10-K 1 e605257_10k-wealthcraft.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2008 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-51575 WEALTHCRAFT SYSTEMS INC. (Exact name of registrant as specified in its charter) Nevada No. 88-0409165 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Unit A, 9/F On Hing Building 1 On Hing Terrace, Central Hong Kong SAR (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: +852-3586-8234 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share -------------------------------------------------------------------------------- (Title of Class) -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether 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, and (2) has been subject to the filing requirements for at least the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. |_| 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 |_| Accelerated filer |_| Non-accelerated filer |_| 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| The aggregate market value of voting stock held by non-affiliates of the registrant as of March 27, 2009 was $621,089. 10,900,000 shares of Common Stock were outstanding at March 27, 2009.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains statements relating to future results of the WealthCraft Systems Inc. (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to: risks associated with demand for and market acceptance of existing and newly developed products as to which we have made significant investments, slower than anticipated penetration into the wealth management market; changes in product requirements resulting in unexpected engineering and research and development costs; delays and increased costs in product development, engineering and production; reliance on a small number of significant customers; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of our products; general economic and industry conditions; the ability to protect proprietary information and technology; competitive products and pricing pressures; our ability to keep pace with the rapid technological changes and short product life cycles in our industry and gain market acceptance for new products and technologies; and other risks and uncertainties as are detailed from time to time in our Securities and Exchange Commission filings. These forward-looking statements are made only as of the date of the filing of this Form 10-K, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. PART I ITEM 1. BUSINESS History WealthCraft Systems Inc. ("WealthCraft Holdings") was incorporated on October 29, 1992 under the laws of the State of Nevada under the name Parque La Quinta Estates. From February 1, 1993 until November 13, 2006, Parque La Quinta was inactive and was a so-called "shell company". On October 16, 2006 Parque La Quinta Estate's corporate name was changed to WealthCraft Systems Inc. On November 13, 2006, WealthCraft Holdings completed the transactions contemplated by a certain Exchange Agreement, dated as of October 19, 2006, by and among WealthCraft Holdings, certain shareholders of WealthCraft Holdings, WealthCraft Systems Ltd., a private limited company organized under the laws of the Hong Kong Special Administrative Region of the People's Republic of China ("WealthCraft HK") and the shareholders of WealthCraft HK (the "Exchange Agreement"). Accordingly, WealthCraft Holdings acquired all of the issued and outstanding shares of stock of WealthCraft HK, in exchange for the issuance in the aggregate of 7,000,000 shares of common stock of WealthCraft Holdings, which shares represented 70% of the issued and outstanding capital stock of WealthCraft Holdings after the consummation of the Exchange Agreement and the transactions contemplated thereby. As a result of the Exchange Agreement, WealthCraft HK became a wholly-owned subsidiary of WealthCraft Holdings. In this Annual Report on Form 10-K, unless the context otherwise requires, references to WealthCraft Holdings, "we", "us" or "our" include WealthCraft Holdings, WealthCraft HK and WealthCraft Systems (Shenzhen) Limited, a China company and wholly-owned subsidiary of WealthCraft HK ("WealthCraft SZ"). Overview We are an information technology company that designs, develops, markets and supports a flexible, scalable and secure technology platform for wealth management services for financial institutions, including investment advisory firms, securities brokerage firms, retail and private banks, mutual fund companies and insurance companies. Our focus is on Asia, primarily Hong Kong, Taiwan, Singapore and Mainland China, a market that currently lacks a comprehensive technology solution for servicing the growing wealth management industry. Because of a number of factors, including language and currency issues, existing products available in other parts of the world are not readily adaptable to the Asia market. We offer financial institutions a complete, customized solution for their wealth management business. Our principal business solution, Advisor Workbench, which is implemented through our proprietary technology, gives financial professionals the tools and services required to develop and expand their wealth management business, including customer relationship management, financial planning, investment research, portfolio management and trade execution. This enables financial institutions to enhance customer loyalty, improve financial advisor productivity, strengthen customer relationships and increase assets under management. We also offer an integrated back-office system providing order execution, order management and portfolio and commission management. Our product offerings allow institutions to access the industry standard SWIFTNet Funds transfer system thereby allowing automated mutual fund transactions, which are generally manually performed in Asia. To develop and market our solutions, we have partnered with Microsoft Corporation and SWIFT, each of which is a leading provider to the financial services industry. We offer software and related services to our customers based on an annual recurring license model to generate a long-term sustainable revenue base. WealthCraft HK was founded in 2003 in Hong Kong and, through WealthCraft SZ, also has operations in Shenzhen, China. The Wealth Management Market in Asia Wealth management is the business of assisting individuals with the accumulation, preservation and transfer of wealth as they move through the various stages of their lives, including integrating financial products and advisory services. Asia is one of the fastest growing wealth management markets in the world. According to the 2008 World Wealth Report published by Capgemini and Merrill Lynch, the financial wealth of high net worth individuals in Asia was $9.5 trillion in 2007 and is estimated to grow to $13.9 trillion by 2012. Hong Kong has long been a center for finance and banking in Asia outside of Japan, and is a key financial services hub for mainland China, one of the world's fastest growing economies. According to a fund management survey conducted by the Hong Kong Securities and Futures Commission in 2008, Hong Kong had $1.242 billion of assets under management, and assets under management were growing at approximately 56.5% per year. According to SWIFT, the financial industry-owned co-operative supplying secure, standardized messaging services and interface software to 7,800 financial institutions in more than 200 countries, Taiwan has the potential to be the largest fund market in Asia. Taiwan's population is aging rapidly. The number of people near or in retirement presents a pressing need for quality wealth management. However, it is estimated that 75-80% of the Taiwanese public's monetary assets are invested in relatively low-yield term deposit savings accounts, compared with 30% in other leading economies. According to the National Bureau of Statistics of China, a prosperous section of China society has emerged and grown rapidly in recent years. As of 2005, there were more than 4.5 million individuals with liquid wealth in excess of $100,000. By the end of 2005, 13% of China's urban families, or 24.5 million households, were defined as "middle class" and it is estimated that this will increase to 25% by 2010. According to a survey by the Social Survey Institute of China, wealth management services are very popular among urbanites in China's big cities of Beijing, Shanghai, Tianjin and Guangzhou, where 74% are interested in these services and 41% said that they would definitely purchase wealth management products if possible. According to the Monetary Authority of Singapore, Singapore's asset management industry has seen double digit annual growth over the past five years. As of the end of 2005, funds managed in Singapore totaled $456 billion, a jump of 26% from the end of 2004. The Wealth Management Industry in Asia To protect and grow their wealth, high net worth individuals are seeking diversification in their portfolios to obtain the returns they desire. These individuals are increasingly sophisticated in terms of product knowledge and pricing. Wealth managers, in turn, need to deliver products and services that meet the needs and sophistication of these clients and institutions need to be able to do this in a cost-effective, efficient manner. Although the wealth management market is competitive, we believe that the majority of financial institutions in Asia are not well-positioned to effectively and efficiently capitalize on this opportunity because of the following factors: o Poorly trained and inexperienced staff. Wealth management staff at many Asia financial institutions are focused solely on selling only high commission products that provide little long term value for customers. Staff are not properly trained in creating comprehensive wealth management plans. o High attrition rates. Turnover of wealth management staff is very high. Advisors will change jobs for very small financial incentives, and institutions fail to build loyalty by maintaining advisor retention programs. o Financial Institutions lack a fully developed wealth management strategy. Institutions have not focused on long-term business growth. They tend to have limited product offerings and do not emphasize long-term revenue generation such as that obtained through advisory and portfolio management fees. o Lack of sophisticated order management systems. Wealth management technology directed at financial institutions lacks the capabilities required to meet the increasingly sophisticated consumer. Order management systems in general are not scalable, error-prone and very expensive. Institutions generally use several different systems, including rudimentary spreadsheets to keep track of their clients' records. Customer relationship software in most cases does not meet the very specific needs of their business. Moreover, the majority of mutual fund transactions currently are executed manually resulting in very high administration costs. These costs are passed-on to the investor resulting in higher costs. 2 Although financial institutions in other parts of the world maintain sophisticated systems for wealth management, the Asia market presents issues that make these solutions difficult to easily adapt. For example, systems used in other parts of the world may not be multi-currency capable. Further, investment product offerings in Asia differ from those offered elsewhere. Finally, Asia systems need to meet the unique language requirements of the relevant market in which these systems are deployed. The WealthCraft Solution We have developed an affordable subscription-based solution for the problems that we believe currently limit the wealth management business of Asia financial institutions. This solution provides access, from a single platform, to everything financial institutions and their financial advisors need to operate effectively and support their wealth management customers. Through our knowledge of the marketplace and emphasis on customer care, our solutions offer: o A means to improve financial advisor retention. We provide a superior sales platform and research tools which reduce administrative time. Advisors are motivated to stay because the platform allows them to do their jobs much more efficiently, ultimately increasing income potential. o An automated scalable system. We offer a fully integrated order management system, allowing automation of fund processing, which can reduce operational expenses resulting in higher profit margins. The platform is scalable in order to handle future expansion of an institution's funds business. o A method to retain clients. A fundamental strategy for Asia wealth managers is to increase assets under management. To achieve this objective, our platform provides a mechanism to track not only assets currently held at the financial institution, but all other assets owned by the client. This allows the financial advisor to maintain a full picture of a client's wealth profile and to recommend and implement a wealth management strategy that is individualized for the specific client. It also allows the client to make better and informed investment decisions. o Sophisticated planning tools. Our solution provides sophisticated planning tools which allow financial institutions to move from product pushing to value-oriented wealth management through proper financial planning practices, including: o Knowing the client to meet internal compliance and external regulatory requirements; o Financial needs analysis and goal planning; o Strategic asset allocation; o Portfolio monitoring based on strategic asset allocation; o Proactive customer relationship tools; and o Additional revenue opportunities from existing clients. Our solution assists financial institutions in expanding customer relationships. By maintaining integrated information on the client's history, the institution can capitalize by cross-selling and up-selling products and services, resulting in maximized profitability through increased financial product sales. The WealthCraft Platform Our products are web-based and designed using a service-oriented architecture. Service-oriented architecture shifts the focus from stand-alone solutions to fully-integrated modular offerings from multiple vendors. Our products provide enterprise-wide integration of applications. Instead of multiple systems to solve multiple requirements, financial institutions can invest in a single solution to drive their wealth management applications, including product distribution and service, in a multi-channel, multi-department environment. We do not believe that a single service-oriented platform has previously been available to Asia financial institutions. 