UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number: 333-134536
REGAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada Pending
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
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3723 East Maffeo Road
Phoenix, Arizona, USA, 89050
(Address of principal executive offices)
(516) 659-6677
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act:
[ ] Yes [ X ] No
[ ] Yes [X] No
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
Indicate by check mark whether the registrant(1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 day.
[ X ] Yes [ ] No
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Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T
({section}232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer {square} Accelerated filer {square}
Non-accelerated filer {square} Smaller reporting company {checked-box}
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes {checked-box} No {square}.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the last sale price of such common
equity as of August 31, 2009 was: $9,363,333.
The number of shares of the issuer's common stock issued and outstanding as of
May 25, 2010 was 46,816,665.
Documents Incorporated By Reference: None
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TABLE OF CONTENTS
PAGE
PART I
Item 1: Description Of Business................................................4
Item 1A:Risk Factors...........................................................7
Item 1B:Unresolved Staff Comments.............................................15
Item 2: Properties............................................................15
Item 3: Legal Proceedings.....................................................15
Item 4: (Removed and Reserved)................................................15
PART II
Item 5: Market For Registrant's Common Equity, Related Stockholder Matters And
Issuer Purchases of Equity Securities.................................16
Item 6: Selected Financial Data...............................................17
Item 7: Management's Discussion And Analysis of Financial Condition and
Results of Operation..................................................17
Item 7A:Quantitative and Qualitative Disclosures About Market Risk............19
Item 8: Financial Statements and Supplementary Data...........................19
Item 9: Changes In And Disagreements With Accountants On Accounting And
Financial Disclosures.................................................31
Item 9A(T): Controls And Procedures...........................................31
Item 9B:Other Information.....................................................32
PART III
Item 10:Directors, Executive Officers, And Corporate Governance...............32
Item 11:Executive Compensation................................................34
Item 12:Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters...........................................35
Item 13:Certain Relationships And Related Transactions, And Director
Independence..................................................................36
Item 14:Principal Accounting Fees And Services................................36
PART IV
Item 15:Exhibits, Financial Statement Schedules...............................37
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The statements contained in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operations and business, which can be identified by the
use of forward-looking terminology, such as "estimates," "projects," "plans,"
"believes," "expects," "anticipates," "intends," or the negative thereof or
other variations thereon, or by discussions of strategy that involve risks and
uncertainties. Management wishes to caution the reader of the forward-looking
statements that such statements, which are contained in this Annual Report,
reflect our current beliefs with respect to future events and involve known and
unknown risks, uncertainties and other factors, including, but not limited to,
economic, competitive, regulatory, technological, key employee, and general
business factors affecting our operations, markets, growth, services, products,
licenses and other factors discussed in our other filings with the Securities
and Exchange Commission ("SEC"), and that these statements are only estimates or
predictions. No assurances can be given regarding the achievement of future
results, as actual results may differ materially as a result of risks facing us,
and actual events may differ from the assumptions underlying the statements that
have been made regarding anticipated events.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements. Some of these
risks are described in "Risk Factors" in Item 1A of this annual report.
These risk factors should be considered in connection with any subsequent
written or oral forward-looking statements that we or persons acting on our
behalf may issue. All written and oral forward looking statements made in
connection with this Annual Report that are attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these cautionary
statements. Given these uncertainties, we caution investors not to unduly rely
on our forward-looking statements. We do not undertake any obligation to review
or confirm analysts' expectations or estimates or to release publicly any
revisions to any forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events. Further, the information about our intentions contained in this document
is a statement of our intention as of the date of this document and is based
upon, among other things, the existing regulatory environment, industry
conditions, market conditions and prices, the economy in general and our
assumptions as of such date. We may change our intentions, at any time and
without notice, based upon any changes in such factors, in our assumptions or
otherwise.
PART I
ITEM 1: DESCRIPTION OF BUSINESS
IN GENERAL
We were incorporated on July 1, 2005 as "Regal Rock, Inc." under the laws of the
state of Nevada. On December 3, 2007, we changed our name to "Regal Life
Concepts, Inc.," and on March 31, 2010, we changed our name to "Regal Group,
Inc."
We commenced operations as a distributor of bamboo wood flooring products
focused on opportunities created by demand in new residential construction and
home improvement activity in North America. However, there was no assurance that
our initial business model was commercially and economically viable and further
marketing of the product in a broader distribution network was required before
a final evaluation as to the economic feasibility of our initial business plan
could be determined. In light of this uncertainty, we decided to review other
potential opportunities in the hospitality and health and wellness sectors. In
2008, we entered into a standstill Agreement with a Thailand corporation,
Amaravati Inc., whose primary asset is a 50-room spa resort located in Chiang
Mai, Thailand, with an aim to open an opportunity in the hospitality sector in
Thailand. Given the geopolitical uncertainty in China, we have put this project
on hold for the time being.
We are now engaged in the business of acquiring private companies based and
operating in China and providing these companies with support, including
administrative, legal, accounting and marketing assistance. We also plan to
provide these companies with an infusion of capital to further their business
plan. We believe that equity investments in China present one of the most
attractive global investment opportunities available in the coming four
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to seven years. Accordingly, we plan to focus on growth company acquisitions
located in China and to ensure the viability and solvency of our Company, we
have phased out our business line involving the distribution of bamboo
flooring. The local Chinese equity markets are highly concentrated, serving
only a small fraction of the local corporate market. This fact, taken together
with current international economic uncertainty, presents a unique opportunity
to acquire small, growing and profitable Chinese companies at historically
realistic valuations.
As the Chinese government's long-term economic plan is focused on developing
consumer consumption, we previously entered into a Capital Increase and Equity
Investment Agreement, along with related agreements and contracts required by
Chinese regulatory bodies, with Guangzhou AWA Wine Co., Ltd. ("AWA Wine") and a
US$200,000 loan installment was advanced to AWA Wine under the terms of this
agreement. AWA Wine was established in 2005 as a wine importer and distributor
in China and has opened retail and corporate whole outlets throughout China. We
applied for, but to date have not yet received the necessary government
approvals for the establishment of the joint venture under the Chinese rules and
regulations. As a result, and in light of a challenging economic environment
and its impact on the financing of companies in the microcap sector in North
America, we will continue to be China-focused but intend to limit our capital
investment in AWA Wine to funds already advanced. In addition, we have written
off our loan advancement to AWA Wine due to collectability concerns. We now
intend to consider new business acquisitions (on a share swap basis or other
structure) in our efforts in 2010 to create value for shareholders. Chief among
the industry sectors under consideration are the technology, automotive and
pharmaceutical industries.
Subsequent to the fiscal year ended February 28, 2010, the Company entered into
a non-binding letter of intent with UHF Logistics Limited ("UHF"), in Hong Kong,
to acquire 100% of the equity of UHF in exchange for approximately 35% of the
equity of Regal, subject to confirmatory due diligence. The purchase price will
be paid by the issuance of restricted shares in the capital of the Company on
the date of acquisition. As of the date of this Annual Report, a formal
agreement has not been executed.
UHF owns 100% of the capital stock of Shenzhen RPD Electronics Technology Co.
(RPD) in the People's Republic of China. RPD specializes in the development,
production, and sales of RFID UHF (ultrahigh frequency) hardware, including UHF
readers, antenna and tags. The company owns intellectual property rights to its
next generation RFID technology platform and its RFID products are designed for
a broad range of applications that span personal and property safety and
security management, e-ticketing management, tracking in animal breeding,
pharmaceutical product fraud prevention, and warehouse/inventory control.
While UHF has sold RFID systems and products worldwide (including Pakistan,
Taiwan and Saudi Arabia) the company will focus its sales efforts in Asia, and
primarily China.
We are committed to employing a rigorous, targeted investment approach to the
growth of the Company and our acquisition of operating companies in China. We do
not intend to invest in Chinese development stage companies that lack proven
technologies, market acceptance or a demonstrated business model. We will target
companies where the technology risk is limited and there is a normal business
risk of expansion and execution of a business plan. In most cases, target
companies will have an established market presence and base of revenue with a
management team committed to, and capable of, executing a successful growth
strategy.
INDUSTRY OVERVIEW
CHINA, IN GENERAL
In the 1980s, China tried to combine central planning with market-oriented
reforms to increase productivity, living standards, and technological quality
without exacerbating inflation, unemployment, and budget deficits. Other than
pursuing agricultural reforms, China encouraged nonagricultural activities such
as promoting more self-management for state-owned enterprises, increased
competition in the marketplace, and facilitated direct contact between Chinese
and foreign trading enterprises. China also relied more upon foreign financing
and imports.
The market-oriented reforms China has implemented over the past two decades have
unleashed individual initiative and entrepreneurship. The result has been the
largest reduction of poverty and one of the fastest increases in income levels
ever seen. It has sustained average annual economic growth of over 9.5% for the
past 26 years. China in
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2009 stood as the second-largest economy in the world after the US with a GDP
of $8.77 trillion when measured on a "Purchasing power parity" (PPP) basis.
Despite the recent global economic slowdown, China's output continues to
increase, as evidenced by GDP growth of 8.7% for 2009. As the Chinese continue
to execute on a long-term strategy to develop a planned, market driven economy,
accompanied by substantial growth in its middle class (reaching 250 million in
China), we anticipate this will have a profound positive impact on some of our
current and planned investment activities in the country.
