
applied retroactively. Foshan cannot predict what effect the interpretation
of
existing or new PRC laws or regulations may have on Foshan’s
businesses.
A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect Foshan’s customers, demand for Foshan’s products and Foshan’s
business.
All
of
Foshan’s operations are conducted in the PRC and all of its revenue is generated
from sales in the PRC. Although the PRC economy has grown significantly in
recent years, Foshan cannot assure investors that such growth will continue.
A
slowdown in overall economic growth, an economic downturn or recession or other
adverse economic developments in the PRC could materially reduce the demand
for
our products and materially and adversely affect Foshan’s business.
Inflation
in the PRC could negatively affect our profitability and
growth.
While
the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for Foshan’s products rise at a rate that is insufficient
to compensate for the rise in the costs of supplies, it may have an adverse
effect on profitability. In order to control inflation in the past, the PRC
government has imposed controls on bank credits, limits on loans for fixed
assets and restrictions on state bank lending. Such an austere policy can lead
to a slowing of economic growth. In October 2004, the People’s Bank of China,
the PRC’s central bank, raised interest rates for the first time in nearly a
decade and indicated in a statement that the measure was prompted by
inflationary concerns in the Chinese economy. Repeated rises in interest rates
by the central bank would likely slow economic activity in China which could,
in
turn, materially increase Foshan’s costs and also reduce demand for Foshan’s
products.
Governmental
control of currency conversion may affect the value of an investment in
Foshan.
The
PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC.
Foshan receives all of its revenues in Renminbi, which is currently not a freely
convertible currency. Shortages in the availability of foreign currency may
restrict Foshan’s ability to remit sufficient foreign currency to pay dividends,
or otherwise satisfy foreign currency dominated obligations. Under existing
PRC
foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate governmental authorities is
required where Renminbi is to be converted into foreign currency and remitted
out of China to pay capital expenses such as the repayment of bank loans
denominated in foreign currencies.
The
PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents Foshan from obtaining sufficient foreign currency to satisfy
its
currency demands, Foshan may not be able to pay certain of its expenses as
they
come due.
The
fluctuation of the Renminbi may materially and adversely affect investments
in
Foshan.
The
value
of the Renminbi against the U.S. dollar and other currencies may fluctuate
and
is affected by, among other things, changes in the PRC’s political and economic
conditions. As Foshan relies principally on revenues earned in the PRC, any
significant revaluation of the Renminbi may materially and adversely affect
Foshan’s cash flows, revenues and financial condition. For example, to the
extent that Foshan needs to convert U.S. dollars it receives from an offering
of
its securities into Renminbi for Foshan’s operations, appreciation of the
Renminbi against the U.S. dollar could have a material adverse effect on
Foshan’s business, financial condition and results of operations. Conversely, if
Foshan decides to convert its Renminbi into U.S. dollars for the purpose of
making payments for dividends on its common stock or for other business purposes
and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent
of the Renminbi that Foshan converts would be reduced. In addition, the
depreciation of significant U.S. dollar denominated assets could result in
a
charge to Foshan’s income statement and a reduction in the value of these
assets.
On
July
21, 2005, the PRC government changed its decade-old policy of pegging the value
of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is
permitted to fluctuate within a narrow and managed band against a basket of
certain foreign currencies. This change in policy has resulted in an
approximately 3.2% appreciation of the Renminbi against the U.S. dollar as
of
May 15, 2006. While the international reaction to the Renminbi revaluation
has
generally been positive, there remains significant international pressure on
the
PRC government to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the Renminbi against
the U.S. dollar.
Recent
PRC State Administration of Foreign Exchange (“SAFE”) Regulations regarding
offshore financing activities by PRC residents have undergone a number of
changes that may increase the administrative burden Foshan faces. The failure
by
Foshan’s stockholders who are PRC residents to make any required applications
and filings pursuant to such regulations may prevent Foshan from being able
to
distribute profits and could expose Foshan and its PRC resident stockholders
to
liability under PRC law.
