Delaware
(State
or other jurisdiction of incorporation or
organization)
|
3699
(Primary
Standard Industrial
Classification
Code Number)
|
98-0509431
(I.R.S.
Employer Identification
No.)
|
Louis
A. Bevilacqua, Esq.
Thomas
Shoesmith, Esq.
Joseph
R. Tiano, Jr., Esq.
Thelen
Reid & Priest LLP
701
8th Street, N.W.
Washington,
D.C. 20001
(202)
508-4000
|
Guoshen
Tu
4/F,
East 3/B
Saige
Science & Technology Park
Huaqiang,
Shenzhen, China 518028
(86)
755-83765666
|
Title
of each class of securities to be registered
|
Amount
to be registered(1)
|
Proposed
maximum offering price per share
|
Proposed
maximum aggregate offering price
|
Amount
of registration fee (2)
|
Common
Stock, par value $0.0001 per share
|
29,159,259
|
$5.65
|
164,749,813
|
$17,628
|
Shares
underlying warrants to be assumed in the transaction with an exercise
price of $3.80
|
150,000
|
$5.65
|
847,500
|
$91
|
Shares
underlying warrants to be assumed in the transaction with an exercise
price of $3.00
|
266,667
|
$5.65
|
1,506,669
|
$161
|
Shares
underlying warrants to be assumed in the transaction with an exercise
price of $4.80
|
926,918
|
$5.65
|
5,237,087
|
$560
|
Shares
underlying warrants to be assumed in the transaction with an exercise
price of $4.20
|
324,421
|
$5.65
|
1,832,979
|
$196
|
Shares
underlying warrants to be assumed in the transaction with an exercise
price of $1.85
|
100,000
|
$5.65
|
565,000
|
$60
|
Total
|
30,927,265
|
-
|
174,739,048
|
$18,697
|
The information in this prospectus is not complete and may be changed. We may not issue the common stock to be issued in connection with the merger described in this prospectus until the registration statement filed with the Securities and Exchange Commission, of which this prospectus is a part, is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Any representation to the contrary is a criminal offense. |
SUMMARY
|
1
|
ELECTED
HISTORICAL FINANCIAL INFORMATION
|
5
|
MARKET
PRICE AND DIVIDEND INFORMATION
|
7
|
RISK
FACTORS
|
8
|
THE
REINCORPORATION
|
16
|
DESCRIPTION
OF CSST DELAWARE CAPITAL STOCK
|
22
|
DESCRIPTION
OF CSST BVI CAPITAL STOCK
|
23
|
COMPARATIVE
RIGHTS OF HOLDERS OF CSST DELAWARE CAPITAL STOCK
|
24
|
INFORMATION
ABOUT OUR COMPANY
|
30
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
39
|
QUALITATIVE
AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
|
52
|
MANAGEMENT
|
52
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
55
|
INTEREST
OF MANAGEMENT IN THE REDOMESTICATION
|
55
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
56
|
LEGAL
MATTERS
|
57
|
EXPERTS
|
57
|
WHERE
YOU CAN FIND MORE INFORMATION
|
57
|
·
|
the
anticipated closing date of the
reincorporation;
|
·
|
the
anticipated tax treatment of the
reincorporation;
|
·
|
the
benefits expected to result from the reincorporation;
|
·
|
our
future business activity, performance and financial condition following
the reincorporation;
|
·
|
the
perceived advantages resulting from the reincorporation;
and
|
·
|
the
ability to retain key personnel before and after the reincorporation.
|
·
|
approval
of the merger agreement by CSST BVI’s shareholders;
|
·
|
approval
of the merger agreement by the board of directors of both CSST
BVI and
CSST Delaware;
|
·
|
absence
of any temporary restraining order, preliminary or permanent injunction
or
other legal restraints preventing consummation of the reincorporation;
|
·
|
absence
of any event that has or would result in the triggering of any
right or
entitlement of any security holder of CSST BVI that would not have
been
triggered absent the consummation of the reincorporation;
and
|
·
|
receipt
of approval for quotation on the OTCBB of the shares of common
stock of
CSST Delaware common stock to be issued in the reincorporation.
|
·
|
perceived
credibility and enhanced corporate image of being a Delaware company;
|
·
|
greater
flexibility of Delaware corporate law and the substantial body
of case
law;
|
·
|
attractiveness
of Delaware law to directors and officers;
and
|
·
|
compliance
with the stock purchase agreement dated April 4, 2006, which would
impose
a penalty for failure to timely effect the reincorporation of CSST
BVI to
a jurisdiction within the U.S.
