UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K/A
(Amendment
No.1)
(Mark One)
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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For the fiscal year ended
December 31, 2008.
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or
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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For the transition period from
__________ to __________.
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Commission
File Number 000-06217
DIGUANG
INTERNATIONAL DEVELOPMENT CO., LTD.
(Exact
name of registrant as specified in its charter)
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Nevada
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22-3774845
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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23rd
Floor, Building A, Galaxy Century,
No.3069,
Caitian Road, Futian District,
Shenzhen,
the PRC
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518026
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code 86-755-2655 3152
Securities
registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act:
Common stock, $0.001 par
value
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
¨
Yes No
x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Act. Yes
¨
No
x
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
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Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the
preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
o
No
o
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405
of this chapter) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
x
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
definition of “accelerated filer,” “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller
reporting company
x
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
o
No
x
Aggregate
market value of voting and non-voting common equity held by non-affiliates of
the registrant as of June 30, 2008, based upon the closing price of the common
stock as reported by the OTC Bulletin Board under the symbol “DGNG” on such
date, was approximately $ 6.8 million
22,072,000
shares of common stock outstanding as of February 28, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-K/A, the “Amendment No. 1”, amends the
Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, as filed with the Securities and Exchange Commission,
the “SEC”, on March 31, 2009, the “Original Filing”, and is
being filed for the sole purpose to include a revised Item 9A of Part II
discussing the Company’s (i) disclosure controls and procedures and (ii)
internal control over financial reporting.
In
connection with the filing of this Amendment No. 1, and as required by
Rule 12b-15 of the Securities Exchange Act of 1934, the Company is also
filing as exhibits to this Amendment No. 1 the certifications pursuant to
Rule 13a-14(a). Because no financial statements are contained within this
Amendment No. 1, the Company is not including those parts of the
Rule 13a-14(a) certifications pertaining to financial statements and
is not including certifications pursuant to Rule 13a-14(b) (18 U.S.C.
§1350).
This
Amendment No. 1 to the Original Filing is solely for the purpose described
above. The Company has not revised, modified or updated any other
disclosures that were presented in the Original Filing, unless such revisions,
modification or updates were expressly set forth herein. This Amendment
No. 1 does not reflect any events that may have occurred subsequent to the
Original Filing. All other information not affected by this Amendment No.
1 remains unchanged and reflects the disclosure made at the time of the filing
of the Original Filing.
ITEM
9A. CONTROLS AND PROCEDURES
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(a)
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Evaluation
of disclosure controls and
procedures:
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The
Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in the reports the Company files or submits
under the Securities Exchange Act of 1934, as amended, the “Exchange Act”, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's, the “SEC”, rules and forms, and
that such information is accumulated and communicated to the Company's
management, including its chief executive officer, the “CEO”, and chief
financial officer, the “CFO”, as appropriate, to allow timely decisions
regarding required financial disclosure.
In
connection with the preparation of this annual report on Form 10-K, the “Form
10-K”, the Company carried out an evaluation as of December 31, 2008, under the
supervision and with the participation of the Company's management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, the
CEO and CFO concluded that as of December 31, 2008 the Company's disclosure
controls and procedures were not effective because of the material weaknesses
described below under “Management's Report on Internal Control over Financial
Reporting.”
To
address these material weaknesses, the Company performed additional analyses and
other procedures, described below under the subheading “Interim Measures”, to
ensure that the Company’s consolidated financial statements were prepared in
accordance with generally accepted accounting principles in the United States,
“GAAP”. Accordingly, management believes that the consolidated
financial statements included in this Form 10-K fairly present in all material
respects the Company’s financial condition, results of operations and cash flows
for the periods presented and that this Form 10-K does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this
report.
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(b)
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Management’s
report on internal control over financial
reporting.
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Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company, as such term is defined in Rules 13a
-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with GAAP.
Management
has conducted an assessment, including testing, of the effectiveness of the
Company's internal control over financial reporting as of December 31,
2008. In making its assessment, management used the criteria in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO").
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weaknesses in internal control over financial reporting have been
identified as of December 31, 2008. In light of the material
weaknesses, management concluded that the Company’s internal control over
financial reporting was not effective as of December 31, 2008.
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1.
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Entity
level material weaknesses-control
environment
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In the
definitions under the Sarbanes-Oxley Act, “A key control is a control that, if
it fails, means there is at least a reasonable likelihood that a material error
in the financial statements would not be prevented or detected on a timely
basis”.
