Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 May 31, 2010
|
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from _____ to _____
Commission File Number 000-51755
CHINA RUNJI CEMENT INC.
(Exact name of Registrant as specified in its charter)
|
Delaware
|
98-0533824
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer Identification No.)
|
Xian Zhong Town, Han Shan County
Chao Hu City, An Hui Province, People’s Republic of China
(Address of principal executive offices)
(86) 565 4219871
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer o Smaller Reporting Company x
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 stock, as of the latest practicable date: July 15, 2010, 78,832,064 shares.
CHINA RUNJI CEMENT INC.
Form 10-Q for the period ended May 31, 2010
TABLE OF CONTENTS
|
Page
|
|||
|
PART I - FINANCIAL INFORMATION
|
|||
|
3
|
|||
|
4
|
|||
|
5
|
|||
|
6
|
|||
|
11
|
|||
|
16
|
|||
|
16
|
|||
|
PART II - OTHER INFORMATION
|
|||
|
17
|
|||
|
17
|
|||
|
17
|
|||
|
17
|
|||
|
17
|
|||
|
17
|
|||
|
18
|
|||
Consolidated Balance Sheets
(UNAUDITED)
|
Assets
|
May 31, 2010
|
August 31, 2009
|
||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
141,850
|
$
|
752,952
|
||||
|
8,729,607
|
7,758,060
|
|||||||
|
Accounts receivable from related party (Note 3)
|
190,874
|
120,615
|
||||||
|
Advances
|
5,572,054
|
6,323,149
|
||||||
|
Short Term Deferred Assets
|
25,611
|
102,298
|
||||||
|
Inventory
|
4,148,055
|
2,015,140
|
||||||
|
Prepaid expenses and other receivables
|
1,586,919
|
1,110,522
|
||||||
|
Total Current Assets
|
20,394,970
|
18,182,736
|
||||||
|
Advance for construction in progress projects
|
930,817
|
2,743,828
|
||||||
|
Property, plant and equipment, net
|
55,484,937
|
51,766,946
|
||||||
|
Intangible Assets & Deferred Charges
|
4,438,406
|
4,416,306
|
||||||
|
Total Assets
|
$
|
81,249,130
|
$
|
77,109,816
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payables and accrued liabilities
|
$
|
28,175,982
|
$
|
19,477,476
|
||||
|
Short-term loans (Note 4)
|
13,320,580
|
13,301,615
|
||||||
|
Long-term loan-current portion
|
427,780
|
733,143
|
||||||
|
Due to related parties (S/T) (Note 5)
|
12,514,078
|
16,816,524
|
||||||
|
307,198
|
739,405
|
|||||||
|
Total Current Liabilities
|
54,745,618
|
51,068,163
|
||||||
|
Long-Term loan-non-current portion
|
-
|
235,174
|
||||||
|
Total Liabilities
|
54,745,618
|
51,303,337
|
||||||
|
Commitments and Contingencies
|
-
|
-
|
||||||
|
Stockholders' Equity
|
||||||||
|
Preferred Stock: 20,000,000 shares authorized, $0.0001 par value
No shares issued and outstanding |
-
|
-
|
||||||
|
Common Stock: 200,000,000 shares authorized,
$0.0001 par value 78,832,064 shares issued and outstanding |
7,883
|
7,883
|
||||||
|
Additional paid in capital
|
12,327,962
|
12,327,962
|
||||||
|
Accumulated other comprehensive income
|
2,572,349
|
2,535,914
|
||||||
|
Retained earnings
|
11,595,318
|
10,934,720
|
||||||
|
Total Stockholders' Equity
|
26,503,512
|
25,806,479
|
||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
81,249,130
|
77,109,816
|
|||||
The accompanying notes are an integral part of these unaudited financial statements.
China Runji Cement Inc.