|
Statement
of Income Data
|
Years
Ended December 31,
|
Six
Months Ended June 30,
|
|||||
2001
|
2002
|
2003
|
2004
|
2005
|
2005
|
2006
|
|
Revenues
|
$4,045,098
|
$10,330,847
|
$11,794,869
|
$16,055,704
|
$32,688,582
|
$12,729,441
|
$22,609,172
|
Income
From Operations
|
302,445
|
2,234,128
|
3,262,057
|
6,130,779
|
7,478,842
|
2,441,937
|
6,279,225
|
Net
Income
|
257,078
|
1,899,009
|
2,752,123
|
5,724,026
|
7,265,957
|
2,618,780
|
6,036,481
|
Weighted
Average Shares (Basic & Diluted)
|
17,000,000
|
17,000,000
|
17,000,000
|
17,000,000
|
18,521,479
|
17,000,000
|
23,046,766
|
Basic
& Diluted Net Income per Share
|
0.015
|
0.11
|
0.16
|
0.34
|
0.39
|
0.15
|
0.26
|
Balance
Sheet Data
|
Years
Ended December 31,
|
Six
Months Ended June 30,
|
|||||
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
||
Total
Assets
|
$10,687,966
|
$13,581,661
|
$16,976,999
|
$22,008,920
|
$29,116,672
|
$59,150,650
|
|
Total
Current Liabilities
|
1,766,061
|
4,126,166
|
5,900,469
|
5,208,364
|
4,504,926
|
20,076,451
|
|
Net
Assets
|
8,921,905
|
9,455,495
|
11,076,530
|
16,800,556
|
24,611,746
|
39,074,198
|
|
Total
Shareholders’ Equity
|
8,592,637
|
8,849,715
|
11,076,530
|
16,800,556
|
24,611,746
|
39,074,198
|
|
|
Average
|
|
High
|
|
Low
|
|
Period-end
|
||||||||
|
|
(RMB
per U.S. $1.00)
|
||||||||||||||
2001
(1)
|
|
|
8.2770
|
|
|
|
8.2786
|
|
|
|
8.2676
|
|
|
|
8.2766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
(1)
|
|
|
8.2770
|
|
|
|
8.2800
|
|
|
|
8.2669
|
|
|
|
8.2800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
(1)
|
|
|
8.2770
|
|
|
|
8.2800
|
|
|
|
8.2765
|
|
|
|
8.2769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
(1)
|
|
|
8.2768
|
|
|
|
8.2774
|
|
|
|
8.2764
|
|
|
|
8.2765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
(1)
|
|
|
8.1900
|
|
|
|
8.2765
|
|
|
|
8.0702
|
|
|
|
8.0702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2005
(2)
|
|
|
8.0839
|
|
|
|
8.0877
|
|
|
|
8.0796
|
|
|
|
8.0796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2005
(2)
|
|
|
8.0764
|
|
|
|
8.0808
|
|
|
|
8.0709
|
|
|
|
8.0709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2006
(2)
|
|
|
8.0668
|
|
|
|
8.0705
|
|
|
|
8.0608
|
|
|
|
8.0608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2006
(2)
|
|
|
8.0500
|
|
|
|
8.0608
|
|
|
|
8.0420
|
|
|
|
8.0420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2006
(2)
|
|
|
8.0345
|
|
|
|
8.0503
|
|
|
|
8.0170
|
|
|
|
8.0170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2006
(2)
|
|
|
8.0155
|
|
|
|
8.0248
|
|
|
|
8.0040
|
|
|
|
8.0165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2006
(2)
|
|
|
8.0131
|
|
|
|
8.0300
|
|
|
|
8.0005
|
|
|
|
8.0215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2006 (2)
|
|
|
8.0042
|
|
|
|
8.0225
|
|
|
|
7.9943
|
|
|
|
7.9943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2006
(2)
|
|
|
7.9897
|
|
|
|
8.0018
|
|
|
|
7.9690
|
|
|
|
7.9690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2006
(2)
|
|
|
7.9722
|
|
|
|
7.9538
|
|
|
|
8.0000
|
|
|
|
7.9538
|
|
|
|
Price
(US $)
|
|
||||
|
|
High
|
Low
|
|
|||
|
|
|
|
|
|
||
Annual
Information
|
|
|
|
|
|||
2001
|
N/A
|
N/A
|
|
||||
2002
|
N/A
|
N/A
|
|
||||
2003
|
|
|
N/A
|
N/A
|
|
||
2004
|
|
|
N/A
|
N/A
|
|
||
2005
|
4.50
|
0.05
|
|
||||
|
|||||||
Quarterly
Information
|
|
|
|
|
|||
1st
quarter 2004
|
N/A
|
N/A
|
|
||||
2nd
quarter 2004
|
N/A
|
N/A
|
|
||||
3rd
quarter 2004
|
N/A
|
N/A
|
|
||||
4th
quarter 2004
|
N/A
|
N/A
|
|
||||
1st
quarter 2005
|
N/A
|
N/A
|
|
||||
2nd
quarter 2005 (from June 23, 2005)
|
0.25
|
0.05
|
|
||||
3rd
quarter 2005
|
4.50
|
0.05
|
|
||||
4th
quarter 2005
|
3.00
|
1.85
|
|
||||
1st
quarter 2006
|
4.40
|
3.50
|
|
||||
2nd
quarter 2006
|
8.10
|
3.60
|
|
||||
3rd
quarter 2006
|
6.50
|
4.00
|
|
||||
|
|||||||
Monthly
Information
|
|
||||||
December
2005
|
3.00
|
2.25
|
|
||||
January
2006
|
N/A
|
N/A
|
|
||||
February
2006
|
4.40
|
3.50
|
|
March
2006
|
4.20
|
3.50
|
|
||||
April
2006
|
7.25
|
3.60
|
|
||||
May
2006
|
8.10
|
6.10
|
|
||||
June
2006
|
6.00
|
5.10
|
|
||||
July
2006
|
5.55
|
4.35
|
|
||||
August
2006
|
4.85
|
4.00
|
|
||||
September
2006
|
6.50
|
4.45
|
|
||||
|
·
|
diversion
of management’s attention from running our existing
business;
|
·
|
increased
expenses, including travel, legal, administrative and compensation
expenses resulting from newly hired
employees;
|
·
|
increased
costs to integrate personnel, customer base and business practices
of the
acquired company with our own;
|
·
|
adverse
effects on our reported operating results due to possible write-down
of
goodwill associated with
acquisitions;
|
·
|
potential
disputes with sellers of acquired businesses, technologies, services,
products and potential liabilities;
and
|
·
|
dilution
to our earnings per share if we issue common stock in any
acquisition.
