UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________ to _____________________

Commission File Number: 000-54429
 
China Xingbang Industry Group Inc.
(Exact name of registrant as specified in its charter)

Nevada
 
99-0366034
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
7/F West Tower, Star International Mansion,
No.6-20 Jinsui Rd.,
Tianhe District, Guangzhou,
Guangdong Province, P.R.C. 510623
(Address of principal executive offices) (Zip Code)
 
(011) 86 20 38296988
(Registrant¡¯s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if
changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¡§
 
  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (¡ì232.405 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 x No ¡§

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
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
(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 ¡§  No x
 
Indicate the number of shares outstanding of each of the issuer¡¯s classes of common stock, as of the latest practicable date: 81,244,000 shares of Common Stock, par value $0.001, as of November 14, 2012.
 
 
 

 
 
CHINA XINGBANG INDUSTRY GROUP INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2012

TABLE OF CONTENTS
 
Title
Page No.
   
PART I - FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements
F-1 - F-12
     
Item 2.
Management¡¯s Discussion and Analysis of Financial Condition and Results of Operations
1
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
10
     
Item 4.
Controls and Procedures
10
     
PART II - OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
10
     
Item 1A.
Risk Factors
10
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
10
     
Item 3.
Defaults on Senior Securities
11
     
Item 4.
Mine Safety Disclosure
11
     
Item 5.
Other Information
11
     
Item 6.
Exhibits
11

* * *
 
In this quarterly report, unless otherwise specified or the context otherwise requires, the terms ¡°we¡± ¡°us,¡± ¡°our,¡± and the ¡°Company¡± refer to China Xingbang Industry Group Inc. and our consolidated subsidiaries taken together as a whole.

Pursuant to Item 10(f) of Regulation S-K promulgated under the Securities Act of 1933, as amended, we have elected to comply throughout this quarterly report with the scaled disclosure requirements applicable to ¡°smaller reporting companies.¡± Except as specifically included in the quarterly report, items not required by the scaled disclosure requirements have been omitted.
 
 
 

 
 
PART I
 
Item 1.  Financial Information
 
CHINA XINGBANG INDUSTRY GROUP INC.
 
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2012
 
CONTENTS
 
     
Pages
 
       
Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011
   
F-2
 
         
Condensed  Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2012 (Consolidated) and 2011 (Combined) (Unaudited)
   
F-3
 
         
Condensed Statements of Cash Flows for the nine months ended September 30, 2012 (Consolidated) and 2011 (Combined) (Unaudited)
   
F-4
 
         
Notes to Condensed Consolidated/Combined Financial Statements (Unaudited)
   
F-5 ¨C F-12
 
 
 
F-1

 
 
CHINA XINGBANG INDUSTRY GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
As of
   
As of
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
Unaudited
       
ASSETS
 
CURRENT ASSETS
           
Cash and cash equivalents
 
$
1,472,305
   
$
199,188
 
Accounts receivable, net
   
264,568
     
1,497,482
 
Prepaid expenses and other current assets
   
44,953
     
80,358
 
Deferred tax assets
   
164,500
     
69,708
 
Due from related companies
   
-
     
3,561
 
Total Current Assets
   
1,946,326
     
1,850,297
 
                 
                 
PROPERTY AND EQUIPMENT, NET
   
222,769
     
260,110
 
WEBSITE DEVELOPMENT COSTS, NET
   
459,902
     
344,355
 
TOTAL ASSETS
 
$
2,628,997
   
$
2,454,762
 
                 
LIABILITIES AND STOCKHOLDERS¡¯ EQUITY
 
                 
CURRENT LIABILITIES
               
Accounts payable
 
$
32,035
   
19,670
 
Deferred revenue
   
43,319
     
279,117
 
Other payables and accrued expenses
   
686,059
     
897,074
 
Income tax payable
   
66,382
     
66,282
 
Deferred tax liabilities
   
39,685
     
-
 
Due to a related company
   
10,175
     
10,161
 
Due to a director
   
1,591,140
     
-
 
Total Current Liabilities
   
2,468,795
     
1,272,304
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS¡¯ EQUITY
               
Preferred stock ($0.001 par value, 60,000,000 shares
               
authorized, none issued as of September 30, 2012
               
and December 31, 2011)
   
-
     
-
 
Common stock ($0.001 par value, 300,000,000 shares
               
authorized, 81,244,000 shares issued and outstanding
               
as of September 30, 2012 and December 31, 2011)
   
81,244
     
81,244
 
Additional paid-in capital
   
959,330
     
959,330
 
Accumulated deficits
   
(1,019,284
)
   
(2,418
)
Appropriated retained earnings
   
72,493
     
72,493
 
Accumulated other comprehensive gain
   
66,419
     
71,809
 
 Total Stockholders¡¯ Equity
   
160,202
     
1,182,458
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS¡¯ EQUITY
 
$
2,628,997
   
$
2,454,762
 
 
 
F-2

 
 
CHINA XINGBANG INDUSTRY GROUP INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
   
Consolidated
   
Combined
   
Consolidated
   
Combined
 
REVENUE
                       
Advertising
 
$
112,059
   
$
287,059
   
$
460,184
   
$
849,706
 
Consulting service
   
144,398
     
317,901
     
395,132
     
1,386,771
 
E-commerce
   
-
     
1,431,179
     
-
     
1,431,179
 
Total revenue
   
256,457
     
2,036,139
     
855,316
     
3,667,656
 
                                 
COST OF REVENUE
                               
Advertising
   
(15,026
   
208,540
     
146,482
     
592,482
 
Consulting service
   
17,047
     
22,049
     
52,203
     
163,400
 
E-commerce
   
72,235
     
143,713
     
293,209
     
143,713
 
Total cost of revenue
   
74,256
     
374,302
     
491,894
     
899,595
 
                                 
GROSS PROFIT
   
182,201
     
1,661,837
     
363,422
     
2,768,061
 
                                 
OPERATING EXPENSES
                               
Selling expenses
   
188,918
     
394,908
     
806,841
     
1,455,826
 
General & Administrative expenses
   
181,667
     
382,256
     
556,498
     
917,910
 
Depreciation and amortization
   
24,891
     
29,705
     
76,053
     
95,317
 
Loss (gain) on disposal of property and equipment
   
4
     
4,305
     
(2,292
)
   
