Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_____________________
FORM
10-Q
_____________________
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
______to______.
China
Green, Inc.
(Exact
name of registrant as specified in the Charter)
DELAWARE
|
000-53415
|
75-3269053
|
||
(State
or other jurisdiction of
incorporation
or organization)
|
(Commission
File No.)
|
(IRS
Employee Identification No.)
|
Room
3601, the Centre, Queen’s Road no.99
Central,
Hong Kong
(Address
of Principal Executive Offices) (Zip Code)
(852)
3691-8831
(Registrants
Telephone number including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2)has been subject to such filing requirements for the past 90
days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company filer.
See definition of “accelerated filer” and “large accelerated filer”
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 o No x
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 11, 2009: 12,500,000 shares of common
stock.
CHINA
GREEN, INC.
FORM
10-Q
September
30, 2009
TABLE
OF CONTENTS
PART
I— FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
1 |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
25 |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
32 |
Item
4T.
|
Controls
and Procedures
|
33 |
PART
II— OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
33 |
Item
1A.
|
Risk
Factors
|
33 |
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
34 |
Item
3.
|
Defaults
Upon Senior Securities
|
34 |
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
35 |
Item
5.
|
Other
Information
|
35 |
Item
6.
|
Exhibits
|
35 |
SIGNATURES
|
36 |
PART
1 - FINANCIAL INFORMATION
Item
1. Financial Statements
CHINA
GREEN, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
1
CHINA GREEN,
INC.
INDEX TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Page(s) | |
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
3 |
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
4 |
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
5 |
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
6 |
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
7-10 |
2
CHINA
GREEN, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
Three
months
|
Three
months
|
|||||||||||
ended
|
ended
|
|||||||||||
September
30,
|
September
30,
|
|||||||||||
2009
|
2008
|
|||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||
Notes
|
$
|
$
|
||||||||||
Service
income
|
11 | 3,496,724 | 3,622,755 | |||||||||
Cost
of services
|
12 | (1,584,042 | ) | (1,226,066 | ) | |||||||
Gross
profit
|
1,912,682 | 2,396,689 | ||||||||||
General
and administrative expenses
|
13 | (22,932 | ) | (34,411 | ) | |||||||
Income before
taxation
|
1,889,750 | 2,362,278 | ||||||||||
Income
tax
|
14 | (38,423 | ) | - | ||||||||
Net
income
|
1,851,327 | 2,362,278 | ||||||||||
Other
comprehensive income
- Foreign
currency translation adjustments
|
(20,252 | ) | 792,795 | |||||||||
Total
comprehensive income
|
1,831,075 | 3,155,073 | ||||||||||
Net
income per share – basic and diluted
|
0.29 | 0.60 | ||||||||||
Weighted
average number of shares outstanding during the period – basic and
diluted
|
6,299,750 | 5,277,500 | ||||||||||
The Annexed notes form an integral part of these
financial statements.
3
CHINA
GREEN, INC.
CONDENSED
CONSOLIATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2009 AND JUNE 30, 2009
(UNAUDITED)
(Stated
in US dollars)
As
of
|
As
of
|
|||||||||||
September
30,
|
June
30,
|
|||||||||||
Notes
|
2009
|
2009
|
||||||||||
(unaudited)
|
(audited)
|
|||||||||||
ASSETS
|
$ | $ | ||||||||||
Current
assets
|
||||||||||||
Cash
and cash equivalents
|
4 | 1,156,708 | 849,457 | |||||||||
Accounts
receivables
|
5 | 7,245,231 | 5,036,977 | |||||||||
Deposit
paid for labour services
|
2,024,904 | 2,028,713 | ||||||||||
Deposit
for contract procurements
|
6 | 1,411,224 | 1,413,879 | |||||||||
Deposit
paid for hotel investment negotiation
|
7 | 1,023,751 | 1,025,677 | |||||||||
Total
current assets
|
12,861,818 | 10,354,703 | ||||||||||
Plant
and equipment, net
|
8 | 948,795 | 1,083,011 | |||||||||
TOTAL
ASSETS
|
13,810,613 | 11,437,714 | ||||||||||
LIABILITIES
AND STOCKHOLDER’S EQUITY
|
||||||||||||
Current
liabilities
|
||||||||||||
Amount
due to a director
|
9 | 64,376 | 64,499 | |||||||||
Amount
due to a shareholder
|
9 | 24,638 | 23,899 | |||||||||
Accrued
expenses
|
15,295 | 10,411 | ||||||||||
Tax
payable
|
14 | 110,610 | 72,303 | |||||||||
TOTAL
LIABILITIES
|
214,919 | 171,112 | ||||||||||
STOCKHOLDERS’
EQUITY
|
||||||||||||
Authorized
: 500,000,000 shares;
|
10 | 125 | 105 | |||||||||
Issued
: 12,499,500 shares
|
||||||||||||
Additional paid-in capital
|
10 | 497,997 | - | |||||||||
Accumulated other comprehensive income
|
(20,252 | ) | 836,560 | |||||||||
Retained
earnings
|
13,117,824 | 10,429,937 | ||||||||||
13,595,694 | 11,266,602 | |||||||||||
|
||||||||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
13,810,613 | 11,437,714 |
The Annexed notes form an integral part of these
financial statements.
4
CHINA
GREEN, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
Three
months
|
Three
months
|
|||||||
ended
|
ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Cash
flows from operating activities
|
$
|
$
|
||||||
Net
income before taxation
|
1,889,750 | 2,362,278 | ||||||
Depreciation
|
132,114 | 131,886 | ||||||
(Increase)
/ decrease in accounts receivables
|
(2,208,254 | ) | 2,040,331 | |||||
Increase
in accrued expenses
|
4,884 | - | ||||||
Increase
in amount due to a shareholder
|
739 | 16,361 | ||||||
(Decrease)
/ increase in amount due to a director
|
(123 | ) | 64,214 | |||||
Net
cash (used in) / from operating activities
|
(180,890 | ) | 4,615,070 | |||||
Cash
flows from investment activities
|
||||||||
Investment
in a subsidiary
|
- | (100 | ) | |||||
Net
cash used in investment activities
|
- | (100 | ) | |||||
Cash
flows from financing activities
|
||||||||
Issue
of share
|
20 | 105 | ||||||
Additional
paid-in capital
|
497,997 | - | ||||||
Net
cash generated in financing activities
|
498,017 | 105 |
Net
increase in cash and cash equivalents
|
317,127 | 4,615,075 | ||||||
Effect
of foreign currency translation on cash and
|
(9,876 | ) | (9,244 | ) | ||||
cash
equivalents
|
||||||||
Cash
and cash equivalents - beginning of period
|
849,457 | 364,485 | ||||||
Cash
and cash equivalents - end of period
|
1,156,708 | 4,970,316 |
5
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
1. BASIS
OF PRESENTATION
The
accompanying condensed consolidated financial statements of the Company and its
subsidiaries have been prepared in accordance with generally accepted accounting
principles in the United States of America for interim consolidated financial
information. Accordingly, they do not include all the information and
notes necessary for comprehensive consolidated financial
statements.
In
connection with the reverse acquisition and recapitalization, all share and per
share amounts will be retroactively restated.
The
consolidated financial statements are prepared on the basis with assumption the
reverse merger was undergone at the beginning of July 1, 2008. The historical
consolidated financial statements of the Company will be those of China Green,
Inc. and of the consolidated entities from the July 1, 2008, the date of merger,
and subsequent. The consolidated financial statements for the company for the
three months ended September 30, 2009 and 2008, include the financial statements
of China Green, Inc., its 100% owned subsidiary, Glorious Pie Limited, and its
wholly owned subsidiary, Earn Bright Development Limited. Intercompany
transactions and balances are eliminated in consolidation.