|
·
|
enhance
our existing products and services;
|
·
|
anticipate
changing customer requirements by designing, developing, and launching
new
products and services that address the increasingly sophisticated
and
varied needs of our current and prospective customers;
and
|
·
|
respond
to technological advances and emerging industry standards and practices
on
a cost-effective and timely basis.
|
•
|
level
of government involvement in the
economy;
|
•
|
control
of foreign exchange;
|
•
|
methods
of allocating resources;
|
•
|
balance
of payments position;
|
•
|
international
trade restrictions; and
|
•
|
international
conflict.
|
·
|
deny
holders of CSST Delaware common stock cumulative voting rights
in the
election of directors, meaning that stockholders owning a majority
of CSST
Delaware outstanding shares of common stock will be able to elect
all of
CSST Delaware’s directors;
|
·
|
any
stockholder wishing to properly bring a matter before a meeting
of
stockholders must comply with specified procedural and advance
notice
requirements; and
|
·
|
any
vacancy on the board of directors, however the vacancy occurs,
may only be
filled by the directors.
|
·
|
Attractiveness
to Potential Investors.
We believe that our stockholders will benefit from the well established
principles of corporate governance that Delaware law affords. We
believe
that the well established principles of corporate governance offered
by
Delaware law will make CSST Delaware, as a Delaware corporation,
more
attractive to potential investors. In addition, as a U.S. domestic
issuer,
CSST Delaware will be subject to more stringent reporting obligations
under the Exchange Act which may result in increased visibility
in the
financial community. We believe our status as a U.S. domestic public
reporting company will result in improved transparency of operations
and
an enhanced corporate image.
|
·
|
Attractiveness
of Delaware Law to Directors and Officers.
We
believe that organizing our company under Delaware law will enhance
our
ability to attract and retain qualified directors and officers.
The
corporate law of Delaware, including its extensive body of case
law,
offers directors and officers of public companies more certainty
and
stability. Under Delaware law, the parameters of director and officer
liability are more clearly defined and better understood than under
BVI
law. To date, we have not experienced difficulty in retaining directors
or
officers, but directors of public companies are exposed to significant
potential liability. We therefore believe that providing the benefits
afforded directors by Delaware law will enable us to compete more
effectively with other public companies in the recruitment of talented
and
experienced directors and officers. At the same time, we believe
that
Delaware law regarding corporate fiduciary duties provides appropriate
protection for our stockholders from possible abuses by directors
and
officers. In addition, under Delaware law, directors’ personal liability
cannot be eliminated for:
|
i.
|
any
breach of the director’s duty of loyalty to the corporation or its
stockholders;
|
ii.
|
acts
or omissions not in good faith or which involve intentional misconduct
or
a knowing violation of law;
|
iii.
|
unlawful
payment of dividends or unlawful repurchases or redemptions of
stock; or
|
iv.
|
any
transactions from which the director derived an improper personal
benefit.
|
·
|
Increased
Costs and Expenses Associated with Implementing the Reincorporation
Proposal and Administering a U.S. Domestic Public Reporting
Company.
The reincorporation may result in substantial direct costs. These
costs
and expenses are expected to consist primarily of attorneys’ fees,
accountants’ fees, filing fees and financial printing expenses and will be
substantially incurred prior to the vote of our shareholders. The
reincorporation may also result in certain indirect costs by diverting
the
attention of our management and employees from our business and
resulting
in increased administrative costs and expenses. In addition, we
will incur
more costs and
|
·
|
CSST
Delaware will be the surviving corporation, and the separate corporate
existence of CSST BVI will cease;
|
·
|
each
outstanding share of CSST BVI common stock will automatically convert
into
one share of CSST Delaware common stock and the current shareholders
of
CSST BVI will become the stockholders of CSST Delaware;
|
·
|
each
warrant to purchase share of CSST BVI common stock, if not exercised
before the completion of the reincorporation, will automatically
convert
into a warrant to purchase, at the same exercise price, an identical
number of shares of CSST Delaware common stock;
and
|
·
|
each
share of CSST Delaware common stock now held by CSST BVI will be
cancelled.
|
·
|
the
merger agreement has been duly approved by the affirmative votes
required
of the shareholders of CSST BVI common stock;
|
·
|
the
approval of the merger agreement by CSST BVI as the sole stockholder
of
CSST Delaware;
|
·
|
the
approval of the merger agreement by the board of directors of both
CSST
BVI and CSST Delaware;
|
·
|
the
approval for quotation on the OTCBB of the shares of common stock
of CSST
Delaware immediately upon the effective time of the
reincorporation;
|
·
|
the
absence of any temporary restraining order, preliminary or permanent
injunction or other legal restraints preventing consummation of
the
reincorporation; and
|
·
|
the
absence of any event that has or would result in the triggering
of any
right or entitlement of any security holder of CSST BVI that would
not
have been triggered absent the consummation of the
reincorporation.
|
· |
an
individual citizen or resident of the United
States;
|
·
|
a
corporation (including an entity other than a corporation which
is treated
as a corporation for U.S. federal income tax purposes), a partnership
or a
limited liability company, that is created or organized in or under
the
laws of the United States or any political subdivision
thereof;
|
·
|
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
|
·
|
a
trust if, in general, a U.S. court is able to exercise primary
supervision
over the administration of the trust and one or more U.S. persons
have the
authority to control all substantial decisions of the trust, or
a trust in
existence on August 20, 1996 if such trust has elected to continue
to be
treated as a U.S. person and met certain other
requirements.