5,751
 
Total Operating Expenses, net
   
395,480
     
811,174
     
1,437,100
     
2,474,804
 
                                 
NET (LOSS) INCOME FROM OPERATIONS
   
(213,279
)
   
850,663
     
(1,073,678
)
   
293,257
 
                                 
OTHER INCOME (EXPENSES), NET
                               
Interest income
   
1,923
     
997
     
4,059
     
2,523
 
Interest expenses
   
-
     
-
     
-
     
(6,293
)
Other income
   
650
     
923
     
819
     
2,605
 
Other expenses
   
(988
)
   
(5,661
)
   
(2,654
)
   
(10,730
)
Total Other Income (Expenses), net
   
1,585
     
(3,741
)
   
2,224
     
(11,895
)
                                 
NET (LOSS) INCOME BEFORE TAXES
   
(211,694
)
   
846,922
     
(1,071,454
)
   
281,362
 
                                 
Income tax (expenses) benefit
   
(69,941
   
(199,690
)
   
54,588
     
(163,457
)
                                 
NET (LOSS) INCOME
   
(281,635
)
   
647,232
     
(1,016,866
)
   
117,905
 
                                 
OTHER COMPREHENSIVE INCOME (LOSS)
                               
Foreign currency translation gain (loss)
   
4,633
     
31,130
     
(5,390
)
   
46,971
 
                                 
TOTAL COMPREHENSIVE (LOSS) INCOME
 
$
(277,002
)
 
$
678,362
   
$
(1,022,256
)
 
$
164,876
 
                                 
Net (loss) earnings per share
                               
- basic and- basic and diluted
 
$
(0.00
)
 
$
0.01
   
$
(0.01
)
 
$
0.00
 
                                 
Weighted average number of shares
                               
outstanding during the period
                               
- basic and diluted
   
81,244,000
     
80,148,739
     
81,244,000
     
80,040,641
 
 
 
F-3

 
 
CHINA XINGBANG INDUSTRY GROUP INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine months ended September 30,
 
   
2012
   
2011
 
   
Consolidated
   
Combined
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net (loss) income
 
$
(1,016,866
 
$
117,905
 
Adjusted to reconcile net loss to net cash used in
               
operating activities:
               
Depreciation and amortization
   
190,847
     
100,269
 
(Gain) loss on disposal of property and equipment
   
(2,292
)
   
5,751
 
Changes in operating assets and liabilities
               
(Increase) decrease in:
               
Accounts receivable
   
1,266,107
     
(1,389,245
Prepaid expenses and other current assets
   
37,410
     
(6,698
)
Deferred tax assets
   
(92,141
   
(4,442
Increase (decrease) in:
               
Accounts payable
   
11,721
     
(23,317
Deferred revenue
   
(241,941
   
(117,377
Other payables and accrued expenses
   
(224,274
)
   
400,730
 
Income tax payable
   
(1,766
   
72,675
 
Deferred tax liabilities
   
39,397
     
-
 
Net cash used in operating activities
   
(33,798
   
(843,749
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of property and equipment
   
(39,906
   
(99,703
Payments for website development cost
   
(239,431
   
(105,363
Proceeds from disposals of property and equipment
   
3,589
     
811
 
Repayment from related companies
   
3,635
     
1,157,144
 
Due from a director
   
-
     
91,159
 
Net cash (used in) provided by investing activities
   
(272,113
   
1,044,048
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Bank loans repaid
   
-
     
(307,853
Proceeds from issuance of shares
   
-
     
297,291
 
Capital contribution by stockholders
   
-
     
47,382
 
Repayments to a related company
   
(272
   
(4,618
Advances from a director
   
1,579,579
     
-
 
Net cash provided by financing activities
   
1,579,307
     
32,202
 
                 
EFFECT OF EXCHANGE RATES ON CASH
   
(279
)
   
44,175
 
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
   
1,273,117
     
276,676
 
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
   
199,188
     
737,939
 
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,472,305
   
$
1,014,615
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
                 
Cash paid for interest expenses
 
$
-
   
$
6,293
 
Cash paid for income tax
 
$
-
   
$
89,453
 
 
 
F-4

 
 
CHINA XINGBANG INDUSTRY GROUP INC.
NOTES TO THE CONDENSED CONSOLIDATED/COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1
BASIS OF PRESENTATION
 
The accompanying unaudited condensed group financial statements of China Xingbang Industry Group Inc., its subsidiaries and variable interest entity (¡°VIE¡±) (collectively the ¡°Group¡±) have been prepared in accordance with generally accepted accounting principles in the United States of America (¡°GAAP¡±) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (¡°SEC¡±). Accordingly, they do not include all of the information and footnotes required by GAAP for complete audited financial statements.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to present fairly the Company's consolidated financial position as of September 30, 2012, the results of operations and comprehensive loss/income for the three and nine months ended September 30, 2012 and 2011 and statements of cash flows for the nine months ended September 30, 2012 and 2011. The consolidated results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited financial statements and footnotes of the Company for the years ended December 31, 2011 (consolidated) and 2010 (combined).
 
NOTE 2
ORGANIZATION

China Xingbang Industry Group Inc. (¡°China Xingbang¡± or the ¡°Company¡±) was incorporated in Nevada on April 12, 2011 as a holding company.

Xing Bang Industry Group Limited (¡°Xingbang BVI¡±) was incorporated in the British Virgin Islands (¡°BVI¡±) on March 24, 2011 as a holding company and is wholly owned by China Xingbang.