Consolidated Statements of Operations and Comprehensive Income
(UNAUDITED)
|
For the Three Months Period Ended
|
For the Nine Months Period Ended
|
|||||||||||||||
|
May 31,
|
May 31,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
|
Revenue
|
$
|
13,643,199
|
$
|
15,487,487
|
$
|
36,241,863
|
$
|
40,528,647
|
||||||||
|
Cost of goods sold
|
12,673,488
|
15,292,572
|
33,600,446
|
38,555,892
|
||||||||||||
|
Gross Profit
|
969,711
|
194,915
|
2,641,417
|
1,972,755
|
||||||||||||
|
Operating Costs and Expenses:
|
||||||||||||||||
|
Selling expenses
|
54,824
|
177,101
|
189,253
|
336,523
|
||||||||||||
|
A&G expenses:
|
445,439
|
255,204
|
1,984,766
|
1,141,995
|
||||||||||||
|
Depreciation of property, plant and equipment
|
46,894
|
38,027
|
143,929
|
113,667
|
||||||||||||
|
Total operating costs and expenses
|
547,157
|
470,332
|
2,317,948
|
1,592,185
|
||||||||||||
|
Income (Loss) From Operations
|
422,554
|
(275,417
|
)
|
323,469
|
380,570
|
|||||||||||
|
Interest income (Expense)
|
(185,064
|
)
|
(72,834
|
)
|
(639,844)
|
(108,469
|
)
|
|||||||||
|
Government subsidies /Grants
|
(745,030
|
)
|
-
|
1,596,392
|
-
|
|||||||||||
|
Other income (expenses)
|
(18,775
|
)
|
1,042,412
|
(18,708)
|
|
3,213,947
|
||||||||||
|
Income (expense) Before Income Taxes
|
(526,315)
|
694,161
|
1,261,309
|
3,486,048
|
||||||||||||
|
Income taxes expense (benefit)
|
197,940
|
(376,825
|
)
|
600,711
|
5,615
|
|||||||||||
|
Net Income (loss)
|
$
|
(724,255)
|
$
|
1,070,986
|
$
|
660,598
|
$
|
3,480,433
|
||||||||
|
Other Comprehensive Income
|
||||||||||||||||
|
Foreign currency translation adjustment
|
20,924
|
36,540
|
36,435
|
11,566
|
||||||||||||
|
Comprehensive Income (Loss)
|
$
|
(703,331)
|
$
|
1,107,526
|
$
|
697,033
|
$
|
3,491,999
|
||||||||
|
Earnings (Loss) Per Share, Basic and Diluted
|
$
|
(0.01)
|
$
|
0.01
|
$
|
0.01
|
$
|
0.04
|
||||||||
|
Weighted Average Shares Outstanding
|
78,832,064
|
78,832,064
|
78,832,064
|
78,832,064
|
||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
China Runji Cement Inc.
Consolidated Statements of Cash Flows
(UNAUDITED)
|
For the nine months Period Ended
|
||||||||
|
31-May-10
|
31-May-09
|
|||||||
|
Operating activities
|
||||||||
|
Net income
|
$
|
660,598
|
$
|
3,480,433
|
||||
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|||||||
|
Amortization
|
367,117
|
204,599
|
||||||
|
Depreciation, expense and cost
|
3,781,831
|
3,141,660
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable, net
|
(1,030,659
|
)
|
(3,596,842
|
)
|
||||
|
Advances to suppliers
|
711,364
|
-
|
||||||
|
Prepaid expenses and other receivables
|
(475,205
|
)
|
465,324
|
|||||
|
Inventory
|
(2,130,064
|
)
|
469,008
|
|||||
|
Accounts payable and accrued liabilities
|
8,671,489
|
4,165,604
|
||||||
|
Customer Deposit
|
-
|
(1,001,520
|
)
|
|||||
|
Tax payable
|
(433,253
|
)
|
(2,059,586
|
)
|
||||
|
Net cash provided by operating activities
|
10,123,218
|
5,268,680
|
||||||
|
Investing activities
|
||||||||
|
Change in due from related parties
|
-
|
53,534
|
||||||
|
Property, plant and equipment additions
|
(5,888,215
|
)
|
(3,753,924
|
)
|
||||
|
Net cash (used in) investing activities
|
(5,888,215
|
)
|
(3,700,390
|
)
|
||||
|
|
||||||||
|
Financing activities
|
||||||||
|
Short term loan proceeds
|
10,978,355
|
4,240,960
|
||||||
|
Short term loan (repayment)
|
(10,978,355
|
)
|
(68,377
|
)
|
||||
|
Proceeds/(repayment) of related party loans
|
(4,326,687
|
)
|
(6,681,365
|
)
|
||||
|
Proceeds from sale-leaseback financing –Current
|
-
|
710,818
|
||||||
|
Proceeds from sale-leaseback financing - Non current
|
-
|
427,371
|
||||||
|
Principal payment of the sale-leaseback financing
|
(541,907
|
)
|
-
|
|||||
|
Net cash (used in) financing activities
|
(4,868,594
|
)
|
(1,370,593
|
)
|
||||
|
Effect of exchange rate changes on cash and cash equivalents
|
22,489
|
(9,791
|
)
|
|||||
|