|
·
|
the
Code;
|
·
|
current,
temporary and proposed treasury regulations promulgated under the
Code
(the “Treasury Regulations”);
|
·
|
the
legislative history of the Code;
|
·
|
current
administrative interpretations and practices of the Internal Revenue
Service (the “IRS”), including its practices and policies as expressed in
private letter rulings, which are not binding on the IRS except
with
respect to the taxpayer that receives such a ruling;
and
|
·
|
court
decisions.
|
·
|
an
effective registration statement under the Securities Act covering
the
resale of those shares;
|
·
|
an
exemption under paragraph (d) of Rule 145 under the
Securities Act; or
|
·
|
any
other applicable exemption under the Securities Act.
|
·
|
for
any breach of the director’s duty of loyalty to us or our stockholders;
|
·
|
for
acts or omissions not in good faith or that involve intentional
misconduct
or a knowing violation of law;
|
·
|
under
Section 174 of the DGCL (governing distributions to stockholders); or
|
·
|
for
any transaction from which the director derived any improper personal
benefit.
|
·
|
Stockholder
meetings may be at any place designated by resolution of the board
of
directors.
|
·
|
Stockholders’
meetings must be held annually for the election of directors and
the
transaction of other business.
|
·
|
CSST
Delaware’s board may fix a record date for stockholder meetings that will
be not be more than 60 days nor less than 10 days before the
meeting. Should CSST Delaware’s board fail to do so, the record date will
be either the close of business on the day preceding the day on
which
notice of the stockholder meeting was given, or the close of business
on
the day on which CSST Delaware’s board adopts a resolution for the payment
of dividends or distributions.
|
·
|
Notice
of any stockholder meeting must be provided to stockholders not
less than
10 nor more than 60 days before the date of the meeting.
|
·
|
Where
notice is required to be given, a waiver of notice has the same
effect as
notice. Waiver of notice includes attendance by a stockholder at
a
meeting, unless the stockholder attends the meeting for the express
purpose of objecting that the meeting was not lawfully called due
to the
lack of notice.
|
·
|
The
secretary of CSST Delaware must prepare and make available to any
stockholder a list of all stockholders entitled to vote at a meeting
at
least 10 days before every meeting.
|
·
|
Stockholders
may vote by proxy and may revoke any proxy that is revocable by
attending
the meeting and voting in person or by delivering to the Secretary
a
revocation of the proxy.
|
·
|
At
meetings for the election of directors, a majority of the votes
cast is
necessary to elect directors.
|
·
|
Any
director may be removed from office with or without cause by the
holders
of a majority of the combined voting power of the outstanding shares
of
voting stock, voting together as a single class.
|
Provision
|
|
CSST
Delaware
|
|
CSST
BVI
|
|
|
|
|
|
Authorized
Shares
|
|
The
authorized capital stock of CSST Delaware consists of 100 million
shares
of common stock, $.0001 par value per share. No preferred stock
is
authorized. Following the completion of the reincorporation, a
total of
29,159,259 shares of common stock will be issued and an additional
1,768,006 shares will be reserved for issuance under the warrants
assumed
by CSST Delaware from CSST BVI.
|
|
The
authorized capital stock of CSST BVI consists of 100 million shares
of
common stock, $.01 par value per share. No preferred stock is authorized.
A total of 29,159,259 shares of common stock have been issued and
an
additional 1,768,006 shares are reserved for issuance under outstanding
warrants.
|
|
|
|
|
|
Par
Value
|
|
Stated
in U.S. dollars.
Changes
in capital generally require stockholder approval.
|
|
Stated
in U.S. dollars.
Changes
in capital may be made upon resolution of members or directors,
but will
not be effective until filed at the BVI
regulatory.
|
|
|
|
|
|
Registered
Shares
|
|
Shares
of capital stock of CSST Delaware to be registered shares.
|
|
CSST
BVI is authorized to issued registered or bearer
shares.
|
|
|
|
|
|
Purpose
of Corporation
|
|
To
engage in any lawful act not prohibited by law.
|
|
Same
as CSST Delaware subject to the prohibition of conducting certain
business
activities in the BVI ( i.e.,
banking,
insurance and local BVI businesses).
|
|
|
|
|
|
Amendment
of Certificate of Incorporation
|
|
Requires
stockholder vote and, except in limited circumstances, approval
of the
board of directors.
|
|
The
Memorandum of Association and Articles of Association may be amended
by a
resolution of members or directors.
|
|
|
|
|
|
Registered
Office
|
|
Corporate
Service Company
2711
Centerville Road, Suite 400
Wilmington,
Delaware 19808
|
|
Offshore
Incorporations Centre
P.O.Box
957
Road
Town
Tortola,
British Virgin Islands
|
|
|
|
|
|
Transfer
Agent
|
|
Manhattan
Transfer Registrar Company.
|
|
Same
as CSST Delaware.
|
|
|
|
|
|
Voting
Rights
|
|
Common
stock: holders of common stock are entitled to one vote per share
and vote
together as a single class on all matters to be voted on by the
stockholders.
Directors
elected by plurality, all other matters either by majority of issued
and
outstanding shares or majority of those present and entitled to
vote as
specified by law.
|
|
Common
stock: Same as CSST Delaware.