China Group Purchase Alliance Limited (¡°Xingbang HK¡±) was incorporated in Hong Kong on August 5, 2008 as a holding company and is wholly owned by Xingbang BVI. Xingbang HK established Guangzhou Xingbang Information Consulting Co., Ltd., a wholly foreign owned enterprise (¡°Guangzhou Xingbang¡± or the ¡°WFOE¡±), on May 12, 2011 in the People¡¯s Republic of China (¡°PRC¡±) to provide consulting, investment and technical services to Guangdong Xingbang Industry Information & Media Co., Ltd. (¡°Guangdong Xingbang¡±).
 
Guangdong Xingbang was incorporated in the PRC on January 17, 2005 as a limited liability company. Guangdong Xingbang is a print media operator serving the home furnishing industry in the PRC. Guangdong Xingbang also provides marketing consulting services to clients in the home furnishing industry and local government in the PRC. Starting from August 2011, Guangdong Xingbang began to provide e-commerce services, namely B2B2C (Business-to-Business-to-Consumer), to manufacturers and distributors, and brick-and-mortar stores located in different parts of the PRC through an e-commerce platform, referred to as ju51 Mall, developed by Guangdong Xingbang.
 
Xinyu Xingbang Information Industry Co., Ltd (¡°Xinyu Xingbang¡±) was incorporated in the PRC on June 11, 2012 for the purpose of continuing the business of Guangdong Xingbang in the near future as Guangdong Xingbang winds down its operations. Pursuant to the Articles of Associations of Xinyu Xingbang, Guangdong Xingbang and the WFOE each invested $787,030 (RMB 5,000,000) in Xinyu Xingbang and each owns 50% of the equity interest of Xinyu Xingbang. Under the Xinyu Xingbang Articles of Association, the WFOE is entitled to appoint the sole director and all members of the management team of Xinyu Xingbang and the WFOE is entitled to receive 99.99% of Xinyu Xingbang¡¯s net profit. Based on the relevant PRC regulations, an Internet Content Provider license, or ICP license, issued by the Chinese Ministry of Industry and Information Technology, is required for Xinyu Xingbang to conduct business as currently contemplated.  In order to be granted the ICP license, foreign investor¡¯s ownership of Xinyu Xingbang cannot exceed 50%. Xinyu Xingbang is currently in the process of applying for the ICP license and it is anticipated to be obtained by the end of year 2012. After it obtains the ICP license, Guangdong Xingbang will gradually wind down its operations and any new business and activities shall be done by and in the name of Xinyu Xingbang. The ownership of the e-commerce website, ju51 Mall, will also be transferred to Xinyu Xingbang. Guangdong Xingbang and Xinyu Xingbang did not enter into any asset transfer or other agreement. It is anticipated that Xinyu Xingbang will enter into new contracts with customers while Guangdong Xingbang will continue to serve customers pursuant to existing contracts.
 
Pursuant to (i) a series of contractual arrangements between the WFOE, Guangdong Xingbang and all the stockholders of Guangdong Xingbang (ii) the share exchange agreement between China Xingbang, Xingbang BVI and all the stockholders of Xingbang BVI, and (iii) the WFOE¡¯s 50% equity ownership of Xinyu Xingbang, the results of all these entities are consolidated together. Since they are under common control, the contractual arrangements and share exchange were accounted for as a reorganization of entities under common control (See Note 4).
 
 
F-5

 

NOTE 3
VARIABLE INTEREST ENTITY
 
In accordance with Accounting Standards Codification (¡°ASC¡±) 810, the Company analyzes its variable interests including its equity investments.  The Company determines its interests in potential VIEs and then assesses whether the Company is the primary beneficiary of each VIE.  If the Company determines it is the primary beneficiary of a VIE, the Company consolidates its assets, liabilities, results of operations and cash flows (see note 4A).  If the Company is not the primary beneficiary, the Company accounts for such interests using other applicable GAAP. The Company determined that it is the primary beneficiary of Guangdong Xingbang and thus consolidates its assets, liabilities, results of operations and cash flows. The Company also consolidates XinyuXingbang, a joint venture formed between Guangdong Xingbang and Guangzhou Xingbang.
 
NOTE 4
GROUP RESTRUCTURING
 
(A)
Variable interest entity
 
On May 13, 2011, the Company, through its PRC subsidiary Guangzhou Xingbang, entered into a series of contractual arrangements consisting of five agreements with Guangdong Xingbang and all the stockholders of Guangdong Xingbang.  These five agreements and their consequences are described below.
 
 
(i)
a consulting service agreement, pursuant to which Guangdong Xingbang grants Guangzhou Xingbang the right to manage and operate Guangdong Xingbang. In return, Guangdong Xingbang agreed to pay 100% of its net income, in each quarter, as consulting fee to Guangzhou Xingbang. The Consulting Services Agreement is effective until it is terminated by either party in the event the other party becomes bankrupt or insolvent, Guangzhou Xingbang ceases operations, or if circumstances arise which materially and adversely affect the performance or the objectives of such agreement. Guangzhou Xingbang may also terminate such agreement if Guangdong Xingbang fails to remediate a material breach, or in its sole discretion with or without cause.
 
 
(ii)
a voting rights proxy agreement, pursuant to which the stockholders of Guangdong Xingbang irrevocably grant Guangzhou Xingbang with all of their voting rights as stockholder of Guangdong Xingbang. The Voting Right Proxy Agreement is effective until terminated by mutual agreement or by the WFOE with a 30-day prior written notice.
 
 
(iii)
an option agreement, pursuant to which:
 
   
(a)
Guangzhou Xingbang or its designee has an exclusive option to purchase all or part of the equity interests in Guangdong Xingbang, and;
 
   
(b)
Guangdong Xingbang may not enter into any transaction that could materially affect its assets, liabilities, equity or operations without the prior written consent of Guangzhou Xingbang. The Operating Agreement is effective for the maximum period of time permitted by Chinese law (currently 20 years).
 
