Attached files
| file | filename |
|---|---|
| 8-K/A - TRANSIT MANAGEMENT HOLDING CORP | v229770_8ka.htm |
| EX-16.1 - TRANSIT MANAGEMENT HOLDING CORP | v229770_ex16-1.htm |
| EX-99.2 - TRANSIT MANAGEMENT HOLDING CORP | v229770_ex99-2.htm |
CHINA GREEN LIGHTING LIMITED
Index to Financial Statements
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Page
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CONSOLIDATED BALANCE SHEETS
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F-2
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CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
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F-3
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
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F-4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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F-5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-6 – F-20
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F-1
CHINA GREEN LIGHTING LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31,
2011
Unaudited
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December 31,
2010
Audited
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ASSETS
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||||||||
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Current Assets
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||||||||
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Cash
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$ | 340,117 | $ | 657,572 | ||||
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Restricted
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305,045 | |||||||
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Accounts receivable due from non-related parties, net of allowance for doubtful accounts of $43,134 and nil as of March 31, 2011 and 2010, respectively
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2,316,522 | 2,730,995 | ||||||
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Accounts receivable due from related parties
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610,091 | 545,885 | ||||||
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Non trade accounts receivable due from a non-related party
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105,160 | 104,108 | ||||||
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Non trade accounts receivable due from a related party
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457,568 | 603,423 | ||||||
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Prepayment to suppliers
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790,706 | 121,105 | ||||||
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Inventories
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922,063 | 1,010,633 | ||||||
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Prepaid expenses and other current assets
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313,373 | 140,747 | ||||||
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Total current assets
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6,160,645 | 5,914,468 | ||||||
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Property, plant and equipment - net
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1,265,495 | 1,264,636 | ||||||
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Total Assets
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$ | 7,426,140 | $ | 7,179,104 | ||||
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LIABILITIES AND EQUITY
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Current Liabilities
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Short-term debt
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$ | 1,220,182 | $ | 1,207,967 | ||||
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Notes payable due to non-related parties
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762,614 | |||||||
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Accounts payable due to non-related parties
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2,292,601 | 3,017,014 | ||||||
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Advances from customers
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2,455 | 4,784 | ||||||
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Income and other taxes payable
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579,513 | 665,475 | ||||||
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Accrued expenses and other current liabilities
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327,485 | 134,920 | ||||||
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Total current liabilities
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5,184,850 | 5,030,160 | ||||||
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Equity
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Common stock, ($1 par value, 50,000 shares authorized and Nil issued and outstanding)
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Additional paid-in-capital
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382,990 | 382,990 | ||||||
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Statutory reserve
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172,216 | 172,216 | ||||||
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Retained earnings (deficiency)
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1,578,176 | 1,507,743 | ||||||
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Accumulated other comprehensive income
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107,908 | 85,996 | ||||||
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Total Equity
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2,241,290 | 2,148,944 | ||||||
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Total Liabilities and Equity
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$ | 7,426,140 | $ | 7,179,104 | ||||
See notes to consolidated financial statements
F-2
CHINA GREEN LIGHTING LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(Stated In US Dollars)
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Three Months Ended March 31,
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2011
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2010
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Unaudited
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Unaudited
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Revenues
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$ | 1,709,951 | $ | 2,084,459 | ||||
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Cost Of Revenues
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1,460,900 | 1,794,825 | ||||||
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Gross Profit
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249,051 | 289,634 | ||||||
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Operating Expense:
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Selling and marketing
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20,034 | 41,849 | ||||||
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General and administrative
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130,191 | 165,091 | ||||||
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Total operating expenses
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150,225 | 206,940 | ||||||
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Income from operations
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98,826 | 82,694 | ||||||
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Other income (expenses):
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Other income (expenses)
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(2,658 | ) | 6,854 | |||||
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Interest income
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3,045 | 146 | ||||||
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Interest expense
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(16,351 | ) | (16,933 | ) | ||||
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Total other expenses, net
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(15,964 | ) | (9,933 | ) | ||||
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Income before provision for income taxes
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82,862 | 72,761 | ||||||
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Provision for income taxes
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12,429 | 10,914 | ||||||
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Net income
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$ | 70,433 | $ | 61,847 | ||||
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Other comprehensive income:
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Foreign currency translation adjustment
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21,912 | 20,195 | ||||||
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Comprehensive income
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$ | 92,345 | $ | 82,040 | ||||