Directors
may be elected by the members or directors of the Company as set
out in
the Articles of Association.
|
Redemption
of Equity
|
|
Shares
may be repurchased or otherwise acquired, provided the capital
of the
company will not be impaired by the acquisition.
Company
may hold or sell treasury shares.
|
|
Shares
may be repurchased or otherwise acquired in accordance with the
specific
rules set out in the IBC Act.
|
|
|
|
|
|
Stockholder/Member
consent
|
|
Permitted
as required for a vote at a meeting.
|
|
Same
as CSST Delaware.
|
|
|
|
|
|
Notice
Requirements for Stockholder/Member Nomination and Other
Proposals
|
|
In
general, to bring a matter before an annual meeting or to nominate
a
candidate for director, a stockholder must give notice of the proposed
matter or nomination not less than 60 days and not more than 90
days prior
to public disclosure of the date of the annual meeting.
In
the event that less than 70 days notice or prior public disclosure
of the
date of the meeting is given or made by stockholder, to be timely,
the
notice must be received by the company no later than the close
of business
on the 10th day
following the day on which such notice of the date of the meeting
was
mailed or public disclosure was made, whichever first
occurs.
|
|
The
directors shall give not less than 7 days notice of a meeting of
members
to those persons whose names are on the share register of the company
on
the date that notice is given.
A
meeting of members may be called at short notice if members holding
not
less than 90% of the total number of shares entitled to vote have
agreed
to short notice of the meeting or if all the members holding shares
entitled to vote on all the matters to be considered at the meeting
have
waived notice of the meeting.
|
Meetings
of Stockholders/Members - Presence
|
|
In
person or by proxy or other appropriate electronic means.
|
|
In
person or by proxy or by any teleconference means where all persons
participating in the meeting can hear one another.
|
|
|
|
|
|
Meeting
of Stockholder/Member - Notice
|
|
Not
less than 10 days or more than 60 days.
|
|
The
directors shall give not less than 7 days notice of a meeting of
members
to those persons whose names are on the share register of the Company
on
the date that notice is given.
A
meeting of members may be called at short notice if members holding
not
less than 90% of the total number of shares entitled to vote have
agreed
to short notice of the meeting or if all the members holding shares
entitled to vote on all the matters to be considered at the meeting
have
waived notice of the meeting.
|
|
|
|
|
|
Meeting
of Stockholders/Members - Call of Meeting
|
|
Regular
and annual meetings shall be called by the directors. Special meetings
may
be called only by majority of board of directors, president or
by a
majority of the issued and outstanding capital stock entitled to
vote.
|
|
Upon
the written request of members holding 10% or more of the outstanding
voting shares in the Company the directors shall convene a meeting
of
members.
Meetings
on short notice may be called upon waiver or presence of all the
members
holding shares entitled to vote or holders of 90% of the total
number of
shares entitled to vote agree to short notice.
|
|
|
|
|
|
Meeting
of Stockholders /Members- Place
|
|
Within
or without Delaware.
|
|
Within
or outside the BVI as the directors consider necessary or
desirable.
|
|
|
|
|
|
Meeting
of Stockholders/Members - Quorum
|
|
Majority
of the capital stock issued and outstanding and entitled to vote
at
meeting. Meeting may be adjourned for up to 30 days without additional
notice to stockholders.
|
|
One-half
of the votes of the shares of each class or series entitled to
vote. If
within two hours from the time appointed for the meeting a quorum
is not
present, the meeting, if convened upon the requisition of members,
shall
be dissolved; in any other case it shall stand adjourned to the
next
business day at the same time and place or to such other time and
place as
the directors may determine, and if at the adjourned meeting there
are
present within one hour from the time appointed for the meeting
in person
or by proxy not less than one third of the votes of the shares
or each
class or series of shares entitled to vote on the resolutions to
be
considered by the meeting, those present shall constitute a quorum
but
otherwise the meeting shall be dissolved.
|
|
|
|
|
|
Meeting
of Stockholders/Members - Record Date
|
|
As
fixed by the directors, no more than 60 days and no less than 10
days
before the meeting. If not fixed, the day before notice of meeting
is
given.
|
|
As
fixed by the directors.
|
|
|
|
|
|
Directors
- Election
|
|
By
the stockholders as entitled by their terms, including the holders
of
common stock.
|
|
By
the members or the directors of the Company as specified in the
Articles
of Association.
|
|
|
|
|
|
Directors
- Term
|
|
Annual
term.
|
|
Until
death, resignation or removal or as specified by a resolution of
members.
|
|
|
|
|
|
Directors
- Removal
|
|
By
the stockholders for cause or without cause by the holders of a
majority
of the shares then entitled to vote at an election of
directors.
|
|
A
director may be removed with or without cause by a resolution of
members
or with cause by a resolution of directors.
|
|
|
|
|
|
Directors
- Vacancy
|
|
May
be filled by majority of remaining directors (unless they are the
result
of the action of stockholders).
|
|
The
directors may at any time appoint any person to fill a
vacancy.
|
|
|
|
|
|
Directors
- Number
|
|
Five
directors unless otherwise determined by the board.
|
|
No
fewer than one, no more than 12.
|
|
|
|
|
|
Directors
- Quorum and Vote Requirements
|
|
A
majority of the entire board. The affirmative vote of a majority
of
directors present at a meeting at which there is a quorum constitutes
action by the board of directors.
|
|
One-half
of the total number of directors, present in person or by alternate,
unless there are only two directors in which case the quorum is
two. Sole
directors pass written resolutions.