Increase (decrease) in cash and cash equivalents
|
(611,102)
|
187,906
|
||||||
|
Cash and cash equivalents, beginning of year
|
752,952
|
415,031
|
||||||
|
Cash and cash equivalents, end of year
|
$
|
141,850
|
$
|
602,937
|
||||
|
Supplemental Disclosures
|
||||||||
|
Interest paid
|
$
|
564,441
|
$
|
41,782
|
||||
|
Income taxes paid
|
$
|
600,638
|
$
|
1,444,339
|
||||
|
Non-Cash Investing Activity:
|
||||||||
|
Construction in progress transferred to fixed assets
|
$
|
11,131,326
|
$
|
-
|
||||
The accompanying notes are an integral part of these unaudited financial statements.
CHINA RUNJI CEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2010
(UNAUDITED)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated as FitMedia Inc., a Delaware corporation, on August 30, 2004.
On November 1, 2007, the Company closed a reverse merger with Anhui Province Runji Cement Co., Limited (“Anhui Runji”). Anhui Runji is the accounting acquirer and the transaction is accounted for as a recapitalization. The historical financial statements of Anhui Runji survived the merger and are presented herein. To reflect its business and business plan, the Company changed its name from “FitMedia Inc.” to “China Runji Cement Inc.”
Anhui Runji, a producer and distributor of cement located in Anhui Province in China, was established in December 2003 with registered capital of RMB 60 million. Anhui Runji started production in October 2005 and specializes in cement production and sales. The main cement varieties produced are ordinary silicate cement PO52.5, PO42.5, PO32.5 and PC32.5. Following the commencement of the second cement clinker production line in October 2008, Anhui Runji currently has one production line of cement and one of cement clinker; each is designed to produce 2,500 tons per day.
Anhui Runji obtained its production license in 2005. Presently, Anhui Runji mainly focuses production on Runji Brand PII52.5, PO42.5, PO32.5 and PC32.5 cements. PII52.5 is a high grade, high strength cement that is made in Anhui and Jiangsu Provinces and the region of north of the Changjiang River and is used in large infrastructural projects. Anhui Runji has a rigorous quality control system and received ISO9001 quality system certification and international accreditation in March 2006. In addition Anhui Runji passed the national GB/T 19001-2000 standard authentication.
Presently, Anhui Runji’s main market is in Hefei city and Pukou area of Nanjing city.
Basis of Presentation
These accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the August 31, 2009 audited financial statements of the Company and the notes thereto as included in the Company’s Form 10-K filed on November 25, 2009. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for fair presentation of financial position and results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements, which would substantially duplicate the disclosure required in the Company’s August 31, 2009 annual financial statements have been omitted.
These accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Ren Ji Cement Investment Co., Ltd (a BVI corporation), Ren Ji Cement Company Limited (a Hong Kong corporation) and Anhui Province Runji Cement Co., Ltd. (a PRC corporation), and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
All significant inter-company balances and transactions have been eliminated in consolidation. Certain prior period numbers are reclassified to conform to current period presentation.
Use of Estimates
In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates.
CHINA RUNJI CEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2010
(UNAUDITED)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Government Subsidies Income
A government subsidy is recognized only when there is reasonable assurance that the enterprise will comply with any conditions attached to the grant and the grant will be received.