SAFE
issued a public notice (the “October Notice”) effective November 1, 2005, which
requires registration with SAFE by the PRC resident stockholders of any foreign
holding company of a PRC entity. Without registration, the PRC entity
cannot remit any of its profits out of the PRC as dividends or otherwise;
however, it is uncertain how the October Notice will be interpreted or
implemented regarding specific documentation requirements for a foreign holding
company formed prior to the effective date of the October Notice, such as in
Foshan’s case. While Foshan’s PRC counsel advised it that only the PRC resident
stockholders who receive the ownership of the foreign holding company in
exchange for ownership in the PRC operating company are subject to the October
Notice, there can be no assurance that SAFE will not require Foshan’s other PRC
resident stockholders to make disclosure. In addition, the October Notice
requires that any monies remitted to PRC residents outside of the PRC be
returned within 180 days; however, there is no indication of what the penalty
will be for failure to comply or if stockholder non-compliance will be
considered to be a violation of the October Notice by Foshan or otherwise affect
Foshan.
In
the
event that the proper procedures are not followed under the SAFE October Notice,
Foshan could lose the ability to remit monies outside of the PRC and would
therefore be unable to pay dividends or make other distributions. Foshan’s PRC
resident stockholders could be subject to fines, other sanctions and even
criminal liabilities under the PRC Foreign Exchange Administrative Regulations
promulgated January 29, 1996, as amended.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect Foshan’s
operations.
A
renewed
outbreak of SARS or another widespread public health problem in the PRC, such
as
bird flu where most of Foshan’s revenue is derived, could have an adverse effect
on Foshan’s operations. Foshan’s operations may be impacted by a number of
health-related factors, including quarantines or closures of some of its offices
that would adversely disrupt Foshan’s operations. Any of the foregoing events or
other unforeseen consequences of public health problems could adversely affect
Foshan’s operations.
Because
Foshan’s principal assets are located outside of the United States and all of
Foshan’s directors and officers reside outside of the United States, it may be
difficult for investors to enforce their rights based on U.S. federal securities
laws against Foshan and Foshan’s officers and directors in the U.S. or to
enforce U.S. court judgment against Foshan or them in the PRC.
All
of
Foshan’s directors and officers reside outside of the United States. In
addition, Foshan is located in the PRC and substantially all of its assets
are
located outside of the United States; it may therefore be difficult or
impossible for investors in the United States to enforce their legal rights
based on the civil liability provisions of the U.S. federal securities laws
against Foshan in the courts of either the U.S. or the PRC and, even if civil
judgments are obtained in U.S. courts, to enforce such judgments in PRC courts.
Further, it is unclear if extradition treaties now in effect between the United
States and the PRC would permit effective enforcement against Foshan or its
officers and directors of criminal penalties, under the U.S. federal securities
laws or otherwise.
Foshan
may have difficulty establishing adequate management, legal and financial
controls in the PRC.
The
PRC
historically has not adopted a western style of management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. Foshan may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC. As a result of
these factors, Foshan may experience difficulty in establishing management,
legal and financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet western standards.
Risks
Relating to the Agreement
AXIO’s
Chief Executive Officer, Mr. Benny Lee, beneficially owns 33.1% of the AXIO’s
outstanding common stock, which gives him working control over certain major
decisions on which AXIO’s stockholders may vote, which may discourage an
acquisition AXIO.
As
a
result of the closing under the Agreement, the AXIO’s sole executive officer,
Mr. Benny Lee, will have the right and ability to control virtually all
corporate actions requiring stockholder approval, irrespective of how AXIO’s
other stockholders may vote, including the following actions:
·
|
Electing
or defeating the election of
directors;
|
·
|
Amending
or preventing amendment of AXIO’s Certificate of Incorporation or
By-laws;
|
·
|
Effecting
or preventing a merger, sale of assets or other corporate transaction;
and
|
·
|
Controlling
the outcome of any other matter submitted to the stockholders for
vote.
|
AXIO’s
stock ownership profile may discourage a potential acquirer from seeking to
acquire shares of AXIO’s common stock or otherwise attempting to obtain control
of AXIO, which in turn could reduce AXIO’s stock price or prevent AXIO’s
stockholders from realizing a premium over AXIO’s stock
price.
Public
company compliance may make it more difficult to attract and retain officers
and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. As
a
public entity, the Registrant expects these new rules and regulations to
increase compliance costs in 2007 and beyond and to make certain activities
more
time consuming and costly. As a public entity, the Registrant also expects
that
these new rules and regulations may make it more difficult and expensive for
the
Registrant to obtain director and officer liability insurance in the future
and
it may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for the Registrant to attract and retain qualified
persons to serve as directors or as executive officers.
Risks
Relating to the Common Stock
AXIO’s
stock price may be volatile.