|
|
|
|
|
|
Directors
- Managing Director
|
|
Not
applicable.
|
|
Provision
for the board to select one or more directors to be managing directors,
provide for special remuneration and assign such powers as the
board
determines so long as it is not a power that requires board
approval.
|
|
|
|
|
|
Directors
- Powers
|
|
All
powers to govern the corporation not reserved to the
stockholders.
|
|
Same
as CSST Delaware.
|
|
|
|
|
|
Directors
- Committees
|
|
Directors
may establish one or more committees with the authority that the
board
determines.
|
|
Same
as CSST Delaware.
|
Directors
- Consent Action
|
|
Directors
may take action by written consent of all directors, in addition
to action
by meeting.
|
|
By
written consent in same manner as if at a meeting in person, by
directors
or by alternate.
|
|
|
|
|
|
Director
- Alternates
|
|
Not
permitted.
|
|
Directors
may, by written instrument, appoint an alternate who need not be
a
director, who may attend meetings in the absence of the director
and vote
and consent in the place of the directors.
|
|
|
|
|
|
Directors
- Appoint Officers
|
|
Directors
appoint the officers of the corporation, subject to the by-laws,
with such
powers as they determine.
|
|
Same
as CSST Delaware, subject to the articles of
association.
|
|
|
|
|
|
Director
- Limitation of Liability
|
|
Directors
liability is limited, except for (i) breach of loyalty, (ii) act
not in
good faith or which involves intentional misconduct or a knowing
violation
of law, (iii) willful violation of law in respect of payment of
dividend
or redeeming shares, or (iv) actions in which director receives
improper
benefit.
|
|
Duty
to act honestly and in good faith with a view to the best interests
of the
company and exercise care, diligence and skill of a reasonably
prudent
person acting in comparable circumstances. No provisions in the
memorandum, articles or other agreements may relieve a director,
officer,
or agent from the duty to act in accordance with the memorandum
or
articles or from personal liability arising from the management
of the
business or affairs of the company.
|
|
|
|
|
|
Director
- Indemnification Insurance
|
|
Company
may purchase insurance in relation to any person who is or was
a director
or officer of the Company.
Under
Delaware law, a person seeking indemnification is generally required
to
have acted in a manner he or she reasonably believes to be in,
or not
opposed to, the best interests of the Company.
|
|
Same
as CSST Delaware, extends to a liquidator of the company.
|
|
|
|
|
|
Amendments
to Organizational Documents
|
|
Amendments
must be approved by the board of directors and by a majority of
the
outstanding stock entitled to vote on the amendment, and if applicable,
by
a majority of the outstanding stock of each class or series entitled
to
vote on the amendment as a class or series. By-laws may be amended
by the
stockholders entitled to vote at any meeting or, if so provided
by the
certificate of incorporation, by the board of directors.
|
|
Amendments
to the memorandum and articles may be made by resolution of the
members or
by the directors.
|
|
|
|
|
|
Sale
of Assets
|
|
The
sale of all or substantially all the assets of the company requires
stockholder approval.
|
|
Subject
to the Memorandum and Articles of Association, the sale of more
than 50%
of the assets of the company requires member approval.
|
Dissenters
Rights
|
|
Delaware
law provides appraisal rights only in the case of stockholder objection
to
certain mergers or consolidations. Thus, under Delaware law, stockholders
have no appraisal rights in a sale, lease or exchange of all or
substantially all of a corporation’s assets. Appraisal rights in Delaware
are available to record holders only.
|
|
Provision
is made under the IBC Act to dissent and obtain fair value of shares
in
connection with certain corporate actions that require member approval
or
consent.
|
|
|
|
|
|
Franchise
Tax
|
|
The
DGCL requires corporations to pay franchise tax annually (the current
maximum is $165,000 a year and we do not expect that CSST Delaware
will
pay the maximum franchise tax each year).
|
|
There
is no franchise tax in BVI.
|
·
|
Under
the IBC Act, a shareholder can invoke the right to receive payment
of the
fair value of his or her shares if the shareholder dissents, under
Section 83
(1)(a)
of the IBC Act, from a proposal by CSST BVI to
merge.
|
·
|
He
or she must give written notice to CSST BVI before the meeting
of
shareholders at which the merger is submitted to a vote, or at
the meeting
but before the vote on the merger, that he or she objects to the
merger
proposal and that the shareholder proposes to demand payment for
his or
her shares if the merger proposal is
approved.
|
·
|
Within
20 days immediately following the date on which shareholders approve
the
merger, CSST BVI shall give written notice to the dissenting
shareholder(s) that the merger proposal was
approved.
|
·
|
Within
20 days of the date of the notice referred to above, the dissenting
shareholder(s) must give to CSST BVI written notice of their decision
to
dissent, such notice to state their name and address, the number
and class
of share in respect of which they dissent and a demand for payment
of fair
value of their shares.
|
·
|
Within
seven (7) days immediately following the date of expiration of
the period
within which a shareholder may give his or her written notice of
election
to dissent, or within seven (7) days immediately following the
date on
which the merger takes effect (i.e. after registration of the merger
under
the laws of the State of Delaware) whichever is later, CSST Delaware,
as
surviving corporation, must make a written offer to each dissenting
shareholder for the purchase of their shares at a specified price
which
CSST Delaware, as surviving corporation, determines to be their
fair
value. If CSST Delaware, as surviving corporation, and the dissenting
shareholder can agree on a price within 30 days of the date on
which CSST
Delaware, as surviving corporation, makes its offer, then CSST
Delaware,
as surviving corporation, must pay the price to the shareholder
in
exchange for the surrender by the shareholder of his or her share
certificate(s). In the event that the parties fail, within the
period of
30 days, to agree on price, then within 20 days immediately following
the
date on which the 30-day period expires, CSST Delaware, as surviving
corporation, and the shareholder must both appoint an appraiser.