 
(iv)
an equity pledge agreement, pursuant to which each of the stockholders of Guangdong Xingbang has pledged his or her equity interest in Guangdong Xingbang to Guangzhou Xingbang to secure their obligations under the relevant contractual control agreements, including but not limited to, the obligations of Guangdong Xingbang and its subsidiaries under the exclusive services agreement, the call option agreement, the voting rights proxy agreement described above, and each of them has agreed not to transfer, sell, pledge, dispose of or create any encumbrance on their equity interest in Guangdong Xingbang without the prior written consent of Guangzhou Xingbang. The equity pledge agreement is effective for the maximum period of time permitted by Chinese law (currently 20 years). In the event Guangdong Xingbang fails to cure a material breach, Guangzhou Xingbang may, among other remedies available, terminate such agreement, and;
 
 
F-6

 
 
 
(v)
an operating agreement, pursuant to which each of the stockholders of Guangdong Xingbang has agreed to appoint the members recommended by Guangzhou Xingbang as the Directors of Guangdong Xingbang, and shall appoint members of Guangzhou Xingbang¡¯s senior management as Guangdong Xingbang¡¯s  Chief Executive Officer, President, Chief Financial Officer, and other senior officers. The Operating Agreement is effective for the maximum period of time permitted by Chinese law (currently 20 years), unless terminated by Guangzhou Xingbang with a 30-day prior written notice. In addition, the WFOE has the right to terminate the Operating Agreement in the event any of the agreements between Guangzhou Xingbang and Guangdong Xingbang are terminated or expire.

In the PRC restructuring transaction described above, the Company gained indirect control of Guangdong Xingbang and Guangdong Xingbang is now a VIE for which  the Company is the primary beneficiary.

The Company accounts for its VIE in accordance with ASC 810, which requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE¡¯s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE. The Company assesses all newly created entities and those with which the Company becomes involved to determine whether such entities are VIEs and, if so, whether or not the Company is their primary beneficiary.

As required by ASC 810-10, the Company performs a qualitative assessment to determine whether the Company remains the primary beneficiary of Guangdong Xingbang, which also owns 50% of Xinyu Xingbang.  A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity¡¯s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and the parties involved in the design of the entity. The Company¡¯s assessment on the involvement with Guangdong Xingbang reveals that the Company has the absolute power to direct the most significant activities that impact the economic performance of Guangdong Xingbang. Under the accounting guidance, the Company is deemed to be the primary beneficiary of Guangdong Xingbang and the results of Guangdong Xingbang and Xinyu Xingbang are consolidated in the Company¡¯s group financial statements for financial reporting purposes. As of September 30, 2012 and December 31, 2011, the Company has no equity interest in Guangdong Xingbang, none of the Company¡¯s assets serve as collateral for Guangdong Xingbang; creditors of Guangdong Xingbang have no recourse to the Company; and the Company has not provided any guarantees to Guangdong Xingbang.
  
The assets and liabilities associated with Guangdong Xingbang and Xinyu Xingbang are combined and presented on a gross basis, prior to consolidation adjustments with other entities in the Group, and are as follows:
 
   
As of
September 30,
   
As of
December 31,
 
   
2012
   
2011
 
             
Cash and cash equivalents
 
$
1,414,235
   
$
141,860
 
Accounts receivable, net
   
264,568
     
1,497,482
 
Prepaid expenses and other current assets
   
44,848
     
79,938
 
Deferred tax assets
   
164,500
     
69,708
 
Due from related companies
   
-
     
3,561
 
Due from group companies
   
728,520
     
476,199
 
Property and equipment, net
   
222,769
     
260,110
 
Website development cost, net
   
459,902
     
344,355
 
                 
Total assets
 
$
3,299,342
   
$
2,873,213
 
                 
Accounts payable
 
$
32,035
   
$
19,670
 
Deferred revenue
   
43,319
     
279,117
 
Other payables and accrued expenses
   
383,350
     
559,421
 
Income tax payable
   
66,382
     
66,282
 
Deferred tax liabilities
   
39,685
     
-
 
Due to a group company
   
395,876
     
395,303
 
Due to a related company
   
10,175
     
10,161
 
Due to a director
   
795,570
     
-
 
Equity of variable interest entities 
   
1,532,950
     
1,543,259
 
                 
Total liabilities and equity
 
$
3,299,342
   
$
2,873,213
 
 
As of September 30, 2011, the Company agreed to waive the management fee payable by Guangdong Xingbang for a period of 3 years from May 13, 2011 to May 12, 2014 in order for Guangdong Xingbang to preserve enough cash to fund its e-commerce business.
 
 
F-7

 

The liabilities recognized as a result of combining the VIE  do not necessarily represent additional claims on the Company¡¯s general assets; rather, they represent claims against the specific assets of the combined VIE.  Conversely, assets recognized as a result of combining the VIE  do not represent additional assets that could be used to satisfy claims by the Company¡¯s creditors as they are not legally included within the Company¡¯s general assets.
 
Immediately prior to the PRC restructuring transactions that were completed on May 13, 2011, the Chief Executive Officer of the Company and his spouse controlled Guangdong Xingbang as they owned 90% and 10% respectively of its registered capital. The Chief Executive Officer also indirectly controlled Guangzhou Xingbang as he owned 56.25% of the issued share capital of Xingbang BVI, the sole stockholder of Guangzhou Xingbang. As Guangzhou Xingbang and Guangdong Xingbang are under common control, the contractual arrangements have been accounted for as a reorganization of entities under common control and the Group¡¯s financial statements were prepared as if the reorganization occurred at the beginning of the first period presented.
 