During the quarter ended November 30, 2009, the Company recorded government subsidy income of RMB 12.8 million, including RMB 6 million received from the local government of Hanshan County as the allowance for the Company’s waste heat generator project; and a receivable of RMB 6.8 million from the Local Tax Bureau of Hanshan County for a confirmed tax refund of RMB 6,791,164. During the quarter ended February 28, 2010, the Company recorded government subsidy income of RMB 3.2 million from the local government of Hanshan County to support its operation and growth. During the quarter ended May 31, 2010, the total tax refund received was RMB 1,500,000 and management believes that the government subsidy grants shall be adjusted by RMB 5.3 million for the probable uncollectable tax refund. The adjustment is due to the change in the government policy and is recorded as a change in accounting estimate. The government subsidy income totaled RMB 10.9 million or US$1,596,392 during the nine months ended May 31, 2010.
New Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. Management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.
NOTE 2 – GOING CONERN
As reflected in the accompanying consolidated financial statements, the Company had a working capital deficiency of $34,350,648 as of May 31, 2010. This factor raises substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.
Although the Company plans to obtain additional funding from sources of equity or debt financing, there is no assurance these activities will be successful.
CHINA RUNJI CEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2010
(UNAUDITED)
NOTE 3 – ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE
|
31-May-10
|
31-Aug-09
|
|||||||
|
Accounts Receivable –Trade
|
$
|
8,729,607
|
$
|
7,758,060
|
||||
|
Accounts Receivable from related party
|
190,874
|
120,615
|
||||||
|
Allowance for Doubtful Accounts
|
-
|
-
|
||||||
|
$
|
8,920,481
|
$
|
7,878,675
|
|||||
The accounts receivable from related party was $190,874 and $120,615 at May 31, 2010 and August 31, 2009 respectively. The related party is an entity controlled by the President and CEO of the Company.
The accounts receivable amount of $2,927,600 and $2,923,464 at May 31, 2010 and August 31, 2009 respectively, is used as a securitization for the ICBC Hanshan bank loan (Note 4).
Short term loans consist of:
|
31-May-10
|
31-Aug-09
|
|||||||
|
Xian Zong Credit Bank
|
$
|
878,280
|
$
|
438,519
|
||||
|
PuFa Bank WenHu business branch
|
4,245,020
|
4,239,022
|
||||||
|
ICBC Hanshan branch
|
2,927,600
|
2,923,464
|
||||||
|
Huishang Bank
|
2,342,080
|
5,262,235
|
||||||
|
Runfeng Company
|
-
|
438,375
|
||||||
|
Xinneng and Jiangsu Runhuan Company
|
2,927,600
|
-
|
||||||
|
$
|
13,320,580
|
$
|
13,301,615
|
|||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2010
(UNAUDITED)
NOTE 4 – SHORT-TERM LOANS (CONT.)
The details for the Company’s bank loans at May 31, 2010 are as follows:
|
Borrowing bank
|
Amount
|
Starting date
|
Maturity date
|
Interest rate
(monthly)
|
||||
|
* Xian Zong Credit Bank
|
878,280
|
2009-11-16
|
2010-11-16
|
0.8835%
|
||||
|
** PuFa Bank WenHu business branch
|
4,245,020
|
2010-05-05
|
2011-04-27
|
0.5237%
|
||||
|
*** ICBC Hanshan branch
|
2,927,600
|
2010-03-09
|
2011-03-16
|
0.6000%
|
||||
|
**** Huishang Bank
|
2,342,080
|
2009-06-22
|
2010-06-22
|
0.4425%
|
|
*
|
The loan from the Xianzhong Credit Bank was pledged in collateral of machine equipment in value of RMB 25,173,720.
|
|
**
|
The loan from the Wenhu branch of PuFa Bank was pledged in collateral of the Company’s building and land use right.
|
|
***
|
The loan from the Hanshan branch of ICBC Bank is securitized by an accounts receivable balance of $2,927,600 and $2,923,464 (Note 3) at May 31, 2010 and August 31, 2009 respectively.
|
|
****
|
The loan from the Huishang Bank was guaranteed by Anhui Province Credit Guarantee (Group) Co., Ltd.
|
The $2,927,600 borrowing from Xinneng and Jiangsu Runhuan Company is from the Company’s vendors which is non-interest bearing and due on demand.