In the
opinion of the management of the Company, all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the
three-month periods have been made. Results for the periods presented
are not necessarily indicative of the results that might be expected for the
entire fiscal year. These condensed financial statements should be
read in conjunction with the consolidated financial statements and the notes
included in the 2008 and 2009 annual report filed with the Securities and
Exchange Commission.
2. DESCRIPTION
OF BUSINESS
China
Green Group (the “Group”) consists of China Green, Inc. (the “China Green”),
Glorious Pie Limited (the “Glorious Pie”) and Earn Bright Development Limited
(the “Earn Bright”). China Green, Inc. was incorporated in the State
of Delaware on July 11, 2008. Glorious Pie Limited was incorporated in the
British Virgin Islands on 12 September, 2006, under the International Business
Companies Act, British Virgin Islands. Earn Bright Development Limited was
incorporated in Hong Kong on December 17, 2008.
On August
12, 2009, China Green, Inc. acquired all of the issued and outstanding common
stock of Glorious Pie Limited by issuing 10,355,000 common shares to the
Glorious Pie Limited Shareholder under a Share Exchange and Stock Purchase
Agreement with Glorious Pie Limited.
The Group
is engaged in developing its model in the areas of hospitality facilities and
large scale landscape architecture and engineering. The group is
specialized on providing greenery services to greenery construction projects in
China, including, but not limited to, design advice, trading and quality control
service of seed, provision of seedling and performance arrangement of greenery
engineering and plantation.
6
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a) Basis
of presentation and consolidation (continued)
The
accompanying consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in the United States
of America.
The
consolidated financial statements include the accounts of China Green, Inc. and
its subsidiaries. Significant intercompany transactions have been elimination in
consolidation.
The
consolidated financial statements are prepared on the basis with assumption the
reverse merger was undergone at the beginning of July 1, 2008.
As of
September 30, 2009, the particulars of the subsidiaries are as
follows:
Name
of company
|
Place
of incorporation
|
Date
of incorporation
|
Attributable
equity interest
|
Issued
capital
|
Glorious
Pie Limited
|
British
Virgin Islands
|
September
12, 2006
|
100%
|
US$100
|
Earn
Bright Development Limited
|
Hong
Kong
|
December
17, 2008
|
100%
|
US$0.128
(HK$1)
|
b) Use
of estimates
In
preparing of the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting year. These accounts and estimates include, but are not
limited to, the valuation of accounts receivable, inventories, deferred income
taxes and the estimation on useful lives of plant and
machinery. Actual results could differ from those
estimates.
c) Cash
and Cash Equivalents
The Group
considers all cash and other highly liquid investments with initial maturities
of year or less to be cash equivalents. As of September 30 and June
30, 2009, there were cash and cash equivalents of $658,708 and
$849,457.
7
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d) Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount, net of allowances for doubtful
accounts. The Group recognizes an allowance for doubtful accounts to
ensure accounts receivable are not overstated due to
uncollectibility. An allowance for doubtful accounts is maintained
for all customers based on a variety of factors, including the length of time
the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded
when the Group becomes aware of a customer’s inability to meet its financial
obligations, such as in the case of bankruptcy filings or deterioration in the
customer’s operating results or financial position. If circumstances
related to customers change, estimates of the recoverability of receivables
would be further adjusted.
e)
Accounting for the Impairment of Long-Lived Assets
The Group
adopted Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Live Assets” (“SFAS 144”), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. The Group periodically evaluates the carrying value of
long-lived assets to be held and used in accordance with SFAS
144. SFAS 144 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets’ carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market value
of the long-lived assets. Loss on long-lived assets to be disposed of
is determined in a similar manner, except that fair market values are reduced
for the cost of disposal. Based on its review, the Group believes
that, as of September 30 and June 30, 2009, there were no significant
impairments of its long-lived assets.
f)
Plant and Equipment
Plant and
equipment, other than construction in progress, are stated at cost less
depreciation and amortization and accumulated impairment loss.
Plant and
equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful
lives, using the straight-line method. Estimated useful lives of the
plant and equipment are as follows:
Equipment
and machinery
|
5
years
|
Furniture
& fixtures
|
5
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income
as incurred, whereas significant renewals and betterments are
capitalized.
Management
considers that we have no residual value for plant and equipment.
8
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g)
Fair value of Financial Instruments
SFAS No.
107, “Disclosures about Fair Values of Financial Instruments”, requires
disclosing fair value to the extent practicable for financial instruments that
are recognized or unrecognized in the balance sheet. The fair value
of the financial instruments disclosed herein is not necessarily representative
of the amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
The
carrying values of the financial instruments, including cash and cash
equivalents, accounts and other receivables, approximate their fair values due
to the short-term maturity of such instruments. The carrying amounts
of borrowings approximate their fair values because the applicable interest
rates approximate current market rates.
h)
Foreign Currency Translation
The Group
maintains its financial statements in the functional currency. The
functional currency of the Group is the Renminbi (RMB). Monetary
assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency at rates of exchange
prevailing at the balance sheet dates. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchanges rates prevailing at the dates of the
transaction. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.
For
financial reporting purposes, the financial statements of the Group which are
prepared using the functional currency have been translated into United States
dollars. Assets and liabilities are translated at the exchange rates
at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates. Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity.
2009
|
2008
|
|||||||
Month
end RMB : US$ exchange rate
|
6.838 | 6.855 | ||||||
Average
period RMB : US$ exchange rate
|
6.841 | 6.853 |
RMB is
not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the rates used in translation.
9
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
i)
Revenue Recognition
The Group
revenue is generated from providing services in two aspects as
follows:
i)
ii)
|
Designing
and consultancy services in hotel facilities; and
Resource-efficient engineering business in greenery
projects.
|
The
revenue recognized by the Group is based on the Design and Consultancy agreement
between the Group and the hotel where the Group has provided the design,
consultancy to the hotel and even with certain fixtures and assets provided to
that hotel and hence share a certain percentage of gross revenue generated by
the hotel facilities for certain years as the consideration.
Revenue
from fixed-price and modified fixed-price construction contracts are recognized
on the percentage-of-completion method, measured by the percentage of actual
cost incurred to date to estimated total cost for each contract. The
Group would regularly and frequently reviews the estimated contract cost on each
project being accepted and not yet finished to ensure the contract cost estimate
is measured with the best knowledge of the personnel involved.
j)
Cost of revenue
Regarding
the design and consultancy services to the hotel facilities, the respective cost
of revenue includes the consultancy expenses in professional staff involved and
the design and consultancy fee with other third-party experts, and also the
depreciation expenses on those fixtures and movable assets being placed with the
hotel by the Group.
Regarding
the trading of seeding and provision of greenery engineering projects, the
respective cost of revenue consists primarily of material costs, labour cost,
subcontracting expenses, and related expenses, which are directly attributable
to the greenery construction projects.
k)
Income Taxes
Income
taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the
assets will not be realized. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the consolidated statements of income and
comprehensive income in the period that includes the enactment
date.
10
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k)
Income Taxes (Continued)
The China
Green accounts for income taxes under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
under this method, deferred income tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The China
Green adopted the provisions of FASB Interpretation No. 48; “Accounting for Uncertainty in Income
Taxes-An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
contains a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is
more likely than not, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount, which is more than 50%
likely of being realized upon ultimate settlement. The China Green consider many
factors when evaluating and estimating our tax positions and tax benefits, which
may require periodic adjustments. At September 30, 2009, the China
Green did not record any liabilities for uncertain tax position.
l)
Comprehensive Income
SFAS No.