China has witnessed a marked transition of its population from rural areas to
urban areas. Today, the urban population of China is approximately 585 million
and it is expected to grow by over 300 million within 15 years. There are 51
cities in China with a population over 1 million. In comparison, there are only
9 of such cities in the United States. This trend will likely generate growing
demand for infrastructure, social services, transportation systems,
environmental and pollution control, as well as demand for consumer products and
services, ranging from household appliances to entertainment.
The Chinese economy is rapidly and fundamentally transforming itself and the
country under the guidance and through the policies of the Chinese Communist
Party and the Central Government. Their policies are in pursuit of long-term
goals and are not reoriented or refocused in response to short-term issues. The
policies themselves are based on the principle of having a "harmonious society"
through developing the health and wealth of the people through "market
socialism," which entails policies to assure market stability and economic
growth.
COMPLIANCE WITH GOVERNMENT REGULATION
Government regulations relating to foreign exchange controls
The principal regulation governing foreign exchange in China is the Foreign
Currency Administration Rules (IPPS), as amended. Under these rules, the
Renminbi (RMB"), China's currency, is freely convertible for trade and service
related foreign exchange transactions, but not for direct investment, loan or
investment in securities outside of China unless the prior approval of the State
Administration for Foreign Exchange ("SAFE") of China is obtained. Foreign
investment enterprises ("FIEs") are required to apply to the SAFE for "Foreign
Exchange Registration Certificates for FIEs." Following a business acquisition,
we will likely acquire an FIE as a result of our ownership structure. With such
registration certificates, which need to be renewed annually, FIEs are allowed
to open foreign currency accounts including a "basic account", such as
remittance of foreign currencies for payment of dividends, can be effected
without requiring the approval of the SAFE. However, conversion of currency in
the "capital account", including capital terms such as direct investment, loans
and securities, still require approval of the SAFE. This prior approval may
delay or impair our ability to operate following a business combination.
EMPLOYEES
We have no employees as of the date of this Annual Report other than our two
directors.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have not incurred any research or development expenditures since our
incorporation.
SUBSIDIARIES
We do not have any subsidiaries.
PATENTS AND TRADEMARKS
We do not own, either legally or beneficially, any patents or trademarks.
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ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
Annual Report before investing in our common stock. If any of the following
risks occur, our business, operating results and financial condition could be
seriously harmed. The trading price of our common stock could decline due to any
of these risks, and you may lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS MAY FAIL.
Our business plan calls for ongoing expenses in connection with the marketing of
the health, wellness and lifestyle portfolios and the acquisition of growing
Chinese companies. We have not generated any revenue from operations to date.
At February 28, 2010, we had cash on hand of $191,699 and we have accumulated a
deficit of $763,052 in business development and administrative expenses during
the most recent fiscal year. At this rate, we expect that we will only be able
to continue operations for six months without additional funding. We anticipate
that additional funding will be needed for general administrative expenses and
marketing costs.
In order to expand our business operations, we anticipate that we will have to
raise additional funding. If we are not able to raise the funds necessary to
fund our business expansion objectives, we may have to delay the implementation
of our business plan.
We do not currently have any arrangement for financing. Obtaining additional
funding will be subject to a number of factors, including general market
conditions, investor acceptance of our business plan and initial results from
our business operations. These factors may impact the timing, amount, terms or
conditions of additional financing available to us. The most likely source of
future funds presently available to us is through the sale of additional shares
of common stock.
BECAUSE WE HAVE NOT YET COMMENCED BUSINESS OPERATIONS, WE FACE A HIGH RISK OF
BUSINESS FAILURE.
We were incorporated on July 1, 2005 and to date have been involved primarily in
organizational activities and undertaking project due diligence on various
investment prospects. We have not earned revenues as of the date of this Annual
Report and have incurred total losses of $763,052 from our incorporation to
February 28, 2010.
Accordingly, you cannot evaluate our business, and therefore our future
prospects, due to a lack of operating history. To date, our business development
activities have consisted of negotiating and executing a marketing and sales
distribution agreement with Shaowau Yuxing Bamboo Products Co., Ltd., a private
Chinese company that manufactures bamboo flooring products, and initial
marketing of bamboo floor products. In the prior year, we contracted a
potential capital increase and equity investment in Guangzhou AWA Wine Co., Ltd,
a wine importer and distributor in Guangzhou, China which is subject to the
Chinese Regulatory approval. Subsequent to the year ended February 28, 2010, we
entered into a non-binding letter of intent with UHF Logistics Limited ("UHF"),
in Hong Kong, to acquire 100% of the equity of UHF subject to confirmatory due
diligence. As of the date of this Annual Report, a formal agreement has not been
executed. Potential investors should be aware of the difficulties normally
encountered by development stage companies and the high rate of failure of such
enterprises.
WE NEED TO CONTINUE AS A GOING CONCERN IF OUR BUSINESS IS TO SUCCEED.
Our business condition, as indicated in our independent accountant's audit
report, raises substantial doubt as to our continuance as a going concern. To
date, we have completed only part of our business plan and we can provide no
assurance that we will be able to generate enough revenue from our business in
order to achieve profitability. It is not possible at this time for us to
predict with assurance the potential success of our business.
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BECAUSE MANAGEMENT HAS NO EXPERIENCE IN THE SPECIFIC BUSINESS SECTORS OF
COMPANIES THAT WE HAVE ACQUIRED, AND MAY NOT HAVE EXPERIENCE IN THE SPECIFIC
BUSINESS SECTORS OF COMPANIES THAT WE MAY TARGET FOR ACQUISITION PURPOSES IN THE
FUTURE, OUR BUSINESS HAS A HIGHER RISK OF FAILURE.
Our directors do not have specific industry knowledge or skill sets relevant to
the business sectors of companies that we have acquired, and may not have the
experience related to companies that we may target for acquisition purposes in
the future.. As a result, we may not be able to recognize and take advantage of
product and market trends in such target sector. Further, our directors'
decisions and choices may not be well thought out and our operations, earnings
and ultimate financial success may suffer irreparable harm as a result.
ANY ADDITIONAL FUNDING WE ARRANGE THROUGH THE SALE OF OUR COMMON STOCK WILL
RESULT IN DILUTION TO EXISTING SHAREHOLDERS.
We must raise additional capital in order for our business plan to succeed. Our
most likely source of additional capital will be through the sale of additional
shares of common stock. Such stock issuances will cause stockholders' interests
in our Company to be diluted. Such dilution will negatively affect the value of
an investor's shares.
BECAUSE OUR PRESIDENT AND DIRECTOR AND OFFICER COLLECTIVELY OWN 45% OF OUR
OUTSTANDING COMMON STOCK, THEY CAN COLLECTIVELY MAKE AND CONTROL CORPORATE
DECISIONS THAT MAY BE DISADVANTAGEOUS TO MINORITY SHAREHOLDERS.
Mr. Eric Wildstein, our President and director, and Mr. Parrish Medley, a
director of the Company, collectively own approximately 45% of the outstanding
shares of our common stock. Accordingly, they will have significant influence
in determining the outcome of all corporate transactions or other matters,
including the election of directors, mergers, consolidations and the sale of all
or substantially all of our assets, and also the power to prevent or cause a
change in control. The interests of these individuals may differ from the
interests of the other stockholders and thus result in corporate decisions that
are disadvantageous to other minority shareholders.
OUR OPERATIONS SUBJECT US TO RISKS RELATING TO CURRENCY RATE FLUCTUATIONS,
INTEREST RATE FLUCTUATIONS AND GEOPOLITICAL UNCERTAINTY WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We do business in different countries throughout the world and, therefore, are
subject to risks associated with currency fluctuations. We are also exposed to
risks associated with interest rate fluctuations. We intend to manage our
exposure to foreign currency and interest rate risks through various means
including possible utilizing derivative instruments. We, however, could
experience changes in our ability to hedge against or manage fluctuations in
foreign currency exchange rates or interest rates and, accordingly, there can be
no assurance that we will be successful in reducing those risks. We could also
be affected by nationalizations or unstable governments or legal systems or
intergovernmental disputes. These currency, economic and political
uncertainties could have a material adverse effect on our results of operations
and financial condition.
IF WE ARE DEEMED TO BE AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT,
WE COULD BE SUBJECT TO RESTRICTIVE AND COSTLY REGULATION.
We do not believe that our anticipated principal activities will subject us to
the Investment Company Act of 1940 ("1940 Act"), and we intend to conduct our
activities and invest the proceeds of any transaction so as to avoid being
classified as such. However, it is possible that we could be deemed to be an
"investment company" under the 1940 Act if more than a specified percentage of
our assets are held in investment securities as defined in the 1940 Act. Our
plan of operation for the next twelve months is to devote our business efforts
to acquiring prospective private companies based and operating in China and
providing these companies with support, including administrative, legal,
accounting and marketing assistance. In order not to be regulated as an
investment company under the 1940 Act, unless we can qualify for an exclusion,
we must ensure that we are engaged primarily in a business other than investing,
reinvesting or trading of securities and that our activities do not include
investing, reinvesting, owning, holding or trading "investment securities"
constituting more than 40% of our assets (exclusive of U.S. government
securities and cash items) on an unconsolidated basis. We do not plan to buy
businesses or assets with a view to resale or profit from their resale. We do
not plan to buy unrelated businesses or assets or to be a passive investor.
