Group Restructuring

12 Months Ended

Dec. 31, 2013

2. GROUP RESTRUCTURING

(A)

VIE

On May 13, 2011, the Company, through its PRC subsidiary WFOE, 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 WFOE 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 WFOE. The Consulting Services Agreement is effective until it is terminated by either party in the event the other party becomes bankrupt or insolvent, WFOE ceases operations, or if circumstances arise which materially and adversely affect the performance or the objectives of such agreement. WFOE 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 WFOE 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)	WFOE 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 WFOE. 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 WFOE 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 WFOE. 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, WFOE may, among other remedies available, terminate such agreement, and;

(v)

An operating agreement, pursuant to which each of the stockholders of Guangdong Xingbang has agreed to appoint the members recommended by WFOE as the Directors of Guangdong Xingbang, and shall appoint members of WFOE’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 WFOE 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 WFOE 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 VIEs 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 VIEs that most significantly impact the VIEs' economic performance and the obligation to absorb losses or the right to receive the benefits from the VIEs that could potentially be significant to the VIEs. 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 the equity interest 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 and Xinyu 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 December 31, 2013 and 2012, 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 consolidated and presented on a gross basis, prior to consolidation adjustments with other entities in the Group, and are as follows:

	As of December 31,
	2013			2012

Cash and cash equivalents	$	258,701		$	138,982
Prepaid expenses and other current assets		30,790			83,568
Due from group companies		1,136,975			813,806
Property and equipment, net		326,740			354,420
Website development cost, net		-			445,930
Construction in progress		-			761,726
Total assets	$	1,753,206		$	2,598,432

Accounts payable	$	-		$	2,183
Deferred revenue		54,486			72,533
Other payables and accrued expenses		531,204			585,485
Income tax payable		-			66,967
Due to group companies		444,026			399,352
Due to stockholders		1,010,291			802,555
Due to related companies		2,098,552			136,039
Total current liabilities		4,138,559			2,065,114
Equity of variable interest entities		(2,385,353	)		533,318
Total liabilities and equity	$	1,753,206		$	2,598,432

As of December 31, 2013, 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 keep enough cash to fund its e-commerce business.

The liabilities recognized as a result of consolidating the VIEs do not necessarily represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating the VIEs 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 Mr. Yao Xiaohong (“Mr. Yao”) and his spouse controlled Guangdong Xingbang as they owned 90% and 10% respectively of its registered capital. The Chief Executive Officer also indirectly controlled WFOE as he owned 56.25% of the issued share capital of Xingbang BVI, the sole stockholder of WFOE. As WFOE 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, Xingbang NV 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 Xingbang NV. Xingbang BVI became a wholly owned subsidiary of Xingbang NV. Prior to the share exchange, the sole stockholder of Xingbang NV owned 56.25% of the issued share capital of Xingbang BVI. As both companies are under common control, the share exchange involving Xingbang NV and Xingbang BVI is being treated for accounting purposes as a capital transaction and a reorganization of entities under common control with Xingbang NV as the accounting acquirer and Xingbang BVI as the accounting acquiree. The consolidated financial statements were prepared as if the reorganization occurred at the beginning of the first period presented.

Accordingly, these consolidated 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 statements of operations including the operations of the acquirer and acquiree for the periods presented.

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

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