Auditor problems may be a result of Sarbanes-Oxley issues; per filings.
Due from related party
From time to time, BT Shantou receives advances from and makes advances to Xinzhongyang, for working capital purposes. At times the total payment the Company repaid to Xinzhongyang exceeds the total balance due to Xinzhongyang. Xinzhongyang is under the common control of Mr. Lin and his wife. At June 30, 2014 and December 31, 2013, amounts due from related party amounted to $2,934,613 and $1,630,580, respectively. The Company accounted for and presented the advances due from related party as a reduction of stockholders’ equity in accordance with the guidance of ASC 505-10-45. It is possible that these working capital advances by us to Xinzhongyang could be deemed to be in violation of Section 402 of the Sarbanes-Oxley Act of 2002, however, we have not made a determination as of the date hereof if the advances resulted in a violation of that provision. We expect that the working capital advance made by us to Xinzhongyang will be repaid. If, however, the amount is not repaid and/or it was determined that these advances violated the prohibitions of Section 402 from making loans to executive officers or directors, the Company could be subject to investigation and/or litigation that could involve significant time and costs and may not be resolved favorably. The Company is unable to predict the extent of its ultimate liability with respect to these transactions. The costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in this matter could have a material adverse effect on the Company’s financial condition and operating results. For the six months ended June 30, 2014, due from related party activity consisted of the following:
Balance, December 31, 2013
$
1,630,580
Working capital advances to Xinzhongyang
1,745,349
Repayments made by Xinzhongyang
(426,126
)
Effect of foreign currency exchange
(15,190
)
Balance, June 30, 2014
$
2,934,613
Due to (from) related parties
From time to time we received advances from or made advances to related parties for working capital purposes. The advances bear no interest and are payable on demand. For the six months ended June 30, 2014, due to (from) related party activities consisted of the following:
Wei Lin (1)
Chaojun Lin (2)
Total
Balance, December 31, 2013
$ 444,749 $ (292,943 ) $ 151,806
Working capital advances
589,706 496,415 1,086,121
Repayments
(583,191 ) (162,874 ) (746,065 )
Effect of foreign currency exchange
(3,253 ) 1,291 (1,962 )
Balance, June 30, 2014
$ 448,011 $ 41,889 $ 489,900
(1)
Mr. Wei Lin is our former chief executive officer and Chairman of the Board. He resigned his position in the company at June 2014, he works as a consultant to the company and he and his family owns more than 20% of the company’s common shares. At June 30, 2014 and December 31, 2013, balances due to Mr. Lin primarily consisted of advances for working capital.
(2)
Mr. Chaojun Lin is the Deputy General Manager of BT Shantou since March 2004 and a member of our Board of Directors since December 30, 2011. The balance due from Mr. Chaojun Lin as December 31, 2013 amounted to $292,943 and was reflected on the consolidated balance sheet as due from related party in current assets and as disclosed above under "Due to (from) related parties". It is possible that these funds advance by us to him could be deemed to be in violation of Section 402 of the Sarbanes-Oxley Act of 2002. As of June, 2014, Mr. Chaojun Lin, the Deputy General Manager of BT Shantou and a member of our Board of Directors repaid to and advanced the Company RMB 3.05 million (approximately $496,415) of the working capital advances made by the Company to him of $292,943 at December 31, 2013. There is a balance of $41,889 due to Mr. Chaojun Lin at June 30, 2014.