130, "Reporting Comprehensive
Income", requires companies to classify items of other comprehensive
income in a financial statement. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. The
Group's comprehensive net income is equal to its net income for all periods
presented. The Group’s current component of other comprehensive
income is the foreign currency translation adjustment.
m) Commitments
and contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably
estimated.
n) Share-based
compensation
All
share-based payments to employees is recorded and expensed in the statement of
operations as applicable under SFAS No. 123R, “Share-Based
Payment”. The Company has issued 254,166 shares of
share-based compensation at par value USD0.00001 to its director on August 12,
2009 as compensation for services that he rendered.
11
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
o) Non-employee
stock based compensation
Stock-based
compensation awards issued to non-employees for services are recorded at either
the fair value of the services rendered or the instruments issued in exchange
for such services, whichever is more readily determinable, using the measurement
date guidelines enumerated in Emerging Issues Task Force Issue EITF No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF
96-18”). The Company has issued 1,458,334 shares of non-employee
stock based compensation at par value USD0.0001 to third parties on August 12,
2009 as compensation for their consulting services rendered.
p) Segment
reporting
The Group
uses the “management approach” in determining reportable operating
segments. The management approach considers the internal organization
and reporting used by the Group’s chief operating decision maker for making
operating decisions and assessing performance as the source for determining the
Group’s reportable segments. Management, including the chief operating decision
maker, reviews monthly operating results derived from two types of services and
therefore the Group has determined that the Group has two operating segments as
defined by SFAS 131, “Disclosures about Segments of an
Enterprise and Related Information”.
q)
Earnings per share
The Group
reports basic earnings per share in accordance with SFAS 128, “Earnings Per
Share”. Basic earnings/(loss) per share is computed by
dividing net income/(loss) by weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during
the period. At September 30, 2009, the Group had no common stock
equivalents that could potentially dilute future earnings per
share.
r)
Additional paid-in capital
In
connection with the China Green’s private placement completed in July 2009, the
Company issued 332,000 shares of its common stock to 296 investors at USD$1.50
per share for an aggregate purchase price of USD$498,000. The Company issued
these shares in reliance on the safe harbor provided by Regulation S promulgated
under the Securities Act. These investors who received the securities
represented and warranted that they are not “U.S. Person” as defined in
Regulation D.
12
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
4. CASH
AND CASH EQUIVALENTS
Cash and
cash equivalents consist of the following:
As
of
|
As
of
|
|||||||
September
30,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
$
|
$
|
|||||||
Cash
at bank
|
288,133 | 458,729 | ||||||
Cash
on hand
|
868,575 | 390,728 | ||||||
1,156,708 | 849,457 |
5. ACCOUNTS
RECEIVABLES
Accounts
receivables consist of the following:
As
of
|
As
of
|
|||||||
September
30,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
$
|
$
|
|||||||
Accounts
receivables related to:
|
||||||||
Hotel
facilities
|
529,737 | 522,113 | ||||||
Greenery
construction projects
|
1,335,593 | 3,909,385 | ||||||
Greenery
maintenance projects
|
5,379,901 | 605,479 | ||||||
7,245,231 | 5,036,977 |
At the balance sheet date, most of the
accounts receivables were related to greeneryconstruction projects and their credit period
is usually ranged from 90 days to 180 days.
13
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
6. DEPOSIT
PAID FOR CONTRACT PROCUREMENTS
Main
contractors require the company to put escort money during negotiation of
contract. Once the contract is successfully bade, the escort money
will be kept by the contractors until the contract has been completed. If the
bid is fail, the escort money will be refunded immediately.
7. DEPOSIT
PAID FOR HOTEL INVESTMENT NEGOTIATION
The Group
has placed the following amount of deposit being held in escrow by the
counter-party for the negotiation for acquiring certain equity interest of the
hotel facilities located hereunder which gives comfort to the negotiating party
that the Group shows its financial strength and capability to get the
acquisition closed if the acquisition deal is reached:
As
of
|
As
of
|
|||||||
September
30,
|
June
30,
|
|||||||
Deposit
for hotel investment negotiation
|
2009
|
2009
|
||||||
(unaudited)
|
(audited)
|
|||||||
$
|
$
|
|||||||
Location:
|
||||||||
(1) Dongguan
City, Changan Town,
|
||||||||
Xin
Min Administration Region,
|
292,500 | 293,051 | ||||||
Jianan Road Section
|
||||||||
(2) Chang An Di Ying Hotel
|
||||||||
Dongguan City, Changan Town,
|
||||||||
Zhenan Road and Xiabian Road Section
|
292,500 | 293,051 | ||||||
(3) Jin Ye Hotel
|
||||||||
Guangzhou City, Huan Shi Dong Road,
|
||||||||
Section No. 422
|
438,751 | 439,575 | ||||||
1,023,751 | 1,025,677 |
14
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
8. PLANT
AND EQUIPMENT, NET
Plant and
equipment and being part of hotel facilities and consist of the
following:
As
of
|
As
of
|
|||||||
September
30,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
At
cost
|
$
|
$
|
||||||
Balance
at beginning of period
|
2,648,609 | 2,624,306 | ||||||
Acquisition
during the period
|
- | 11,136 | ||||||
Exchange
difference
|
(4,974 | ) | 13,167 | |||||
Balance
at end of period
|
2,643,635 | 2,648,609 | ||||||
Less:
Accumulated depreciation
|
||||||||
Balance
at beginning of period
|
1,565,598 | 1,030,705 | ||||||
Charge
for the period
|
132,114 | 527,909 | ||||||
Exchange
difference
|
(2,872 | ) | 6,984 | |||||
Balance
at end of period
|
1,694,840 | 1,565,598 | ||||||
Net
book value
|
||||||||
As
at September 30 and June 30, 2009
|
948,795 | 1,083,011 |
Management
considers that there are no residual value for plant and equipment.
9. AMOUNT
DUE TO A DIRECTOR / SHAREHOLDER
The amounts represent unsecured,
interest free and have no fixed repayment terms.
15
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
10. STOCKHOLDERS’
EQUITY
On July
17, 2008, the China Green, Inc. issued it’s President and Director 100,000
shares of common stock at par value USD0.00001 as the founder shares as
compensation for the services that he rendered in connection with the Company’s
incorporation.
In
connection with the Company’s private placement completed in July 2009, the
Company issued 332,000 shares of its common stock to 296 investors at USD$1.50
per share for an aggregate purchase price of USD$498,000.
On August
12, 2009, the Company has issued 254,166 shares of share-based compensation at
par value USD0.00001 to its director as compensation for services that he
rendered.
On August
12, 2009, the Company has issued 1,458,334 shares of non-employee stock based
compensation at par value USD0.0001 to third parties as compensation for their
consulting services rendered.
On August
12, 2009, China Green, Inc. acquired all of the issued and outstanding common
stock of Glorious Pie Limited by issuing 10,355,000 common shares to the
Glorious Pie Limited Shareholder under a Share Exchange and Stock Purchase
Agreement with Glorious Pie Limited.