The
market price of AXIO’s common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond AXIO’s control, including the following:
·
|
Additions
or departures of key personnel;
|
·
|
Limited
“public float” following the Share Exchange Agreement, in the hands of a
small number of persons whose sales or lack of sales could result
in
positive or negative pricing pressure on the market price for the
common
stock;
|
·
|
Sales
of the common stock (particularly following effectiveness of the
resale
registration statement required to be filed in connection with the
Private
Placement);
|
·
|
AXIO’s
ability to execute its business
plan;
|
·
|
Operating
results that fall below
expectations;
|
·
|
Loss
of any strategic relationship;
|
·
|
Economic
and other external factors; and
|
·
|
Period-to-period
fluctuations in AXIO’s financial
results.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of AXIO’s common stock.
There
is currently no liquid trading market for AXIO’s common stock and AXIO cannot
ensure that one will ever develop or be sustained.
There
is
currently no liquid trading market for AXIO’s common stock. AXIO cannot predict
how liquid the market for AXIO’s common stock might become. AXIO’s common stock
is currently approved for quotation on the OTC Bulletin Board trading under
the
symbol AXIO. AXIO currently does not satisfy the initial listing standards,
and
cannot ensure that it will be able to satisfy such listing standards on a higher
exchange, or that its common stock will be accepted for listing on any such
exchange. Should AXIO fail to satisfy the initial listing standards of such
exchanges, or its common stock be otherwise rejected for listing and remain
on
the OTC Bulletin Board or be suspended from the OTC Bulletin Board, the trading
price of AXIO’s common stock could suffer, the trading market for AXIO’s common
stock may be less liquid and AXIO’s common stock price may be subject to
increased volatility.
AXIO’s
common stock may be deemed a “penny stock”, which would make it more difficult
for investors to sell their shares.
AXIO’s
common stock may be subject to the “penny stock” rules adopted under section
15(g) of the Exchange Act. The penny stock rules apply to companies whose common
stock is not listed on the NASDAQ Stock Market or other national securities
exchange and trades at less than $5.00 per share or that have tangible net
worth
of less than $5,000,000 ($2,000,000 if AXIO has been operating for three or
more
years). These rules require, among other things, that brokers who trade penny
stock to persons other than “established customers” complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade penny stocks because of the requirements
of
the penny stock rules and, as a result, the number of broker-dealers willing
to
act as market makers in such securities is limited. If AXIO remains
subject to the penny stock rules for any significant period, it could have
an
adverse effect on the market, if any, for AXIO’s securities. If AXIO’s
securities are subject to the penny stock rules, investors will find it more
difficult to dispose of AXIO’s securities.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is
more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
Offers
or availability for sale of a substantial number of shares of AXIO’s common
stock may cause the price of AXIO’s common stock to decline.
If
AXIO’s
stockholders sell substantial amounts of common stock in the public market,
or
upon the expiration of any statutory holding period, under Rule 144, it could
create a circumstance commonly referred to as an “overhang” and in anticipation
of which the market price of AXIO’s common stock could fall. The existence of an
overhang, whether or not sales have occurred or are occurring, also could make
more difficult AXIO’s ability to raise additional financing through the sale of
equity or equity-related securities in the future at a time and price that
AXIO
deems reasonable or appropriate. Additional shares of common stock will be
freely tradable upon the earlier of: (i) effectiveness of the registration
statement AXIO is required to file; and (ii) the date on which such shares
may
be sold without registration pursuant to Rule 144 under the Securities
Act.
Provisions
of AXIO’s Articles of Incorporation and Nevada law could deter a change of
control, which could discourage or delay offers to acquire
AXIO.
Provisions
of AXIO’s Articles of Incorporation and Nevada law may make it more difficult
for someone to acquire control of AXIO or for AXIO’s stockholders to remove
existing management, and might discourage a third party from offering to acquire
AXIO, even if a change in control or in management would be beneficial to
stockholders. For example, AXIO’s Articles of Incorporation allows AXIO to issue
5,000,000 shares of preferred stock without any vote or further action by
stockholders.
Volatility
in AXIO’s common stock price may subject AXIO to securities
litigation.
The
market for AXIO’s common stock is characterized by significant price volatility
when compared to seasoned issuers, and AXIO expects that its share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
In the past, plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market price of its
securities. AXIO may, in the future, be the target of similar litigation.
Securities litigation could result in substantial costs and liabilities and
could divert management’s attention and resources.
The
elimination of monetary liability against AXIO’s directors, officers and
employees under AXIO’s Articles of Incorporation, By-Laws and Nevada law, and
the existence of indemnification rights to AXIO’s directors, officers and
employees may result in substantial expenditures by AXIO and may discourage
lawsuits against AXIO’s directors, officers and employees.