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Net income per share:
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Basic and diluted
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$ | 1.85 | $ | 1.64 | ||||
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Weighted average number of ordinary shares outstanding:
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Basic and diluted
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50,000 | 50,000 | ||||||
See notes to consolidated financial statements
F-3
CHINA GREEN LIGHTING LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited
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Ordinary
Share
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Additional
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Retained earnings
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Accumulated
other
comprehensive
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Total
stockholders'
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||||||||||||||||||||||||
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Shares
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Amount
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paid-in-capital
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Statutory reserves
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Unrestricted
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Income |
equity
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BALANCE, January 1, 2011
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50,000 | $ | — | $ | 382,990 | $ | 172,216 | $ | 1,507,743 | $ | 85,996 | $ | 2,148,945 | |||||||||||||||
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Ordinary share issuance
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— | |||||||||||||||||||||||||||
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Capital Injection by Minority Shareholder
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Net income
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— |
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70,433 |
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70,433 | |||||||||||||||||||||
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Transfer to statutory reserves
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Foreign currency translation adjustment
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— |
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21,912 | 21,912 | |||||||||||||||||||||
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BALANCE, March 31, 2011
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50,000 | $ | — | $ | 382,990 | $ | 172,216 | $ | 1,578,176 | $ | 107,908 | $ | 2,241,290 | |||||||||||||||
See notes to consolidated financial statements
F-4
CHINA GREEN LIGHTING LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated In US Dollars)
| Three months ended March 31, | ||||||||
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2011
Unaudited
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2010
Unaudited
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Cash flows from operating activities:
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Net income
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$ | 70,433 | $ | 61,847 | ||||
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Adjustments to reconcile net (income) loss to net cash used in operating activities:
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Depreciation and amortization
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20,201 | 11,408 | ||||||
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Provision for bad debt
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- | |||||||
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(Increase) decrease in:
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Accounts receivable due from non-related parties
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414,473 | (116,004 | ) | |||||
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Accounts receivable due from related parties
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(64,206 | ) | 802,388 | |||||
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Notes payable due to non-related party
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Non trade accounts receivable from to non-related party
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(1,052 | ) | (18 | ) | ||||
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Non trade accounts receivable from to related party
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145,855 | (97 | ) | |||||
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Prepayments to suppliers
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(669,601 | ) ) | (18,771 | ) | ||||
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Inventories
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88,571 | (1,182,866 | ||||||
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Prepaid expenses and other current assets
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(172,626 | ) | (956,149 | ) | ||||
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Increase (decrease) in:
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- | - | ||||||
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Notes payable due to a related party
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762,614 | |||||||
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Accounts payable due to a non-related party
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(724,413 | ) | 515,570 | |||||
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Accounts payable due to a related party
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0 | |||||||
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Advances from customers
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(2,329 | ) | 1,201,763 | |||||
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Income and other taxes payable
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(85,962 | ) | (18,769 | ) | ||||
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Accrued expenses and other current liabilities
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192,565 | 22,396 | ||||||
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Net cash provided by (used in) operating activities
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(25,478 | ) | 322,698 | |||||
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Cash flows from investing activities:
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Purchase of fixed assets
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(21,060 | ) | 5,565 | |||||
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Net cash provided by (used in) investing activities
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(21,060 | ) | ||||||
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Cash flows from financing activities:
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Proceeds from short-term loan
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Repayment of short-term loan
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New cash restricted
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(305,045 | ) | ||||||
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Net cash provided by (used in) financing activities
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(305,045)
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-
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Effect of exchange rate changes on cash and cash equivalents
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34,128 | 268 | ||||||
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Net increase (decrease) in cash and equivalents
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(317,455 | ) | 317,401 | |||||
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Cash and equivalents, beginning
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657,572 | 378,273 | ||||||
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Cash and equivalents, end
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$ | 340,117 | $ | 695,300 | ||||
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Supplemental disclosure of cash flow information:
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Cash paid for interest
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$ | 13,341 | $ | 16,788 | ||||
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Cash paid for income taxes
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$ | 0 | $ | 3,208 | ||||
F-5
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1.
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Company Background
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China Green Lighting Limited (“CGL”) was incorporated on February 25, 2011 under the laws of the British Virginia Islands as a limited liability company. CGL is a holding company. CGL together with subsidiaries as discussed below, hereafter referred to as the Company, is engaged in manufacturing fluorescent lamp for sales in North America, South American, and Asia markets.