3 Specifically, our product offerings include the following: Advisor Workbench Advisor Workbench is our initial core product. Advisor Workbench is a multi-language, client-focused platform providing integrated market research, financial planning, portfolio management, and customer relationship management for front-line sales teams and is targeted to medium to large size financial institutions. Advisor Workbench is a completely customizable solution. It contains the following features: o Product and market data consolidation - The core of Advisor Workbench consolidates data from multiple sources, including internal and external providers, into a central repository, enabling accurate, reliable data distribution across the enterprise. o Market data research - Financial advisors can access quantitative and qualitative market research information via Advisor Workbench, and apply this knowledge directly into their product selection and client investment strategies. As part of Advisor Workbench's research module, we have developed sophisticated search, selection, and comprehensive charting tools to complement and enhance the market data information. o Financial planning - Advisor Workbench contains a comprehensive suite of applications and tools that allow financial advisors to proactively build, manage, and monitor client financial plans. o Client relationship management - The Advisor Workbench integrated client relationship module provides a complete history of the client's relationship with the institution, including email tracking, activity management, task management, and lead tracking. o Portfolio management - The Advisor Workbench portfolio management module allows the client's entire investment activity to be consolidated into a single statement. It also calculates the performance of managed assets on a daily basis, including changes necessitated by currency fluctuations in investments denominated in multiple currencies. The module also offers real time alerts to advise of performance changes. ATOMS Order Management System Our ATOMS Order Management System is a complete back office solution for financial product distribution leveraging Microsoft's Windows Workflow Foundation. The Order Management System handles: o Order routing, execution and administration for several types of securities customized to meet the specific requirements of each financial institution; and o Portfolio and commissions management. ATOMS SWIFTNet Funds Gateway ATOMS SWIFTNet Funds Gateway, based on BizTalk Server 2006, is our middleware solution allowing automated integration and straight- through processing, known as STP, of an institution's order execution operation with SWIFTNet funds. SWIFTNet Funds is SWIFT's messaging solution to facilitate automation and straight through processing in the fund industry through the combination of industry standards and the SWIFTNet messaging network. The SWIFTNet funds service caters to both domestic and cross-border fund distribution flows in Europe and Asia and is based on a set of standards covering account openings and maintenance, orders, status and confirmations, transfers, holdings and transactions statement, price reporting, and cash flow. STP Gateway provides an easy to implement integration between order management systems operated by a financial institution and SWIFTNet Funds. 4 Alliances and Partnerships In addition to innovative product development, our management believes that securing a leading position in the wealth management marketplace in Asia requires strong strategic partnerships with solution providers to the financial services industry. Our partnerships to date include SWIFT, Microsoft and Decillion Group. These alliances have helped us establish our market presence in Asia and positioned us for future growth. o SWIFT - Through industry messaging standards and global messaging services, SWIFT facilitates straight through processing and reporting between all parts of the transaction chain. We have built a solid relationship with the SWIFT team in Asia and are a SWIFT Solutions Partner. o Microsoft Asia - Because financial services institutions are a high priority in Microsoft's global marketing strategy and our advisor platform is based, in part, on Microsoft technology, Microsoft has identified us as a partner in this segment. We are a Microsoft Certified Partner with Independent Software Vendor specialization. Out of over 2000 partners in Hong Kong, Microsoft awarded us with the prestigious .NET Enterprise Award 2005. o Decillion Group - In January 2009, we announced that we will be packaging Decillion Solutions Group's Asia Pacific SWIFT Service Bureau in Singapore with our newly-launched proprietary FundsMX automated mutual funds platform. Decillion Group is a niche banking information technology company providing 'best of class' payment systems, banking applications and straight through processing (STP) solutions to financial institutions across the region. Decillion Group, a subsidiary of NEC Solutions Asia Pacific, part of Japan's giant NEC Corporation, is headquartered in Singapore and its network extends to offices in Australia, Malaysia, Thailand, Indonesia and Shanghai. Our alliances with SWIFT and Microsoft Asia provide a number of benefits, including: o Access to regional sales and marketing presences in Hong Kong, Singapore, Taiwan, Malaysia and Japan; o Association with well known brands; o An established regional sales network; o Lead generation; and o Entry into the difficult to penetrate Japanese market. We previously had a strategic alliance with Standard & Poor's and a related distribution agreement. S&P sold its funds data business to Morningstar and, although we have been in negotiations with Morningstar regarding a new distributions agreement, no new agreement has been completed. We do not believe that the absence of a distribution agreement with Morningstar will have a material impact on our business. Market Opportunity Although all of Asia presents an enormous potential market opportunity, we have chosen to initially focus our efforts on Hong Kong, Taiwan, Mainland China and Singapore. We believe that Hong Kong is a key market to showcase our technology and build our reputation. Also, many foreign banks are using Hong Kong as a springboard to enter the Mainland China personal financial services market which opened in 2007. Securing several key banks as customers in Hong Kong is a critical objective to ensure we have ample leverage to drive business in China and the rest of Asia. To date, we have entered into agreements with ING Asia Pacific Limited, Sun Hung Kai Wealth Management, DBS Bank Hong Kong, Sail Advisors Limited and CITIC Ka Wah Bank, Wing Lung Bank, and BOCI Private Wealth Management. Singapore has market conditions similar to those in Hong Kong. This will allow us to do business in Singapore using a plan substantially similar to how we conduct our business in Hong Kong. 5 In Taiwan, there is great potential to provide more professional wealth management services. The vast potential of this yet-to-be developed market has spurred domestic banks to pursue wealth management. Lacking expertise, many of these banks are seeking sophisticated technology to help them manage the growth. In addition, regulatory changes in Taiwan effective in 2005 allow brokerage firms and offshore providers to enter the wealth management market. These firms will need to put systems in place. An increase in offshore business will create even more demand for fund automation, increasing potential for Advisor Workbench, Order Management System and STP Gateway. The financial services industry is rapidly expanding in China and foreign banks will be granted greater access to the China market by the end of 2006. With China's wealth management market expected to grow, there is a need for sophisticated wealth management services. We are poised to capture this market opportunity on the basis of: o Time to market. Our current infrastructure is already in place; o Expertise. We have an established team of financial services application developers; o Experience. Previous knowledge and experience in China business; o Cost. Low cost solutions compared with foreign suppliers; and o Industry knowledge. Experience in implementation with market-leading foreign banks. As we establish our reputation in these initial markets, we plan to expand to Japan and the rest of Asia. Marketing and Sales Strategy The sales cycle for our products is long. Our principal method of sales and marketing to date has been working through our strategic partners. We believe that working with our partners is the most effective way to initially penetrate the financial services marketplace as our partners have extensive promotion and distribution channels in place as well as brand name recognition. We also maintain sales teams in Hong Kong and China to directly solicit new customers. In markets other than Hong Kong and China, we are actively seeking other partners to market, sell, install and support our solutions and products. We market our solution as a subscription based service. Clients generally pay no up-front license fee. Instead, customers pay a fee for installation and customization and an annual subscription fee which is typically based upon the number of users and the modules deployed. This marketing strategy gives financial institutions constant upgrades in a rapidly changing marketplace. Although this sales strategy generates less upfront fees, we believe that substantial value and sustained profitability is created by building a recurring revenue base. Research and Development We develop the majority of our products at our WealthCraft SZ subsidiary. To date, we have devoted the bulk of our resources to research and development. WealthCraft HK spent $258,214, $396,712 and $235,123 on product development efforts for 2006, 2007 and 2008, respectively. Competition The provision of information technology services and solutions in the financial services industry is highly competitive. Although this industry is not dominated by a single company or a small number of companies, a substantial number of companies offer services that overlap and are competitive with those offered by us. Some of these are large firms, including Finantix, Morningstar, Excel and ETNet, have greater financial resources than we have. We also compete with internal development teams which are maintained by larger banks. These banks have a vested interest in their internal development teams and therefore may be reluctant to use outside vendors. Our ability to obtain business is dependent upon our ability to offer better strategic concepts and technical solutions, better value, a quicker response, more flexibility or a combination of these factors. In the opinion of our management, we are positioned to compete effectively in Asia based on our technology, expertise in the wealth management marketplace, local service and support and our strategic partner network. 6 Governmental Regulation Although the financial services industry is highly regulated, as an information technology solutions provider, we are not subject to government regulation. Intellectual Property Rights "WealthCraft" is a registered trademark in Hong Kong and we have filed an application to register "FundsMX" as a trademark in Hong Kong. With the exception of these two trademarks, we have not applied for any patent, trademark, trade name or copyright protection in any jurisdiction in which we operate. We intend to file to protect our trademarks and trade names in other selected jurisdictions. We, generally, rely on trade secret laws and confidentiality provisions in our agreements to prevent the unauthorized disclosure and use of our intellectual property. Employees As of December 31, 2008, we had 44 full-time employees, 35 of whom were product development staff and 9 were service and sales professionals. We have never experienced a work stoppage as a result of labor issues, and we believe that our employee relations are satisfactory. ITEM 1A. RISK FACTORS RISK FACTORS Owning our shares contains a number of risks. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could decline, and an investor may lose all or a part of the money paid to buy our common stock. Risks Of Our Business Our dispute with EAB Systems (Australia) Limited could have adverse consequences on our business and capital structure We were a party to a Heads of Agreement and related licensing agreement with EAB Systems (Australia) Limited ("EABA"). On June 20, 2008, we terminated our agreement with EABA. By letters dated June 27, 2008 and July 8, 2008, EABA has advised us that it has rejected our purported termination. Although we have not had any further communication with EABA, if a legal proceeding were commenced, such a legal proceeding could be time consuming and costly even if we were to prevail. If EABA were to prevail, would could be forced to perform our obligations under the Heads of Agreement which could result in a change of control or otherwise result in an award of significant damages against us for breach. Any of the foregoing scenarios would have an adverse affect on our business and results of operations. Our independent auditor has expressed doubts about our ability to continue as a going concern Our operations and short term financing do not currently meet our cash needs. We believe we will be able to generate revenues from sales and raise capital through private placement offerings of our equity securities to provide the necessary cash flow to meet anticipated working capital requirements. Our actual working capital needs for the long and short term will depend upon numerous factors, including our operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Our future expansion will depend on operating results and will be limited by our ability to enter into financings and raise capital. As more particularly described in Item 1A of this report, there is substantial doubt about our ability to continue as a going concern and we may be forced to curtail our business. 