NOTE 5 –DUE TO RELATED PARTIES
(a) Names and relationship of related parties
|
Existing relationships with the Company
|
|
|
Nanjin Hongren
|
A company controlled by shareholder
|
|
Nanjin Runji
|
A company controlled by shareholder
|
|
Zhao, Shouren
|
Shareholder & President & CEO of the Company
|
|
Yang, Xuanjun
|
Shareholder of the Company
|
CHINA RUNJI CEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2010
(UNAUDITED)
NOTE 5 –DUE TO RELATED PARTIES (CONT.)
(b) Due to Related Parties (S/T) consists of the following:
|
31-May-10
|
31-Aug-09
|
|||||||
|
Due to related party – Nanjin Hongren
|
$
|
7,143,953
|
8,279,088
|
|||||
|
Due to related party – Nanjin Runji
|
4,412,906
|
7,135,035
|
||||||
|
Due to related party – Zhao, Shouren
|
527,865
|
611,899
|
||||||
|
Due to related party – Yang, Xuanjun
|
426,451
|
788,052
|
||||||
|
Miscellaneous
|
2,903
|
2,450
|
||||||
|
$
|
12,514,078
|
16,816,524
|
||||||
The above amounts due to related parties represent short-term loans that are unsecured and non-interest bearing, and the loans usage will depend on the Company’s business operations.
GENERAL DESCRIPTION OF BUSINESS
Introduction
China Runji was incorporated as FitMedia Inc., a Delaware company, on August 30, 2004. FitMedia was a development stage company that planned to sell prenatal yoga DVDs through small retail stores and others and it also planned to sell its fitness DVDs through its Internet site www.fitmedia.net. It completed its prenatal yoga DVD for sale and began marketing it in January 2007.
In October 2007, the management of FitMedia determined that it was in the best interests of the stockholders of FitMedia to agree to a share exchange with Anhui Province Runji Cement Co., Limited, a Chinese company that is engaged in the business of distributing cement across many provinces in mainland China. As part of the share exchange and reverse merger, FitMedia ceased engaging in the health and fitness business.
On October 9, 2007, FitMedia entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among FitMedia, Timothy Crottey, the President and majority shareholder of FitMedia (“Crottey”), Shouren Zhao, a citizen and resident of the People’s Republic of China and owner of 100% of the share capital of Ren Ji Cement Investment Company Limited (“Zhao”); Ren Ji Cement Investment Company., Ltd., a British Virgin Islands corporation (“Renji Investment”) and owner of 100% of the share capital of Ren Ji Cement Company Limited; Ren Ji Cement Company Limited, a corporation organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China (“HK Renji”) and owner of 100% of the share capital of Anhui Province Runji Cement Co., Ltd.; and Anhui Province Runji Cement Co., Ltd., a corporation organized under the laws of the People’s Republic of China (“Anhui Runji”). For purposes of the Exchange Agreement, Zhao was referred to as the “Ren Shareholder,” and Renji Investment, HK Renji and Anhui Runji were referred to as the “Renji Subsidiaries.” Upon closing of the share exchange transaction (the “Share Exchange”) contemplated under the Exchange Agreement on November 1, 2007, the Ren Shareholder transferred all of his share capital in Renji Investment to FitMedia in exchange for an aggregate of 55,000,000 shares of common stock of the FitMedia, thus causing the Renji Subsidiaries to become direct and indirect wholly-owned subsidiaries of FitMedia.
On October 9, 2007, FitMedia entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among FitMedia, Crottey, and the Ren Shareholder, pursuant to which the Ren Shareholder, as Purchaser, at closing on November 1, 2007, acquired 18,500,000 shares (the “Stock Purchase”) of common stock of FitMedia from Crottey for $540,000.00.