First Green Lighting Limited (“FGL”), wholly-owned by CGL was incorporated on March 9, 2011 under the laws of Hong Kong as limited liability company. FGL was established to set up a wholly-owned subsidiary in China: Jiangshan Greenworld Photoelectricity Consulting Co., Ltd. (“JGP”). JGP was established on May 4, 2011.
Zhejiang Joinan Lighting Co., Ltd. (“ZJL”) was incorporated on December 6, 2006 under the laws of the Peoples Republic of China (PRC) as a limited liability company. ZJL has been engaged in the business of manufacturing and sales of fluorescent lamp since it started its operation in September, 2007.
As discussed below, JGP entered into various agreements with ZJL and/or its shareholders to allow JGP’s effective control over ZJL.
Exclusive Purchase Option Agreement: JGP has the option to purchase ZJL’s all assets and ownership at any time at nominal value.
Consigned Management Agreement and Exclusive Technology Service Agreement: JGP is appointed as its exclusive service provider to provide business support and related consulting services. JGP is agreed to pay the consulting and service fee which equal to 100% of their net profits to ZJL.
Loan Agreement and Equity Pledge Agreement: ZJL’s shareholders agreed to pledge their legal interest to JGP as a security for the obligations of ZJL under the exclusive technology services agreement and loan agreement.
Based on these agreements the Company is deemed indirectly to be the sole interest holder of ZJL. According to the provisions of ASC 810, “Consolidation”, ZJL is consolidated in the Company’s financial statements.
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2.
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Summary of Significant Accounting Policies
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Principles of consolidation and basis of presentation
The accompanying consolidated financial statements as of December 31, 2010 and 2009 represent China Green Lighting Limited, and its subsidiaries disclosed above. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). All material inter-company transactions and balances have been eliminated in the consolidation. Please refer to Note 1 for the discussion on accounting for the reorganization and acquisition.
Non-controlling interest represents the ownership interests in the subsidiary that are held by owners other than the parent. In December 2007, the Financial Account Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 160 (“SFAS 160”), “Non-controlling Interests in Consolidated Financial Statements — An amendment of ARB No. 51” (“ASC Topic 810-10”). SFAS 160 requires that the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity and that net income or loss and comprehensive income or loss are attributed to the parent and the non-controlling interest. If losses attributable to the parent and the non-controlling interest in a subsidiary exceed their interests in the subsidiary’s equity, the excess, and any further losses attributable to the parent and the non-controlling interest, is attributed to those interests. SFAS 160 was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
F-6
Based on various contractual agreements, the Company has the power to direct matters that most significantly impact the activities of ZJL, and obtain the financial interests such as obtaining periodic income of ZJL through technical and consulting service arrangements and obtaining the net assets of ZJL through purchase of their equities at essentially no cost basis. The Company therefore concluded that its interest in ZJL are not noncontrolling interest and therefore are not classified as so.
The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
In our opinion, the consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of December 31, 2010 and 2009, the results of our operations, our cash flows and our statement of changes in equity for the two years ended December 31, 2010 and 2009. Such adjustments are of a normal recurring nature.
The Company compiles its daily bookkeeping in accordance with Generally Accepted Accounting Principles of the PRC (“PRC GAAP”) and converts its financial statements according to the US GAAP when reporting.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that the estimates used in preparing its financial statements are reasonable and prudent. Actual results could differ from these estimates.
Certain of the Company’s accounting policies require higher degrees of professional judgment than others in their application. These include the cost allocation, the allowance for doubtful accounts, depreciation and impairment of fixed assets, and income tax. Management evaluates all of its estimates and judgments on an on-going basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
F-7
Accounts Receivable
Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company makes an allowance for doubtful accounts based on the aging of accounts receivable and on any specifically identified accounts receivable that may become uncollectible.
Inventories
The Company values inventory at the lower of cost or net realizable value and determines inventory using the weighted average cost method. Inventory consists of raw materials, finished goods, and work-in-progress, which includes the cost of direct materials, labor, and manufacturing overhead costs allocation.
Property, Plant and Equipment
The Company states plant and equipment at cost less accumulated depreciation. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets with a 3%-5% estimated residual value.
Estimated useful lives of the Company’s assets are as follows:
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Asset
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Useful Life
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Land use right
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50 years over leasehold period.