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The 1940 Act and the rules and regulations promulgated under the act are
extremely restrictive. Our activities would be restricted, including,
restrictions on the nature of our investments and restrictions on the issuance
of securities, each of which may make it difficult for us to complete a business
transactions. In addition, we may have imposed upon us burdensome requirements,
including registration as an investment company, adoption of a specific form of
corporate structure; and reporting, record keeping, voting, proxy and disclosure
requirements and other rules and regulations. Compliance with the 1940 Act would
be very costly, would require additional expense for which we have not
accounted, and it would be difficult or impossible for us to execute our
business plan.
RISKS RELATED TO DOING BUSINESS IN CHINA
BECAUSE OUR ASSETS ARE LOCATED OVERSEAS, SHAREHOLDERS MAY NOT RECEIVE
DISTRIBUTIONS THAT THEY WOULD OTHERWISE BE ENTITLED TO IF WE WERE DECLARED
BANKRUPT OR INSOLVENT.
We are focused on assets that are located in the PRC. Because these assets are
located overseas, our assets may be outside of the jurisdiction of U.S. courts
to administer if we are the subject of an insolvency or bankruptcy proceeding.
As a result, if we declared bankruptcy or insolvency, our shareholders may not
receive the distributions on liquidation that they would otherwise be entitled
to if our assets were to be located within the U.S., under U.S. Bankruptcy law.
ADVERSE CHANGES IN ECONOMIC AND POLITICAL POLICIES OF THE PRC GOVERNMENT COULD
HAVE A MATERIAL ADVERSE EFFECT ON THE OVERALL ECONOMIC GROWTH OF CHINA, WHICH
COULD ADVERSELY AFFECT OUR BUSINESS.
We are currently focused on businesses whose operations are conducted primarily
in the PRC, under the jurisdiction of the PRC government. Accordingly, our
results of operations, financial condition and prospects are subject to a
significant degree to economic, political and legal developments in China.
China's economy differs from the economies of most developed countries in many
respects, including with respect to the amount of government involvement, level
of development, growth rate, and control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant growth in the past
20 years, growth has been uneven across different regions and among various
economic sectors of China. The PRC government has implemented various measures
to encourage economic development and guide the allocation of resources. Some of
these measures benefit the overall PRC economy, but may also have a negative
effect on us. Our ability to operate in China may be adversely affected by
changes in Chinese laws and regulations, including those relating to taxation,
import and export tariffs, raw materials, environmental regulations, land use
rights, property and other matters. Under the current government leadership,
the government of the PRC has been pursuing economic reform policies that
encourage private economic activity and greater economic
decentralization. There is no assurance, however, that the government of the
PRC will continue to pursue these policies, or that it will not significantly
alter these policies from time to time without notice..
WE MAY EXPERIENCE INCREASED LABOR COSTS AS A RESULT OF CHANGES IN CHINESE LABOR
LAWS.
As we are currently focused on businesses whose operations are conducted in
China, we would expect to experience increased labor cost due to recent changes
in Chinese labor laws which will likely to increase costs of goods and impose
restrictions on our relationship with our employees. In June 2007, the National
People's Congress of the PRC enacted new labor law legislation called the Labor
Contract Law and more strictly enforced existing labor laws. The new law, which
became effective on January 1, 2008, amended and formalized workers' rights
concerning overtime hours, pensions, layoffs, employment contracts and the role
of trade unions. In addition, under the new law, employees who either have
worked for the Company for 10 years or more or who have had two consecutive
fixed-term contracts must be given an "open-ended employment contract" that, in
effect, constitutes a lifetime, permanent contract, which is terminable only in
the event the employee materially breaches the Company's rules and regulations
or is in serious dereliction of his duty. Such non-cancelable employment
contracts will substantially increase its employment related risks and limit the
Company's ability to downsize its workforce in the event of an
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economic downturn. No assurance can be given that the Company will not in the
future be subject to labor strikes or that it will not have to make other
payments to resolve future labor issues caused by the new laws. Furthermore,
there can be no assurance that the labor laws will not change further or that
their interpretation and implementation will vary, which may have a negative
effect upon our business and results of operations.
UNCERTAINTIES WITH RESPECT TO THE CHINESE LEGAL SYSTEM COULD HAVE A MATERIAL
ADVERSE EFFECT ON US.
We conduct substantially all of our business in China and are generally subject
to laws and regulations applicable to foreign investment in China. China's legal
system is based on written statutes. Unlike the common law system prevalent in
the United States, decided legal cases have little value as precedent in
China. Prior court decisions may be cited for reference but have limited
precedential value. There are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including but not
limited to, governmental approvals required for conducting business and
investments, laws and regulations governing the electronics business and
electric product safety, national security-related laws and regulations and
export/import laws and regulations, as well as commercial, antitrust, patent,
product liability, environmental laws and regulations, and financial and
business taxation laws and regulations.
The Chinese government has been developing a comprehensive system of commercial
laws, and considerable progress has been made in introducing laws and
regulations dealing with economic matters. However, because these laws and
regulations are relatively new, and because of the limited volume of published
cases and judicial interpretation and their lack of force as precedents,
interpretation and enforcement of these laws and regulations involve significant
uncertainties. New laws and regulations that affect existing and proposed
future businesses may also be applied retroactively.
INVESTORS MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS,
ENFORCING FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN CHINA BASED UPON
U.S. LAWS, INCLUDING THE FEDERAL SECURITIES LAWS OR OTHER FOREIGN LAWS AGAINST
US OR OUR MANAGEMENT.
Most of our current and prospective operations are conducted in China. Some of
our future directors and officers may be nationals and residents of China. All
or substantially all of the assets of these persons are located outside the
United States and in the PRC. As a result, it may not be possible to effect
service of process within the United States or elsewhere outside China upon
these persons. In addition, uncertainty exists as to whether the courts of China
would recognize or enforce judgments of U.S. courts obtained against us or such
officers and/or directors predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent to
hear original actions brought in China against us or such persons predicated
upon the securities laws of the United States or any state thereof.
GOVERNMENTAL CONTROL OF CURRENCY CONVERSION MAY AFFECT THE VALUE OF YOUR
INVESTMENT.
The Chinese government imposes controls on the convertibility of RMB into
foreign currencies and, in certain cases, the remittance of currency out of
China. We expect in the future to receive substantially all of our revenues in
RMB. Shortages in the availability of foreign currency may restrict the ability
of our Chinese subsidiaries and our affiliated entity to remit sufficient
foreign currency to pay dividends or other payments to us, or otherwise satisfy
their foreign currency denominated obligations. Under existing Chinese foreign
exchange regulations, payments of current account items, including profit
distributions, interest payments and expenditures from trade-related
transactions, can be made in foreign currencies without prior approval from
China State Administration of Foreign Exchange by complying with certain
procedural requirements. However, approval from appropriate government
authorities is required where RMB 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 Chinese 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 us from
obtaining sufficient foreign currency to satisfy our currency demands, we may
not be able to pay dividends in foreign currencies to our stockholders.
10
FLUCTUATION IN THE VALUE OF RMB MAY HAVE A MATERIAL ADVERSE EFFECT ON YOUR
INVESTMENT.
The value of RMB against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in political and economic
conditions. Our revenues and costs are expected to be mostly denominated in RMB,
while a significant portion of our financial assets are denominated in U.S.
dollar. Any significant fluctuation in the value of RMB may materially and
adversely affect our cash flows, revenues, earnings and financial position, and
the value of, and any dividends payable on, our stock in U.S. dollar. For
example, an appreciation of RMB against the U.S. dollar would make any new RMB
denominated investments or expenditures more costly to us, to the extent that we
need to convert U.S. dollar into RMB for such purposes.
Since 1994, the value of the RMB relative to the U.S. Dollar has remained stable
and has appreciated slightly against the U.S. Dollar. Countries, including the
United States, have argued that the RMB is artificially undervalued due to
China's current monetary policies and have pressured China to allow the RMB to
float freely in world markets. In July 2005, the PRC government changed its
policy of pegging the value of the RMB to the dollar. Under the new policy the
RMB is permitted to fluctuate within a narrow and managed band against a basket
of designated foreign currencies. While the international reaction to the RMB
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 further and more significant appreciation of the RMB
against the dollar.
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. According to the National Bureau of Statistics of China, the
inflation rate in China reached a high point of 4.8% in 2007 as compared to the
past several years. The inflation rate in China was 4.7% in 2008. The
inflation rate is expected to continue to increase in 2009. If prices for our
products and services rise at a rate that is insufficient to compensate for the
rise in the costs of supplies such as raw materials, it may have an adverse
effect on our profitability.
Furthermore, in order to control inflation in the past, the PRC government has
imposed controls on bank credits, limits on loans for fixed assets and
restrictions on state bank lending. The implementation of such policies may
impede economic growth. In October 2004, the People's Bank of China, the PRC's
central bank, raised interest rates for the first time in nearly a decade and
indicated in a statement that the measure was prompted by inflationary concerns
in the Chinese economy. In April 2006, the People's Bank of China raised the
interest rate again. Repeated rises in interest rates by the central bank would
likely slow economic activity in China which could, in turn, materially increase
our costs and also reduce demand for our products and services.
FAILURE TO COMPLY WITH THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT COULD
SUBJECT US TO PENALTIES AND OTHER ADVERSE CONSEQUENCES.