(B)
Share exchange

On May 13, 2011, China Xingbang entered into a share exchange agreement with Xingbang BVI and the stockholders of Xingbang BVI in which the stockholders of Xingbang BVI exchanged 100% of the issued share capital of Xingbang BVI, valued at $80,000, for 79,999,000 shares of common stock of China Xingbang. Xingbang BVI became a wholly owned subsidiary of China Xingbang. Prior to the share exchange, the sole stockholder of China Xingbang owned 56.25% of the issued share capital of Xingbang BVI. As both companies are under common control, the share exchange involving China Xingbang and Xingbang BVI is being treated for accounting purposes as a capital transaction and a reorganization of entities under common control with China Xingbang as the accounting acquirer and Xingbang BVI as the accounting acquiree. The combined financial statements were prepared as if the reorganization occurred at the beginning of the first period presented.

Accordingly, these group financial statements include the following:

1.
The balance sheets consisting of the net assets of the acquirer and acquiree at historical cost; and
2.
The statement of operations including the operations of the acquirer and acquiree for the periods presented.
 
NOTE 5
PRINCIPLES OF CONSOLIDATION AND COMBINATION

The accompanying group financial statements for the three and nine months ended September 30, 2012 and 2011 include the financial statements of China Xingbang, its wholly owned subsidiaries, Xingbang BVI, Xingbang HK and the WFOE, its contractually controlled affiliate, Guangdong Xingbang and Xinyu Xingbang (only consolidated for the three and nine months ended September 30, 2012), which is 50% owned by Guangdong Xingbang and 50% owned by Guangzhou Xingbang.

All significant inter-company accounts and transactions have been eliminated in consolidation and combination.
 
NOTE 6
USE OF ESTIMATES

The preparation of the unaudited condensed group financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the group financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
NOTE 7
THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2011, the Financial Accounting Standards Board (¡°FASB¡±) issued an accounting pronouncement related to offsetting of assets and liabilities on the balance sheet (FASB ASC Topic 210). The amendments require additional disclosures related to offsetting either in accordance with GAAP or master netting arrangements. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after January 1, 2013. The Company will adopt this pronouncement for its fiscal year beginning March 1, 2013. The Company does not expect this pronouncement to have a material effect on our consolidated financial statements.

On September 15, 2011 the FASB issued Accounting Standards Update (¡°ASU¡±) 2011-08, Testing Goodwill for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing both public and nonpublic entities with the option of performing a ¡°qualitative¡± assessment to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted for certain companies. The Company has assessed the potential impact the adoption of ASU 2011-08 on its consolidated results of operations and consolidated financial position and concluded that there is no impact.
 
 
F-8

 

In June 2011, the FASB issued ASU 2011-05, "Presentation of Comprehensive Income". The guideline eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders' equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This new guidance is to be applied retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company believes the adoption of ASU 2011-05 concerns presentation and disclosure only and will not have an impact on the Company¡¯s consolidated financial position or results of operations.
 
NOTE 8
OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses consisted of the following:
   
   
As of
September 30, 2012
   
As of
December 31, 2011
 
             
Customers deposits and prepayments
 
$
219,770
   
$
177,156
 
Business and other taxes payable
   
52,106
     
107,569
 
Other payables
   
64,739
     
67,325
 
Accrued expenses
   
349,444
     
545,024
 
   
$
686,059
   
$
897,074
 
 
NOTE 9
SEGMENTS

The Company operates in three reportable segments, advertising, consulting service and e-commerce. The Company evaluates segment performance based on income from operations. All inter-company transactions between segments have been eliminated on consolidation. As a result, the components of operating income for one segment may not be comparable to another segment.

The following is a summary of the Company¡¯s segment information for the three and nine months ended September 30, 2012 and 2011.
 
For the three months ended September 30,
2012
 
Advertising
   
Consulting service
   
E-commerce
   
Elimination
   
Total
 
Revenues
 
$
134,209
   
$
144,398
   
$
-
   
$
(22,150
 
$
256,457
 
Gross profit
   
149,235
     
127,351
     
 (94,385
   
-
     
182,201
 
Net (loss) income
   
 (145,090
   
96,450
     
 (109,942
   
-
     
 (158,582
Total assets as of September 30, 2012
   
1,676,151
     
172,417
     
780,429
     
-
     
2,628,997
 
Capital expenditure
   
27,264
     
2,781
     
101,472
     
-
     
131,517
 
Depreciation and amortization
 
$
21,421
   
$
1,952
   
$
53,774
   
$
-
   
$
77,147
 
                                         
For the three months ended September 30,
2011
 
Advertising
   
Consulting service
   
E-commerce
   
Elimination
   
Total
 
Revenues
 
$
287,059
   
$
317,901
   
$
1,431,179
   
$
-
   
$
2,036,139
 
Gross profit
   
78,519
     
295,852
     
1,287,466
     
-
     
1,661,837
 
Net (loss) income
   
(96,329
   
(225,082
   
1,105,978
     
-
     
784,567
 
Total assets as of September 30, 2011
   
999,041
     
1,898,178
     
432,918
     
-
     
3,330,137
 
Capital expenditure
   
34,670
     
66,335
     
26,658
     
-
     
127,663
 
Depreciation and amortization
 
$
5,835
   
$
11,479
   
$
12,391
   
$
-
   
$
29,705
 
 
 
F-9

 
 
A reconciliation is provided for unallocated amounts relating to corporate operations which are not included in the segment information
 
 
Three months ended September 30,
 
     
2012
     
2011
 
Total net (loss) income for reportable segments
 
$
(158,582
 
$
784,567
 
                 
Unallocated amounts relating to corporate operations
   
Professional fees
   
(43,055
   
(124,608
Others
   
(79,998
   
(12,727
Total (loss) income
 
$
(281,635
 
$
647,232
 
 
 
For the nine months ended September 30,
2012
 
Advertising
   
Consulting service
   
E-commerce
   
Elimination
   
Total
 
Revenues
 
$
625,603
   
$
395,132
   
$
-
   
$
(165,419
)
 