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Buildings and improvements
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20 years
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Machinery
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5-10 years
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Transportation equipment
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3-5 years
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Office and testing equipment
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3-5 years
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The Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of income as an offset or increase to other income (expense) for the period. The Company charges maintenance, repairs and minor renewals directly to expenses as incurred, and capitalizes major additions and betterment to buildings and equipment.
Valuation of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets, including plant and equipment, and finite life intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the estimated undiscounted future cash inflows attributable to the asset, less estimated undiscounted future cash outflows, are less than the carrying amount, the Company recognizes an impairment loss in an amount equal to the difference between the carrying value of such assets and fair value. No impairment indicator is noted in the prior or current years. The Company reports assets for which there is a committed disposition plan, whether through sale or abandonment, at the lower of carrying value or fair value less costs to sell. No such assets are identified in prior and current years.
F-8
The Company evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances revised estimates of useful lives.
Business combination
For a business combination with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree are recognized at the acquisition date, measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, are recognized at the full amounts of their fair values. In a bargain purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquiree, that excess in earnings was recognized as a gain attributable to the Company.
Deferred tax liability and asset were recognized for the deferred tax consequences of differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination in accordance with ASC Topic 740, “Income Taxes”.
Goodwill represents the excess of the fair value of consideration transferred (plus the fair value of the non-controlling interest, if any) over fair value of the net assets acquired (including recognized intangibles). Goodwill is not amortized; rather, impairment tests are performed at least annually or more frequently if circumstances indicate impairment may have occurred. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated income statements.
Revenue Recognition
The Company mainly manufacture to sales orders. Our revenues consist of primarily sales of our products for markets in and outside China. Sales order received in China may also be further resold by Chinese foreign trade companies to markets outside China. The Company may also provide production processing service whereas the only difference with other production service is that the raw materials are provided by customers. Under those circumstances, the Company evaluates and determines whether sales have been made to those Chinese foreign trade intermediaries or those production processing services, and whether the customers are acting as principal or agent according to ASC605-45 “Principal Agent consideration”. Sales to markets outside China is usually on FOB terms shipped from a nearby seaport in Eastern China, while sales in China are delivered at customer designated place in China.
The Company recognizes revenue when the consideration to be received is fixed or determinable, products are delivered based on the terms of sales contracts, and collectability is ensured, in compliance with ASC 605-10, “Revenue Recognition”. We are not obligated for any repurchase or return of the goods unless there is a quality issue with our products, which has not been shown historically as an issue.
The Company presents all sales revenue net of a value-added tax (“VAT”). The Company’s products sold in China are generally subject to a Chinese VAT of 17% of the sales price. The VAT payable may be offset by VAT paid by the Company on purchased raw materials and other materials included in producing the finished product.
F-9
Cost of Revenues
Cost of revenues is based on total actual costs incurred. It includes manufacturing labor costs, material costs, processing costs, packaging costs, quality inspection and control cost , plant and equipment costs allocation. There may be outsourced processing cost if certain sales order were outsourced due to production capacity and delivery timing considerations. Cost of revenues also includes raw material inbound freight charges and receiving costs and inspection costs when they incur.
Outbound freight cost for sales outside China from factory to seaports are handled by logistic companies arranged by the Company and recorded as selling expenses. Same is true for outbound freight cost to customer designated delivery places. Those freight related costs amounted to $15,031 and $8,281 for the three months ended March 31, 2011 and 2010 , respectively.
Operating Expenses
General and administrative expenses include, among other items, salaries, bonuses, and employees’ social insurance, research and development expenses, quality assurance and inspection expenses, travel and entertainment expenses, office expenses, depreciation allocation, professional service fees, office supplies, provision for doubtful accounts, etc. Selling expenses include, among other items, freight related expenses, loading expenses, advertising and exhibition expenses, etc. The advertising costs amounted to $3,795 and $300 for the three months ended March 31, 2011 and 2010, respectively.
Research and Development (R&D)
Research and development expenses include salaries for R&D staff, consultant fees, supplies and materials, as well as other overhead such as depreciation, facilities, utilities, and other R&D related expenses. The Company expenses costs for the development of new products and substantial enhancements to existing products as incurred.
Research and development costs recorded in general and administrative expenses were $33,757 and $56,452 during the three months ended March 31, 2011 and 2010. No research and development expenses were capitalized within the three months of 2011 and 2010. We do not pass along research and development expenses directly or indirectly to our customers.