We are a Nevada corporation, and as a result, we are subject to the United
States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. Foreign
companies, including some that may compete with us, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices may occur from time-to-time in the PRC. We can make no
assurance, however, that our agents or potential consultants will not engage in
such conduct for which we might be held responsible. If our agents or potential
consultants are found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse effect on our
business, financial condition and results of operations.
11
IF WE MAKE EQUITY COMPENSATION GRANTS TO PERSONS WHO ARE PRC CITIZENS, THEY MAY
BE REQUIRED TO REGISTER WITH THE STATE ADMINISTRATION OF FOREIGN EXCHANGE OF THE
PRC, OR SAFE. WE MAY ALSO FACE REGULATORY UNCERTAINTIES THAT COULD RESTRICT OUR
ABILITY TO ADOPT AN EQUITY COMPENSATION PLAN FOR OUR DIRECTORS AND OFFICER AND
OTHER PARTIES UNDER PRC LAW.
On April 6, 2007, State Administration of Foreign Exchange in China ("SAFE")
issued the "Operating Procedures for Administration of Domestic Individuals
Participating in the Employee Stock Ownership Plan or Stock Option Plan of An
Overseas Listed Company, also known as "Circular 78." It is not clear whether
Circular 78 covers all forms of equity compensation plans or only those which
provide for the granting of stock options. For any plans which are so covered
and are adopted by a non-PRC listed company after April 6, 2007, Circular 78
requires all participants who are PRC citizens to register with and obtain
approvals from SAFE prior to their participation in the plan. In addition,
Circular 78 also requires PRC citizens to register with SAFE and make the
necessary applications and filings if they participated in an overseas listed
company's covered equity compensation plan prior to April 6, 2007. We intend to
adopt an equity compensation plan in the future and make option grants to our
officers and directors who might be PRC citizens. Circular 78 may require our
officers and directors who receive option grants and are PRC citizens to
register with SAFE. We believe that the registration and approval requirements
contemplated in Circular 78 will be burdensome and time consuming. If it is
determined that any of our equity compensation plans are subject to Circular 78,
failure to comply with such provisions may subject us and participants of our
equity incentive plan who are PRC citizens to fines and legal sanctions and
prevent us from being able to grant equity compensation to our future PRC
employees. In that case, our ability to compensate our future employees and
directors through equity compensation would be hindered and our business
operations may be adversely affected.
WE FACE RISKS RELATED TO HEALTH EPIDEMICS AND OTHER OUTBREAKS.
Our business could be adversely affected by the effects of an epidemic outbreak,
such as the SARS epidemic in April 2004, Avian Flu, Swine Flu or another
widespread public health problem in China. Any prolonged recurrence of such
adverse public health developments in China may have a material adverse effect
on our business operations. For instance, health or other government regulations
adopted in response may require temporary closure of our stores or offices. Such
closures would severely disrupt our business operations and adversely affect our
results of operations. We have not adopted any written preventive measures or
contingency plans to combat any future outbreak of SARS or any other epidemic.
BECAUSE OUR TARGETED BUSINESSES FOR ACQUISITION PURPOSES ARE LOCATED IN THE PRC,
WE MAY HAVE DIFFICULTY ESTABLISHING ADEQUATE MANAGEMENT, LEGAL AND FINANCIAL
CONTROLS, WHICH WE ARE REQUIRED TO DO IN ORDER TO COMPLY WITH U.S. GAAP AND
SECURITIES LAWS, AND WHICH COULD CAUSE A MATERIALLY ADVERSE IMPACT ON OUR
FINANCIAL STATEMENTS, THE TRADING OF OUR COMMON STOCK AND OUR BUSINESS.
PRC companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. Typical middle and top management staff in Chinese companies are not
educated and trained in the Western system, and we may difficulty hiring
employees in the PRC with experience and expertise relating to U.S. GAAP and
U.S. public-company reporting requirements. In addition, we may have difficulty
in hiring and retaining a sufficient number of qualified employees to work in
the PRC. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. Therefore, we may,
in turn, experience difficulties in implementing and maintaining adequate
internal controls as required under Section 404 of the Sarbanes-Oxley Act of
2002. This may result in significant deficiencies or material weaknesses in our
internal controls which could impact the reliability of our financial statements
and prevent us from complying with SEC rules and regulations and the
requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, material
weaknesses or lack of compliance could result in restatements of our historical
financial information, cause investors to lose confidence in our reported
financial information, have an adverse impact on the trading price of our common
stock, adversely affect our ability to access the capital markets and our
ability to recruit personnel, lead to the delisting of our securities from the
stock exchange on which they may be
12
traded, lead to litigation claims, thereby diverting management's attention and
resources, and which may lead to the payment of damages to the extent such
claims are not resolved in our favor, lead to regulatory proceedings, which may
result in sanctions, monetary or otherwise, and have a materially adverse effect
on our reputation and business.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
OUR STOCK IS CATEGORIZED AS A PENNY STOCK. TRADING OF OUR STOCK MAY BE
RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS WHICH MAY LIMIT A SHAREHOLDER'S
ABILITY TO BUY AND SELL OUR STOCK.
Our stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which
generally defines "penny stock" to be any equity security that has a market
price (as defined) less than US$ 5.00 per share or an exercise price of less
than US$ 5.00 per share, subject to certain exceptions. Our securities are
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and accredited investors. The penny stock rules require a broker-
dealer, prior to a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized risk disclosure document in a form prepared by
the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A SHAREHOLDER'S ABILITY TO BUY
AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE, WHICH COULD NEGATIVELY
AFFECT SHAREHOLDERS' INVESTMENTS.
The market price for shares of our common stock may be volatile and may
fluctuate based upon a number of factors, including, without limitation,
business performance, news announcements or changes in general market
conditions.
Other factors, in addition to the those risks included in this section, that may
have a significant impact on the market price of our common stock include, but
are not limited to:
. receipt of substantial orders or order cancellations of products;
. quality deficiencies in services or products;
. international developments, such as technology mandates, political developments or changes in economic policies;
. changes in recommendations of securities analysts;
. shortfalls in our backlog, revenues or earnings in any given period relative to the levels expected by securities analysts
or projected by us;
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. government regulations, including stock option accounting and tax regulations;
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. energy blackouts;
. acts of terrorism and war;
. widespread illness;
. proprietary rights or product or patent litigation;
. strategic transactions, such as acquisitions and divestitures;
. rumors or allegations regarding our financial disclosures or practices; or
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. earthquakes or other natural disasters concentrated in Hubei, China where a significant portion of our operations are
based.
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In the past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its
securities. Due to changes in the volatility of our common stock price, we may
be the target of securities litigation in the future. Securities litigation
could result in substantial costs and divert management's attention and
resources.
TO DATE, WE HAVE NOT PAID ANY CASH DIVIDENDS AND NO CASH DIVIDENDS WILL BE PAID
IN THE FORESEEABLE FUTURE.
We do not anticipate paying cash dividends on our common stock in the
foreseeable future and we may not have sufficient funds legally available to pay
dividends. Even if the funds are legally available for distribution, we may
nevertheless decide not to pay any dividends. We presently intend to retain all
earnings for our operations.
OUR COMMON SHARES ARE NOT CURRENTLY TRADED AT HIGH VOLUME, AND YOU MAY BE UNABLE
TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO SELL OR LIQUIDATE A
SUBSTANTIAL NUMBER OF SHARES AT ONE TIME.
We cannot predict the extent to which an active public market for its common
stock will develop or be sustained. However, we do not rule out the possibility
of applying for listing on the NYSE Amex LLC (formerly known as American Stock
Exchange) or NASDAQ Capital Market or other markets.
Our common shares are currently traded, but currently with low volume, based on
quotations on the "Over-the-Counter Bulletin Board", meaning that the number of
persons interested in purchasing our common shares at or near bid prices at any
given time may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are a small
company which is still relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give you any
assurance that a broader or more active public trading market for our common
stock will develop or be sustained, or that trading levels will be sustained.
14
Shareholders should be aware that, according to SEC Release No. 34-29093, the
market for "penny stocks" has suffered in recent years from patterns of fraud
and abuse. Such patterns include (1) control of the market for the security by
one or a few broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to
be in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the future volatility of our share price.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that involve risks and
uncertainties. We use words such as anticipate, believe, plan, expect, future,
intend and similar expressions to identify such forward-looking statements. You
should not place too much reliance on these forward-looking statements. Our
actual results are most likely to differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced by
us described in the "Risk Factors" section and elsewhere in this annual report.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2: PROPERTIES
The Company does not have own or lease any property.
ITEM 3: LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against us.
ITEM 4: (REMOVED AND RESERVED)
15
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock has been quoted on the OTC Bulletin Board since February 13,
2007. Its initial trading symbol was "RGLC." Subsequent to the fiscal year
ended February 28, 2010, the stock symbol was changed to "RGLG" as a result of a
change of our Company's name to Regal Group, Inc. on March 31, 2010.