Those two
appraisers will then appoint a third appraiser. The appraisers
together
will then fix a fair value for the shares using the following
benchmark:
|
·
|
participating
in various industrial shows to display our
products;
|
·
|
advertising
in industrial magazines and periodicals to introduce and promote
our
products;
|
·
|
publishing
our own magazine which is distributed to our suppliers and sales
agents so
that they can better understand our company and strengthen their
confidence in us; and
|
·
|
utilizing
the Internet to promote our products, such as the public safety
network,
Chinese Security Association network and HuiChong
Network.
|
|
Name
|
Trademark
No.
|
Type
|
Expiration
Date
|
Status
|
1
|
Golden
Group
|
4108508
|
Word
(Chinese)
|
July
2014
|
Approved
|
2
|
DVR
|
4108509
|
Word
|
July
2014
|
Approved
|
3
|
4108511
|
Word
and Logo
|
July
2014
|
Approved
|
|
4
|
4108510
|
Logo
|
July
2014
|
Approved
|
|
5
|
威勒
|
3814725
|
Word
and logo
|
December
2013
|
Approved
|
6
|
JDR
|
N/A
|
Word
|
N/A
|
Pending
|
Location
|
Type
of Facility
|
Size
of the Land
(Square
Meters)
|
Size
of the Building
(Square
Meters)
|
Shangtian,
Taihe County, Jiangxi Province
|
Manufacturing
|
64,533
|
45,877.5
|
No.
45 Jifu Road, Jiangxi Province
|
Manufacturing
|
28,592.66
|
5,224.34
|
Jishui
County, Jiangxi Province
|
Manufacturing
|
24,866.52
|
10,404.67
|
4th
Floor, Building 3, Shaige Technology Park, Futian District,
Shenzhen
|
Office
and Manufacturing
|
1,252.47
|
1,252.47
|
Total
|
119,244.65
|
62,758.98
|
Three
Months Ended June 30,
|
||||
Item
|
2006
|
2005
|
Increase
|
%
Increase
|
Revenue
|
$8.0
|
$5.5
|
$2.5
|
46.3%
|
Cost
of Goods Sold
|
5.0
|
4.1
|
0.9
|
20.3%
|
Gross
Profit
|
3.0
|
1.3
|
1.7
|
126.9%
|
Operating
Expenses
|
0.6
|
0.5
|
0.1
|
29.5%
|
Other
Income (expense)
|
0.4
|
0.1
|
0.3
|
279%
|
Provision
for Taxes
|
0.3
|
(0.2)
|
0.5
|
-
|
Net
income
|
2.5
|
1.2
|
1.3
|
109.6%
|
|
|
Three
months ended June 30,
|
|
||||
|
|
2006
|
|
2005
|
|
||
|
|
|
|
|
|
||
Security
systems and installation
|
|
$
|
6.5
|
|
$
|
5.2
|
|
Sales
of parts
|
|
1.5
|
|
0.3
|
|
||
|
|
|
|
||||
Total
|
|
$
|
8.0
|
|
$
|
5.5
|
|
Six
Months Ended June 30,
|
||||
Item
|
2006
|
2005
|
Increase
|
%
Increase
|
Revenue
|
$22.6
|
$12.7
|
$2.5
|
77.6%
|
Cost
of Goods Sold
|
15.2
|
9.8
|
5.4
|
54.1%
|
Gross
Profit
|
7.4
|
2.9
|
4.5
|
158.1%
|
Operating
Expenses
|
1.2
|
0.4
|
0.8
|
163.7%
|
Other
Income (expense)
|
0.7
|
0.2
|
0.5
|
190.7%
|
Provision
for Taxes
|
0.9
|
0.06
|
0.84
|
1375.5%
|
Net
income
|
6.0
|
2.6
|
3.4
|
130.5%
|
|
|
Six
months ended June 30,
|
|
||||
|
|
2006
|
|
2005
|
|
||
Security
systems and installation
|
|
$
|
19.6
|
|
$
|
12.0
|
|
Sales
of parts
|
|
3.0
|
|
0.7
|
|
||
Total
|
|
$
|
22.6
|
|
$
|
12.7
|
|
Year
Ended December 31,
|
||||
Item
|
2005
|
2004
|
Increase
|
%
Increase
|
Revenue
|
32.69
|
16.06
|
16.63
|
103.55%
|
Cost
of Goods Sold
|
23.47
|
8.80
|
14.67
|
166.70%
|
Gross
Profit
|
9.22
|
7.26
|
1.96
|
27.00%
|
Operating
Expenses
|
1.74
|
1.14
|
0.60
|
52.63%
|
Other
Income (expense)
|
0.57
|
0.47
|
0.10
|
21.28%
|
Provision
for Taxes
|
0.78
|
0.87
|
0.09
|
10.34%
|
Net
income
|
7.27
|
5.72
|
1.55
|
27.10%
|
Year
Ended December 31,
|
||||
Item
|
2004
|
2003
|
Increase
|
%
Increase
|
Revenue
|
16.06
|
11.79
|
4.27
|
36.22%
|
Cost
of Goods Sold
|
8.80
|
7.58
|
1.22
|
16.09%
|
Gross
Profit
|
7.26
|
4.21
|
3.05
|
72.45%
|
Operating
Expenses
|
1.14
|
0.95
|
0.19
|
20.00%
|
Other
Income (expense)
|
0.47
|
0.007
|
0.463
|
6614.28%
|
Provision
for Taxes
|
0.87
|
0.52
|
0.35
|
67.31%
|
Net
income
|
5.72
|
2.75
|
2.97
|
108.00%
|
Revenue
|
2005
|
2004
|
2003
|
Project
income from supply and installation of security and surveillance
equipment
|
30.56
|
15.53
|
10.06
|
Outright
sale of security and surveillance equipment
|
2.13
|
0.53
|
1.73
|
Cost
Item
|
2005FY
|
2004FY
|
2003FY
|
Salary
|
1.09
|
1.01
|
0.25
|
Percentage
|
4.64%
|
11.48%
|
3.30%
|
Purchase
|
22.38
|
7.79
|
7.33
|
Percentage
|
95.36%
|
88.52%
|
96.70%
|
Total
|
23.47
|
8.80
|
7.58
|
Percentage
|
100%
|
100%
|
100%
|
·
|
Basis
of Consolidation
-
The consolidated financial statements of the Company and its subsidiaries
are prepared in accordance with accounting principles generally
accepted
in the United States of America and include the accounts of the
Company
and its subsidiaries. All material intercompany accounts and transactions
have been eliminated in the
consolidation.