The
Company did not have an appropriate level of control consciousness as it relates
to the establishment and maintenance of policies and procedures with respect to
key internal controls. Effective controls were not designed and in place over
the process related to identifying and accumulating all required information to
ensure the completeness and accuracy of consolidated financial statements and
disclosures as required by Regulation S-X:-
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·
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Control
over Information and Communication. The Company lacks effective
communication of the importance of internal control over financial
reporting across its structure, and management failed to set adequate
tone to increase the awareness of control
consciousness.
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·
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Control
environment. The Company lacks an effective anti-fraud program,
including an effective whistle-blower program, designed to detect and
prevent fraud. The Company fails to conduct consistent
background checks of personnel in positions of responsibility and
establish an ongoing program to manage identified fraud
risks.
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2.
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Insufficient
resources for US GAAP compliance
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The
Company currently lacks finance and accounting personnel who possess sufficient
skills and experience to ensure that all transactions are accounted for in
accordance with US GAAP. In addition, the Company does not have sufficient
internal financial policies and procedures to ensure that the existing personnel
are capable of fulfilling the requirements of US GAAP reporting.
Amongst those deficiencies, revenue and cost recognition were affected
most as evidenced by their significant adjustments as compared to the Company’s
preliminary consolidated financial statements.
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3.
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Ineffective
information technology general
control
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The
Company currently does not have any formal documentation on the information
technology general controls, including program development, program changes,
computer operations and access to programs and data, which would have an impact
on application-level controls and financial statements:-
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(i)
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Impact on
application-level controls
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Many
control procedures are programmed into an entity’s computer system. For example,
the process of matching a vendor to a database of preapproved vendors may be
completely computerized. A user may submit an invoice for payment, the computer
performs the match, and, if the vendor is on the list, processing is allowed to
continue. The user is informed only when the computer detects an error, namely,
that the vendor has not been preapproved. It is then the user’s
responsibility to take the appropriate follow-up action. Again, the follow-up of
the identified errors is a critical component of the control.
Ultimately,
the effectiveness of computer application controls will depend on the
effectiveness of relevant computer general controls, including:-
·
Systems
development. The application was properly developed and tested to make sure that
the control functions as designed.
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Access.
Access to the program is monitored to ensure that unauthorized changes to the
program cannot be made.
The
control objectives for computer application controls are the same as the
objectives for manual controls—information must remain complete and accurate at
all phases, from initiation (data input) through processing.
(ii)
Impact on financial
statements
When
designing the documentation of internal control, the Company is considering to
include the following functional features in the future:-
·
Maintainability.
The documentation should facilitate easy updating and maintenance as business
processes and controls change over time.
·
Ease
of review. The documentation of internal control should be designed in a
user—friendly fashion. For compliance purposes, the project team is the primary
user, and so the documentation should allow for these individuals
to:-
- Easily
assess the effectiveness of the design of internal control
- Facilitate
the design of tests of controls
·
Information
gathering. To create new or update existing documentation will require people to
gather information about the Company’s business processes and controls. The
documentation methods should recognize this need and, to the extent possible,
make it easy to gather and input the information required to create appropriate
documentation.
·
Scalability.
The documentation techniques should be equally adept at handling processes with
many control points and those with only a few.
PCAOB
Auditing Standard No. 5 requires the following information to be included
in the documentation of routine transactions:-
- The
design of controls over all relevant assertions related to all significant
accounts and disclosures in the financial statements. The documentation should
include the five components of internal control over financial
reporting.
- Information
about how significant transactions are initiated, authorized, recorded,
processed, and reported.
- Sufficient
information about the flow of transactions to identify the points at which
material misstatements due to error or fraud could occur.
- Controls
designed to prevent or detect fraud, including who performs the controls and the
related segregation of duties.
Remediation
Measures of Material Weaknesses
To
remediate the material weaknesses described above in “Management’s Report on
Internal Control over Financial Reporting”, the Company has implemented or
planned to implement the following measures, and will continue to evaluate and
may in the future implement additional measures:-
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1.
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The
Company planned remediation measures of hiring and training of personnel
who will address these material weaknesses generally as it will have
sufficient personnel with knowledge, experience and training in the
application of U.S. GAAP commensurate with the Company’s financial
reporting requirements;
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2.
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Audit
Committee and management will prioritize improvement of the Company’s
internal control over financial reporting. The Company has a comprehensive
training program in financial reporting on U.S.GAAP internally and the
Company’s staff have enrolled in professional accounting
seminars.
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3.
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The
Company continues to retain the services of outside U.S. counselor to
advise on SEC disclosure requirements and at the same time, the Company
has the staff training plan on the disclosure requirement either
internally or enrolment in professional courses.
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4.