The following quotations reflect the high and low bids for our common stock for
each quarter during fiscal 2010 and 2009, based on inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions:
---------------------------------------------------------------
|NATIONAL ASSOCIATION OF SECURITIES DEALERS OTC BULLETIN BOARD
---------------------------------------------------------------
| QUARTER ENDED | HIGH | LOW |
---------------------------------------------------------------
| February 28, 2010 | $0.19 | 0.06 |
---------------------------------------------------------------
| November 30, 2009 | $0.28 | $0.05 |
---------------------------------------------------------------
| August 31, 2009 | $0.30 | $0.16 |
---------------------------------------------------------------
| May 31, 2009 | $0.60 | $0.16 |
---------------------------------------------------------------
| February 28, 2009 | $0.59 | $0.35 |
---------------------------------------------------------------
| November 30, 2008 | $1.06 | $0.46 |
---------------------------------------------------------------
| August 31, 2008 | $1.09 | $0.77 |
---------------------------------------------------------------
| May 31, 2008 | $0.80 | $0.58 |
---------------------------------------------------------------
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On November 13, 2007, we effected a 5:1 forward split of our share capital such
that every one share of common stock issued and outstanding prior to the split
was exchanged for five post-split shares of common stock. We also changed our
post-split authorized capital to 100,000,000 shares of common stock with a par
value of $0.001 per share. All share amounts were retroactively adjusted for all
periods presented.
HOLDERS
We have 29 shareholders of record as at the date of this Annual Report.
DIVIDENDS
There are no restrictions in our articles of incorporation or bylaws that
prevent us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend:
1. we would not be able to pay our debts as they become due in the usual
course of business; or
2. our total assets would be less than the sum of our total liabilities plus
the amount that would be needed to satisfy the rights of shareholders who
have preferential rights superior to those receiving the distribution.
We have not declared any dividends, and we do not plan to declare any dividends
in the foreseeable future.
16
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
As of February 28, 2010, we had no compensation plans under which our equity
securities are authorized for issuance.
RECENT SALES OF UNREGISTERED SECURITIES
None.
ISSUER REPURCHASES OF EQUITY SECURITIES
None.
STOCK OPTION GRANTS
To date, we have not granted any stock options.
REGISTRATION RIGHTS
We entered into a registration rights agreement dated November 9, 2007, wherein
we undertook to prepare and file a registration statement covering: (i) 133,333
shares of our common stock; and (ii) 133,333 shares of common stock underlying
warrant issued pursuant to an offering conducted by the Company in November
2007.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this Annual Report.
The following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward looking statements. Factors that could cause or
contribute to such differences include those discussed below and elsewhere in
this Annual Report, particularly in the section entitled "Risk Factors"
beginning on page 7 of this Annual Report.
Our plan of operation for the next twelve months is to devote our business
efforts to acquiring prospective private companies based and operating in China
and providing these companies with support, including administrative, legal,
accounting and marketing assistance. We also intend to investigate further the
RFID opportunities in China. We believe that investments in China present one
of the most attractive global investment opportunities available in the coming
years. The local Chinese equity markets are highly concentrated, serving only a
small fraction of the local corporate market. This fact, taken together with
current international economic uncertainty, presents a unique opportunity to
acquire small, growing and profitable Chinese companies at historically
realistic valuations.
In identifying, evaluating and selecting a target business, we may encounter
intense competition from other entities having a business objective similar to
ours and with greater resources. Additionally, we may be subject to competition
from other companies seeking to expand their operations through the acquisition
of a target business. Many of these entities are well established and have
extensive experience identifying and effecting business combinations directly or
through affiliates. Many of these competitors possess greater technical, human
and other resources than us, and our financial resources will be relatively
limited when contrasted with those of many of these competitors. While we
believe there may be numerous potential target businesses that we could acquire,
our ability to compete in acquiring certain sizable target businesses will be
limited by our available financial resources. This inherent competitive
limitation gives others an advantage in pursuing the acquisition of a target
business. Our management believes, however, that our status as a public entity
and potential access to the United States public
17
equity markets may give us a competitive advantage over privately-held entities
having a similar business objective as ours in acquiring a target business with
significant growth potential on favourable terms.
We do not believe that our anticipated principal activities will subject us to
the Investment Company Act of 1940 ("1940 Act"), and we intend to conduct our
activities and invest the proceeds of any transaction so as to avoid being
classified as such. However, it is possible that we could be deemed to be an
"investment company" under the 1940 Act if more than a specified percentage of
our assets are held in investment securities as defined in the 1940 Act. In
order not to be regulated as an investment company under the 1940 Act, unless we
can qualify for an exclusion, we must ensure that we are engaged primarily in a
business other than investing, reinvesting or trading of securities and that our
activities do not include investing, reinvesting, owning, holding or trading
"investment securities" constituting more than 40% of our assets (exclusive of
U.S. government securities and cash items) on an unconsolidated basis. We do not
plan to buy businesses or assets with a view to resale or profit from their
resale, and we do not plan to buy unrelated businesses or assets or to be a
passive investor.
The 1940 Act and the rules and regulations promulgated under the act are
extremely restrictive. Further, if we were deemed to be an investment company,
compliance with the 1940 Act would be very costly, would require additional
expense for which we have not accounted, and it would be difficult or impossible
for us to execute our business plan.
We intend to retain one full-time sales and marketing coordinator in the next
six months to handle business development, marketing and promotion aspects of
the China projects. Other than as disclosed herein, we have no plans to
significantly change our number of employees for the next 12 months.
We therefore expect to incur the following costs in the next 12 months in
connection with our business operations:
Marketing costs: $20,000
General administrative costs: $30,000
Total: $50,000
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In addition, we anticipate spending an additional $10,000 on professional fees.
Total expenditures over the next 12 months are therefore expected to be $60,000.
We do not have sufficient funds on hand to undertake intended business
operations although our cash reserves are sufficient to meet our obligations for
the next twelve-month period. As a result, we will need to seek additional
funding in the near future.
We previously completed a private placement of US$750,000 and issued 666,665
common shares for the exercise of 666,665 warrants for total proceeds of
$133,333. Although upon the exercise of the non-expired warrants underlying the
placement we will have sufficient funds for any immediate working capital needs,
additional funding may still be required in the form of equity financing from
the sale of our common stock. However, we do not have any arrangements in place
for any future equity financing.
We may also seek to obtain short-term loans from our directors. At this time,
we cannot provide investors with any assurance that we will be able to raise
sufficient funding from the sale of our common stock or through a loan from our
directors to meet our obligations over the next twelve months. We do not have
any arrangements in place for any future equity financing.
If we are unable to raise the required financing, we will be delayed in
conducting our business plan.
Our ability to generate sufficient cash to support our operations will be based
solely upon the business activities of the future acquired businesses located in
China. Accordingly, at the present time, there is substantial doubt about our
ability to continue as a going concern, as the continuation of our business is
dependent upon obtaining further long-term financing, successful and sufficient
market acceptance of our products and achieving a profitable level of
operations. The issuance of additional equity securities by us could result in
a significant dilution in the equity
18
interests of our current stockholders. Obtaining commercial loans, assuming
those loans would be available, will increase our liabilities and future cash
commitments.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2010
We did not earn any revenues during the fiscal year ended February 28, 2010. We
have not fully implemented our sales and marketing strategy for our wine
distribution business can therefore provide no assurance that our business model
and plan is economically feasible.
We incurred operating expenses in the amount of $174,484 for the year ended
February 28, 2010. These operating expenses were comprised of amortization
charges of $817, bank charges and interest fees of $374, filing and transfer
agent fees of $4,000, management fees of $22,500, office expenses of $10,983,
professional fees of $61,740 and travel and promotional costs of $74,070.
Our net loss of $374,484 in fiscal 2010 was higher than fiscal 2009's $262,286
and was primarily due to an impairment of loan receivable of $200,000, a demand
loan to AWA Wine. We determined to classify the loan receivable as impaired due
to uncertainty in collection from AWA.
We have not attained profitable operations and are dependent upon obtaining
financing to complete our proposed business plan. For these reasons, there is
substantial doubt that we will be able to continue as a going concern.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
19
REGAL GROUP, INC.
(FORMERLY REGAL LIFE CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FEBRUARY 28, 2010
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Regal Group, Inc. (Formerly Regal
Life Concepts, Inc.):
We have audited the accompanying balance sheets of Regal Group, Inc. (formerly
Regal Life Concepts, Inc.) (a development stage company) as of February 28, 2010
and 2009, and the statements of operations, stockholders' equity and cash flows
for the years then ended and the period from July 1, 2005 (Inception) to
February 28, 2010. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of February 28, 2010 and
2009, and the results of its operations and its cash flows for the years then
ended and the period from July 1, 2005 (Inception) to February 28, 2010 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has incurred
losses since inception and has negative working capital raising substantial
doubt about the Company's ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on raising capital to
fund its business and ultimately to attain profitable operations. Management's
plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
"DMCL"
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
May 21, 2010
21
REGAL GROUP, INC.
(FORMERLY REGAL LIFE CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
February 28, February 28,
2010 2009
ASSETS
CURRENT
Cash $ 191,699 $ 382,749
Prepaid expenses - 5,000
191,699 387,749
EQUIPMENT, net (Note 3) 4,622 2,727
LOAN RECEIVABLE (Note 4) - 200,000
$ 196,321 $ 590,476
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 21,440 $ 41,111
STOCKHOLDERS' EQUITY
Common stock (Note 5)
Authorized:
100,000,000 common shares, par value $0.001 per share
Issued and outstanding:
46,816,665 common shares (February 28, 2009 - 46,816,665) 46,816 46,816
Additional paid-in capital 891,117 891,117
Deficit accumulated during the development stage (763,052) (388,568)
174,881 549,365
$ 196,321 $ 590,476
|
Contingency (Note 1)
Subsequent event (Note 8)
The accompanying notes are an integral part of these financial statements.