|
·
|
Deferred
Income - Deferred
income represents amount billed for contracts for supply and installation
of security and surveillance equipment which have not been fully
completed
at the balance sheet date.
|
·
|
Intangible
Assets - Intangible
assets represent a surveillance recording system acquired from
Yuan Da.
The value was established by an independent accounting firm. The
value of
the recording system is to be amortized using the straight-line
method
over its estimated useful life of five
years.
|
·
|
Inventories
-
Inventories are stated at the lower of cost, determined on a weighted
average basis, and net realizable value. Net realizable value is
the
estimated selling price in the ordinary course of business less
the
estimated cost of completion and the estimated costs necessary
to make the
sale.
|
·
|
Accounts
Receivable - Trade
receivables are recognized and carried at the original invoice
amount less
allowance for any uncollectible amounts. An estimate for doubtful
accounts
is made when collection of the full amount is no longer probable.
Bad
debts are written off as incurred.
|
·
|
Advances
to Suppliers -
Advances
to suppliers represent the cash paid in advance for purchasing
of
inventory items from suppliers.
|
·
|
Revenue
Recognition - The
Company derives the bulk of its revenue from the supply and installation
of security and surveillance equipment, and the two deliverables
do not
meet the separation criteria under EITF issue 00-21. The installation
is
not considered to be essential to the functionality of the equipment
having regard to the following criteria as set out in SAB
104:
|
·
|
Foreign
Currency Translation - The
functional currency of the Company is Renminbi (RMB) and RMB is
not freely
convertible into foreign currencies. The Company maintains its
financial
statements in the functional currency. Monetary assets and liabilities
denominated in currencies other than the functional currency are
translated into the functional currency at rates of exchange prevailing
at
the balance sheet date. Transactions denominated in currencies
other than
the functional currency are translated into the functional currency
at the
exchange rates prevailing at the dates of the transactions. Exchange
gains
or losses arising from foreign currency transactions are included
in the
determination of net income for the respective
periods.
|
2005
|
2004
|
2003
|
|||
Year
end
RMB/US $: exchange rate
|
8.07
|
8.28
|
8.28
|
||
Average
yearly RMB/US
$: exchange rate
|
8.19
|
8.28
|
8.28
|
·
|
Income
Taxes - Income
tax expense is based on reported income before income taxes. Deferred
income taxes reflect the effect of temporary differences between
assets
and liabilities that are recognized for financial reporting purposes
and
the amounts that are recognized for income tax purposes. In accordance
with Statement of Financial Accounting Standard (SFAS) No. 109,
“Accounting for Income Taxes,” these deferred taxes are measured by
applying currently enacted tax
laws.
|
|
|
|
|
Six
Months Ended
|
|||||||||||||||||||||||||||
|
|
Years
Ended December 31,
|
|
June
30,
|
|||||||||||||||||||||||||||
|
|
2003
|
|
2004
|
|
2005
|
|
2005
|
|
2006
|
|||||||||||||||||||||
|
|
(In
thousands)
|
|||||||||||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$
|
1,019
|
|
$
|
684
|
|
$
|
799
|
$
|
1,443
|
$
|
(81)
|
|||||||||||||||||||
Net
cash provided by (used in) investing activities
|
$
|
(676)
|
|
$
|
(110)
|
|
$
|
(79)
|
$
|
(139)
|
$
|
(1)
|
|||||||||||||||||||
Net
cash provided by (used in) financing activities
|
$
|
72
|
|
$
|
(1,056)
|
|
$
|
1,063
|
$
|
1,007
|
$
|
7,360
|
|||||||||||||||||||
Cash
and cash equivalents at the end of period
|
$
|
516
|
|
$
|
33
|
|
$
|
2,277
|
$
|
2,344
|
$
|
9,618
|
Contractual
Obligations
|
Payments
due by period
|
||||
Total
|
Less
than 1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
|
Long-Term
Debt Obligations
|
0
|
0
|
0
|
0
|
0
|
Capital
(Finance) Lease Obligations
|
0
|
0
|