Stockholders’
equity is as follows:
Common
Stock
|
|||||||||||||
Number
|
Amount($)
|
Additional
paid-in capital($)
|
Total
($)
|
||||||||||
|
|||||||||||||
As
of date of Inception
|
100,000 | 1 | - | 1 | |||||||||
Share
issued on July 2009
|
332,000 | 3 | 497,997 | 498,000 | |||||||||
Share
issued on August 2009
|
1,712,500 | 17 | - | 17 | |||||||||
Share
issued for takeover a subsidiary
|
10,355,000 | 104 | - | 104 | |||||||||
As
of September 30, 2009
|
12,499,500 | 125 | 497,997 | 498,122 |
As of
September 30, 2009, the Company has 500,000,000 shares of common stock
authorized and 12,499,500 shares of common stock issued and
outstanding.
16
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
11. BUSINESS
SEGMENT
The Group
is engaged in provision of designing and consultancy services in hotel
facilities and also involved in provision of engineering services to greenery
construction projects, which include, but is not limited to, provision of
seedling and skillful workers to those construction projects.
Segment
information is disclosed in accordance to FAS 131, “Disclosures about Segments
of an Enterprise and Related Information” as below:
Greenery
|
Greenery
|
|||||||||||||||||||||||||||||||
Construction Project
|
Maintenance Works
|
Hotel Facilities
|
Total
|
|||||||||||||||||||||||||||||
3
months ended
|
3
months ended
|
3
months ended
|
3
months ended
|
|||||||||||||||||||||||||||||
Sep
30,
|
Sep
30,
|
Sep
30,
|
Sep
30,
|
Sep
30,
|
Sep
30,
|
Sep
30,
|
Sep
30,
|
|||||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Revenue
from
|
||||||||||||||||||||||||||||||||
external
customers
|
2,207,978 | 2,221,388 | 604,033 | 602,991 | 684,713 | 798,376 | 3,496,724 | 3,622,755 | ||||||||||||||||||||||||
Gross
profit
|
1,044,822 | 1,372,476 | 329,879 | 372,345 | 537,981 | 651,868 | 1,912,682 | 2,396,689 | ||||||||||||||||||||||||
As
of
|
As
of
|
As
of
|
As
of
|
As
of
|
As
of
|
As
of
|
As
of
|
|||||||||||||||||||||||||
Sep
30,
|
Jun
30,
|
Sep
30,
|
Jun
30,
|
Sep
30,
|
Jun
30,
|
Sep
30,
|
Jun
30,
|
|||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2009 | 2009 | 2009 | |||||||||||||||||||||||||
(unaudited)
|
(audited)
|
(unaudited)
|
(audited)
|
(unaudited)
|
(audited)
|
(unaudited)
|
(audited)
|
|||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Segment
non-
|
||||||||||||||||||||||||||||||||
current
assets
|
- | - | - | - | 948,795 | 1,083,011 | 948,795 | 1,083,011 | ||||||||||||||||||||||||
Segment
current assets
|
||||||||||||||||||||||||||||||||
(excluding
cash and
|
||||||||||||||||||||||||||||||||
cash
equivalents)
|
7,404,806 | 6,825,404 | 2,746,816 | 1,132,052 | 1,553,488 | 1,547,790 | 11,705,110 | 9,505,246 |
17
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
12. COST
OF SERVICES
Details
of cost of services are summarized as follows:
Three
months
|
Three
months
|
|||||||
ended
|
ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
$
|
$
|
|||||||
Depreciation
|
132,114 | 131,886 | ||||||
Repair
and maintenance
|
14,618 | 14,622 | ||||||
Sub-contracting
charges
|
512,672 | 373,029 | ||||||
Material
cost
|
765,505 | 589,177 | ||||||
Professionals
and related costs
|
14,483 | 10,944 | ||||||
Other
construction costs
|
144,650 | 106,408 | ||||||
1,584,042 | 1,226,066 |
13. GENERAL
AND ADMINISTRATIVE EXPENSES
Details of general and administrative
expenses are summarized as follows:
Three
months
|
Three
months
|
|||||||
ended
|
ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
$
|
$
|
|||||||
Audit
fee
|
4,903 | 2,000 | ||||||
Computer
expenses
|
965 | 957 | ||||||
Electricity
and water
|
350 | 360 | ||||||
Filing
fee
|
739 | 566 | ||||||
Legal
and professional fee
|
8,668 | 8,346 | ||||||
Preliminary
expenses
|
- | 13,801 | ||||||
Sundry
expenses
|
1,228 | 1,664 | ||||||
Travelling
|
892 | 1,480 | ||||||
Telephone
|
802 | 859 | ||||||
Wages
and salaries
|
4,385 | 4,378 | ||||||
22,932 | 34,411 |
18
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
14. INCOME
TAXES
The
enterprise income tax is reported on a separate entity basis.
United States
Tax
SFAS 109
requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statements and the tax
basis of assets and liabilities, and for the expected future tax benefit to be
derived from tax losses and tax credit carry forwards. SFAS 109
additionally requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets.
The China
Green has a net operating loss carry forward at September 30, 2009 for tax
purposes totaling $25,035, expiring through the year 2028. Internal Revenue Code
Section 382 places a limitation on the amount of taxable income that can be
offset by carry forwards after a change in control (generally greater than a 50%
change in ownership). Temporary differences, which give rise to a net
deferred tax asset, are as follows:
As
of
|
||||
September
30,
|
||||
2009
|
||||
(unaudited)
|
||||
$
|
||||
Gross
deferred tax assets:
|
||||
Net
operating loss carry forwards
|
8,512 | |||
Total
deferred tax assets
|
8,512 | |||
Less:
valuation allowance
|
(8,512 | ) | ||
Net
deferred tax asset recorded
|
- |
The
valuation allowance at June 30, 2009 was $7,447. The net change in valuation
allowance during the period ended September 30, 2009, was an increase of
$1,065. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred income tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based on consideration
of these items, management has determined that enough uncertainty exists
relative to the realization of the deferred income tax asset balances to warrant
the application of a full valuation allowance as of September 30,
2009.
The
actual tax benefit differs from the expected tax benefit for the period ended
September 30, 2009 (computed by applying the U.S. Federal Corporate tax rate of
34% to income before taxes) as follows:
19
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
14. INCOME
TAXES (CONTINUED)
As
of
|
||||
September
30,
|
||||
2009
|
||||
(unaudited)
|
||||
$
|
||||
Expected
tax expense (benefit) – Federal
|
(8,512 | ) | ||
Change
in valuation allowance
|
8,512 | |||
Actual
tax expense (benefit)
|
- |
BVI Tax
Glorious
Pie Limited is subjected to British Virgin Island (BVI) tax law. The Management
of Glorious Pie Limited determined that the company did not operate in BVI and
therefore is not subject to BVI tax. Therefore, Glorious Pie Limited did not
incur any BVI tax during the year/period presented.
Hong Kong
Tax
Earn
Bright Development Limited has not been carrying out any business activity in
Hong Kong and Earn Bright Development Limited is not subjected to Hong Kong
profit tax as there is no assessable profit for the year ended September 30,
2009.
PRC Tax
PRC’s
legislative body, the National People’s Congress, adopted the unified Enterprise
Income Tax (“EIT”) Law on March 16, 2007. This new tax law replaces the existing
separate income tax laws for domestic enterprises and foreign-invested
enterprises and became effective on January 1, 2008. Under the new tax law, a
unified income tax rate is set at 25% for both domestic enterprises and
foreign-invested enterprises. However, there will be a transition period for
enterprises, whether foreign-invested or domestic, that are currently receiving
preferential tax treatments granted by relevant tax authorities. Enterprises
that are subject to an enterprise income tax rate lower than 25% may continue to
enjoy the lower rate and will transit into the new rate over a five year period
beginning on the effective date of the EIT Law. Enterprises that are currently
entitled to exemptions for a fixed term may continue to enjoy such treatment
until the exemption term expires. Preferential tax treatments may continue to be
granted to industries and projects that qualify for such preferential treatments
under the new law.