Foreign Currency Translation
The Company uses the United States dollar (“USD”) as its reporting currency. The functional currency of CGL, and FGL is USD, the functional currency of FGL’s subsidiaries in China are Renminbi (“RMB”). The Company translates monetary assets and liabilities denominated in currencies other than United States dollars into USD at the exchange rate ruling at the balance sheet date. The Company converts non-USD transactions during the year into USD with the prevailing exchange rate on the transaction dates.
The Chinese subsidiaries of ZJL and JGP maintain their financial records in RMB. The Company converts their assets and liabilities with the exchange rate on the balance sheet date; and their revenue and expenses using a weighted average exchange rate for the reporting period. The Company reflects translation adjustments as “Accumulated other comprehensive income (loss)” in shareholders’ equity.
F-10
Transaction gains and losses that arise from exchange rate fluctuations on transactions in a currency other than the functional currency are recognized as foreign currency transaction gain or loss in the result of operations as incurred.
Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective year:
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March 31, 2011
|
March 31, 2010
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|||||||
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Period-end RMB: US$1 exchange rate
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6.5564 | 6.8270 | ||||||
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Period average RMB: US$1 exchange rate
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6.5736 | 6.8270 | ||||||
Income Taxes
The Company provides for deferred income taxes using the asset and liability method. Under this method, the Company recognizes deferred income taxes for tax credits and net operating losses available for carry-forwards and significant temporary differences. The Company classifies deferred tax assets and liabilities as current or non-current based upon the classification of the related asset or liability in the financial statements or the expected timing of their reversal if they do not relate to a specific asset or liability. The Company provides a valuation allowance to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) (ASC 740). The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that the Company believes is more than 50% likely to be realized on examination. For tax positions not meeting the “more likely than not” test, the Company does not record it as a tax benefit. The company also adopts FIN 48 guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. It had no effect on the Company’s financial statements as of March 31, 2011 and 2010. The Company did not have any significant unrecognized uncertain tax positions as of March 31, 2011 and 2010.
The Company’s operations are subject to income and transaction taxes in China since most of the business activities take place in China. Significant estimates and judgments are required in determining the Company’s provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result. The Company does not anticipate any events which could change these uncertainties.
Earnings per Share
Basic EPS excludes dilution and is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinary share (convertible preferred stock, forward contract, warrants to purchase ordinary share, contingently issuable shares, ordinary share options and warrants and their equivalents using the treasury stock method) were exercised or converted into ordinary share. The Company excludes potential ordinary shares in the diluted EPS computation in periods of losses from continuing operations, as their effect would be anti-dilutive.
F-11
During the reporting periods, the Company had no dilutive instruments. Accordingly, the basic and diluted earnings per share are the same.
The per share data reflects the recapitalization of stockholder’s equity as if the reorganization as described in note 1 occurred as of the beginning of the first period presented.
Comprehensive Income
Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. The Company has chosen to report comprehensive income in the statements of income and comprehensive income.
Financial Instruments
The Company carries financial instruments, which consists of cash and cash equivalents, accounts receivable, accounts payable and short-term debts at cost, which approximates fair value due to the short-term nature of these instruments. The Company does not use derivative instruments to manage risks.
Segments
The Company identifies segments by reference to its internal organization structure and the factors that management uses to make operating decisions and assess performance.
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued the ASU No. 2010-06 - Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This Update amends ASC 820 subtopic 10 that requires new disclosures about transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. This Update also amends ASC 820 subtopic 10 to clarify certain existing disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.
In April 2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted. The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
F-12
In April 2010, The FASB issuance of ASU 2010-17, Revenue Recognition – Milestone Method (Topic 605) allows the company to elect whether this method is going to be used. The Company does not expect material impact upon the adoption of this standard on the Company’s consolidated financial statements.
In May 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial statements of the Company.
In December 2010, the FASB issuance of ASU 2010-28 entitled When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero for Negative Carrying Amounts” required an entity to perform the Step 2 of the goodwill impairment test when the carrying amount of the reporting unit is either zero or negative. We believe the adaption of this guidance does not have a material effect on the financial statements of the Company. .