$
855,316
 
Gross profit
   
479,121
     
342,929
     
 (458,628
   
-
     
363,422
 
Net (loss) income
   
 (366,471
   
255,947
     
 (620,329
   
-
     
 (730,853
Total assets as of September 30, 2012
   
1,676,151
     
172,417
     
780,429
     
-
     
2,628,997
 
Capital expenditure
   
30,836
     
3,172
     
245,329
     
-
     
279,337
 
Depreciation and amortization
 
$
58,769
   
$
6,045
   
$
126,033
   
$
-
   
$
190,847
 
                                         
For the nine months ended September 30,
2011
 
Advertising
   
Consulting service
   
E-commerce
   
Elimination
   
Total
 
Revenues
 
$
849,706
   
$
1,386,771
   
$
1,431,179
   
$
-
   
$
3,667,656
 
Gross profit
   
257,224
     
1,223,371
     
1,287,466
     
-
     
2,768,061
 
Net (loss) income
   
 (867,373
   
457,321
     
1,105,978
     
-
     
695,926
 
Total assets as of September 30, 2011
   
999,041
     
1,898,178
     
432,918
     
-
     
3,330,137
 
Capital expenditure
   
61,520
     
116,888
     
26,658
     
-
     
205,066
 
Depreciation and amortization
 
$
28,595
   
$
54,331
   
$
12,391
   
$
-
   
$
95,317
 
 
A reconciliation is provided for unallocated amounts relating to corporate operations which are not included in the segment information.
 
 
Nine months ended September 30,
 
     
2012
     
2011
 
Total net (loss) income for reportable segments
 
$
(730,853
 
$
695,926
 
                 
Unallocated amounts relating to corporate operations
   
Professional fees
   
(178,243
   
(565,294
Others
   
(107,770
   
(12,727
Total (loss) income
 
$
(1,016,866
 
$
117,905
 
 
NOTE 10
STOCKHOLDERS¡¯ EQUITY

Appropriated retained earnings

WFOE, Guangdong Xingbang and Xinyu Xingbang are required to make appropriation to the statutory surplus reserve at 10% of the after-tax net income annually until the total contributions equal to 50% of the entities¡¯ registered capital.  The statutory reserve funds are restricted for use to set off against prior period losses, expansion of production and operations or for the increase in the registered capital of the respective companies. This reserve is therefore not available for distribution except in liquidation.
 
As of September 30, 2012 and December 31, 2011, Guangdong Xingbang appropriated $72,493 and $72,493 respectively to the relevant reserves based on its net income in accordance with the laws and regulations of the PRC.
 
 
F-10

 
 
NOTE 11
COMMITMENTS AND CONTINGENCIES

(a)           Defined contribution retirement plans
 
The full time employees of Guangdong Xingbang are entitled to employee benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a Chinese government mandated multi-employer defined contribution plan. Guangdong Xingbang is required to accrue for those benefits based on certain percentages of the employees¡¯ salaries and make contributions to the plans out of the amounts accrued for medical and pension benefits. The total provision and contributions made for such employee benefits for the three months ended September 30, 2012 and 2011 were $20,258 and $48,410 respectively. The total provision and contributions made for such employee benefits for the nine months ended September 30, 2012 and 2011 were $75,567 and $82,495 respectively. The Chinese government is responsible for the medical benefits and the pension liability to be paid to these employees.
 
(b)           Rental leases commitment

Guangdong Xingbang leases office premises from two stockholders under an operating lease at a monthly rental of $13,013 which expires on December 31, 2012.
 
Xinyu Xingbang leases office premises from Xinyu Xingbang Industry Co., Ltd under an operating lease at a monthly rental of $2,705 which expires on June 30, 2015. The Chief Executive Officer of the Company Mr. Xiaohong Yao (¡°Mr. Yao¡±) and his spouse own 90% and 10% respectively of the registered capital of Xinyu Xingbang Industry Co., Ltd.
 
As of September 30, 2012, the Company had outstanding commitments with respect to the above operating leases, which are due as follows:
 
 
Three months ending December 31, 2012
 
$
47,153
 
Fiscal years ending December 31,
       
     2012
   
47,153
 
     2013
   
32,460
 
     2014
   
32,460
 
     2015
   
16,230
 
    Thereafter
   
-
 
         Total
 
$
128,303
 
 
NOTE 12
RELATED PARTY TRANSACTIONS

In June 2012, Xinyu Xingbang entered into an operating lease agreement with Xinyu Xingbang Industry Co., Ltd at a monthly rental of $2,705 which starts on July 1, 2012 and expires on June 30, 2015.  Mr. Yao and his spouse own 90% and 10% respectively of the registered capital of Xinyu Xingbang Industry Co., Ltd.
 
As of September 30, 2012 and December 31, 2011, two related companies owed $0 and $3,561 respectively to the Company which is interest free, unsecured and repayable on demand.
 
As of September 30, 2012 and December 31, 2011, the Company owed $10,175 and $10,161 respectively to a related company which is interest free, unsecured and repayable on demand.

As of September 30, 2012 and December 31, 2011, the Company owed $1,591,140 and $0 respectively to Mr. Yao.  The loan is interest free and unsecured. The loan was entered into on June 19, 2012 and is due and payable on June 18, 2013.

For the three months ended September 30, 2012 and 2011, the Company paid two stockholders $38,626 and $38,241 for lease of office premises.
 
For the nine months ended September 30, 2012 and 2011, the Company paid two stockholders $116,263 and $113,295 for lease of office premises.
 
NOTE 13
CONCENTRATIONS AND CREDIT RISKS
 
As of September 30, 2012 and December 31, 2011, all of the Company¡¯s assets were located in the PRC and Hong Kong and all of the Company¡¯s revenues were derived from customers located in the PRC.
 