The Earn
Bright Development Limited is subjected to PRC tax law. The Management of Earn
Bright Limited considered that the Company did operate in PRC and is subject to
PRC tax since 2 January 2009. As all the business are operated through Earn
Bright Development Limited, under the Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA), the Company is entitled to 5% of business tax
and 7% of profit tax.
20
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
14. INCOME
TAXES (CONTINUED)
Income
tax at applicable tax rates of 5% of business tax and 7% of profit
tax:
Three
months
|
Three
months
|
|||||||
ended
|
ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
$
|
$
|
|||||||
Tax
for the period at the statutory tax rate of applicable in
jurisdictions:
|
||||||||
- Business
tax at 5% of turnover
|
20,541 | - | ||||||
- Profit
tax at 7% of profit
|
17,882 | - | ||||||
Income
tax
|
38,423 | - |
Tax
payable in the balance sheet represents:
As
of
|
As
of
|
|||||||
September
30,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
$
|
$
|
|||||||
Tax
at the statutory tax rate of applicable in jurisdictions:
|
||||||||
jurisdictions:
|
||||||||
- Business
tax at 5% of turnover
|
20,541 | 38,737 | ||||||
- Profit
tax at 7% of profit
|
17,882 | 33,319 | ||||||
38,423 | 72,056 | |||||||
Balance
brought forward
|
72,303 | - | ||||||
Foreign
exchange translation
|
(116 | ) | 247 | |||||
Tax
payable
|
110,610 | 72,303 |
21
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
14. INCOME
TAXES (CONTINUED)
The
deferred tax asset and liability has not been recognized because no valuation
allowance to be established for the period ended September 30,
2009.
15. COMMITMENTS
AND CONTINGENCIES
There is
no foreseeable commitments or contingencies for the period ended September
30, 2009.
16. RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In June
2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards
Codification™ and the Hierarchy of Generally Accepted Accounting Principles – a
Replacement of FASB Statement No. 162. The Codification will become the source
of authoritative U.S. generally accounting principles (GAAP) recognized by the
FASB to be applied to nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this Statement, the
Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. This
statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009 (our quarter ended September 30,
2009). We are currently unable to determine what impact the future
application of this pronouncement may have on our financial
statements.
In June,
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No.
46(R). This statement is a revision to FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities, and changes how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be
consolidated. The determination of whether a company is required to
consolidate an entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. The statement
is effective at the start of a company’s first fiscal year beginning after
November 15, 2009 (our fiscal year beginning July 1, 2010), or January 1, 2010
for companies reporting on a calendar year basis. We currently are
unable to determine what impact the future application of this pronouncement may
have on our financial statements.
22
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
16. RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June,
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets – an Amendment of FASB Statement No.
140. This statement is a revision to Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
will require more information about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the
risks related to transferred financial assets. It eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional
disclosures. The statement is effective at the start of a company’s
first fiscal year beginning after November 15, 2009 (our fiscal year beginning
July 1, 2010), or January 1, 2010 for companies reporting on a calendar year
basis. We currently are unable to determine what impact the future
application of this pronouncement may have on our financial
statements.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events.” This
Statement sets forth: 1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; 2)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This Statement is effective
for interim and annual periods ending after September 15, 2009. The
Group adopted this Statement in the quarter ended September 30, 2009. This
Statement did not impact the consolidated financial results.
In May
2008, the FASB issued SFAS No 163, “Accounting for Financial Guarantee Insurance
Contracts” (“SFAS 163”), SFAS 163 is intended to correct the inconsistencies in
the recognition and measurement of claim liabilities by insurance
enterprises. This SFAS 163 statement requires that an insurance
enterprise recognize a claim liability prior to an event of default when there
is evidence that credit deterioration has occurred in an insured financial
obligation. This will result in increasing comparability in financial
reporting of financial guarantee insurance contracts by insurance
enterprises. The provisions of SFAS 163 are effective for fiscal
years beginning after December 15, 2008. The Group does not expect that the
adoption will have a material impact on the Group’s consolidated financial
position or results of operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC’s approval
of the Public Group Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” We do not currently expect the adoption of SFAS 162 to
have a material effect on our consolidated results of operations and financial
condition.
23
CHINA
GREEN, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(Stated
in US dollars)
16. RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In May
2008, the FASB issued FSP Accounting Principles Board (‘APB”) 14-1 “Accounting
for Convertible Debt instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. As we do not have convertible debt at this time, we currently
believe the adoption of FSP APB 14-1 will have no effect on our consolidated
results of operations and financial condition.
24
Item
2. Management’s Discussion and Analysis
of Financial Condition and Results of Operation
The
following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 relating to future events or our future performance. Actual
results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this
prospectus. Although management believes that the assumptions made and
expectations reflected in the forward-looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual results will not be different from expectations expressed
in this report.
OVERVIEW
Corporate
History and Structure
We were
incorporated in the State of Delaware on July 11, 2008, formed as a vehicle to
pursue a business combination. On August 13, 2009, pursuant to a share exchange
and stock purchase agreement (the “Agreement”), we closed a share exchange and
stock purchase transaction (the “Share Exchange and Stock Purchase”) with
Glorious Pie Limited, a British Virgin Islands corporation (“Glorious Pie”), the
shareholder of Glorious Pie (the “Shareholders”) and the representative of the
investors in our private placement in reliance upon the exemption provided by
Regulation S promulgated under the Securities Act of 1933, as amended (the
“Securities Act”). As a result of the closing of the Share Exchange and Stock
Purchase, we became the 100% holding company of Glorious Pie which in turn is
the 100% holding company of Earn Bright Development Limited, a Hong Kong
corporation. Effective September 24, 2009, we changed our company
name from “China Eco-Hospitality Operations, Inc.” to “China Green, Inc.” The
chart below depicts our current corporate structure.
25
Business
Overview
We
operate our eco-hospitality business through our Hong Kong subsidiary which
developed our business model – ECHOO (an acronym of Eco-Hospitality Operations)
in the areas of hospitality investment projects and large-scale landscape
architecture and engineering projects in China. We are specialized on
providing greenery services to landscaping construction projects in China,
including, but not limited to, design advice, trading and quality control of
seeds, provision of seedling and performance management of landscaping
engineering and plantation.
ECHOO is
a business model developed on the basis of Green Theory created by us. The Green
Theory is developed on the ground of two green philosophies, namely the Neo Tai Chi Concept and Magic of Duality, and is
applied in the form of our innovative approaches, Connected Environmental
Betterment Approach (CEBA) and Hospitality Investment and Management Approach
(HIMA). The two approaches represent two different ways to market our business
vision of building harmonious living environment with greenery services,
reflected by providing resource-efficient engineering design, and green hotel
investment and consultancy, respectively.
Business
Model
·
|
HIMA
Approach
|
Our HIMA
approach focuses on cooperation with property owners, including hotel, housing
estate and commercial building, to construct green accommodation, such as indoor
eco-friendly living environment.
Facing
strong competition in the hospitality industry in China, hotel owners are
actively seeking partnership in green accommodation construction or
refurbishment to improve the quality of their services and the image of their
facilities, and to reduce pollution.
We have
adopted flexible fee payment method. Instead of charging hotel owners a lump sum
upon engagement of our services, we charge monthly installment in an amount
equal to certain percentage of the hotel owner’s monthly revenue.