In addition, pursuant to the terms and conditions of the Exchange Agreement:
|
●
|
Demand and piggy-back registration rights were granted to the Ren Shareholder with respect to shares of the Company’s restricted common stock to be acquired by him at closing in a Regulation S offering.
|
|
●
|
On the Closing Date, the current officers of FitMedia resigned from such positions and the persons chosen by Anhui Runji were appointed as the officers of FitMedia, notably Shouren Zhao, as Chairman, CEO and President and Yichun Jiang as CFO.
|
|
●
|
On the Closing Date, Crottey resigned from his position as a director effective upon the expiration of the ten day notice period required by Rule 14f-1, at which time additional persons designated by Anhui Runji were appointed as directors of FitMedia, notably Liming Bi and Xuanjun Yang.
|
|
●
|
On the Closing Date, FitMedia paid and satisfied all of its “liabilities” as such term is defined by U.S. GAAP as of the closing.
|
|
●
|
As of the Closing, the parties consummated the transactions contemplated by the Stock Purchase Agreement.
|
On January 8, 2008, FitMedia changed its name to China Runji Cement Inc. and increased its authorized common stock from 80,000,000 shares to 200,000,000 shares.
As a result of the closing of the Share Exchange, China Runji became the owner of a leading cement production and distribution company in mainland China through its ownership of Anhui Runji. Using cost effective production techniques, while building a strong brand image, Anhui Runji is a strong competitor in the central China cement market.
Anhui Runji is a producer and distributor of cement, primarily in An Hui Province of central China and neighboring locations, which was founded in December 2003. Its initial capital was 60,000,000 RMB and there were two founding shareholders who owned such capital in a ratio of 60 to 40. Anhui Runji is located in Xianzong Town, Hanshan County, An Hui Province, where the factory occupies an area of 418 mus, and its limestone mine comprises an area of 1,000 mus. The Anhui Runji factory, limestone reserve and storing mine together comprise an area of approximately 50,000 square meters.
Summary of the Operations of Anhui Runji
Anhui Province Runji Cement Co., Limited (www.chinarunji.com), a private company located in Anhui Province in China, was established in December 2003 with registered capital of 60 million RMB. The Company started production in October 2005 and specializes in cement production and sales. The main cement varieties produced are ordinary silicate cement P.O52.5, P.O42.5, P.O32.5 and P.C32.5. At present, the Company has one cement production line and one cement clinker production line. The production capacity of each line amounts to 2,500 tons per day and one million tons per year.
The Company obtained its production license in 2005. Presently, the Company mainly focuses production on Runji Brand cement P.II52.5, P.O42.5, P.O32.5 P.C32.5 as well as cement clinker. P.II52.5 is a high grade, high strength cement that is made for Anhui and Jiangsu Provinces and the region north of the Changjiang River and is used in large infrastructure projects. The cement clinker is the semi-finished ingredient of cement, which can be processed into different categories of cement products.
The Company produces cement through the advanced dry production process, an energy efficient and environmentally friendly cement production technique, as only 60% of the total output in the region is produced by dry process. The Company has a rigorous quality control system and received ISO9001 quality system certification and international accreditation in March 2006. In addition, our Company passed the national GB/T 19001-2000 standard authentication. The Company’s pollution control exceeds the national standard and received “green building material” certification in 2007.
The Company has an abundant supply of high quality raw materials. The Company has obtained a 30 year mining right for 87 million tons of limestone reserve, which can supply two cement clinker production lines with a daily output of 2,500 tons for 40 years.
Presently, the Company is one of the largest cement producers and distributors in the north Changjiang region of Anhui, with a 12% market share within a 100 mile radius of its facility. The Company is the only producer of P.II52.5 cement (the highest quality cement) in the north Changjiang region of Anhui and Jiangsu Provinces, with 70% market share within a 100 miles radius of its facility. The Company’s main market is in Hefei and Pukou (Nanjing), with total sales of 600,000 tons in the area, representing 60% of our total annual production of one million tons. An additional 30% of total annual production is sold in the cities surrounding Hefei and Pukou, with another 10% being sold in Liu’an and Dingyuan in Anhui and Jiangsu.
The Company’s net sales to customers for the nine months ended May 31, 2010 and May 31, 2009 were $36,241,863 and $40,528,647, respectively.
Anhui Runji’s Plan of Operation
|
●
|
We plan to raise adequate capital over the next five years for expansion and growth.
|
|
●
|
We plan to construct a third production line in late 2010, which will have a daily cement clinker production capacity of 5,000 tons or 1.5 million tons annually. Upon completion, our total cement production capacity will reach 3.6 million tons per year, and cement clinker production will reach 3 million tons per year, controlling 30% of the market share within a 100 miles radius of our production facility.
|
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2010 AND 2009
The following discussion should be read in conjunction with the financial statements included in this report and is qualified in its entirety by the foregoing.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “will,” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements.