Pursuant
to Section 78.7502 of the Nevada Revised Statutes, the Company will indemnify
to
the fullest extent permitted by, and in the manner permissible under law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in
the right of the corporation) by reason of the fact that such person is or
was
director, officer, employee or agent of the corporation, or is or was serving
at
our request as a director, partner, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification covers expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement. It also covers costs. The Company may pay
advancements towards these expenses. The power to indemnify applies only if
such
person acted in good faith and in a manner such person reasonably believed
to be
in the best interests, or not opposed to the best interests, of the corporation
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful.
Section
4
of AXIO’s Articles of Incorporation provides for indemnification in favor of
directors, officers, employees and agents of AXIO to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of Nevada.
Indemnified persons are held harmless against any and all of the expenses,
liabilities, judgments, fines, amounts paid in settlement or other matters.
The
corporation has the power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation, which or not the
corporation would have the power to indemnify him or her.
Section
7.1 of AXIO’s By-Laws provides, among other things, that the corporation will
indemnify to the fullest extent permitted by Chapter 78 of the Nevada Revised
Statutes, as in effect at the time of the determination, any current or former
director or officer of the Corporation who was or is a party or is threatened
to
be made a party to any proceeding (other than a proceeding by or in the right
of
the Corporation to procure a judgment in its favor) by reason of the fact that
the person is or was a director, officer, employee, or agent of the Corporation,
or any of its subsidiaries, against all expenses, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by the director or officer
in connection with such proceeding if the director or officer acted in good
faith and in a manner the director or officer reasonably believed was
in or not opposed to the best interests of the Corporation, and with respect
to
any criminal action or proceeding, the director or officer, in addition, had
no
reasonable cause to believe that the director's or officer's conduct was
unlawful.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of October 18, 2007, the number of shares of
the
Company’s Common Stock owned of record or beneficially by each person known to
be the beneficial owner of 5% or more of the issued and outstanding shares
of
the Registrant’s voting stock, and by each of the Registrant’s directors and
executive officers and by all its directors and executive officers as a group.
The addresses of the beneficial owners are set forth below.
Title
of Class
|
|
Name
|
|
Number
of Shares Owned(1)
|
|
Percent
of Voting Power
|
|
|
|
|
|
|
|
Common
|
|
East
Sincere Management Limited
Benny
Lee - CEO, CFO and Sole Owner
[Director,
CEO and CFO of AXIO]
Flat
A-1, 2/F, Maiden Court
46
Cloud View Road, Hong Kong
|
|
16,544,117
|
|
33.1%
|
|
|
|
|
|
|
|
Common
|
|
Profit
Gain Management Limited
Mon
Hung Lew – CEO and Sole Owner
Suite
1606-7, 16F, Great Eagle Centre
23
Harbour Road, Hong Kong
|
|
17,407,550(3)
|
|
34.8%
|
|
|
|
|
|
|
|
Common
|
|
All
Officers and Directors as a Group (1
person)
|
|
16,544,117
|
|
33.1%
|
(1)
Calculation based on 50,000,000 shares outstanding as of October 18,
2007.
(2)
Except as otherwise indicated, the shares are owned of record and beneficially
by the persons named in the table.
(3)
East Sincere Management Limited is the holder of
a Proxy, dated October 26, 2007, from Profit Gain Management Limited pursuant
to
which Profit Gain appointed East Sincere as its proxy to vote at any special
or
annual meeting that may be called for a period of six months. East Sincere
may
be considered to be the beneficial owner of the 17,407,550 shares held by Profit
Gain.
Directors
and Executive Officers
The
following table sets forth information regarding the sole member of our board
of
directors and our executive officer. All directors hold office for one-year
terms until the election and qualification of their successors. Officers are
elected annually by the board of directors and serve at the discretion of the
board.
As
a
result of the exchange of a majority of AXIO’s common stock for all of the share
capital of Eastern Concept, the Eastern Concept Shareholder and his designee
have acquired majority control of the outstanding common stock of AXIO and
have
appointed their candidate, Benny Lee, to the Board of Directors at closing
of
the reverse merger of Eastern Concept into AXIO. Mr. Lee continues to
serve as the sole director.
Name
|
|
Age
|
|
Position
|
Benny
Lee
|
|
65
|
|
Chairman,
CEO, CFO and Secretary
|
Biographies
Benny
Lee, Chairman, CEO, CFO and Secretary – 65
Benny
Lee
had extensive experiences in senior marketing and operations positions with
MasterCard International and American Express.