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805) Disclosure of Supplementary Pro Forma Information for Business Combinations The Company does not expect material impact upon the adoption of this standard on the Company’s consolidated financial statements..
|
3.
|
Accounts Receivable, Net
|
Based on the Company’s assessment, management believes the net balance on each balance sheet date herein was collectable. The gross accounts receivable and bad debt provision as at December 31, 2010 and 2009 are as the following:
|
March 31,
2011
|
December 31,
2010
|
|||||||
|
Accounts receivable, gross
|
$ | 2,359,656 | $ | 2,774,129 | ||||
|
Less bad debt provision
|
43,134 | 43,134 | ||||||
|
Accounts receivable, net
|
$ | 2,316,522 | $ | 2,730,995 | ||||
|
4.
|
Inventories
|
Inventories consisted of the following:
|
|
March 31,
2011
|
December 31,
2010
|
||||||
|
Raw materials
|
$ | 481,664. | $ | 408,215 | ||||
|
Finished goods
|
287,398 | 516,306 | ||||||
|
Work-in-progress
|
145,367 | 86,113 | ||||||
|
Low value consumables
|
7,634 | |||||||
|
Totals
|
$ | 922,063 | $ | 1,010,633 | ||||
The Company reviews its inventory periodically for possible obsolete goods and to determine if any reserves are necessary for potential obsolescence. As of March 31, 2011 and December 31, 2010 the Company determined that no reserves were necessary.
F-13
|
5.
|
Property, Plant and Equipment, Net
|
Plant and equipment consist of the following:
|
March 31,
2011
|
December 31,
2010
|
|||||||
|
Land use right
|
$ | 282,169 | $ | 282,169 | ||||
|
Buildings
|
602,406 | 602,406 | ||||||
|
Production equipment
|
471,822 | 453,246 | ||||||
|
Transportation equipment
|
141,790 | 141,790 | ||||||
|
Office and testing equipment
|
86,950 | 84,565 | ||||||
|
Total property plant and equipment
|
1,585,137 | 1,564,176 | ||||||
|
Less: accumulated depreciation
|
(319,642 | ) | (299,540 | ) | ||||
|
Plant and equipment, net
|
$ | 1,265,495 | $ | 1,264,636 | ||||
The depreciation expense and amortization for the three months ended March 31, 2011 and 2010 amounted to $34,226 and $23,860, respectively.
|
6.
|
Debt
|
The average of interest rates of the short-term borrowings is 6.26% and 7.97% in the three months ended March 31, 2011 and 2010, respectively. The average dollar amount of short-term borrowings is $1,220,182 and $1,171,818 in the three months ended March 31, 2011 and 2010, respectively.
Certain bank borrowing in the amount of $457,568 as of March 31, 2011 was secured at no expense of the Company by pledge of personal real estate of the related party of one former shareholder holing 32% interest in the Company who exited in February 2011.
|
7.
|
Notes payable
|
The company used bank acceptance $762,614 (RMB5,000,000) to pay suppliers of non-related parties on March 16, which saved $305,045 (RMB2,000,000) in bank as guarantee. The maturity of bank acceptance is September 16, 2011.
F-14
|
8.
|
Income Taxes
|
We are subject to income taxes on entity basis on income arising in or derived from the tax jurisdictions in which each entity is domiciled.
Under the current BVI law, CGL is not subject to tax on its income or profits.
FGL is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 17.5% on assessable income. For the years ended December 31, 2010 and 2009, FGL has not incurred any operations.
According to the New Enterprise Income Tax Law (“NEITL”) in China, unified Enterprise Income Tax rate is 25%. However, ZJL was approved for certain favorable tax policies as being a high-tech company in 2010. For the years ended December 31, 2010 and 2009, JGP has not incurred any operations.
|
|
2011 Q1
|
2010 Q1
|
||||||
|
%
|
%
|
|||||||
|
ZJL
|
15%
|
25%
|
||||||
|
Consolidated Effective EIT
|
15%
|
25%
|
||||||
The provision for income tax expense (benefit) from continuing operations consists of the following:
|
For the three months Ended March 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Current:
|
||||||||
|
PRC
|
$
|
28,791
|
$
|
11,335
|
||||
|
Deferred:
|
||||||||
|
PRC
|
-
|
-
|
||||||
|
Total income tax expense
|
$
|
28,791
|
$
|
11,335
|
||||
There are no significant deferred tax assets/(liabilities) as of March 31, 2011 and 2010.