·
|
CEBA
Approach
|
Our CEBA
approach is related to outdoor eco-friendly landscaping projects financed by
various levels of Chinese governments. Since the central Chinese government
advocates (1) the importance of environmental protection and (2) CO2 emission
reduction after Kyoto Protocol, hence local municipal governments have taken the
initiative to improve landscaping in public infrastructure, such as highways.
For these government-funded outdoor landscaping projects, we provide
professional landscaping knowledge, international benchmarking and initial
investment on the resources and labor. The government is only required to pay
the full amount after the project is completed.
Landscaping
plantation absorbs CO2 and
improves environmental condition, which enhances the images of the districts
where the local governments are based. Better natural environment can attract
the flow-ins of investors and people with skills and talents, which are the
driving force of regional development.
Marketing
Opportunities
Current
development driving forces in China are characterized by steady population
growth, ongoing urbanization of the former agriculturally-based population,
aggressive economic growth and rapid motorization. However, within
the backdrop of impetus to fast speed urbanization, there is no comprehensive
regional planning, nor national land development approach.
The
consequence is a threat of a scattered low-density urbanization in the
countryside and fast, uncontrolled and uncoordinated growth of the large city
regions. The problem has caught the Chinese government's attention at the
highest levels. In order to build a suitable environment for inhabitants, garden
city construction is included in local government's agenda. It is also used as
one of the measurements to evaluate the local government's
performance.
26
We
operate our business in one of the biggest contributor to global warming where
has a great demand in environmental protection as the PRC government advocates
the importance of environmental protection and the citizen
wants more green area in their city. There is a huge
market potential in China for ECHOO business model to grow because management
believes we are among the few companies that are in meeting this continual
demand of cost-efficient environment services through the abovementioned
approaches – HIMA and CEBA approaches.
With our
experience and expertise, management believes that we can satisfy the market
need in green accommodation construction or refurbishment demanded from private
sector and China government.
RESULTS
OF OPERATIONS
The
following table sets forth our statement of operations for the periods
indicated:
For
the Three Months Ended
|
||||||||
September
30, 2009
|
September
30, 2008
|
|||||||
$
|
$
|
|||||||
Service
income
|
3,496,724
|
3,622,755
|
||||||
Cost
of services
|
(1,584,042)
|
(1,226,066)
|
||||||
Gross
profit
|
1,912,682
|
2,396,689
|
||||||
General
and administrative expenses
|
(22,932)
|
(34,411)
|
||||||
Income
before taxation
|
1,889,750
|
2,362,278
|
||||||
Income
tax
|
(38,423)
|
-
|
||||||
Net
income
|
1,851,327
|
2,362,278
|
||||||
Other
comprehensive income
|
||||||||
- Foreign currency translation adjustments
|
(20,252)
|
792,795
|
||||||
Total
comprehensive income
|
1,831,075
|
3,155,073
|
Comparison
of the three months ended September 30, 2009 to the three months ended September
30, 2008
Gross Profit. For three months
ended September 30, 2009 as compared to the three months ended September 30,
2008, we generated gross profit of $1,912,682 and $2,396,689, respectively,
reflecting a decrease of approximately 20%. The decrease in gross profit was
mainly due to the increase of cost in seeding and sub-contracting charges and
the decrease in demand for hotel and amusement services caused by global
economic recession.
Cost of Services. Our cost of
services for the three months ended September 30, 2009 was $1,584,042 as
compared to $1,226,066 for three months ended September 30, 2008, an increase of
29%, which was the result of the increase of cost in seeding and sub-contracting
charges.
General and Administrative
Expenses. We incurred general and administrative expenses of $
22,932 for the three months ended September 30, 2009, a decrease of
$11,479 or 33%, compared to $34,411 for the three months ended September 30,
2008. The
reason for the decrease was because in the three months ended September 30,
2008, we incurred expenses in connection with corporate administration that was
not incurred in the three months ended september 30, 2009.
Net Income. We had net
income of $1,851,327 for the fiscal year ended September 30, 2009 as compared to
a net income $2,362,278 for the three months ended September 30, 2008, a
decrease of 21%. The decrease in our net income was the result of the increase
of cost in seeding and sub-contracting charges and the decrease in demand for
hotel and amusement services caused by global economic recession.
Critical Accounting Policies
and Estimates
Basis of
presentation and consolidation: The accompanying
consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States of
America. The consolidated financial statements include the accounts of China
Green, Inc. and its subsidiaries. Significant intercompany transactions have
been elimination in consolidation. The results of subsidiaries acquired or
disposed of during the period are included in the consolidated income statement
from the effective date of acquisition or up the effective date of disposal. The
consolidated financial statements are prepared on the basis with assumption the
reverse merger was undergone at the beginning of July 1, 2008.
Use of
estimates: In preparing of the
financial statements in conformity with accounting principles generally accepted
in the United States of America, management makes estimates and assumptions that
affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the dates of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting year.
These accounts and estimates include, but are not limited to, the valuation of
accounts receivable, inventories, deferred income taxes and the estimation on
useful lives of plant and machinery. Actual results could differ from those
estimates.
27
Cash and Cash
Equivalents: We consider all cash and other highly liquid investments
with initial maturities of three months or less to be cash equivalents. As of
June 30, 2009 and September 30, 2009, there were cash and cash equivalents of
$849,457 and $1,156,708.
Revenue
Recognition: Our revenue is generated from providing services in two
aspects as follows:
i)
|
Designing
and consultancy services in hotel facilities;
and
|
ii)
|
Resource-efficient
engineering business in greenery
projects.
|
The
revenue recognized by us is based on the Design and Consultancy agreement
between us and the hotel where we have provided the design, consultancy to the
hotel and even with certain fixtures and assets provided to that hotel and hence
share a certain percentage of gross revenue generated by the hotel facilities
for certain years as the consideration.
Revenue
from fixed-price and modified fixed-price construction contracts are recognized
on the percentage-of-completion method, measured by the percentage of actual
cost incurred to date for each contract. We would regularly and frequently
reviews the estimated contract cost on each project being accepted and not yet
finished to ensure the contract cost estimates is measured with the best
knowledge of the personnel involved.
Accounts
Receivable: Accounts receivables are
recorded at the invoiced amount, net of allowances for doubtful accounts. We
recognize an allowance for doubtful accounts to ensure accounts receivable are
not overstated due to uncollectibility. An allowance for doubtful accounts is
maintained for all customers based on a variety of factors, including the length
of time the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded when we
become aware of a customer’s inability to meets its financial obligations, such
as in the case of bankruptcy filings pr deterioration in the customer’s
operating results of financial position. If circumstances related to customers
change, estimates of the recoverability of receivables would be further
adjusted.
Accounting for
the Impairment of Long-Lived Assets: We adopted Statement of Financial
Accounting Standards No. 144, “Accounting for the Impairment or Disposal of
Long-Live Assets” (“SFAS 144”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used in accordance with SFAS 144. SFAS 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets’ carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the fair
market value of the long-lived assets. Loss on long-lived assets to be disposed
of is determined in a similar manner, except that fair market values are reduced
for the cost of disposal. Based on its review, we believe that, as of June 30,
2009, there were no significant impairments of its long-lived
assets.
Plant and
Equipment: Plant and equipment, other than construction in progress, are
stated at cost less depreciation and amortization and accumulated impairment
loss.
Plant and
equipment are carried at cost less accumulated depreciation. Depreciation is
provided over their estimated useful lives, using the straight-line method.