Earlier
in his career, Mr. Lee held various regional senior operation and customer
relations positions with American Express, first as Director-operations,
Asia/Pacific, with American Express Reservations, and later with American
Express Card Division for over 13 years.
Starting
in 1983, as Vice President-International, Asia/Pacific, for MasterCard, Mr.
Lee
was responsible for the expansion of the MasterCard membership network in the
Asia/Pacific region by first getting Nanyang Commercial Bank to convert its
Federal Card to Federal MasterCard and thus, initially break-through into the
China card market. Based in Hong Kong, he assisted many financial institutions
in Asia/Pacific in initiating MasterCard operations, including Bank of China
when it introduced The Greatwall MasterCard, the first credit card in China.
In
1990, Mr. Lee was transferred to Canada, where as Vice President-Canada Region,
he opened the first MasterCard office in Toronto.
Mr.
Lee
left MasterCard International Card and joined MBf Card as President, MBf Card
International. He was responsible in setting up card centers in HK,
PNG, Fiji, Vietnam and Myanmar and formulated local joint ventures in Taiwan,
Thailand and other S.E. Asian countries. He left MBf and returned to Canada
in
1994 and soon after, he joined Pacific Asia Capital Ltd. a boutique merchant
banking company as president. He finalized several projects including setting
up
of a credit card company in Thailand.
In
1995,
Mr. Lee joined Western Union Financial Service International where he served
as
President-Asia Region, responsible for business development and agent network
management in countries of the Pacific Rim. He expanded the Western Union
network by signing the China Post Office as agent in China and Bank of
International Indonesia and some others. In 1996, he co-found, InterPay
International Group Ltd. with his associates in Malaysia. He has served as
President, responsibility for business development and franchise management
for
InterPay around the world. He was elected as Executive Chairman and holding
the
position since 2002. Mr. Lee has also been serving in the Board of Director
of
iSynergy Card and Payment Services, which is one of the MasterCard members
in
Malaysia and the largest loyalty card issuer in the country. InterPay Group
is a
shareholder and management company of iSynergy.
In
2004,
Mr. Lee was invited to the board of Asia Payment Systems, Inc. as a director
and
subsequently became an executive director and then president, stationing in
Shanghai in May, 2005. In September, 2006, Mr. Lee resigned from Asia Payment
and terminated the relationship. He then, incorporated Invest Asia Ltd. (BVI)
to
provide management and consultant services. He has been successful in helping
Oxford Investment Holding Ltd. of Canada (OTC BB ‘oxihf’) in acquiring the
interest of companies in payment and consumer related businesses under Ko Ho
Management Ltd. (BVI).
Meetings
of Our Board of Directors
The
Registrant’s Board of Directors took all actions by unanimous written consent
without a meeting during the fiscal year ended December 31, 2006. Foshan’s Board
of Directors held no formal meetings during the period commencing on January1,
2007 and ending on June 30, 2007.
Board
Committees
Audit
Committee. The Company intends to establish an audit committee
of the board of directors, which will consist of soon-to-be-nominated
independent directors. The audit committee’s duties would be to recommend to the
Company’s Board of Directors the engagement of independent auditors to audit the
Company’s financial statements and to review the Company’s accounting and
auditing principles. The audit committee would review the scope, timing and
fees
for the annual audit and the results of audit examinations performed by the
internal auditors and independent public accountants, including their
recommendations to improve the system of accounting and internal controls.
The
audit committee would at all times be composed exclusively of directors who
are,
in the opinion of the Company’s Board of Directors, free from any relationship
which would interfere with the exercise of independent judgment as a committee
member and who possess an understanding of financial statements and generally
accepted accounting principles.
Compensation
Committee. The Company intends to establish a compensation
committee of the Board of Directors. The compensation committee would review
and
approve the Company’s salary and benefits policies, including compensation of
executive officers.
Director
Compensation
The
Company paid nil to its directors for service as directors in 2006, and the
Company has not paid its directors any separate compensation in respect of
their
services on the board. However, in the future, the Company intends to implement
a market-based director compensation program.
Executive
Compensation
Summary
Compensation Table
The
following Summary Compensation Table sets forth, for the years indicated, all
cash compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by the Company’s chief executive
officer and all other executive officers who received or are entitled to receive
remuneration in excess of $100,000 during the stated periods.