7 We have a limited operating history, have experienced losses since inception and may not achieve or maintain profitable operations in the future WealthCraft HK began operations in 2003 and has a limited operating history. Since WealthCraft HK's inception, it has incurred losses from continuing operations. The likelihood of our success must be considered in light of the problems, delays, expenses and difficulties frequently encountered by a new enterprise, many of which may be beyond our control. We are subject to all of the risks inherent in the creation of a new business and the production and exploitation of our solutions and products in an intensely competitive environment. There can be no assurance that we can successfully market and sell our solutions on a profitable basis. The failure to operate profitably without an additional infusion of capital may result in the cessation of our operations. We need additional capital in order to execute our business plan During our last two fiscal years, we have experienced losses which have depleted our cash reserves. We have an immediate need for capital to grow our business. We must seek to raise equity or debt capital from alternative sources and we cannot give any assurance that financing will be available in amounts or on terms acceptable to us, if at all. Our failure to secure additional capital could force us to curtail our current business plan or cause us to cease operations. The sale of additional shares or other equity securities will result in additional dilution to our shareholders We may need to issue additional equity securities to raise capital. These additional issuances would dilute the share ownership of our current shareholders. If we fail to keep up with rapid technological changes, our future success may be adversely affected The information technology industry in which we operate is subject to rapid technological changes. Our future success will depend on our ability to respond to rapidly changing technologies, adapt our solutions to evolving industry standards and improve the performance and reliability of our solutions. The failure to adapt to such changes could harm our business. In addition, the widespread adoption of new technologies or other technological changes could require substantial expenditures to modify or adapt our solutions. If we fail to keep up with rapid technological changes to remain competitive in this rapidly evolving industry, our future success may be adversely affected. The sales cycle for our solutions is very long and can impact on our projected revenues Our solutions involve a significant investment by a financial institution. Therefore, the sales cycle for our solutions is very long and requires us to devote significant resources towards each sale. This can have an impact on our anticipated revenues until we establish a significant number of customers for our solutions and associated revenue stream. Moreover, in the event of a downturn in the financial markets or the economy in general, financial institutions may curb significant expenditures which could also impact the market for our solutions. We may not be able to manage our expanding operations effectively WealthCraft HK commenced operations in 2003 and we anticipate significant expansion of our business as we market our solutions and grow our customer base. To manage the potential growth of our operations and personnel, we will be required to improve operational and financial systems, procedures and controls, and expand, train and manage a growing employee base. Furthermore, our management will be required to maintain and expand our relationships with financial institutions and our strategic partners. There can be no assurance that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations. 8 All of our customers are in the financial services industry, which is consolidating and subject to economic change; factors that could reduce demand for our solutions We derive all of our revenue from the solutions we provide to the wealth management industry which is composed almost exclusively of financial services firms. Changes in economic conditions and unforeseen events, like recession, inflation or currency fluctuations, could occur and reduce consumers use of wealth management products and services. Any event of this kind, or implementation for any reason by financial institutions of cost reduction measures, could result in significant decreases in demand for our solutions. Mergers and acquisitions are pervasive in today's financial industry. Our customers may be acquired by or merged into other financial institutions that have their own wealth management solutions or decide to terminate their relationships with us for other reasons. As a result, our sales could decline if an existing customer is acquired. System failures or performance problems with our solutions could cause demand for our solutions to decrease, require us to make significant capital expenditures and impair customer relations There are many factors that could adversely affect the performance, quality and desirability of our solutions. This may impact or prevent our solutions from gaining market acceptance. These factors include, but are not limited to the following: o delays in completing and/or testing new or upgraded products, resulting in significant delays; o extraordinary activity or other events could cause systems to fail; o our technology could contain errors, or "bugs", which could impair the functionality of our solutions; o we may experience difficulties or delays in connection with future implementations and upgrades to new versions of our products; and o our products require integration with third-party products and systems, and we may not be able to integrate these products with new or existing products. We are engaged in offshore software development activities, which may not be successful and which may put our intellectual property at risk In order to optimize available research and development resources, we conduct our research and development activities in Shenzhen, China where there is an ample supply of qualified development personnel. While our experience to date with a China-based development center has been positive, there is no assurance that this will continue. Specifically, risks associated with this activity include the quality of the development efforts undertaken in China failing to meet our requirements because of cultural and experiential differences, resulting in potential product errors and/or delays, and the risk of the potential for misappropriation of our intellectual property that might not be readily discoverable. Our success depends on the continuing efforts of our senior management team and other key personnel, and our business may be harmed if we lose their services Our future success depends heavily upon the continuing services of the members of our senior management team, in particular Kelly Tallas, our Chairman, President and Chief Executive Officer. If Mr. Tallas or one more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. 9 If we are unable to attract and retain highly skilled technical employees, we may not be able to effectively compete Based on the need for highly skilled technical employees, we believe that our future success will depend in large part on our ability to attract and retain highly skilled technical personnel. Because the development of our software requires knowledge of computer hardware, as well as a variety of software applications, used by financial institutions we need to attract and retain technical personnel who are proficient in all these disciplines. There is substantial competition for employees with the technical skills we require. If we cannot hire and retain talented technical personnel, this could adversely affect our growth prospects and future success. Our market is highly competitive and if we are unable to keep pace with evolving technology our revenue and future prospects may decline The market for our solutions is characterized by rapidly changing technology, intense competition and evolving industry standards. We have many competitors who offer various components of our solutions or who use a different solutions to accomplish similar tasks. In some cases, our existing customers also use some of our competitors' products. Our future success will depend on our ability to develop, sell and support enhancements of current solutions and new solutions in response to changing customer needs. If our solutions do not keep up with technical change, our revenue and future prospects could be harmed. In addition, competitors may develop solutions that the industry considers more attractive than those we offer or that render our solutions obsolete. We may be involved in litigation over proprietary rights, which may be costly and time consuming We may receive claims that certain of our products, or other proprietary rights, require a license of intellectual property rights of a third party and infringe, or may infringe, the intellectual property rights of others. Those claims, with or without merit, could: o be time-consuming to investigate and defend; o result in costly litigation; o cause product installation and maintenance delays; o require us to enter into royalty or licensing agreements; or o result in an injunction being issued against our use of technology. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, or at all, which could harm our business, financial condition and results of operations. Litigation to determine the validity of any claims could result in significant expense and divert the efforts of our technical and management personnel from productive tasks, whether or not the litigation is determined in our favor. In the event of an adverse ruling, we may be required to: o pay substantial damages; o discontinue the use and sale of infringing products; o expend significant resources to develop non-infringing technology; or o obtain licenses to infringing technology. Our failure to develop or license a substitute technology could significantly harm our business. 10 Our operations are focused on Asia and we will be subject to factors affecting business in that part of the world We conduct our business in Asia and may be adversely affected by changes in demand resulting from: o fluctuations in currency exchange rates; o governmental currency controls; o changes in various regulatory requirements; o political and economic changes and disruptions; o difficulties in enforcing our contracts in foreign jurisdictions; o export/import controls; o tariff regulations; o staffing and managing foreign sales and support operations; o greater difficulties in trade accounts receivable collection; and o possible adverse tax consequences. Infringement of our proprietary technology could hurt our competitive position and income potential Our success depends upon our proprietary technology and information. However, except for the registration of our name in Hong Kong, we do not rely on patent, trademark, trade name or copyright registrations to protect our intellectual property. Rather, we rely on trade secret laws and confidentiality procedures to protect our proprietary technology and information. Because it is difficult to monitor unauthorized use of software, the steps we have taken to protect our services and products may not prevent misappropriation of our technology. Any misappropriation of our proprietary technology or information could reduce any competitive advantages we may have or result in costly litigation. We operate in Asia. The laws of these countries may not protect our proprietary technology as well as the laws of the United States. Our ability to protect our proprietary technology abroad may not be adequate. The adoption or modification of laws or regulations relating to the Internet, or interpretations of existing law, could adversely affect our business Laws and regulations which apply to communications and commerce over the Internet are becoming more prevalent. Currently, there are Internet laws regarding copyrights, taxation and the transmission of specified types of material. Various governments have also adopted legislation imposing obligations on financial institutions to notify their customers of the institution's privacy practices, restrict the sharing of non-public customer data with non-affiliated parties at the customer's request, and establish procedures and practices to protect and secure customer data. These privacy provisions are implemented by regulations with which compliance is now required. Additionally, many legislative and regulatory actions have been enacted or are pending with respect to privacy. All of these laws and regulations impact our customers and our solutions must be able to work within these requirements. 