Estimated useful lives of the plan and equipment are as follows:
Equipment
and
machinery 5
years
Furniture
&fixtures 5
years
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred,
whereas significant renewable and betterments are capitalized.
Management
considers that we have no residual value for plant and equipment.
28
Fair Value of
Financial Instruments: SFAS No. 107, “Disclosures about Fair Values of
Financial Instruments”, requires disclosing fair value to the extent practicable
for financial instruments that are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled, nor
does the fair value amount consider the tax consequences of realization or
settlement.
The
carrying values of the financial instruments, including cash and cash
equivalents, accounts and other receivables, approximate their fair values due
to the short-term maturity of such instruments. The carrying amounts of
borrowings approximate their fair values because the applicable interest rates
approximate current market rates.
Cost of
Revenue: Regarding the design and consultancy services to the hotel
facilities, the respective cost of revenue includes the consultancy expenses in
professional staff involved and the design and consultancy fee with other
third-party experts, and also the depreciation expenses on those fixtures and
movables assets being placed with the hotel by the Company.
Regarding
the trading of seeding and provision of greenery engineering projects, the
respective cost of revenue consists primarily of material costs, labor cost,
subcontracting expenses, and related expenses, which are directly attributable
to the greenery construction projects.
Income
Taxes: Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax carry-forwards. Deferred tax
assets are reduced by a valuation allowance to the extent management concludes
it is more likely than not that the assets will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the consolidated statements of income and
comprehensive income in the period that includes the enactment
date.
The China
Green accounts for income taxes under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
under this method, deferred income tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The China
Green adopted the provisions of FASB Interpretation No. 48; “Accounting for Uncertainty in Income
Taxes-An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
contains a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is
more likely than not, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount, which is more than 50%
likely of being realized upon ultimate settlement. The China Green consider many
factors when evaluating and estimating our tax positions and tax benefits, which
may require periodic adjustments. At September 30, 2009, the China
Green did not record any liabilities for uncertain tax position.
Foreign Currency
Translation: We maintain our
financial statements in the functional currency. The functional currency of us is the
Renminbi (RMB). Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional currency at
rates of exchange prevailing at the balance sheet dates. Transactions
denominated in currencies other than the functional currency are translated into the functional
currency at the exchanges rates prevailing at the dates of the transaction. Exchange
gains or losses arising from foreign currency transactions are included in the
determination often income for the respective periods.
For financial
reporting purposes, the financial statements of the Company which are prepared
using the functional currency have been translated into United States dollars.
Assets and liabilities are translated at the exchange rates at the balance sheet
dates and revenue and expenses are translated at the average exchange rates and
stockholders' equity is translated at historical exchange rates. Any translation
adjustments resulting are not included in determining net income but are
included in foreign exchange adjustment to other comprehensive income, a
component of stockholders' equity.
2009
|
2008
|
|||||||
Year
end RMB: US$ exchange rate
|
6.838
|
6.855
|
||||||
Average
yearly RMB: US$ exchange rate
|
6.841
|
6.853
|
RMB is
not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
the rates used in translation.
29
Comprehensive
Income: SFAS No. 130, "Reporting Comprehensive
Income", requires companies to classify items of other comprehensive
income in a financial statement. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. The
Group's comprehensive net income is equal to its net income for all periods
presented. The Group’s current component of other comprehensive
income is the foreign currency translation adjustment.
Commitments and
contingencies: Liabilities for loss
contingencies arising from claims, assessments, litigation, fines and penalties
and other sources are recorded when it is probable that a liability has been
incurred and the amount of the assessment can be reasonably
estimated.
Share-based
compensation: All share-based payments to employees is recorded and
expensed in the statement of operations as applicable under SFAS No. 123R,
“Share-Based
Payment”. The Group has issued 254,166 shares of share-based
compensation at par value to its director on August 12, 2009 as compensation for
services that he rendered.
Non-employee
stock based compensation: Stock-based compensation awards issued to
non-employees for services are recorded at either the fair value of the services
rendered or the instruments issued in exchange for such services, whichever is
more readily determinable, using the measurement date guidelines enumerated in
Emerging Issues Task Force Issue EITF No. 96-18, “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” (“EITF 96-18”). The
Group has not issued any non-employee stock based compensation to any third
parties since inception.
Segment
reporting: The Group uses the
“management approach” in determining reportable operating
segments. The management approach considers the internal organization
and reporting used by the Group’s chief operating decision maker for making
operating decisions and assessing performance as the source for determining the
Group’s reportable segments. Management, including the chief operating decision
maker, reviews monthly operating results derived from two types of services and
therefore the Group has determined that the Group has two operating segments as
defined by SFAS 131, “Disclosures about Segments of an
Enterprise and Related Information”.
Earnings per
share: The
Group reports basic earnings per share in accordance with SFAS 128, “Earnings Per
Share”. Basic earnings/(loss) per share is computed by
dividing net income/(loss) by weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during
the period. At September 30, 2009, the Group had no common stock
equivalents that could potentially dilute future earnings per
share.
Additional
paid-in capital: In connection with the China Green’s private placement
completed in July 2009, the Company issued 332,000 shares of its common stock to
296 investors at USD$1.50 per share for an aggregate purchase price of
USD$498,000. The Company issued these shares in reliance on the safe harbor
provided by Regulation S promulgated under the Securities Act. These
investors who received the securities represented and warranted that they are
not “U.S. Person” as defined in Regulation D.
30
Recently
Issued Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards
Codification™ and the Hierarchy of Generally Accepted Accounting Principles – a
Replacement of FASB Statement No. 162. The Codification will become the source
of authoritative U.S. generally accounting principles (GAAP) recognized by the
FASB to be applied to nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this Statement, the
Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. This
statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009 (our quarter ended September 30,
2009). We are currently unable to determine what impact the future
application of this pronouncement may have on our financial
statements.
In June,
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No.
46(R). This statement is a revision to FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities, and changes how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be
consolidated. The determination of whether a company is required to
consolidate an entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. The statement
is effective at the start of a company’s first fiscal year beginning after
November 15, 2009 (our fiscal year beginning July 1, 2010), or January 1, 2010
for companies reporting on a calendar year basis. We currently are
unable to determine what impact the future application of this pronouncement may
have on our financial statements.
In June,
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets – an Amendment of FASB Statement No.
140. This statement is a revision to Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
will require more information about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the
risks related to transferred financial assets. It eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional
disclosures. The statement is effective at the start of a company’s
first fiscal year beginning after November 15, 2009 (our fiscal year beginning
July 1, 2010), or January 1, 2010 for companies reporting on a calendar year
basis. We currently are unable to determine what impact the future
application of this pronouncement may have on our financial
statements.
In
December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations,
("SFAS 141(R)"). SFAS 141(R) retains the fundamental requirements of the
original pronouncement requiring that the purchase method be used for all
business combinations, but also provides revised guidance for recognizing and
measuring identifiable assets and goodwill acquired and liabilities assumed
arising from contingencies, the capitalization of in-process research and
development at fair value, and the expensing of acquisition-related costs as
incurred. SFAS 141(R) is effective for fiscal years beginning after December 15,
2008. The Group will evaluate how the new requirements could impact the
accounting for any acquisitions completed beginning in fiscal 2009 and beyond,
and the potential impact on the Group's consolidated financial
statements.
31
LIQUIDITY
AND CAPITAL RESOURCES
We are a
development stage company. As of September 30, 2009, we have incurred an
accumulated net income of 13,117,824. At September 30, 2009, we had cash and
cash equivalents of $1,156,708 as compared to cash and cash equivalents of
$4,970,316 as of September 30, 2008. Management is trying to raise
additional capital through sales of common stock, as well as seeking financing
from third parties.