SUMMARY
COMPENSATION TABLE
(all
figures in US Dollars)
Name
of Officer
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan Compensation
|
|
Nonqualified
Deferred Compensation
|
|
All
Other Compensation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benny
Lee
|
2006
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2005
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2004
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Duane
Bennett
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2006
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-
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-
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-
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-
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-
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-
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-
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-
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2005
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-
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-
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-
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-
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-
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-
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-
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-
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2004
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-
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-
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-
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-
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-
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-
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-
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-
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Lawrence
Nault
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2006
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-
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-
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-
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-
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-
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-
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-
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2005
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-
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-
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-
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-
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-
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-
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-
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2005
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-
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100,000
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100,000
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Option
Grants in Last Fiscal Year
There
were no options granted to any of the named executive officers during the year
ended December 31, 2006.
During
the year ended December 31, 2006, none of the named executive officers exercised
any stock options.
Employment
Agreements
The
Company has no employment agreements with any of its employees.
Equity
Compensation Plan Information
The
Company currently does not have any equity compensation plans; however the
Company is currently deliberating on implementing an equity compensation
plan.
Directors’
and Officers’ Liability Insurance
The
Company currently does not have insurance insuring directors and officers
against liability; however, the Company is in the process of investigating
the
availability of such insurance.
Certain
Relationships and Related Transactions
AXIO
originally incorporated in Massachusetts as Axiom First Corporation on May
22,
2003. Northeast Nominee Trust owned 100% of Axiom First Corporation. AXIO also
created a second corporation, Axiom Second Corporation, which was also
incorporated in Massachusetts on May 22, 2003. Axiom First owned, and continues
to own, 100% of its subsidiary, Axiom Second Corporation. The next month, on
June 12, 2003 director Bennett deeded to Axiom Second Corporation the property
located at 80 Cochran Street in Chicopee, Massachusetts. In June 2004, AXIO
incorporated Axiom III, Inc., a Nevada corporation. By agreement dated June
30,
2004, Northeast Nominee Trust entered into a share exchange with Axiom III,
Inc., in which the trust exchanged its 100% ownership in Axiom First Corporation
for 2,500,000 shares of Axiom III, Inc., and Axiom III, Inc. assumed 100%
ownership of Axiom First Corporation and its subsidiary. Bennett is the Trustee
and beneficial owner of the Northeast Nominee Trust, and is also the Chief
Executive Officer and Director of AXIO.
Bennett
is the beneficial owner of 1,000,000 shares of common stock of AXIO held by
the
Northeast Nominee Trust through his position as Trustee. As part of the
transaction, Bennett will retain ownership of said 1,000,000 shares of common
stock, and will agree with the Company not to sell in excess of 10,000 shares
per day for a one year period of time pursuant to a Leak-Out
Agreement.
As
part
of the consideration for the share exchange transaction, the Eastern Concept
Shareholder paid the sum of $262,500 to the Northeast Nominee Trust. As
previously mentioned, Bennett is Trustee and a beneficial owner of the Northeast
Nominee Trust.
Except
for the transactions described above, there are no proposed transactions and
no
transactions during the past two years to which the Company was (or is) a party,
and in which any officer, director, or principal stockholder, or their
affiliates or associates, was also a party.
Description
of Securities
The
Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value. The Company is also authorized to issue 5,000,000 shares of preferred
stock, par value $.001
Common
Stock
The
holders of common stock are entitled to one vote per share. They are not
entitled to cumulative voting rights or preemptive rights. The holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the board of directors out of legally available funds. However, the current
policy of the board of directors is to retain earnings, if any, for operations
and growth. Upon liquidation, dissolution or winding-up, the holders of common
stock are entitled to share ratably in all assets that are legally available
for
distribution after payment in full of any preferential amounts. The holders
of
common stock have no subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may
be
adversely affected by, the rights of the holders of any series of preferred
stock, which may be designated solely by action of the board of directors and
issued in the future.
Preferred
Stock
The
Articles of Incorporation of the Company provide for 5,000,000 shares of
preferred stock, $.001 par value, which may be issued in series. The Board
of
Directors is empowered to fix and determine the designations, powers,
preferences and rights of the shares of each series and the qualifications,
limitations or restrictions thereof.
Registration
Rights
None.
Market
Price and Dividends
Foshan
is, and has always been, a privately-held company. There is not, and never
has
been, a public market for the securities of Foshan. The Registrant’s common
stock is approved for trading on the OTC Bulletin Board under the symbol AXIO,
but there is currently no liquid trading market.