11 Risks related to doing business in China Our proprietary solutions are developed by our China subsidiary, and interruptions in the activities of this subsidiary will adversely affect our business and financial results All of our research and development activities are conducted by WealthCraft SZ, our Shenzhen, China-based subsidiary. Should the activities of this subsidiary be interrupted for whatever reason, including risks inherently associated with doing business in China, our operations would be materially affected. Because China does not have a well developed, comprehensive system of laws, it may be difficult for us to protect or enforce our legal rights The Chinese legal system is a civil law system based on written statutes in which decided legal cases have little value as precedents, unlike the common law system in the U.S. China also does not have a well-developed, consolidated body of law governing foreign investment enterprises. As a result, the administration of laws and regulations by government agencies may be subject to considerable discretion and variation. In addition, the Chinese legal system relating to foreign investments is both new and continually evolving, and currently there can be no certainty as to the application of its laws and regulations in particular instances. Definitive regulations and policies with respect to such matters as the permissible percentage of foreign investment and permissible rates of equity returns have not yet been published, statements regarding these evolving policies have been conflicting, and any such policies, as administered, are likely to be subject to broad interpretation, discretion and modification, perhaps on a case-by-case basis. As the legal system in China develops with respect to these new types of enterprises, foreign investors may be adversely affected by new laws, changes to existing laws (or interpretations thereof) and the preemption of provincial or local laws by national laws. Enforcement of existing laws may be sporadic and implementation and interpretation thereof inconsistent. Furthermore, the Chinese judiciary is relatively inexperienced in enforcing the laws that exist, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Even where adequate laws exist in China, it may be impossible to obtain swift and equitable enforcement of such laws, or to obtain enforcement of a judgment by a court of another jurisdiction. It is widely believed that China's entry into the World Trade Organization, or WTO, should expedite the uniform interpretation and enforcement of laws throughout China. However, there can be no assurance that our current or future activities in China will have a high degree of certainty under China's legal system. If we are not able to obtain appropriate governmental support and approvals in China, we may not be able to conduct our business activities as planned Our activities in China are, in some circumstances, subject by law to administrative review and approval by various national and local agencies of the Chinese government. There is no assurance that such approvals, when necessary or advisable in the future, will be forthcoming. The inability to obtain such approvals could have a material adverse effect on our business, financial condition and results of operations. We may be adversely affected by complexity, uncertainties and changes in China's regulation of information technology business and companies, including limitations on our ability to own key assets The Chinese government extensively regulates the Internet industry including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the Internet industry. These Internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be a violation of applicable laws and regulations. Issues, risks and uncertainties relating to Chinese government regulation of the Internet industry include the following: o uncertainties relating to the regulation of the Internet business in China, including evolving licensing practices, means that permits, licenses or operations at some of our companies may be subject to challenge. This may disrupt our business, or subject us to sanctions, requirements to increase capital or other conditions or enforcement, or compromise enforceability of related contractual arrangements, or have other harmful effects on us; and o certain Chinese governmental authorities have stated publicly that they are in the process of promulgating new laws and regulations that will regulate Internet activities. The areas of regulation may include online advertising, online news displaying, online audio-video program broadcasting and the provision of culture-related information over the Internet. Other aspects of our online operations may be regulated in the future. If our operations do not comply with these new regulations at the time they become effective, we could be subject to penalties. 12 The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, Internet businesses in China, including our business. Adverse changes in economic and political policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business Because a significant portion of our development operations are conducted in China, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China's economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The Chinese government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the Chinese government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn, could adversely affect our results of operations and financial condition. Risks of owning our shares There has been an extremely limited market for our shares and, therefore, it may be difficult for our shares to be sold at attractive prices, if at all Our shares have experienced low trading volume over the past two years and there is no coverage of us by analysts or market makers. This may or may not affect the future performance of our shares. There can be no assurance that an active trading market for our shares will develop or that, if developed, will be sustained. In addition, the stock market in general has experienced extreme volatility that often has been unrelated to the operating performance of any company. These broad market and industry fluctuations may result in the decline of the price of our shares, regardless of our operating performance. The market price of our shares is expected to be volatile Securities of OTC Bulletin Board companies such as ours are often volatile. Accordingly, the trading price of our shares may be subject to wide fluctuations. These broad market and industry fluctuations may result in the decline of the market price of our shares, regardless of our operating performance. Also, the trading prices of technology stocks in general have experienced extreme price fluctuations. Any further negative change in the public's perception of the prospects of technology-based companies could further depress our stock price regardless of our results of operations. Other broad market and industry factors may decrease the trading price of our shares regardless of our operating performance. Market fluctuations, as well as general political and economic conditions such as a recession or interest rate or currency rate fluctuations, also may decrease the trading price of our shares. We expect that the market price of our shares will be affected by many factors, including: o fluctuations in our financial results; o the actions of our customers and competitors; o other factors affecting the wealth management industry in general; 13 o announcements of new products, product enhancements, technological innovations or new services by us or our competitors; o the operating and stock price performance of other companies that investors may deem comparable; o news reports relating to trends in our markets; o changes in financial estimates by securities analysts; o additions or departures of key personnel; and o volume of trading of our shares on the OTC Bulletin Board or other exchanges on which our shares may, in the future, be traded. Future sales of our shares in the public market could negatively affect our stock price If our stockholders sell substantial amounts of our shares, the market price of our shares could fall. As of March 27, 2009, we had 10,900,000 shares outstanding. Although 8,275,000 of our shares constitute restricted securities under the Securities Act, 2,415,592 shares are currently eligible to be freely sold. The possible sale of a significant number of these shares may cause the market price of our shares to fall. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our executive offices and our corporate headquarters are located in Hong Kong where we occupy with WealthCraft HK approximately 1000 square feet of space under a lease expiring in January 2010 at a monthly rental of $3,915. Our subsidiary, WealthCraft SZ leases approximately 2,736 square feet of office space in Shenzhen, China where we conduct research and development activities under a lease expiring in January 2010 at an approximate monthly rental rate of $2,467. We consider our current office space adequate for our current operations. ITEM 3. LEGAL PROCEEDINGS On February 15, 2008, we and our President and CEO, Kelly Jay Michael Tallas, entered into a Heads of Agreement (the "Heads of Agreement") with EAB Systems (Australia) Limited ("EABA"). EABA is a joint venture company established by EAB Systems (Hong Kong) Limited ("EAB") and Raw Capital Partners Limited. The Heads of Agreement outlined a strategy to establish an organization to develop Asia's leading provider of technology and information services in the life insurance and wealth management industry in the Asia Pacific region. Under the terms of the Agreement, we entered into a Master License Agreement (the "License Agreement") pursuant to which we were licensed to distribute products developed by EAB and licensed to EABA exclusively in Australia and New Zealand and worldwide to clients introduced by EABA and its affiliates. The products have been developed for use in the wealth management, insurance and financial services industries. In consideration for the grant of the license, we agreed to issue EABA such number of shares resulting in EABA owning sixty (60) percent of our outstanding capital stock after giving effect to the issuance and the financing described below. The transactions contemplated by the Heads of Agreement and the License Agreement were subject to our completing a financing of a minimum of $5 million and a maximum of $20 million at a price that is acceptable to both us and EABA, negotiation of other mutually acceptable documentation for the transaction and compliance with all applicable laws and regulations. 14 By letter dated June 20, 2008, we and Tallas terminated the Heads of Agreement and the License Agreement as a result of the failure of the parties to satisfy the conditions to consummate the transactions contemplated by the Heads of Agreement, including without limitation our failure to complete a financing of a minimum of $5 million and a maximum of $20 million at a price that is acceptable to both us and and EABA, the failure of our executives to enter into mutually acceptable employment agreements with us and the failure to agree on other mutually acceptable documentation for the transaction. By letters dated June 27, 2008 and July 8, 2008 (the "EABA Letters"), EABA advised us that it rejected our attempt to terminate the Heads of Agreement and License Agreement. We believe that our position in terminating the Heads of Agreement and the License Agreement is correct. Except for the foregoing, neither WealthCraft Holdings nor its subsidiaries is involved in any legal proceeding which may have a significant effect on its business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. Available Information We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the "SEC"). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800- SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of our fiscal year ended December 31, 2008. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of March 27, 2009, there were 41 record holders of our common stock and there were 10,900,000 shares of our common stock outstanding. We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The following table shows the high and low bid prices of our common stock as quoted on the OTC Bulletin Board by quarter during each of our last two fiscal years ended December 31, 2008 and 2007 and for each quarter after December 31, 2008. Our shares did not trade on the OTC Bulletin Board until March 28, 2006 and, accordingly, no activity is reported until this date. These quotes reflect inter-dealer prices, without retail markup, markdown or commissions and may not represent actual transactions. The information below was obtained from those organizations, for the respective periods. 15 Fiscal Year ended December 31 Quarter High Low ----------------- ------- ---- --- 2007 First Quarter........................ $ 7.05 $ 4.90 Second Quarter....................... 6.00 4.90 Third Quarter........................ 6.00 4.90 Fourth Quarter....................... 10.55 4.21 2008 First Quarter........................ 5.79 1.25 Second Quarter....................... 5.00 2.00 Third Quarter........................ 3.25 .51 Fourth Quarter....................... 1.10 .39 2009 First Quarter ....................... $ 1.10 $ .03 The high and low bid prices for shares of our common stock on March 27, 2009 were $.15 and $.15 per share, respectively, based upon bids that represent prices quoted by broker-dealers on the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. Dividend Policy While there are no restrictions on the payment of dividends, we have not declared or paid any cash or other dividends on shares of our common stock in the last two years, and we presently have no intention of paying any cash dividends in the foreseeable future. Our current policy is to retain earnings, if any, to finance the expansion of our business. The future payment of dividends will depend on the results of operations, financial condition, capital expenditure plans and other factors that we deem relevant and will be at the sole discretion of our board of directors. Equity Compensation Plan Information We do not currently maintain any equity compensation plans. ITEM 6. SELECTED FINANCIAL DATA We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 AND 2007. The following table presents the statement of operations for the year ended December 31, 2008 as compared to the comparable period of December 31, 2007. The discussion following the table is based on these results. 16 2008 2007 ----------- ----------- Revenue, net $ 1,589,082 $ 913,435 Cost of sales 879,666 763,910 ----------- ----------- Gross profit 709,416 149,525 General and administrative expenses 1,351,734 6,689,089 ----------- ----------- Loss from operations (642,318) (6,539,564) ----------- ----------- Other (Income) Expense Interest income (45) (3,397) Other (income) expense 3,225 (10,234) Interest expense 2,784 2,368 ----------- ----------- Total Other (Income) Expense 5,964 (11,263) ----------- ----------- Income (loss) before income taxes $ (648,282) $(6,528,301) Provision for income tax -- -- ----------- ----------- Net income (loss) (648,282) (6,528,301) =========== =========== Net Revenue Net revenue for the year ended December 31, 2008 totaled $1,589,082 compared to $913,435 for the year ended December 31, 2007, an increase of $675,647, or approximately 74%. The increase was due to the additional demand for our services and products from existing customers. Software License revenue represented the largest portion of the increase, rising $650,787 primarily as a result of our license agreement with ING. Net revenue also rose approximately $87,667 from resale of CRM product. However, net revenue from both data services and professional services decreased approximately $24,757 and $38,050, respectively. Cost of Sales Cost of sales for the year ended December 31, 2008 totaled $879,666, or approximately 55% of net revenue, compared to $763,910, or approximately 84% of net revenue, for the year ended December 31, 2007, an increase of $115,756, or approximately 15%. The increase was due to new personnel hired to meet deadlines for projects launched at the end of 2007. Resale costs increased $67,667 and Development staff compensation expense increased approximately $46,875. As a percentage of net revenue, our cost of sales decreased by 29% due to the maturity and stability of our products and increased net revenues compared to the year of 2007. Operating Expense General and administrative expenses for the year ended December 31, 2008 totaled $1,351,734, or approximately 85% of net revenue, compared to $6,689,089, or approximately 732% of net revenue, for the year ended December 31, 2007, a decrease of $5,337,355, or approximately 80%. The decrease was primarily due to the non-recurrence of compensation expense of $5,000,000 that was paid to two officers and employees of the company in the form of shares of our common stock in year 2007 and decreased legal and accounting costs. 