Revenues
We generated all of our revenue primarily by selling cement products and cement clinkers.
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||||||
|
May 31, 2010
|
May 31, 2009
|
Difference
|
May 31, 2010
|
May 31, 2009
|
Difference
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||
|
Revenue
|
$ | 13,643,199 | $ | 15,487,487 | $ | (1,844,288 | ) | $ | 36,241,863 | $ | 40,528,647 | $ | (4,286,784 | ) | ||||||
|
Cement
|
6,797,918 | 7,374,466 | (576,548 | ) | 16,568,034 | 24,777,907 | (8,209,873 | ) | ||||||||||||
|
Cement clinker
|
6,845,281 | 8,113,021 | (1,267,740 | ) | 19,673,829 | 15,750,740 | 3,923,089 | |||||||||||||
Revenues decreased by $1,844,288 or 12% to $13,643,199 for the three months ended May 31, 2010 from $15,487,487 for the same corresponding period in 2009 and the sales revenue of cement clinker decreased $1,267,740. The decline in revenues is primarily the result of reduced sales volume from cement clinker produced by the second production line.
Revenues decreased by $4,286,784 or 11% to $36,241,863 for the nine months ended May 31, 2010 from $40,528,647 for the same corresponding period in 2009, during which 2009 period the sales revenue of cement products declined $8,209,873 and the sales revenue of cement clinker increased $3,923,089. The decrease is primarily the result of lower cement sales volume, especially PO42.5 cement, and also due to a decline in the retail price for cement products.
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||||||
|
May 31, 2010
|
May 31, 2009
|
Difference
|
May 31, 2010
|
May 31, 2009
|
Difference
|
|||||||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||
|
Cost of goods sold
|
$ | 12,673,488 | $ | 15,292,572 | $ | (2,619,084 | ) | $ | 33,600,446 | $ | 38,555,892 | $ | (4,955,446 | ) | ||||||
|
Cement
|
6,088,144 | 7,859,346 | (1,771,202 | ) | 14,991,543 | 22,717,675 | (7,726,132 | ) | ||||||||||||
|
Cement clinker
|
6,585,344 | 7,433,226 | (847,882 | ) | 18,608,903 | 15,838,217 | 2,770,686 | |||||||||||||
Our cost of goods sold for the three months ended May 31, 2010 was $12,673,488 compared to $15,292,572 for the same corresponding period in 2009, a decrease of $2,619,084 or approximately 17%. Our cost of goods sold for the nine months ended May 31, 2010 was $33,600,446, compared to $38,555,892 for the same corresponding period in 2009, a decline of $4,955,446 or approximately 13%. The decreased costs of cement products were mainly attributed to a reduction in cement production volume and a drop in the price of raw materials.
Gross Profit
Our gross profit increased by $774,796 to $969,711 for the three months ended May 31, 2010 from $194,915 for the same period in 2009. Our gross profit rose by $668,662 to $2,641,417 for the nine months ended May 31, 2010 from $1,972,755 for the same period in 2009. The increase was mostly the result of the cost control procedures that we implemented.
Operating Expenses
Total operating expenses for the three months ended May 31, 2010 was $547,157, compared to $470,332 for the same period in 2009, an increase of $76,825 or approximately 16%.
Total operating expenses for the nine months ended May 31, 2010 was $2,317,948, compared to $1,592,185 for the same period in 2009, an increase of $725,763 or approximately 46%. The increase was mainly due to repairs and maintenance, consulting fees, real estate and land use taxes, social insurance and sewage charges.
Interest Expenses
Our interest expense for the three months ended May 31, 2010 and May 31, 2009 was $185,064 and $72,834, respectively.
Our interest expense for the nine months ended May 31, 2010 and May 31, 2009 was $639,844 and $108,469, respectively. The increased interest expense of $531,375 was due primarily to the increase in short-term loans.