 
F-11

 
 
Details of the suppliers accounting for 10% or more of the Company¡¯s purchases are as follows:
 
   
Supplier A
   
Supplier B
   
Supplier C
 
For the three months ended
                 
September 30, 2012
   
48%
     
52
%
   
-
 
September 30, 2011
   
36%
     
53
%
   
11
%
 
   
Supplier A
   
Supplier B
   
Supplier C
 
For the nine months ended
                 
September 30, 2012
   
76%
     
12
%
   
-
 
September 30, 2011
   
60%
     
36
%
   
-
 

As of September 30, 2012 and December 31, 2011, the accounts payable for these suppliers were $1,948 and $19,670 respectively.
 
Details of the customers accounting for 10% or more of the Company¡¯s sales are as follows:
 
   
Customer A
 
For the three months ended
     
September 30, 2012
   
43
%
 
   
Customer A
 
For the nine months ended
     
September 30, 2012
   
33
%

No single customer accounted for more than 10% of the turnover for the three and nine months ended September 30, 2011.

As of September 30, 2012 and December 31, 2011, the accounts receivable from these customers were $119,336 and $0 respectively
 
Details of the customers accounting for 10% or more of the Company¡¯s accounts receivable are as follows:
 
   
Customer A
   
Customer B
 
As of
           
September 30, 2012
   
45
%
   
24
%
December 31, 2011
   
-
     
11
%
 
 
F-12

 

Item 2.
Management¡¯s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of our results of operations and financial condition should be read together with our condensed group financial statements and the notes thereto and other financial information, which are included elsewhere in our annual report on Form 10-K for fiscal year ended December 31, 2011.. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In addition, our financial statements and the financial information included in this report reflect our organization transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods.
 
This section contains forward-looking statements. These forward-looking statements are subject to various factors, risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Further, as a result of these factors, risks and uncertainties, the forward-looking events may not occur. Relevant factors, risks and uncertainties include, but are not limited to, those discussed in ¡°Item 1. Business,¡± ¡°Item 1A. Risk Factors¡± and elsewhere in our annual report on Form 10-K for fiscal year ended December 31, 2011. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management¡¯s beliefs and opinions as of the date ofthis report. We are not obligated to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. See ¡°Forward-Looking Statements.¡±

Overview and Strategy

In this Quarterly Report on Form 10-Q, unless the context requires or is otherwise specified, references to the ¡°Company,¡± ¡°we,¡± ¡°us,¡± ¡°our¡± and similar expressions include the following entities (as defined herein):

(i)            China Xingbang Industry Group Inc., a Nevada corporation (¡° China Xingbang ¡±);

(ii)           Xing Bang Industry Group Limited, a British Virgin Islands company and a wholly-owned subsidiary of the Registrant (¡° Xingbang BVI ¡±);

(iii)          China Group Purchase Alliance Limited, a Hong Kong company and a wholly-owned subsidiary of Xingbang BVI (¡° Xingbang HK ¡±);

(iv)          Guangzhou Xingbang Information Consulting Co., Ltd., a wholly foreign-owned enterprise, or the ¡° WFOE ¡±, formed in the People¡¯s Republic of China (¡° PRC ¡±) and a wholly-owned subsidiary of Xingbang HK;
 
(v)           Guangdong Xingbang Industry Information & Media Co. Ltd., our principal operating subsidiary, which is a Chinese variable interest entity that the WFOE controls through certain contractual arrangements (¡° Guangdong Xingbang ¡±); and

(vi)          Xinyu Xingbang Information Industry Co., Ltd., an entity incorporated in the PRC which the WFOE and Guangdong Xingbang each owns 50% of its equity interest, (¡° Xinyu Xingbang ¡±). After Xinyu Xingbang obtains the operating ICP license, Xinyu Xingbang will continue the business of Guangdong Xingbang.
 
Through our wholly owned subsidiaries, Xingbang BVI and Xingbang HK, we own the WFOE, which controls Guangdong Xingbang, a variable interest entity (¡°VIE¡±), through a series of variable interest entity, or VIE contractual arrangements.  Guangdong Xingbang is currently our sole source of income and operations.  A summary of our business is described below.

We were formed as a Nevada corporation on April 12, 2011 to acquire operational control over Guangdong Xingbang. Since foreign investors are restricted by the laws and regulations of the People¡¯s Republic of China from operating in the media and e-commerce business in China, we operate our business through ownership of the WFOE that provides management, consulting, investment and technical services to Guangdong Xingbang. We do not own any direct equity interest in Guangdong Xingbang. In May 2011, the WFOE entered into a series of contractual arrangements which effectively give the WFOE operational control over Guangdong Xingbang despite the lack of direct ownership. As a result of these contractual arrangements, we treat Guangdong Xingbang as a variable interest entity, or VIE, under U.S. generally accepted accounting principles of which the Company is the primary beneficiary, and we have therefor included its historical financial results in our group financial statements.
  
Our subsidiaries, Xingbang BVI and Xingbang HK are holding companies which do not have any operations or own any assets except for the ownership of the WFOE.  The only current operation of the WFOE is to provide consulting and management services to Guangdong Xingbang.  Currently, we solely rely on results of operations of Guangdong Xingbang.   If the PRC government declares the VIE agreements are not enforceable, we will not be able to exercise effective control over Guangdong Xingbang and combine the financial results of Guangdong Xingbang.  In such case, our results of operations and financial position will be materially adversely affected.
 
Guangdong Xingbang, which was founded in 2005, derives revenue primarily from three types of business: e-commerce related revenue derived from our ju51 Mall, advertising revenue, and revenue from consulting services provided to businesses and local governments in China.
 