For
three month ended September 30, 2009
|
For
three months ended September 30, 2008
|
|||||||
Net
Cash (Used in) / by Operating Activities
|
(180,890)
|
4,615,070
|
|
|||||
Net
Cash by Investment Activities
|
-
|
(100)
|
||||||
Net
Cash by Financing Activities
|
498,017
|
105
|
||||||
Net
Increase in Cash
|
317,127
|
4,615,07
|
||||||
Effect
of Foreign Currency Transaction
|
(9,876)
|
(9,244)
|
||||||
Cash,
Beginning of Period
|
849,457
|
364,485
|
||||||
Cash,
End of Period
|
$
|
1,156,708
|
4,970,316
|
OFF-BALANCE
SHEET ARRANGEMENTS
As of the
date hereof, we do not have any off-balance sheet debt, nor do we have any
transactions, arrangements or relationships with any special purpose
entities.
INFLATION
AND SEASONALITY
Inflation
and seasonality have not had a significant impact on our operations during the
last two fiscal years.
Item
3. Quantitative and Qualitative Disclosures about Market
Risks
Credit Risk. We
are exposed to credit risk from our cash at bank, fixed deposits and contract
receivables. The credit risk on cash at bank and fixed deposits is limited
because the counterparts are recognized financial institutions. Contract
receivables are subject to credit evaluations. As we are getting more new
customers and offering credit terms, financial efficiency, we believe that cash
flow and controlling bad debt and late payment become more and more important.
We carry out thorough research through public filing records available on our
new customers, coupled with the employment of business intelligence information
provider, before extending any credit to new customers. Different levels of
credit periods and credit limits are granted to different customers according to
their size, financial position, business position and payment history, among
other factors, in order to offer the right credit terms to our customers to
enhance competitiveness yet manage the risk. We have not recorded bad debt since
inception.
32
Country Risk. The
substantial portion of our business, assets and operations are located and
conducted in Hong Kong and China. While these economies have experienced
significant growth in the past twenty years, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit the overall economy of
Hong Kong and China, but may also have a negative effect on us. For example, our
operating results and financial condition may be adversely affected by
government control over capital investments or changes in tax regulations
applicable to us. If there are any changes in any policies by the Chinese
government and our business is negatively affected as a result, then our
financial results, including our ability to generate revenues and profits, will
also be negatively affected.
Item
4T. Controls and Procedures
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness, as of September 30, 2009, of the design and
operation of our disclosure controls and procedures, as such term is defined in
Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation,
our principal executive officer and principal financial officer have concluded
that, as of such date, our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in our Exchange Act
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Changes
in internal control over financial reporting
There
were no significant changes in our internal controls over financial reporting
that occurred subsequent to our evaluation of our internal control over
financial reporting for the three months ended September 30, 2009
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
We are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our companies or our subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
Item
1A. Risk Factors
Not
applicable because we are a smaller reporting company.
33
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Issued for
Services
On July
17, 2008, we issued to Mr. Wong, Wa Kei Anthony, our then President and Director
100,000 shares of our common stock, at par value $0.00001 per shares, as the
founder shares as compensation for the services that Mr. Wong rendered in
connection with our incorporation.
On August
12, 2009, we issued to Mr. Wong 254,166 shares of our common stock, at par value
$0.00001 per share, as compensation for services that he rendered as our then
President, Treasurer and Secretary.
On August
12, 2009, we issued to Mr. Wong, Pak Fai Phillip, Mr. Leung Man Kit, Ms. Wong Ka
Jing, Aurona and Ms. Wong Wing Hung, Bernadette 625,000, 125,000, 354,167, and
354,167 shares of our common stock, at par value $0.00001 per share,
respectively, as compensation for consulting services they provided to us. The
consulting services they provided includes, but is not limited to, (1)
identifying and analyzing business opportunities for our business development;
(2) general business consultation on budgeting and business networking; and (3)
financial accounting consultation and advisory business management
services.
These
securities were issued pursuant to the exemption provided under Section 4(2) of
the Securities Act. These shares of our common stock qualified for exemption
since the issuance shares by us did not involve a public offering. The offering
was not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition,
the shareholder had the necessary investment intent as required by Section 4(2)
since she agreed to and received share certificates bearing a legend stating
that such shares are restricted pursuant to Rule 144 of the Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a “public offering.” Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act for this
transaction.
Stock Issued for
Cash
In
connection with our private placement completed in July 2009, we issued 332,000
shares of our common stock to 296 investors at $1.50 per share for an aggregate
purchase price of $498,000.
We issued
these shares in reliance on the safe harbor provided by Regulation S promulgated
under the Securities Act. These investors who received the securities
represented and warranted that they are not “U.S. Person” as defined in
Regulation D.
Stock Issued In Share
Exchange
Pursuant
to the Agreement effective August 13, 2009, we issued 10,355,000 shares of our
common stock to Mr. Tai Chi Yip, the Glorious Pie Shareholder, in
exchange for 100% of the outstanding shares of Glorious Pie. Such securities
were not registered under the Securities Act. The issuance of these shares was
exempt from registration pursuant to Section 4(2) of the Securities Act. We made
this determination based on the representations of the Glorious Pie Shareholders
which included, in pertinent part, that such shareholders were either (a)
"accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act, or (b) not a "U.S. person" as that term is
defined in Rule 902(k) of Regulation S under the Act, and that such shareholders
were acquiring our common stock, for investment purposes for their own
respective accounts and not as nominees or agents, and not with a view to the
resale or distribution thereof, and that the Glorious Pie Shareholders
understood that the shares of our common stock may not be sold or otherwise
disposed of without registration under the Securities Act or an applicable
exemption therefrom.
Item 3. Defaults Upon Senior
Securities.
None.
34
Item
4. Submission of Matters to a Vote of Security Holders.
On August
21, 2009, pursuant to the written consent of our majority shareholders in lieu
of a special meeting, we authorized the change of our company name from “China
Eco-Hospitality Operations, Inc.” to “China Green, Inc.” (the “Name Change”)
Pursuant to Section 14C of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), we filed a preliminary statement and a definitive statement to
notify our shareholders on August 25, 2009 and September 4, 2009. As
a result of the effectiveness of the Name Change, our company name has been
changed to “China Green, Inc.”
On August
13, 2009, we received a written consent in lieu of a special meeting of our
shareholders from our shareholders holding 1,812,500 shares which represented
100% of our issued and outstanding voting stock, which authorized us to enter
into Glorious Pie, Mr. Tai, the sole Glorious Pie Shareholder, and the
Representative of our investors, and approved the resignation of Mr. Anthony
from our board of directors and the appointment of Mr. Tai as a board member.
Pursuant to the terms of the Agreement, we acquired all of the issued and
outstanding common stock of Glorious Pie from the Glorious Pie Shareholder. In
exchange, we issued to Mr. Tai, the Glorious Pie Shareholder 10,355,000 shares
of our common stock, representing approximately 82.84% of our common stock
issued and outstanding after the closing of the Share Exchange and Stock
Purchase Transaction.
Item
5. Other Information.
None.
Item 6. Exhibits.
31.1
|
Certification
of Tai Chip Yip pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Tai Chip Yip pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
35
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
China
Green, Inc.
|
|||
Date:
November 20, 2009
|
By:
|
/s/ Tai
Chi Yip
|
|
Tai
Chi Yip
Chief
Executive Officer and Principal Accounting Officer
|
36