17 Income (Loss) from Operations Income (loss) from operations for the year ended December 31, 2008 totaled $(642,318), or approximately 40% of net revenue, compared to $(6,539,564), or approximately 716% of net revenue, for the year ended December 31, 2007, a decrease of $5,897,246, or approximately 90%. The decrease in loss from operations was primarily due to the decrease of general and administrative expenses as a result of the non-recurrence of a $5,000,000 compensation expense described above and decreased legal and accounting expenses. Net Income Net income (loss) for the year ended December 31, 2008 totaled $(648,282) compared to $(6,528,301) for the year ended December 31, 2007, a decrease of $5,880,019 or approximately 90%. The decrease in net loss was primarily due to the reasons as described above in the Company's income (loss) from operations. Liquidity and Capital Resources Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $103,723 and $8,904 at December 31, 2008 and December 31, 2007 and current assets totaled $537,712 at December 31, 2008. The Company's total current liabilities were $1,369,548 at December 31, 2008. Working capital at December 31, 2008 was $(831,836). During the year ended December 31, 2008 and 2007, net cash used in operating activities was $3,960 and $1,452,797, respectively. Our operations and short term financing do not currently meet our cash needs. We believe we will be able to generate revenues from sales and raise capital through private placement offerings of our equity securities to provide the necessary cash flow to meet anticipated working capital requirements. Our actual working capital needs for the long and short term will depend upon numerous factors, including our operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Our future expansion will depend on operating results and will be limited by our ability to enter into financings and raise capital. As more particularly described in Item 1A of this report, there is substantial doubt about our ability to continue as a going concern and we may be forced to curtail our business. Capital expenditures Total capital expenditures during the year ended December 31, 2008 and 2007 were $1,639 and $119,735, respectively, for the purchase of fixed assets and intangible assets. Off-Balance Sheet Arrangements We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets. Inflation We do not believe that inflation has had, in the past, or will have in the future, any significant negative impact on our operations. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future. The market risk inherent in our market risk sensitive instruments and positions are the potential losses arising from adverse changes in interest rate and foreign currency exchange rates. Foreign Currency Exchange Rates Although our business is international in scope, to date our product sales have been all Hong Kong dollar-denominated. As we expand, we may be affected by exchange rate fluctuations in foreign currencies relative to the Hong Kong dollar. We do not currently use derivative financial instruments to hedge our exposure to changes in foreign currency exchange rates. 18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this Report beginning on page F-I and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. (T). CONTROLS AND PROCEDURES Evaluation of our Disclosure Controls We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, they have concluded that as of December 31, 2008, our disclosure controls and procedures are not effective in view of the existence of the material weakness in internal control over financial reporting described below. Management's Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Directors; (iii) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors; and 19 (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. In connection with the preparation of this Form 10-K, our Chief Executive Officer and Chief Financial Officer (our "Certifying Officers") conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and on the criteria set forth in Release No. 33-8238 entitled "Management's Reports on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports". As a result of that evaluation, management identified the following material weakness in our internal controls over financial reporting as of December 31, 2008: Insufficient Administrative Personnel: The Company has been operated by a small staff. The utilization of such a small staff may sometimes preclude segregation of duties and levels of review and approval that are the cornerstones of sound internal control systems. In addition, the members of the Company's staff who are responsible for financial reporting are not sufficiently familiar with the requirements imposed by the Exchange Act. 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. Based on our evaluation and the criteria set forth in the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and Release No. 33-8238, we have concluded that, as of December 31, 2008, our internal control over financial reporting is not effective. This annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial accounting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report. Our management has taken actions necessary to begin remediating the material weakness that was identified. We are actively seeking to hire additional administrative personnel, intend to consult with outside legal counsel more frequently regarding SEC reporting requirements and are training our current staff more extensively with respect to such requirements. We believe this measure will remediate the material weakness we identified and strengthen our internal control over financial reporting. We are committed to improving our internal control processes and will continue to review our financial reporting controls and procedures. Inherent Limitations of Internal Controls Our system of controls is designed to provide reasonable, not absolute, assurance regarding the reliability and integrity of accounting and financial reporting. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: o Judgments in decision making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes. o Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. o The design of any system of controls is based in part or 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 future conditions. o Over time, controls may become inadequate because of changes in circumstances, or conditions. Controls can also deteriorate in the degree of compliance associated with policies and procedures. 20 o The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Our management, including our Certifying Officers, confirm that there were no changes in our internal control over financial reporting during our fiscal year ending December 31, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table shows the positions held by our board of directors and executive officers and their ages as of March 27, 2009. Name Age Position -------------------------------------------------------------------------------- Kelly Jay Michael Tallas 38 President, Chief Executive Officer and Chairman of the Board of WealthCraft Holdings and its subsidiaries Curtis Hulleman 38 Director of WealthCraft Holdings and its subsidiaries Xiao Zhen Li 34 Chief Financial Officer of WealthCraft Holdings and its subsidiaries Mr. Tallas co-founded WealthCraft HK and has served as President, Chief Executive Officer and Chairman of the Board of WealthCraft HK and WealthCraft SZ since August 2003. From April 2000 until July 2004, Mr. Tallas served as head of information technology at Morningstar Asia, a provider of mutual fund research and ratings, where he led a team to build Morningstar Asia's business and technical infrastructure in Greater China, pioneering the development of one of Asia's first financial xml web services-based product suite. Mr. Tallas has over fourteen years experience in financial information technology and Asian business expertise. Prior to joining Morningstar Asia, Mr. Tallas had 10 years of experience as an entrepreneur. He co-founded InterconX Communications, which provided consulting services to a broad range of customers including HSBC Bank Canada where he managed the Canada-wide systems consolidation and implementation at HSBC Securities. Mr. Tallas holds a Bachelor of Commerce degree at the University of Calgary and is fluent in Mandarin Chinese. Mr. Hulleman co-founded WealthCraft HK and has served as a director of WealthCraft HK and WealthCraft SZ since November 2003. Mr. Hulleman also served as Chief Information Officer for the Company from November 2003 until his resignation on April 30, 2008. From November 1999 until October 2003, Mr. Hulleman served as a project manager of Moonrich Solutions Limited, a subsidiary of Crown Worldwide Holdings, a logistics company responsible for design, documentation and implementation of financial computer systems. At Moonrich Solutions, he designed and implemented twelve financial systems, replacing a mix of legacy operational systems, handling a variety of invoicing, costing, accrual-calculating, expense management and insurance functions. Prior to joining Crown, Mr. Hulleman worked in sales, marketing and operations roles, in the logistics and retail industries. Mr. Hulleman holds a MBA from the Richard Ivey School of Business in Toronto, Ontario, Canada. Ms. Li has served as Chief Financial Officer of WealthCraft HK and its subsidiaries since September 1, 2006. From October, 2004 to August, 2006, Ms. Li served as Asia Region Financial Controller of AD Electronics, an electronics manufacturer. From July 2000 through January 2003, Ms. Li served as Chief Financial Officer and assistant to the General Manager of Dahing Car Centre, an automotive related company. Ms. Li has over eleven years accounting related experience in various industries, seven years as a financial manager and/or other senior positions. Ms. Li holds an MBA degree in Finance from Coventry University, an EMBA degree in Decision Making from US East & West University and a bachelor degree in Accounting from Jinan University. Ms. Li has a CA designation, and has completed almost all of the ACCA exams and is fluent in English, Cantonese, Mandarin and Mingnan dialects. 21 Directors are elected annually and serve until the next annual meeting of the Company's stockholders, and until their successors have been elected and have qualified. Officers are appointed to their positions, and continue in such positions, at the discretion of the directors. Committees of the Board The Board of Directors is the acting Audit Committee. Our Board of Directors has determined that there is no person on our Board of Directors who qualifies as an audit committee financial expert as that term is defined by applicable Securities and Exchange Commission rules. The Board of Directors believes that obtaining the services of an audit committee financial expert is not economically rational at this time in light of the costs associated with identifying and retaining an individual who would qualify as an audit committee financial expert. Director Compensation There are no special fees, contracts entered into, or payments made in consideration of any director's service as a director. Indebtedness of Executive Officers and Directors No executive officer, director or any member of these individuals' immediate families or any corporation or organization with whom any of these individuals is an affiliate is or has been indebted to us since the beginning of our last fiscal year. Family Relationships There are no family relationships among our executive officers and directors. Legal Proceedings During the past five years, none of our executive officers, directors, promoters or control persons have been involved in a legal proceeding material to an evaluation of the ability or integrity of such person. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% our outstanding common stock, to file with the SEC, initial reports of ownership and reports of changes in ownership of our equity securities. These persons are required by SEC regulations to furnish us with copies of all the reports they file. To our knowledge, based solely on a review of the copies of the reports furnished to us and written or oral representations that no other reports were required for those persons during the fiscal year ended December 31, 2008, we believe that all of our officers, directors and greater than 10% beneficial owners complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended. Code of Ethics The Company has adopted a Code of Ethics for our Principal Executive Officer and our Senior Financial Officers. A copy of the Code of Ethics was filed as Exhibit 14.1 to our Form 10-KSB for the fiscal year ended December 31, 2007 and is incorporated herein by reference. 22 ITEM 11. EXECUTIVE COMPENSATION Compensation Committee Report The Board of Directors is the acting Compensation Committee. The Board of Directors currently has two members, therefore the Board of Directors believes having a separate Compensation Committee is not practical at this time. Messrs. Tallas and Halleman are responsible for reviewing and approving the compensation of all executive officers of the Company. The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by our Chief Executive Officer and all other executive officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods.