22
REGAL GROUP, INC.
(FORMERLY REGAL LIFE CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Cumulative
from
July 1, 2005
(Date of
Year Ended Year Ended Inception) to
February February February
28, 2010 28, 2009 28, 2010
EXPENSES
Amortization $ 817 $ 681 $ 1,779
Bank charges and interest 374 529 1,325
Filing and transfer agent fees 4,000 4,631 34,574
Management fees (Note 6) 22,500 65,384 101,884
Office 10,983 18,635 30,089
Professional fees 61,740 94,722 220,435
Rental expenses - 2,375 4,750
Travel and promotion 74,070 75,329 168,216
Loss before other item (174,484) (262,286) (563,052)
OTHER ITEM
Impairment of loan receivable (Note 4) (200,000) - (200,000)
NET LOSS $(374,484) $(262,286) $(763,052)
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.01) $ (0.01)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND
DILUTED
46,816,665 44,858,220
|
The accompanying notes are an integral part of these financial statements.
23
REGAL GROUP, INC.
(FORMERLY REGAL LIFE CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Common Additional Subscriptions Deficit Total
Stock Stock Paid-in Receivable Accumulated
Number Amount Capital During the
Development
Stage
Common stock issued for cash at $0.001 per share,
July 1, 2005 (Inception) 25,000,000 $25,000 $ (20,000) $ - $ - $ 5,000
Common stock issued for cash at $0.001 per share,
August 1, 2005 8,000,000 8,000 (6,400) - - 1,600
Common stock issued for cash at $0.01 per share,
September 12, 2005 7,500,000 7,500 7,500 - - 15,000
Common stock issued for cash at $0.10 per share,
February 27, 2006 525,000 525 9,975 - - 10,500
Donated services - - 2,000 - - 2,000
Subscriptions receivable - - - (750) - (750)
Net loss - - - - (11,577) (11,577)
BALANCE, FEBRUARY 28, 2006 41,025,000 41,025 (6,925) (750) (11,577) 21,773
Subscriptions receivable - - - 750 - 750
Common stock issued for cash at $0.10 per share,
March 6, 2006 125,000 125 2,375 - - 2,500
Donated services - - 6,000 - - 6,000
Net loss - - - - (50,595) (50,595)
BALANCE, FEBRUARY 28, 2007 41,150,000 41,150 1,450 - (62,172) (19,572)
Common stock issued for cash at $0.15 per share,
November 1, 2007 666,667 667 99,333 - - 100,000
Donated services - - 6,000 - - 6,000
Net loss - - - - (64,110) (64,110)
BALANCE, FEBRUARY 29, 2008 41,816,667 41,817 106,783 - (126,282) 22,318
Common stock issued for cash at $0.15 per share 4,333,333 4,333 645,667 - - 650,000
Warrants exercised for cash at $0.20 per share 666,665 667 132,667 - - 133,333
Donated services - - 6,000 - - 6,000
Net loss - - - - (262,286) (262,286)
BALANCE, FEBRUARY 28 , 2009 46,816,665 46,817 891,117 - (388,568) 549,365
Net loss (374,484) (374,484)
BALANCE, FEBRUARY 28 , 2010 46,816,665 $46,817 $ 891,117 $ - $(763,052) $ 174,881
|
The accompanying notes are an integral part of these financial statements.
24
REGAL GROUP, INC.
(FORMERLY REGAL LIFE CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Cumulative
from
July 1, 2005
(Date of
Year Ended Year Ended Inception) to
February 28, February 28, February 28,
2010 2009 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (374,484) $ (262,286) $ (763,052)
Non-cash items:
Amortization 817 681 1,779
Donated capital - 6,000 20,000
Impairment of loan receivable 200,000 - 200,000
Changes in non-cash operating working
capital items:
Prepaid expenses 5,000 (1,742) -
Accounts payable and accrued liabilities (19,671) 17,122 21,440
NET CASH USED IN OPERATING ACTIVITIES (188,338) (240,225) (519,833)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (2,712) - (6,401)
Loan receivable - (200,000) (200,000)
NET CASH USED IN INVESTING ACTIVITIES (2,712) (200,000) (206,401)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related party - (24,500) -
Issuance of common shares - 783,333 917,933
NET CASH PROVIDED BY FINANCING ACTIVITIES - 758,833 917,933
INCREASE (DECREASE) IN CASH (191,050) 318,608 191,699
CASH, BEGINNING 382,749 64,141 -
CASH, ENDING $ 191,699 $ 382,749 $ 191,699
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
|
The accompanying notes are an integral part of these financial statements.
25
REGAL GROUP, INC.
(FORMERLY REGAL LIFE CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2010
1. NATURE AND CONTINUANCE OF OPERATIONS
Regal Group, Inc. (the "Company") was incorporated in the State of Nevada on
July 1, 2005. The Company is in the business of marketing and distribution. The
Company is considered to be a development stage company and has not generated
any revenues from operations. The Company changed its name to Regal Group, Inc.
from Regal Life Concepts, Inc. on March 31, 2010.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As of February 28, 2010, the Company has not
achieved profitable operations and has accumulated a deficit of $763,052. Its
ability to continue as a going concern is dependent upon the ability of the
Company to obtain the necessary financing to meet its obligations and pay its
liabilities arising from normal business operations when they come due. The
outcome of these matters cannot be predicted with any certainty at this time and
raises substantial doubt that the Company will be able to continue as a going
concern. These financial statements do not include any adjustments to the
amounts and classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern. Management intends
to obtain additional funding by borrowing funds from its directors and officers,
or private placements of common stock.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States of
America and are presented in US dollars.
Use of estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The Company regularly
evaluates estimates and assumptions. The Company bases its estimates and
assumptions on current facts, historical experience and various other
factors that it believes to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company's
estimates. To the extent there are material differences between the estimates
and the actual results, future results of operations will be affected. The most
significant estimates with regard to these financial statements relate to useful
lives of assets and deferred income tax amounts and rates and timing of the
reversal of income tax differences.
Equipment
Equipment is recorded at cost and amortized over its estimated useful life on a
20% declining balance method. In the year of acquisition, only one-half of the
amortization is recorded.
Stock Based Compensation
The Company records compensation expenses in the financial statements for the
share-based payments using the fair value method. The fair value of share based
compensation to directors and employees is determined using the
26
Black-Scholes option valuation model at the time of grant. Fair value for
common shares issued for goods or services rendered by non-employees are
measured based on the fair value of the goods and services received. Share-
based compensation is expensed with a corresponding increase to t share capital.
Upon the exercise of the stock options, the consideration paid is recorded as an
increase in share capital.
Long-lived Assets
The carrying value of long-lived assets is reviewed on a regular basis for the
existence of facts or circumstances that may suggest impairment. The Company
recognizes impairment when the sum of the expected undiscounted future cash
flows is less than the carrying amount of the asset. Impairment losses, if any,
are measured as the excess of the carrying amount of the asset over its
estimated fair value.
Financial Instruments
The fair value of the Company's financial instruments, consisting of cash, loan
receivable, and accounts payable, is estimated to be equal to their carrying
values. It is management's opinion that the Company is not exposed to
significant interest, currency arising from these financial instruments. The
Company is exposed to credit risk on the $200,000 loan receivable from AWA Wine
Co. Ltd. ("AWA") (Note 4).
Income Taxes
Deferred income taxes are provided for tax effects of temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements. The Company uses the liability method to account for
income taxes, which requires deferred taxes to be recorded at the statutory rate
expected to being in effect when the taxes are paid. Valuation allowances are
provided for a deferred tax asset when it is more likely than not that such
asset will not be realized.
Management evaluates tax positions taken or expected to be taken in a tax
return. The evaluation of a tax position includes a determination of whether a
tax position should be recognized in the financial statements, and such a
position should only be recognized if the Company determines that it is more
likely than not that the tax position will be sustained upon examination by the
tax authorities, based upon the technical merits of the position. For those tax
positions that should be recognized, the measurement of a tax position is
determined as being the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement.
Foreign Currency Translation
Foreign denominated monetary assets and liabilities are translated to their
United States dollar equivalents using foreign exchange rates which prevailed at
the balance sheet date. Expenses are translated at average rates of exchange
during the period. Related translation adjustments are reported as a separate
component of stockholders' equity, whereas gains or losses resulting from
foreign currency transactions are included in results of operations.
Loss Per Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflect the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, diluted loss per
share is equal to basic loss per share.
Comprehensive Loss
For all periods presented, the Company has no items that represent a
comprehensive loss and, therefore, has not included a statement of comprehensive
loss in these financial statements.
27
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued SFAS No.
168, FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of SFAS No. 162 ("Statement 168").
Statement 168 establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with generally
accepted accounting principles. Statement 168 explicitly recognizes rules and
interpretive releases of the Securities and Exchange Commission ("SEC") under
federal securities laws as authoritative GAAP for SEC registrants. Statement 168
is effective for financial statements issued for fiscal years and interim
periods ending after September 15, 2009. The Company has adopted Statement 168
for the year ended February 28, 2010.