For
the
foreseeable future, except for the special cash distribution, the Company does
not intend pay cash dividends to its stockholders. Foshan does not intend to
pay
any cash dividends to its parent shareholder.
Indemnification
of Directors and Officers
Pursuant
to Section 78.7502 of the Nevada Revised Statutes, the Company will indemnify
to
the fullest extent permitted by, and in the manner permissible under law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in
the right of the corporation) by reason of the fact that such person is or
was
director, officer, employee or agent of the corporation, or is or was serving
at
our request as a director, partner, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification covers expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement. It also covers costs. The Company may pay
advancements towards these expenses. The power to indemnify applies only if
such
person acted in good faith and in a manner such person reasonably believed
to be
in the best interests, or not opposed to the best interests, of the corporation
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful.
Section
4
of AXIO’s Articles of Incorporation provides for indemnification in favor of
directors, officers, employees and agents of AXIO to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of Nevada.
Indemnified persons are held harmless against any and all of the expenses,
liabilities, judgments, fines, amounts paid in settlement or other matters.
The
corporation has the power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation, which or not the
corporation would have the power to indemnify him or her.
Section
7.1 of AXIO’s By-Laws provides, among other things, that the corporation will
indemnify to the fullest extent permitted by Chapter 78 of the Nevada Revised
Statutes, as in effect at the time of the determination, any current
or former director or officer of the Corporation who was or is a party or is
threatened to be made a party to any proceeding (other than a proceeding by
or
in the right of the Corporation to procure a judgment in its favor) by reason
of
the fact that the person is or was a director, officer, employee, or agent
of
the Corporation, or any of its subsidiaries, against all expenses, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by the
director or officer in connection with such proceeding if the director or
officer acted in good faith and in a manner the director or officer
reasonably believed was in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, the director
or officer, in addition, had no reasonable cause to believe that the director's
or officer's conduct was unlawful.
Trading
Information
The
Company’s common stock is currently approved for quotation on the OTC Bulletin
Board maintained by the National Association of Securities Dealers, Inc. under
the symbol “AXIO,” but there is currently no liquid trading market. The
challenge for the Company will be to educate the market as to the values
inherent in a smart card business located in China, and to develop an actively
trading market.
The
transfer agent for our common stock is Guardian Registrar & Transfer, Inc.,
7951 Southwest 6th Street,
Suite 216,
Plantation, FL 33324, Attn: Elson Soto, Jr. Tel:
(954) 915-0105.
Pursuant
to the minutes of a Board meeting held on October 9, 2007, the Board of
Directors of the Company accepted the resignation of Mr. Lawrence Nault,
President of the Company, and Mr. Karl Kapinos as Secretary of the Company.
The
Board appointed Mr. Duane Bennett as Chief Executive Officer of the Company,
effective as of October 9, 2007. Mr. Bennett is also the sole director of the
Registrant.
From
2003
to the present Mr. Bennett has been the founder and a Director of the
Registrant.
From
1997
to 2004, Mr. Bennett was President of ABC Realty, Inc., a publicly reporting
company and a licensed real estate brokerage, which provided real estate
brokerage services within the Charlotte, North Carolina area. Mr. Bennett was
brokering private vacant land development transactions. From 1995 to August
2004, Mr. Bennett was also the President of Xenicent, Inc., a publicly reporting
company that began as a real estate investment company engaged in the purchase
and sale of raw land primarily in and around North Carolina. In 2003, Xenicent
along with Mr. Bennett acting as director and majority shareholder entered
into
a deal to acquire a 60% subsidiary interest in a Taiwanese company called
Giantek Technology Corporation. Giantek was primarily engaged in the production
of light emitting diode (LED) display systems for use in the sport and
transportation industries. In 2004, the 60% subsidiary interest agreement that
was entered into in 2003 was mutually rescinded as a result of an inability
of
the Giantek shareholders to raise the investment capital originally anticipated
in the 2003 agreement.
From
1999
to 2000, Mr. Bennett was the sole owner, president, and chief executive officer
of Internet Funding Corp., a private company which sought to develop the
operations of and arrange capital financing for development stage Internet
companies in the Charlotte, North Carolina area. From 1991 until 1995, Mr.
Bennett was chief executive officer and president of Bennett International
Businesses, a sole proprietorship he owned, based in Charlotte, North Carolina.