(1) Salary represents base salary earned in 2008 and 2007. (2) Consists of the fair market value of shares of our common stock issued to Messrs. Tallas and Hulleman on May 9, 2007 as compensation for services rendered and to be rendered on our behalf. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information regarding the beneficial ownership of our common stock as of March 27, 2009 by: o each person known by us to be the beneficial owner of more than 5% of WealthCraft Holdings' outstanding shares of common stock; o each of our officers and directors; and o all of our officers and directors as a group. Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power. 23

(1) Unless otherwise indicated, the business address of each of the foregoing is Unit A, 9/F On Hing Building 1 On Hing Terrace, Central Hong Kong SAR. (2) Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Exchange Act. All information with respect to beneficial ownership has been furnished by the respective director, executive officer or stockholder, as the case may be. (3) Includes 900,000 shares of Common Stock which were issued to Messrs. Tallas and Hulleman for services rendered and to be rendered on our behalf, which shares were transferred to WealthCraft HK to discharge certain subscription receivables owing by Messrs. Tallas and Hulleman to WealthCraft HK. By virtue of their position as directors of WealthCraft HK's parent company, Messrs. Tallas and Helleman are deemed to beneficially own such shares. Equity Compensation Plan Information We do not currently maintain any equity compensation plans. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE On May 9, 2006, WealthCraft HK issued 5,270,239 and 3,191,702 ordinary shares to Messrs. Tallas and Hulleman, respectively. No consideration was paid by Messrs. Tallas or Hulleman in connection with the issuance of these shares and no consideration was contemplated as they were issued as part of a recapitalization of WealthCraft HK completed in connection with capital raising activities. However, the stated capital of the shares of WealthCraft HK at the time of issuance was HK$3.87 per share. Accordingly, WealthCraft HK booked a subscription receivable equal to the value of the shares issued. On May 21, 2007, we issued 900,000 shares of our common stock to Messrs. Tallas and Hulleman. The shares of stock were issued as consideration for services performed on the Company's behalf and in contemplation of such future efforts on behalf of the Company. Mr. Tallas and Mr. Hullemen subsequently transferred the shares to WealthCraft HK to extinguish their respective subscriptions receivable. Messrs. Tallas, Hulleman and James Aitken have made loans to WealthCraft HK for working capital purposes. As of December 31, 2008 WealthCraft HK owed Messrs. Tallas, Hulleman and Aitken $180,487, $116,149 and $97,432, respectively. The loans are non-interest bearing, unsecured and due on demand. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Audit Fees The aggregate fees billed or expected to billed by Morgenstern, Svoboda & Baer, CPA, P.C. for professional services rendered for the audit of our annual financial statements for each of the fiscal years ended December 31, 2008 and 2007 and for the reviews of the interim financial statements included in our Quarterly Reports on Form 10-Q for each of the fiscal years ended December 31, 2008 and 2007 were approximately $60,000. 24 Audit-Related Fees No fees were billed by Morgenstern, Svoboda & Baer, CPA, P.C. for audit-related services rendered for accounting consultations for the fiscal years ended December 31, 2008 and 2007. Tax Fees No fees were billed by Morgenstern, Svoboda & Baer, CPA, P.C. for tax services rendered for the fiscal years ended December 31, 2008 and 2007. All Other Fees Morgenstern, Svoboda & Baer, CPA, P.C. rendered no other services, other than the services described above under "Audit Fees," "Audit-Related Fees" and "Tax Fees" for the fiscal year ended December 31, 2008 or for the fiscal year ended December 31, 2007. 25 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Exhibit Number Description of Document 3.1 Articles of Incorporation of WealthCraft Systems Inc. (1) 3.2 Articles of Merger with Agreement and Plan of Merger (2) 3.3 By-Laws of WealthCraft Systems Inc. (1) 10.1 Employment Contract by and between Kelly Jay Michael Tallas and WealthCraft Systems Limited dated October 1, 2006 (3) 10.2 Employment Contract by and between Curtis Cornelius Hulleman and WealthCraft Systems Limited dated July 1, 2005 (3) 10.3 Labor Contract of Shenzhen Special Economic Zone by and between WealthCraft Systems (Shenzhen) Limited and Jenny Li dated August 30, 2006 (3) 10.4 Form of Agreement between Gold Talent Enterprises Limited, Legal Studion.com Limited and WealthCraft Systems Limited (3) 10.5 Form of Office Lease Contract between Shenzhen Anljan Investment Company Limited and WealthCraft Systems (Shenzhen) Limited (3) 10.6 Stock Purchase Agreement dated November 13, 2006 by and between WealthCraft Holdings and Serendipity Ventures Limited (3) 10.7 Tenancy Agreement, dated as of January 25, 2007, between WealthCraft Systems Limited and Hip Shing Hong Development Company Limited, the lawful attorney of Associated Builders Corporation Limited, Aberdeen Development Corporation Limited and Five Up Investment Company Limited (4) 10.8 Heads of Agreement, dated February 15, 2008, between WealthCraft Systems Inc. and EAB (Australia) Limited (5) 10.9 Letter dated June 20, 2008 from WealthCraft Systems Inc. and Kelly Tallas to EAB (Australia) Limited (6) 10.10 Letter dated June 27, 2008 from EAB (Australia) Limited to WealthCraft Systems Inc.(7) 10.11 Letter dated July 8, 2008 from EAB (Australia) Limited to the WealthCraft Systems Inc.(7) 10.12 Form of Lease Contract, dated January 13, 2009, by and between China Academy Of Science & Tech Development Ltd. and WealthCraft Systems (Shenzhen) Limited (WealthCraft)* 14.1 Code of Ethics (8) 21.1 Subsidiaries of Wealthcraft Systems Inc.(8) 31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Chief Executive Officers and Chief Financial Officers Certificate, pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.* * Filed herewith (1) Filed as an exhibit to the Registrant's Form 10-SB filed on October 18, 2005 and incorporated herein by reference. 26 (2) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on October 19, 2006 and incorporated herein by reference. (3) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on November 13, 2006 and incorporated herein by reference. (4) Filed as an exhibit to the Registrant's Current Report on Form 10-QSB filed on August 14, 2007 and incorporated herein by reference. (5) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on March 31, 2008 and incorporated herein by reference. (6) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on June 20, 2008 and incorporated herein by reference. (7) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on July 18, 2008 and incorporated herein by reference. (8) Filed as an exhibit to the Registrant's Annual Report on Form 10-KSB filed on March 31, 2008 and incorporated herein by reference. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. WEALTHCRAFT SYSTEMS INC. Date: March 31, 2009 By: /s/ Kelly Jay Michael Tallas ------------------------------- Kelly Jay Michael Tallas Chief Executive Officer By: /s/ Xiao Zhen Li ------------------------------- Xiao Zhen Li Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Kelly Jay Michael Tallas Chairman, Chief Executive March 31, 2009 ----------------------------- Officer and President Kelly Jay Michael Tallas (principal executive officer) /s/ Xiao Zhen Li Chief Financial Officer March 31, 2009 ----------------------------- (principal financial and Xiao Zhen Li accounting officer) /s/ Curtis Hulleman Director March 31, 2009 ----------------------------- Curtis Hulleman 28 WEALTHCRAFT SYSTEMS INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheet F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Cash Flows F-4 Consolidated Statements of Stockholders' Equity F-5 Notes to Consolidated Financial Statements F-6 MORGENSTERN, SVOBODA & BAER, CPA's, P.C. CERTIFIED PUBLIC ACCOUNTANTS 40 Exchange Place, Suite 1820 New York, NY 10005 TEL: (212) 925-9490 FAX: (212) 226-9134 E-MAIL: MORGENCPA@CS.COM Report of Independent Registered Public Accounting Firm ------------------------------------------------------- To the Board of Directors and Stockholders of Wealthcraft Systems, Inc We have audited the accompanying balance sheets of Wealthcraft Systems, Inc ("Company"), as of December 31, 2008, and 2007, and the related consolidated statements of income, comprehensive income, consolidated statements of stockholders' equity and cash flows for the years then ended. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wealthcraft Systems, Inc., as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 13 to the consolidated financial statements, the Company has suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Morgenstern, Svoboda & Baer, CPAs, P. C. Certified Public Accountants New York, NY March 23, 2009 F-1 WEALTHCRAFT SYSTEMS INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements F-2 WEALTHCRAFT SYSTEMS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

The accompanying notes are an integral part of these consolidated financial statements F-3 WEALTHCRAFT SYSTEMS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

The accompanying notes are an integral part of these consolidated financial statements F-4 WEALTHCRAFT SYSTEMS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DECEMBER 31, 2008

The accompanying notes are an integral part of these consolidated financial statements F-5 WEALTHCRAFT SYSTEMS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 Note 1 - ORGANIZATION WealthCraft Systems, Inc, (formerly Parque La Quinta Estates) was organized October 29, 1992 under the laws of the State of Nevada. On November 13, 2007, WealthCraft Systems, Inc. ("WealthCraft") completed the transactions contemplated by that certain Exchange Agreement, dated as of October 19, 2007, by and among WealthCraft, certain shareholders of WealthCraft, WealthCraft Systems Ltd., a private limited company organized under the laws of the Hong Kong Special Administrative Region of the People's Republic of China ("WealthCraft HK") and the shareholders of WealthCraft HK (the "Exchange Agreement"). Accordingly, WealthCraft acquired all of the issued and outstanding shares of stock of WealthCraft HK, in exchange for the issuance in the aggregate of 7,000,000 shares of common stock of WealthCraft, which shares represent 70% of the issued and outstanding capital stock of WealthCraft after the consummation of the Exchange Agreement and the transactions contemplated thereby. As a result of the Exchange Agreement, WealthCraft HK became a wholly-owned subsidiary of WealthCraft. WealthCraft Systems Limited ("WealthCraft HK") was incorporated under the laws in Hong Kong on August 1, 2003. On September 19, 2005, WealthCraft Systems (Shenzhen) Limited ("WealthCraft Shenzhen"), a private limited company, was organized under the laws of the People's Republic of China. WealthCraft Shenzhen is owned 100% by WealthCraft HK. When used in these notes, the terms "Company," "we," "our," or "us" mean WealthCraft Systems, Inc. and its wholly owned subsidiary WealthCraft HK and its wholly owned subsidiary WealthCraft Shenzhen. The Company through its acquisition of WealthCraft HK is no longer considered a development stage company. WealthCraft, together with its subsidiary, WealthCraft HK, is an information technology company that designs, develops, markets and supports a flexible, scalable and secure technology platform for wealth management services for financial institutions, including investment