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or are
not expected to be significant to the financial statements of the Company.
3. EQUIPMENT
Equipment consists of the following:
Cost Accumulated Amortization 2010 2009
Net Book Value Net Book Value
Computer and office equipment $ 6,401 $ 1,779 $ 4,622 $ 2,727
|
4. LOAN RECEIVABLE
On January 29, 2009, the Company entered into an agreement for a capital
injection and equity subscription with AWA, a wine import and distribution
company, to acquire a 26% equity interest in AWA for $500,000. The Company has
an option to acquire an additional 25% equity interest in AWA for an additional
$500,000. In addition, the Company entered into a Cooperative Joint Venture
("JV") Contract with AWA and AWA's other equity interest holders. The JV
Agreement is required under Chinese law in order to encompass the investment as
a Sino-foreign cooperative joint venture to conduct business in China.
The purchase price of $500,000 for the 26% equity interest shall be paid in two
instalments. The first instalment of $200,000 was made as a loan and the second
instalment of $300,000 shall be made upon obtaining government approval for the
capital increase and equity subscription. The $200,000 is a demand loan and due
on the earlier of occurrence of the following events: a) AWA's failure to obtain
the necessary government approval for the capital increase and equity
subscription and the establishment of the JV before August 15, 2009; b) the
occurrence of an event of default as defined in the agreement on capital
increase and equity subscription.
During the year ended February 28, 2010, management decided to impair the loan
receivable due to uncertainty of collection.
28
5. COMMON STOCK
During the year ended February 28, 2009, the Company received $133,333 for the
exercise of 666,665 warrants.
During the year ended February 28, 2010, 4,333,335 warrants expired.
Accordingly, there was no warrant outstanding as at February 28, 2010.
During the year ended February 28, 2010, the Company adopted the 2009 Non-
Employee Incentive Plan (the "Plan"), which was designed for the benefits of
non-employee consultants, professionals and service providers who provide
services to the Company. The maximum number of options to be granted under the
Plan shall not exceed 10% of the total issued and outstanding common stocks.
The exercise price and expiry date of the stock options shall be determined by
the Board of Directors. No option shall be exercised later than the fifth
anniversary date of its grant. As at February 28, 2010, there were no options
granted.
6. RELATED PARTY TRANSACTIONS
During the year ended February 28, 2010, the Company incurred management fees of
$22,500 (2009 - $65,384) to directors and officers of the Company.
Related party transactions are measured at the exchange amount, which represents
the amount of consideration agreed to between the related parties.
7. INCOME TAXES
The provision for income taxes reported differs from the amounts computed by
applying aggregate income tax rates for the loss before tax provision due to the
following:
February 28, February 28,
2010 2009
Loss before income tax $ 374,484 $ 262,286
Statutory tax rate 35% 35%
Expected recovery of income taxes at standard rates 131,069 91,800
Non deductible item: (70,000) (2,100)
Change in valuation allowance (61,069) (89,700)
Income tax provision $ - $ -
|
Components of deferred tax asset:
Non-capital tax loss carry forwards $ 186,769 $ 125,700
Less: valuation allowance (186,769) (125,700)
Net deferred tax asset $ - $ -
|
At February 28, 2010, the Company had accumulated non-capital loss carry-
forwards of approximately $542,000, which are available to reduce taxable income
in future taxation years and expire as follows:
2026 $ 11,000
2027 45,000
2028 56,000
2029 256,000
2030 174,000
$ 542,000
The potential future tax benefits of these expenses and losses carried-forward
have not been reflected in these financial statements due to the uncertainty
regarding their ultimate realization.
29
Inherent uncertainties arise over tax positions taken with respect to transfer
pricing, related party transactions, tax credits, tax based incentives and stock
based transactions. Management has considered the likelihood and significance of
possible penalties associated with current and intended filing positions and has
determined, based on their assessment, that such penalties and taxes, if any,
would not be expected to be material.
8. SUBSEQUENT EVENT
Subsequent to the year ended February 28, 2010, the Company entered into a
Letter of Intend ("LOI") with UHF Logistics Limited ("UHF") to acquire 100% of
the equity of UHF. UHF, a Hong Kong incorporated holding company, focuses on
the development, marketing and distribution of radio frequency identification
products and solutions through its wholly owned subsidiary in China. The
purchase price will be determined based on the due diligence result and will be
paid by the issuance of restricted shares in the capital the Company. The
Company and UHF have not entered into a definitive agreement as at the audit
report date.
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in and disagreements with our accountants on
accounting and financial disclosure from the inception of our Company through to
the date of this Annual Report.
ITEM 9A(T). CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures
Our management, under the supervision of our Chief Executive Officer and
Principal Accounting Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end
of the period covered by this Annual Report on Form 10-K. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were not effective as of February
28, 2010. They concluded that our disclosure controls and procedures could not
be relied upon to ensure that information we are required to disclose in reports
that we file or submit under the Securities Exchange Act of 1934 (i) is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and (ii) is accumulated
and communicated to our management, including our Chief Executive Officer and
Principal Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosure.
(b) Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the Exchange
Act. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Therefore, even those systems determined to be
effective can only provide reasonable assurance with respect to financial
reporting reliability and financial statement preparation and presentation.
Our management assessed the effectiveness of our internal control over financial
reporting as of February 28, 2010. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO") in Internal Control-Integrated Framework. Based on
the assessment using those criteria, our management concluded that our internal
control over financial reporting was not effective.
The matters involving internal controls and procedures that the Company's
management considered to be material weaknesses under the standards of the
Public Company Accounting Oversight Board were: (1) lack of a functioning audit
committee and lack of a majority of outside directors on the Company's board of
directors, resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures; (2) inadequate
segregation of duties consistent with control objectives; (3) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; and (4) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were identified
by the Company's Chief Financial Officer in connection with the audit of our
financial statements as of February 28, 2010 and communicated the matters to our
management.
Management believes that the material weaknesses set forth in items (2), (3) and
(4) above did not have an effect on the Company's financial results. However,
management believes that the lack of outside directors on the Company's board of
directors have resulted in a deficiency in the establishment and monitoring of
required internal controls and procedures which can affect the process of
preparing Company's financial statements.
We are committed to improving our financial organization. As part of this
commitment, we will create a position to segregate duties consistent with
control objectives and will increase our personnel resources and technical
accounting expertise within the accounting function when funds are available to
the Company: i) Appointing one or
31
more outside directors to our board of directors who shall be appointed to the
audit committee of the Company resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required
internal controls and procedures such as reviewing and approving estimates and
assumptions made by management; and ii) Preparing and implementing sufficient
written policies and checklists which will set forth procedures for accounting
and financial reporting with respect to the requirements and application of US
GAAP and SEC disclosure requirements.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the lack
of a functioning audit committee and a lack of a majority of outside directors
on the Company's Board. In addition, management believes that preparing and
implementing sufficient written policies and checklists will remedy the
following material weaknesses (i) insufficient written policies and procedures
for accounting and financial reporting with respect to the requirements and
application of US GAAP and SEC disclosure requirements; and (ii) ineffective
controls over period end financial close and reporting processes. Further,
management believes that the hiring of additional personnel who have the
technical expertise and knowledge will result in proper segregation of duties
and provide more checks and balances within the financial reporting department.
Additional personnel will also provide the cross training needed to support the
Company if personnel turn over issues within the financial reporting department
occur. This coupled with the appointment of additional outside directors will
greatly decrease any control and procedure issues the Company may encounter in
the future.
We will continue to monitor and evaluate the effectiveness of our internal
controls and procedures and our internal controls over financial reporting on an
ongoing basis and are committed to taking further action and implementing
additional enhancements or improvements, as necessary and as funds allow.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting. Our
management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting
during our fourth fiscal quarter ended February 28, 2010 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Name Age Position with RegistrantServed as a Director or
Officer Since
Eric Wildstein 29 President, C.E.O, August 7, 2007
promoter and director
Parrish Medley 48 Secretary, Treasurer, February 5, 2010
principal accounting
officer, principal
financial officer and
director
|
Effective February 5, 2010, we appointed Mr. Parrish Medley as a director and
Principal Financial Officer of the Company in place of Mr. Xiao Wen Guan, our
former Principal Financial Officer, who has remained as a Board Advisor to the
Company and continues oversight of our investment in the Chinese wine industry.
This appointment
32
is effective until the next annual meeting of our shareholders or until Mr.
Medley is removed by other action as allowed by our corporate bylaws.
Mr. Medley has not had any other material direct or indirect interest in any of
our transactions or proposed transactions over the last two years. At this time,
we do not have any employment agreement with Mr. Medley.
The following describes the business experience of the Company's directors and
executive officers, including other directorships held in reporting companies:
Mr. Wildstein has acted as our President and Chief Executive Officer since
August 7, 2007. After graduating with a Bachelor's of Science degree in
Kinesiology from Arizona State University in 2003, Mr. Wildstein was involved in
the set-up and operation of a successful chain of health food restaurants and
related catering operations in Scottsdale, Arizona. During this time, Mr.
Wildstein was also involved in venture capital investments and was associated
with an established hospitality company involved in the public relations and
event management sector.
Mr. Wildstein devotes 20% of his business time to our affairs. He is responsible
for managing the implementation of our marketing strategy in China.