Liquidity and Capital Resources
As reflected in the accompanying consolidated financial statements, the Company had a working capital deficiency of $34,350,648 as of May 31, 2010. This factor raises substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty. Although the Company plans to obtain additional sources of equity or debt financing, there is no assurance these activities will be successful.
Net cash flows provided by operating activities for the nine months ended May 31, 2010 and May 31, 2009 were $10,123,218 and $5,268,680, respectively. This was primarily due to net income and an increase in accounts payable.
Net cash flows used in investing activities for the nine months ended May 31, 2010 and May 31, 2009 were $(5,888,215) and $(3,700,390). This was due mainly to increased expenditures for property, plant and equipment in connection with the waste heat generator project.
Net cash flows used in financing activities for the nine months ended May 31, 2010 and May 31, 2009 were $(4,868,594) and $(1,370,593), respectively. This is primarily due to repayment of short-term loan borrowing.
Overall, we have funded most of our cash needs from inception through May 31, 2010 with operating activities and loans from financial institutes and related parties.
On May 31, 2010, we had cash and cash equivalents of $141,850 on hand. We anticipate raising funds through an equity or debt offering or with a strategic partner in the coming year.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company’s financial condition presented in this section are based upon the unaudited consolidated financial statements of China Runji Cement Inc., which have been prepared in accordance with the generally accepted accounting principles in the United States. During the preparation of the financial statements China Runji Cement Inc. is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, China Runji Cement Inc. evaluates its estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. China Runji Cement Inc. bases its estimates on historical experience and on various other assumptions that it believes are reasonable under current conditions. Actual results may differ from these estimates under different assumptions or conditions.
In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure about Critical Accounting Policy,” China Runji Cement Inc. identified the most critical accounting principles upon which its financial status depends. China Runji Cement Inc. determined that those critical accounting principles are related to the use of estimates, inventory valuation, revenue recognition, income tax and impairment of intangibles and other long-lived assets. China Runji Cement Inc. presents these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.
Revenue Recognition. China Runji Cement Inc. recognizes sales when the revenue is realized or realizable, and has been earned, in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.” China Runji Cement Inc.’s sales are related to sales of product. Revenue for product sales is recognized as risk and title to the product transfer to the customer, which usually occurs at the time shipment, is made. Substantially all of China Runji Cement Inc.’s products are sold FOB (“free on board”) shipping point. Title to the product passes when the product is delivered to the freight carrier.
Sales revenue represents the invoiced value of goods, net of a value-added tax (VAT). All of China Runji Cement Inc.’s products that are sold in China are subject to a Chinese value-added tax at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by VAT paid by China Runji Cement Inc. on raw materials and other materials included in the cost of producing their finished product.
Accounts Receivable, Trade and Allowance for Doubtful Accounts. China Runji Cement Inc.’s business operations are conducted in the People's Republic of China. During the normal course of business, China Runji Cement Inc. extends unsecured credit to its customers. Management reviews accounts receivable on a regular basis to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is recorded when collection of the full amount is no longer probable.
Inventories. Inventories are stated at the lower of cost or market using the weighted average method. China Runji Cement Inc. reviews its inventory on a regular basis for possible obsolete goods or to determine if any reserves are necessary for potential obsolescence.
Income Taxes. China Runji Cement Inc. has adopted Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. Since China Runji Cement Inc. had no operations within the United States there is no provision for US income taxes and there are no deferred tax amounts at May 31, 2010 and August 31, 2009. The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and the Company intends to settle current tax assets and liabilities on a net basis.
Recently Issued Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the costs of financing and investing yields. In view of the financing arrangements during the first six months of 2010, the Company is not currently subject to significant market risk.
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) of the Company have concluded, based on their evaluation as of May 31, 2010, that the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective to ensure that information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.
Changes in Internal Control over Financial Reporting
During the quarter ended May 31, 2010, there were no changes in the internal controls of the Company over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the internal controls of the Company over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - REMOVED AND RESERVED
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 – EXHIBITS
|
31.1
|
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
31.2
|
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
32.1
|
Certification of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CHINA RUNJI CEMENT INC.
|
||
|
Date: July 15, 2010
|
By:
|
/s/ Shouren Zhao
|
|
Shouren Zhao
Chairman and Chief Executive Officer
|
||
18