advisory firms, securities brokerage firms, retail and private banks, mutual fund companies and insurance companies. Our focus is on the Asia market, primarily Hong Kong, Taiwan, Singapore and Mainland China, a market that currently lacks a comprehensive technology solution for servicing the growing wealth management industry. Because of a number of factors, including language and currency issues, existing products available in other parts of the world are not readily adaptable to the Asian market. WealthCraft offers financial institutions a complete, customized solution for their wealth management business. Our principal business solution, Advisor Workbench, which is implemented through its proprietary technology, gives financial professionals the tools and services required to develop and expand their wealth management business, including customer relationship management, financial planning, investment research, portfolio management and trade execution. This enables financial institutions to enhance customer loyalty, enhance financial advisor productivity, strengthen customer relationships and increase assets under management. We also offer an integrated back-office system providing order execution, order management and portfolio and commission management. The final product offering allows institutions to access the industry standard SWIFTnet funds transfer system thereby allowing automated mutual fund transactions which is generally manually performed in Asia. F-6 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Functional currency of WealthCraft HK and WealthCraft Shenzhen is the Hong Kong Dollar and Chinese Yuan, respectively; however the accompanying consolidated financial statements have been translated and presented in United States Dollars (USD). Translation Adjustment ---------------------- As of December 31, 2008 and 2007, the accounts of WealthCraft HK and WealthCraft Shenzhen were maintained, and its financial statements were expressed, in Hong Kong Dollar (HKD) and Chinese Yuan (CNY). Such financial statements were translated into USD in accordance with Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Foreign Currency Translation," with the HKD and CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders' equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," as a component of stockholders' equity. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of WealthCraft and its wholly owned subsidiary WealthCraft HK and its wholly owned subsidiary WealthCraft Shenzhen. All material intercompany accounts, transactions and profits have been eliminated in consolidation. Contingencies ------------- Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. Our management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed. F-7 Risks and Uncertainties ----------------------- The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets. Cash and Cash Equivalents ------------------------- Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Accounts Receivable ------------------- We maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis. As of December 31, 2008, management determined that all accounts receivable are collectible. Property, Plant & Equipment --------------------------- Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of: Equipment 3 - 5 years Computer Hardware and Software 3 - 5 years As of December 31, 2008 and December 31, 2007 property and equipment consisted of the following: December 31, 2008 December 31, 2007 ----------------- ----------------- Office furniture and equipment $ 25,973 $ 116,311 Computer hardware and software 172,979 79,771 ----------------- ----------------- 198,952 196,082 Accumulated depreciation (128,130) (82,372) ----------------- ----------------- $ 70,822 $ 113,710 ================= ================= Depreciation expense was $45,044 and $43,906 for the year ended December 31, 2008, and 2007, respectively. Fair Value of Financial Instruments ----------------------------------- Statement of Financial Accounting Standards No. 107 ("SFAS 107"), Disclosures about Fair Value of Financial Instruments," requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value. F-8 Intangible Asset ---------------- Statement of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for Costs of Computer Software to be Sold, Leased, or otherwise Marketed," requires companies to expense software development costs as they incur them until technological feasibility has been established, at which time production costs are capitalized until the product is available for general release to customers. As of March 1, 2006 we established technological feasibility for Advisor Workbench 2.0 but it was not yet available for general release and, accordingly, we capitalized all development costs through the end of August 1, 2007 at which time it was available for general release. Statement of Financial Accounting Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs," establishes accounting and reporting standards for research and development. In accordance with SFAS 2, costs we incur to enhance our existing products after the general release of the service using the product are expensed in the period they are incurred and included in research and development costs in our statements of operations. December 31, 2008 December 31, 2007 ----------------- ----------------- Software Development Cost $ 282,271 $ 253,394 Accumulated amortization (147,701) (35,194) ----------------- ----------------- Total $ 134,570 $ 218,200 ================= ================= The intangible assets are amortized amortized over the useful life, generally two to three years from the general release date. Amortization expense was $84,616 and $35,194 for the year ended December 31, 2008 and 2007, respectively. Amortization expenses for the Company's intangible assets over the next fiscal years is estimated to be: December 31, 2009 $ 112,507 2010 22,063 ------------ Total $ 134,570 ============ F-9 Revenue Recognition ------------------- Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. We enter into certain arrangements where we are obligated to deliver multiple products and/or services (multiple elements). In these arrangements, we generally allocate the total revenue among the elements based on the sales price of each element when sold separately (vendor-specific objective evidence). We account for the licensing of software in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition. The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists for those elements. Customers receive certain elements of our products over a period of time. These elements include free post-delivery telephone support and the right to receive unspecified upgrades/enhancements on a when-and-if-available basis, the fair value of which is recognized over the product's estimated life cycle. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and changes to a product's estimated life cycle could materially impact the amount of earned and deferred revenue. Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products. Revenue from licensing arrangements are accounted for as subscriptions, with billings recorded as deferred revenue and recognized as revenue ratably over the billing coverage period. Certain licensing arrangements include rights to receive future versions of software product on a when-and-if-available basis. Basic and Diluted Earnings Per Share ------------------------------------ Net loss per share is calculated in accordance with the Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per share". Basic net loss per share is based upon the weighted average number of common shares outstanding. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive. Advertising ----------- Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. We expense all advertising costs as incurred. Income Taxes ------------ The Company utilizes Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. F-10 Research and Development Costs ------------------------------ Research and development costs are accounted for in accordance with several accounting pronouncements, including Statement of Financial Accounting Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs", and Statement of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." SFAS 86 specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. Statement of Cash Flows ----------------------- In accordance with Statement of Financial Accounting Standards No. 95 ("SFAS 95"), "Statement of Cash Flows," cash flow from our operations is based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Concentration of Credit Risk ---------------------------- Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from our normal business activities. We place our cash in what we believe to be credit-worthy financial institutions. We have a diversified customer base, most of which are primarily in Hong Kong, Taiwan, Singapore and Mainland China. We control credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. Segment Reporting ----------------- Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information," requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company's consolidated financial statements as the Company consists of one reportable business segment as of December 31, 2008 and 2007. Recent accounting pronouncements -------------------------------- In September 2006, FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. F-11 In September 2006, FASB issued Statement of Financial Accounting Standards No. 158 ("SFAS 158"), "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans"--an amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements: a. A brief description of the provisions of this Statement. b. The date that adoption is required. c. The date the employer plans to adopt the recognition provisions of this Statement, if earlier. The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements. The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements". This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company's fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on financial statements. F-12 In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity's financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations". This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company's fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009. On May 8, 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162. The Hierarchy of Generally Accepted Accounting Principles, which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature. The Company is currently assessing the impact of SFAS No. 162 on its financial position and results of operations. The FASB has issued Statement of Financial Accounting Standards No. 163, Accounting for Financial Guarantee Insurance Contracts. SFAS No. 163 clarifies how SFAS No. 60, Accounting and Reporting by Insurance Enterprises applies to financial guarantee insurance contracts issued by insurance enterprises, and addresses the recognition and measurement of premium revenue and claim liabilities. It requires expanded disclosures about contracts, and recognition of claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations, and (b) the insurance enterprise's surveillance or watch list. F-13 Note 3 - COMMON STOCK On November 13, 2006 the board of directors submitted to, and a majority of shareholders eligible to vote, approved a proposal that, pursuant to the terms of a Share Exchange Agreement (see Note 4), the Company acquired all of the outstanding capital stock of WealthCraft HK in exchange for 7,000,000 shares of the Company's common stock (the "Transaction"). This issuance of the Company's common stock was intended to be exempt from registration under the Securities Act of 1933, as amended ("Securities Act"). In connection