Mr. Medley has over twenty years experience in the securities and investment
banking industry with service as a manager and financial consultant for numerous
registered broker/dealers, including Bear Stearns & Co. Since 1997, Mr. Medley
has worked as a venture capitalist and a private money manager. From 1990 to
1997, Mr. Medley founded and grew Palm Beach Tan, Inc., into a multi-chain
business before selling it to a group of private investors. In 2004 Parrish
Medley and Carlo Mondavi, founded Davi Skin where Mr. Medley acted as President,
CEO till November 2006. Mr. Medley graduated from Southern Methodist University
in 1986 with a Bachelors degree in Business Administration.
Mr Medley devotes 25% of his business time to our affairs. He is responsible
for overseeing our day to day affairs, including all administrative aspects.
Along with Mr. Wildstein, he is responsible for implementing our marketing and
distribution strategies.
All directors are elected annually by our shareholders and hold office until the
next Annual General Meeting. Each officer holds office at the pleasure of the
board of directors. No director or officer has any family relationship with any
other director or officer.
Mr. Xiao Wen Guan was a former Secretary and Treasurer of our Company for the
period from November 28, 2008 to February 5, 2010. A graduate with a Master's
degree in Political and Enterprise Management, Mr Guan has many years of
international trade and investment experience and in prior senior positions in
the Chinese government, was instrumental in the restructuring and financing of
many large China state-owned enterprises.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than 10% of our equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish us with copies of all Section 16(a) forms they
file. Based on our review of the copies of such forms we received, we believe
that during the fiscal year ended February 28, 2010 all such filing requirements
applicable to our officers and directors were complied with.
33
ITEM 11: EXECUTIVE COMPENSATION
The table below summarizes all compensation awarded to, earned by, or paid to
our executive officers by any person for all services rendered in all capacities
to us for the fiscal years ended February 28, 2010 and 2009.
SUMMARY COMPENSATION TABLE FOR 2009 AND 2010
NON-QUALIFIED
NON-EQUITY DEFERRED
STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME AND YEAR SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
PRINCIPAL ($) ($) ($) ($) ($) ($) ($) ($)
POSITION
Eric 2010 17,500 0 0 0 0 0 0 17,500
Wildstein
Presiden,
CEO and
director
2009 39,884 0 0 0 0 0 0 39,884
Mr. Parrish 2010 15,000 0 0 0 0 0 0 15,000
Medley,
Principal
Accounting
Officer,
Secretary
and
Treasurer
2009 0 0 0 0 0 0 0 0
Xiao Wen 2010 0 0 0 0 0 0 0 0
Guan,
Former
Principal
Accounting
Officer,
Secretary
and
Treasurer
2009 0 0 0 0 0 0 0 0
|
34
OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END
The following table sets forth certain information concerning option awards and
stock awards held by our named executive officers as of February 28, 2010.
OPTION AWARDS STOCK AWARDS
NAME NUMBER OF NUMBER OF EQUITY OPTION OPTION NUMBER MARKET EQUITY EQUITY
SECURITIES SECURITIES INCENTIVE EXERCISE EXPIRATION OF VALUE INCENTIVE INCENTIVE
UNDERLYING UNDERLYING PLAN PRICE DATE SHARES OF PLAN PLAN
UNEXERCISED UNEXERCISED AWARDS: ($) OR SHARES AWARDS: AWARDS:
OPTIONS OPTIONS NUMBER OF UNITS OR NUMBER OF MARKET OR
(#) (#) SECURITIES OF UNITS UNEARNED PAYOUT
EXERCISABLE UNEXERCISABLE UNDERLYING STOCK OF SHARES, VALUE OF
UNEXERCISED THAT STOCK UNITS OR UNEARNED
UNEARNED HAVE THAT OTHER SHARES,
OPTIONS NOT HAVE RIGHTS UNITS OR
(#) VESTED NOT THAT HAVE OTHER
(#) VESTED NOT RIGHTS
($) VESTED THAT HAVE
(#) NOT VESTED
($)
ERIC 0 0 0 0 0 0 0 0 0
WILDSTEIN
PARRISH 0 0 0 0 0 0 0 0 0
MEDLEY
XIAO WEN 0 0 0 0 0 0 0 0 0
GUAN
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DIRECTOR COMPENSATION FOR 2010
We do not compensate directors for their services on our Board of Directors.
The following table reflects all compensation awarded to, earned by or paid to
our directors for the fiscal year ended February 28, 2010.
NAME FEES STOCK OPTIONS NON-EQUITY NONQUALIFIED ALL OTHER TOTAL
EARNED AWARDS AWARDS INCENTIVE DEFERRED COMPENSATION ($)
OR PAID ($) ($) PLAN COMPENSATION ($)
IN CASH COMPENSATION EARNINGS
($) ($) ($)
Eric 0 0 0 0 0 0 0
Wildstein
Parrish 0 0 0 0 0 0 0
Medley
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ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of
our shares of common stock at May 25, 2010, by (i) each person known by us to be
the beneficial owner of more than 5% of our outstanding shares of common stock,
(ii) each of our directors, (iii) our executive officers, and (iv) by all of our
directors and executive officers as a group. Each person named in the table,
has sole voting and investment power with respect to all shares shown as
beneficially owned by such person and can be contacted at our executive office
address.
35
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNEROWNERSHIP OF CLASS
COMMON Eric Wildstein 6,000,000 12.82%
STOCK President, Chief
Executive Officer
and Director
3723 East Maffeo Road
Phoenix, Arizona, USA, 89050
COMMON Parrish Medley 15,000,000 32.04%
STOCK Secretary, Treasurer
Principal Accounting Officer
And Director
8927 St. Ives Drive
Los Angeles, CA 90069, USA
COMMON All officers and directors21,000,00044.86%
STOCK as a group that consists
Of shares two people
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The percent of class is based on 46,816,665 shares of common stock issued and
outstanding as of May 25, 2010.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None of our directors or officers, nor any proposed nominee for election as a
director, nor any person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to all of our outstanding
shares, nor any promoter, nor any relative or spouse of any of the foregoing
persons has any material interest, direct or indirect, in any transaction since
our incorporation or in any presently proposed transaction which, in either
case, has or will materially affect us.
Our management is involved in other business activities and may, in the future
become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. In the event that a
conflict of interest arises at a meeting of our directors, a director who has
such a conflict will disclose his interest in a proposed transaction and will
abstain from voting for or against the approval of such transaction.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountants, Dale Matheson Carr-Hilton LaBonte, Chartered
Accountants, rendered invoices to us during the fiscal periods indicated for the
following fees and services:
Fiscal year ended Fiscal year ended
February 28, 2010 February 29, 2009
Audit fees $15,000 $15,500
Audit-related fees Nil Nil
Tax fees $1,200 $1,200
All other fees Nil Nil
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Audit fees consist of fees related to professional services rendered in
connection with the audit of our annual financial statements, the review of the
financial statements included in each of our quarterly reports on Form 10-Q.
Our policy is to pre-approve all audit and permissible non-audit services
performed by the independent accountants. These services may include audit
services, audit-related services, tax services and other services. Under our
audit committee's policy, pre-approval is generally provided for particular
services or categories of services, including
36
planned services, project based services and routine consultations. In
addition, we may also pre-approve particular services on a case-by-case basis.
We approved all services that our independent accountants provided to us in the
past two fiscal years.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
3.1 Articles of Incorporation filed with the SEC on May 26, 2006 in our Form SB-2, incorporated herein by reference.
3.2 Bylaws filed with the SEC on May 26, 2006 in our Form SB-2, incorporated herein by reference.
10.1 Marketing and Sales Distribution Agreement filed with SEC on May 26, 2006 in our Form SB-2, incorporated herein by
reference.
10.1 Form Of Private Placement Subscription Agreement, filed with the SEC on November 19, 2007 in our Form 8-K,
incorporated herein by reference.
10.2 Form Of Common Stock Warrant Agreement filed with the SEC on November 19, 2007 in our Form 8-K, incorporated herein
by reference.
10.3 Form Of Registration Rights Agreement filed with the SEC on November 19, 2007 in our Form 8-K, incorporated herein
by reference.
10.4 Capital Increase and Equity Subscription Agreement filed with the SEC on February 4, 2009 in our Form 8-K,
incorporated herein by reference.
10.5 Loan Agreement filed with the SEC on February 4, 2009 in our Form 8-K, incorporated herein by reference.
10.6 Cooperative Joint Venture Contract of Guangzhou AWA Wine Co. Ltd. filed with the SEC on February 4, 2009 in our Form
8-K, incorporated herein by reference.
99.1 News Release filed with the SEC on February 4, 2009 in our Form 8-K, incorporated herein by reference.
31.1 Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed herewith
31.2 Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 filed herewith
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith
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FINANCIAL STATEMENT SCHEDULES
We are not filing any financial statement schedules as part of this report as
such schedules are either not applicable or the required information is included
in the financial statements or notes thereto.
37
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Regal Group, Inc.
By /s/ Eric Wildstein
Eric Wildstein
President, CEO & Director
Date: May 25, 2010
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By /s/ Eric Wildstein
Eric Wildstein
President, CEO& Director
Date: May 25, 2010
By /s/ Parrish Medley
Parrish Medley
Secretary, Treasurer,
Principal Accounting Officer &
Director
Date: May 25, 2010
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38
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