He was in charge of revising all business plans for potential private
investment, as well as a proposal to build 129,000 prefabricated houses per
year
in five separate factories. The houses were to be built out of steel and cement
and lifted by crane to their final location. Mr. Bennett did construct a model
prototype; however, the project never came to fruition. Bennett International
Businesses also explored investment opportunities in China, Mexico, South Africa
and Chile. From 1995 to 1996, Mr. Bennett also operated Premier Builders and
Developers, a company that developed land in the Charlotte, North Carolina
area.
From 1991 to 1996, Mr. Bennett was the sole owner and president of Goodex,
Inc.,
a private company involved in buying, selling, and renovating homes in the
Springfield, Massachusetts area.
As
a
result of the exchange of a majority of AXIO’s common stock for all of the share
capital of Eastern Concept, the Eastern Concept Shareholder and his designee
have acquired majority control of the outstanding common stock of AXIO and
have
appointed their candidate to the Board of Directors at closing. Mr. Benny Lee
is
the sole director since the resignation of Mr. Bennett.
As
of the
Closing of the acquisition of Foshan, Benny Lee remained as a Director and
he
remained the Chief Executive Officer, Chief Financial Officer and Secretary
of
the Registrant. The new Board of Directors will continue to consist of Mr.
Benny
Lee, as the sole director.
Reference
is made to pages 19-20 hereof for a complete biography of the new director
and
executive officer of the Company.
The
Registrant discloses that there are no transactions since the beginning of
its
last fiscal year, or any currently proposed transaction, in which the Registrant
was or is to be a participant and the amount involved exceeds the lesser of
$120,000 or one percent of the average of the Registrant’s total assets at
year-end for the last three completed fiscal years, and in which Mr. Benny
Lee
had or will have a direct or indirect material interest, other than the Benny
Lee’s ownership of shares of common stock in the Registrant pursuant to the
Agreement. Such beneficial ownership is set forth in the table under the caption
“Security Ownership of Certain Beneficial Owners and Management.” In addition,
the Registrant does not have an employment contract with Mr. Lee.
As
a
result of the consummation of the transactions contemplated by the Agreement,
AXIO believes that it will no longer be a “shell company;” as that term is
defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
Item
9.01. Financial
Statements and Exhibits
(a) Financial
Statements of Businesses Acquired.
In
accordance with Item 9.01(a), Foshan’s Balance Sheets as of June 30, 2007,
December 31, 2006 and December 31, 2005 and the related consolidated statements
of operations, shareholders' equity and cash flows for the six months ended
June
30, 2007, the year ended December 31, 2006 and the period from November 4,
2005
(date of incorporation) to December 31, 2005 have been attached as Exhibit
99.1
hereto.
(b) Pro
Forma Financial Information.
In
accordance with Item 9.01(b), the Company’s pro forma financial statements are
filed in this Current Report on Form 8-K as Exhibit 99.2.
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report on Form 8-K.
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2.1
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Share
Exchange Agreement by and among AXIO, Bennett, Eastern Concept, the
Eastern Concept Shareholder, Foshan and the Foshan Shareholders,
dated
October 10, 2007.
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2.2
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Share
Exchange Agreement by and among Eastern Concept Corporate Consulting
(Shenzhen) Limited, Xinghao LI, and June CHEN, dated November 6,
2007.
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3.1
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Articles
of Incorporation of AXIO (incorporated by reference from Exhibit
3.1 to a
registration statement on Form SB-2 filed with the Commission on
December
3, 2004)
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3.2
|
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By-laws
of AXIO (incorporated by reference from Exhibit 3.2 to a registration
statement on Form SB-2 filed with the Commission on December 3,
2004)
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21.1
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List
of Subsidiaries
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99.1
|
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Consolidated
balance sheets of Foshan and its subsidiary as of June 30, 2007,
December 31, 2006 and December 31, 2005 and the related consolidated
statements of operations, shareholders' equity and cash flows for
the six
months ended June 30, 2007, the year ended December 31, 2006 and
the
period from November 4, 2005 (date of incorporation) to December
31,
2005.
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99.2
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(a) AXIO’s
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 2007.
(b) AXIO’s
Unaudited Pro Forma Condensed Consolidated Statement of Income for
the nine month period ended September 30, 2007.
(c) AXIO’s
Unaudited Pro Forma Condensed Consolidated Statement of Income for
the year ended December 31,
2006.
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SIGNATURES
Pursuant
to the requirements 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.
Date:
November 9, 2007
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AXIOM
III, INC.
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By:
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Benny
Lee
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Chief
Executive Officer
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