with the Transaction, certain shareholders of the Company agreed to cancel an aggregate of 5,075,000 shares of the Company's common stock resulting in 2,625,000 shares of common stock outstanding prior to the issuance of the above 7,000,000 shares. On November 13, 2006, the Company completed the sale and issuance of 375,000 shares of Common Stock in the aggregate amount of $1,650,000, or $4.40 per share, of which $1,000,000 was paid at the initial closing and $650,000 shall be paid from time to time until the second anniversary of the closing to discharge invoices for legal, accounting and investor relations services incurred by the Company. As of December 31, 2008 there is no subscription receivable outstanding. On June 5, 2007, the Company awarded two officers an aggregate of 900,000 shares of common stock valued at $5.56 per share, or $5,000,000, based upon market price at the date of issuance, for services that were provided to the Company as compensation. The officers provided various services to the Company which included market research, strategic planning and identifying investment bankers. Note 4 - SHARE EXCHANGE AGREEMENT On November 13, 2006, WealthCraft Systems Inc. ("WealthCraft") completed the transactions contemplated by that certain Exchange Agreement, dated as of October 19, 2006, by and among WealthCraft, certain shareholders of WealthCraft, WealthCraft Systems Ltd., a private limited company organized under the laws of the Hong Kong Special Administrative Region of the People's Republic of China ("WealthCraft HK") and the shareholders of WealthCraft HK (the "Exchange Agreement"). Accordingly, WealthCraft acquired all of the issued and outstanding shares of stock of WealthCraft HK, in exchange for the issuance in the aggregate of 7,000,000 shares of common stock of WealthCraft, which shares represent 70% of the issued and outstanding capital stock of WealthCraft after the consummation of the Exchange Agreement and the transactions contemplated thereby. As a result of the Exchange Agreement, WealthCraft HK became a wholly-owned subsidiary of WealthCraft. As a result of the Exchange Agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following: (1) The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at historical cost. (2) The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger. F-14 Note 5 - INCOME TAXES The Company is registered in the State of Nevada and has operations in three tax jurisdictions - the People's Republic of China (PRC), Hong Kong (HK) and the United States. For certain operations in the US, HK and PRC, the Company has incurred net accumulated operating losses for income tax purposes The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of December 31, 2008. Accordingly, the Company has no net deferred tax assets. The provision for income taxes from continuing operations on income consists of the following for the year ended December 31, 2008 and 2007: December 31, 2008 December 31, 2007 ------------------ ------------------ US Current Income Tax Expense (Benefit) Federal $ -- $ -- State -- -- ------------------ ------------------ PRC and HK Current Tax Expense -- -- Total $ -- $ -- ================== ================== The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations: ------------------------------------------------- ------------ ----------- 2008 2007 ------------------------------------------------- ------------ ----------- Tax expense (credit) at statutory rate - federal 34% 34% ------------------------------------------------- ------------ ----------- State tax expense net of federal tax 6% 6% ------------------------------------------------- ------------ ----------- Changes in valuation allowance (40%) (40%) ------------------------------------------------- ------------ ----------- Foreign income tax - PRC 18% 15% ------------------------------------------------- ------------ ----------- Exempt from income tax due to net loss (18%) (15)% ------------------------------------------------- ------------ ----------- Tax expense at actual rate 0% 0% ------------------------------------------------- ------------ ----------- United States of America ------------------------ As of December 31, 2008, the Company in the United States had approximately $5,853,588 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the United States entities at December 31, 2008 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future. The following table sets forth the significant components of the net deferred tax assets for operation in the US as of December 31, 2008 and December 31, 2007. ---------------------------------- ----------------- ----------------- December 31, 2008 December 31, 2007 ---------------------------------- ----------------- ----------------- Net operation loss carry forward $ 5,853,588 $ 5,603,643 ---------------------------------- ----------------- ----------------- Total deferred tax assets 1,990,220 1,905,239 ---------------------------------- ----------------- ----------------- Less: valuation allowance (1,990,220) (1,905,239) ---------------------------------- ----------------- ----------------- Net deferred tax assets $ -- $ -- ---------------------------------- ----------------- ----------------- F-15 People's Republic of China (PRC) -------------------------------- Pursuant to the PRC Income Tax Laws, the Company's subsidiary is generally subject to Enterprise Income Taxes ("EIT") at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax. The subsidiary is qualified as a new technology enterprises and under PRC Income Tax Laws, it subject to a preferential tax rate of 18%. Beginning January 1, 2008, the new Enterprise Income Tax ("EIT") law will replace the existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises ("FIEs"). The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs. The two years tax exemption, three years 50% tax reduction tax holiday for production-oriented FIEs will be eliminated. The Company's applicable EIT rate under new EIT law is 18% which was approved by local Tax department. As of December 31, 2008 and 2007, the Company's PRC subsidiary had net operating loss carry forwards which can be carried forward 5 years to offset future taxable income. The deferred tax assets for the PRC subsidiary at December 31, 2008 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future. The following table sets forth the significant components of the net deferred tax assets for operation in PRC as of December 31, 2008 and December 31,2007. ---------------------------------- ----------------- ----------------- December 31, 2008 December 31, 2007 ---------------------------------- ----------------- ----------------- Net operation loss carry forward $ 2,212,220 $ 1,813,883 ---------------------------------- ----------------- ----------------- Total deferred tax assets 331,833 272,082 ---------------------------------- ----------------- ----------------- Less: valuation allowance (331,833) (272,082) ---------------------------------- ----------------- ----------------- Net deferred tax assets $ -- $ -- ---------------------------------- ----------------- ----------------- Aggregate net deferred tax assets The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of December 31, 2008 and December 31, 2007: ---------------------------------- ----------------- ----------------- December 31, 2008 December 31, 2007 ---------------------------------- ----------------- ----------------- Aggregate: ---------------------------------- ----------------- ----------------- Total deferred tax assets $ 2,322,053 $ 2,177,321 ---------------------------------- ----------------- ----------------- Less: valuation allowance (2,322,053) (2,177,321) ---------------------------------- ----------------- ----------------- Net deferred tax assets $ -- $ -- ---------------------------------- ----------------- ----------------- Note 6- DEFERRED REVENUE Deferred revenue represents customer billings, paid either upfront or annually at the beginning of each billing coverage period, that are accounted for as subscriptions with revenue recognized ratably over the billing coverage period. For certain other licensing arrangements revenue attributable to undelivered elements, including free post-delivery telephone support and the right to receive unspecified upgrades/enhancements on a when-and-if-available basis, is based on the sales price of those elements when sold separately and is recognized ratably on a straight-line basis over the life cycle of the related product. As of December 31, 2008 and 2007, deferred income amounted to $935,427 and $358,547 respetively. F-16 Note 7 - NOTES PAYABLE As of December 31, 2008 and December 31, 2007, the Company had notes payable in the aggregate amount of $0 and $16,111,respectively. Payables are as follows:

Note 8- RELATED PARTY LOAN TRANSACTIONS As of December 31, 2008 and December 31, 2007, the Company had a non-interest bearing, unsecured loan payable to shareholders of the Company amounting to $396,527 and $394,068. These loans are payable on demand. As of December 31, 2008 and December 31, 2007, the Company had a non-interest bearing, unsecured loan payable to a shareholder of the Company amounting to $329,293 and $80,363, respectively. These loans are payable on demand. Note 9 - OTHER COMPREHENSIVE LOSS Balances of related after-tax components comprising accumulated other comprehensive loss, included in stockholders' equity at December 31, 2008 and December 31, 2007 is as follows: Accumulated Other Comprehensive Loss ------------------ Balance at December 31, 2006 $ 2,943 Foreign currency loss 2007 (2,371) ------------------ Balance at December 31, 2007 572 Foreign currency gain 2008 21,146 ------------------ Balance at December 31, 2008 $ 21,718 ================== F-17 Note 10 - COMMITTMENTS The Company leases office and plant facilities under operating leases which terminate on January 14, 2009 and July 31, 2009. Rental expense for these leases consisted of $155,729 and $136,111 for the years ended December 31, 2008 and 2007, respectively. The Company has future minimum lease obligations as follows: December 31, 2009 $ 94,563 2010 -- ------------- Total $ 94,563 ============= Note 11 - CURRENT VULNERABILITY DUE TO RISK FACTORS Our operations are carried out in Hong Kong (HK) and the People's Republic of China (PRC). Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environments in the HK and PRC, by the general state of the HK and PRC's economy. Our business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Note 12 - STATUTORY COMMON WELFARE FUND In accordance with the laws and regulations of the PRC, after the payment of the PRC income taxes shall be allocated to the statutory surplus reserves and statutory public welfare fund for staff and workers. The proportion of allocation for reserve is 5 to 10 percent of the profit after tax until the accumulated amount of allocation for statutory reserve reaches 50 percent of the registered capital. Statutory surplus reserves are to be utilized to offset prior years' losses, or to increase its share capital. General reserve fund and statutory surplus fund are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of December 31, 2008 and 2007, the Company had no reserves to these non-distributable reserve funds since it had no income from operations. Note 13 - GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained net losses of $8,065,809 since its inception, and the Company's operations do not generate sufficient cash to cover its operating costs. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) acquire profitable operations through issuance of equity instruments; and 2) to continue actively seeking additional funding and restructure the acquired subsidiaries to increase profits and minimize the liabilities. F-18

WEALTHCRAFT SYSTEMS INC. 10-K