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The
Company is in the progress of implementing an ERP system which it
considered would enable it to enhance its management capability on
monitoring the Company's business operations. Besides, the Company is in
the process of establishing a comprehensive IT short term development plan
and long term strategic plan that are appropriately aligned with business
objectives and include the
following:
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IT
short term development plan: Business departments will initialize the
information technology requests in accordance with their business
workflow, and senior management will develop implementation plans and
procedures;
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IT
long term strategic plan: IT long term strategic plan development is based
on corporate strategic requirement, including the IT goal and mission,
guidance, objectives and the Company’s actions. The IT mission and
guidance drive how IT should implement and align with the Company’s
strategic goals; and
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Senior
management of the Company will review and approve the IT strategic
plan.
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The
Company also planned to develop an appropriate IT Organization and Relationships
program to regulate IT organizational structure that adequately supports
critical systems and segregation of duties, including the
following:
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IT
managers to have adequate knowledge and experience to fulfill their
responsibilities to deliver high quality IT services;
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Significant
IT processes, controls and activities
documented;
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Job
roles and responsibilities within the IT organization clearly defined and
documented;
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IT
personnel to understand and accept their responsibilities regarding
internal controls; and
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IT
management to implement a division of roles and responsibilities,
segregation of duties, that reasonably prevents a single individual from
subverting a critical process.
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The
Company expects that the overall ERP implementation, together with the above
mentioned policies and procedures, will be completed before September
2009.
Subsequent
to year end, the Company has taken the following actions to remedy the material
weaknesses:-
To
compensate for the lack of effective communication across the departments,
meetings were held regularly to review the progress of the internal control
implementation and remedial actions were taken. For example, the essential
workflows and information were circularized on the Office Automation System to
all employees. Simultaneously, training courses were conducted regularly to
enhance the importance of internal controls.
Preventive
and detective controls on anti-fraud
An
Anti-fraud program was designed to prevent and detect kick-backs on procurement.
The prohibition on fraud was clearly defined in the Company’s staff handbook and
the Company encourages the whistle-blowers plan and checks were imposed by
internal audit departments to investigate any possible frauds and
irregularities.
Effective
from the end of 2007, the Company has implemented the ERP system which includes
financial reporting module and supply chain management module. It is an
integrated system which currently allows the Company to generate a great deal of
financial and operational information in a timely fashion to facilitate strict
monitor of business transactions. However, the Company did not possess high
level of formal documentation on the information technology general controls
(ITGC), including program development, program changes, computer operations, and
access to programs and data. Consequently, it might lessen the reliability and
timeliness of the application control, including input and output control,
processing control and eventually it might affect the financial statements
generated from the system.
Subsequent
to December 31, 2008, the Company is taking steps to document the IT general
control, including the systematic control system amendments and establishment of
database defaults. All these were to ensure the application system ongoing
effectiveness.
The
Company believes that it is taking the steps necessary for remediation of the
material weaknesses identified above, and it will continue to monitor the
effectiveness of these steps and to make any changes that its management deems
appropriate.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
(c)
Changes in internal controls over financial reporting:
For the
fourth quarter ended December 31, 2008, there has been no change in the
Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, its internal control
over financial reporting.
(d)
Inherent Limitations on Effectiveness of Controls
The
Company’s management, including the CEO and CFO, does not expect that the
Company’s disclosure controls or the Company’s internal control over financial
reporting will prevent or detect all errors and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. The design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs.
Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Projections of any
evaluation of controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or
procedures.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this
Amendment No. 1 to Form 10-K/A to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date:
June 25, 2009
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Diguang
International Development Co., Ltd.
(Registrant)
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/s/ Keith Hor
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By:
Keith Hor
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Title:
Chief Financial Officer
(Principal
Financial Officer and Principal Accounting
Officer)
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Pursuant
to the requirements of the Securities Act of 1933, this Amendment No. 1 to Form
10-K/A has been signed by the following persons in the capacities and on the
dates indicated.
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Dated:
June 25, 2009
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/s/
Yi Song
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Yi
Song
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Chairman
of the Board and Chief Executive Officer
(Director
and Principal Executive Officer)
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Dated:
June 25, 2009
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/s/
Hong Song
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Hong
Song
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Director
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Dated:
June 25, 2009
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/s/
Fong Heung Sang
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Fong
Heung Sang
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Director
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Dated:
June 25, 2009
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/s/
Hoi S. Kwok
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Hoi
S. Kwok
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Director
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Dated:
June 25, 2009
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/s/
Tuen-Ping Yang
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Tuen-Ping
Yang
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Director
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Exhibit
Index
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Exhibit
Number
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Description of Document
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*31.1
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Certification
of the Chief Executive Officer pursuant to Rules 13a-14(a) and
15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
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*31.2
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Certification
of the Chief Financial Officer pursuant to Rules 13a-14(a) and
15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
*Filed
herewith
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