 
1

 
 
Xinyu Xingbang was incorporated in the PRC in June 2012 for the purpose of continuing the business of Guangdong Xingbang in the near future as Guangdong Xingbang winds down its operations. Pursuant to the Articles of Associations of Xinyu Xingbang, Guangdong Xingbang and the WFOE each invested $787,030 (RMB 5,000,000) in Xinyu Xingbang and each owns 50% of the equity interest of Xinyu Xingbang. Under the Xinyu Xingbang Articles of Association, the WFOE is entitled to appoint the sole director and all members of the management team of Xinyu Xingbang and the WFOE is entitled to receive 99.99% of Xinyu Xingbang¡¯s net profit. Based on the relevant PRC regulations, an Internet Content Provider license, or ICP license, issued by the Chinese Ministry of Industry and Information Technology, is required for Xinyu Xingbang to conduct business as currently contemplated.  In order to be granted the ICP license, foreign investor¡¯s ownership of Xinyu Xingbang cannot exceed 50%. Xinyu Xingbang is currently in the process of applying for the ICP license and it is anticipated to be obtained by the end of year 2012. After it obtains the ICP license, Guangdong Xingbang will gradually wind down its operations and any new business and activities shall be done by and in the name of Xinyu Xingbang. The ownership of the e-commerce website, ju51 Mall, will also be transferred to Xinyu Xingbang. Guangdong Xingbang and Xinyu Xingbang did not enter into any asset transfer or other agreement. It is anticipated that Xinyu Xingbang will enter into new contracts with customers while Guangdong Xingbang will continue to serve customers pursuant to existing contracts.
 
 Below is our updated organizational structure after the incorporation of Xinyu Xingbang.
 
Our revenue highly correlates to the Chinese real estate market and is seasonal. Since January 2010, the Chinese government began to put forth policies restraining real estate growth and, as a result, the demand for home furnishings began to decrease in the fourth quarter of 2010. Manufacturers and distributors cut their advertising and consulting budgets in the first quarter of 2011 and the decreased demand had a significant impact on our revenue and deferred revenue in the first three quarters  of 2011.  Management believes it is possible for the Chinese government to continue its policy to restrain high housing prices in the foreseeable future. Such policy is intended to incentivize consumers who previously were not able to afford the high home prices and spend on home furnishings.  Prior to the policy change, many apartments and houses were purchased by speculators who bought them and did not spend any money to furnish them.  We believe an increased number of home buyers buying for personal occupancy will lead to increased growth in the home furnishings market and we expect to see more aggressive marketing initiatives by the home furnishings industry in the future. Generally, the first half of the year is low season for the home furnishings market, as people generally do not decorate their home during this period because of wet weather and other factors, so our revenue in advertising and consulting (except for consulting provided to local governments, and revenue generated by our ju51 Mall) is relatively low during this period.
 
 
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On February 2, 2012, to avoid confusion by consumers and to better reflect their functions, we rebranded direct sale stores as technical service stations. Besides brick-and-mortar stores, we also decided to license decoration companies to become our technical service stations.
 
As part of our operation of the ju51 Mall, we seek to capitalize on our relationship with distributors by engaging the distributors, or ¡°channel service providers¡±, to develop technical service stations, potential advertising and consulting services clients and distribute our newspapers. We also intend to build representative offices throughout China to develop technical service stations. Distributors will receive commission based on the franchise fee paid by technical service stations, the advertising and consulting services revenue generated by such distributor, and will be compensated for its distribution costs. By doing so, our management believes we can develop the ju51 Mall quickly and increase our advertising and consulting revenues in the foreseeable future.
 
We also decided to develop membership of decoration technicians as shopping guides to help increase sales volume on the ju51 Mall. To promptly develop membership of decoration technicians and better organize and manage them, we will develop decoration companies to be our technical service stations. In principle, we only develop a technical service station within a county or a district of a city to protect their economic interests. Technical service stations will earn commissions, paid by flagship stores, based on a percentage of the sales in the geographical area they are franchised to cover. A decoration technician will also earn commissions, paid by flagship stores, based on a percentage of the amount he/she sells as a shopping guide. Flagship stores are set up by the manufacturers in the online mall where they showcase and sell their products, list prices for products and process orders placed online by consumers. Customers, who input the membership number of the decoration technician when they place orders, will enjoy membership price lower than the direct sale price listed on the ju51 Mall. To help consumers learn more about or check the personal information of decoration technicians, we founded a web portal of China Decoration Technician the web address is http://www.zgzxjg.com in November 2011.This website is owned by the Company and the development cost of the website is expensed as incurred.
 
During the second quarter of 2012, we combined our two newspapers, ¡° China Ceramics Weekly ¡± and ¡° Guzhen Lighting Weekly¡±, and changed the name to   ¡°Industry Economy Remark¡±
 
As of February 14, 2012, the board of directors exempted distributors from paying service charges from October 2011 to June 2012, considering that the distributors have undergone loss resulting from low sales volume on the ju51 Mall, and in order to maintain a good and sustainable cooperation relationship with them, and also authorized Mr. Yao, the Chairman, Chief Executive Officer and President, to exempt distributors from paying service charges, direct sale stores (later rebranded as technical service stations) from paying license fees. Accordingly, we do not expect revenues to be generated from service charges until the first quarter of 2013 at the earliest.
 
Critical Accounting Policies and Estimates
 
In preparing our condensed group financial statements in conformity with accounting principles generally accepted in the United States, we make estimates and assumptions that affect the accounting, recognition and disclosure of our assets, liabilities, stockholders¡¯ equity, revenues and expenses. We make these estimates and assumptions because certain information that we use is dependent upon future events, which cannot be calculated with a high degree of precision from data available or cannot be readily calculated based upon generally accepted methodologies. In some cases, these estimates are particularly difficult and therefore require a significant amount of judgment. Actual results could differ from the estimates and assumptions that we use in the preparation of our condensed group financial statements.
 
During the nine months ended September 30, 2012, there were no significant changes to our critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
 
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Results of Operations ¡ª Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011.
 
The following table presents, for the three months indicated, our condensed statements of operations information.
 
   
Three months ended
September 30,
 
   
2012
   
2011