Income tax reconciliation for the three months ended March 31, 2011 and 2010 are as follows:
|
|
For the three months Ended March 31
|
|||||||
|
|
2011
|
2010
|
||||||
|
PRC federal statutory tax rate
|
|
25
|
%
|
25
|
%
|
|||
|
Taxable income
|
$
|
191,941
|
$
|
75,564
|
|
|||
|
Computed expected income tax expense
|
|
47,985
|
|
18,891
|
||||
|
Effect of preferential tax rates
|
(19194
|
)
|
|
(7,556)
|
||||
|
|
||||||||
|
Income tax expense
|
|
$
|
28,791
|
|
$
|
11,335
|
|
|
F-15
|
9.
|
Commitments and Contingencies
|
Operating Leases
As of March 31, 2011, the Company had commitments under certain operating leases requiring annual minimum rentals as follows:
| 2011 | $ | 5,184 | ||
|
2012
|
211 | |||
|
Total
|
$ | 5,396 |
The leased properties are principally located in the PRC and are used for employee dormitory purposes. The terms of these operating leases vary from one to two years. Pursuant to the contracts, when they expire, the Company has the right to extend them with new negotiated prices. Rental expenses were $1,643 and $1,582 for the quarters ended March 31, 2011 and 2010, respectively.
Product Warranties
The Company does not have a policy to allow for sales return. Historically, the Company’s records did not show significant failure of products due to materials or workmanship. The Company has not incurred any material costs associated with servicing its product warranties. The Company continuously evaluates and estimates its potential warranty obligations, and records the related warranty obligation when the estimated amount becomes material at the time revenue is recorded.
|
10.
|
Certain Significant Risks and Uncertainties
|
Cash includes cash on hand and demand deposits in accounts maintained with banks. Total cash in these banks at March 31, 2011 amounted to $340,117, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
The Company’s substantial operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Two customers represented approximately 45%, 27% of the Company’s revenue for the quarter ended March 31, 2011. The account balances with these customers are $1,052,280, $327,952 as of March 31, 2011. The first of the two major customers of the first quarter 2011 represented approximately 50% of the Company’s revenue for the quarter ended March 31, 2010. The Company received advances from this customer in the amount of $678,201 as of March 31, 2010. The other one of the two major customers of the first quarter 2011 represented approximately 48% of the company’s revenue for the quarter ended March 31, 2010. The account balance with this customer is $749,937 as of March 31, 2010. No other customers represented more than 10% of the Company’s sales for the quarters ended March 31, 2011 and 2010, respectively.
F-16
Most of the materials or equipment we purchase are non-unique and easily available in the market. The prices for those purchases, although increasing, are relatively consistent and predictable. A specific supplier might occupy a significant percentage of our total purchase at a certain time for a large contract. We do not rely on any single supplier for long term.
|
11.
|
Related Party Transactions
|
A company that was managed by similar management team and their equity ownership did not amount to control but only significant influence since September 2010 is one of suppliers of a component of parts to the Company. Occasionally the Company also sells semi-finished products or finished products to this related entity. Purchases from the related party amounted to $110,556 and $464,198 the three months ended March 31,2011 and 2010, respectively. These purchases accounted for 8.86% and 16.30% of the total purchase of the related raw material that the Company made in the first quarters of 2011 and 2010 respectively. Sales to the related party amounted to $Nil and $Nil in the first quarters of 2011 and 2010, respectively.
One of the inactive former shareholder representing nil and 32% of equity interest in the Company as at march 31, 2011 and 2010, respectively borrowed from the Company in the amount of $457,568 and $556,613 as at March 31, 2011 and 2010, respectively. The Company charges the similar level of interest rate as the commercial banks would charge the Company for the similar borrowing. Also see note 6.
|
12.
|
Social Security Plan
|
The Company’s subsidiaries in China are required to participate in the social security plan operated by the local municipal government. The Company is required to contribute approximately 30.75% of its basic payroll costs, subject to certain caps with reference to average municipal salary, to the employees’ social security fund. The Company charges contributions to its income statement as they become payable in accordance with the local government requirements. The aggregate contributions of the Company to the employees’ social security plan amounted to $3860 and $2174 for the first quarters ended March 31, 2011 and 2010, respectively.
|
13.
|
Statutory Reserves
|
The law and regulations of the People’s Republic of China provide that before a Chinese enterprise distributes profits to its shareholders, it must first satisfy all tax liabilities, provide for losses in previous years, and make appropriation, in proportions determined at the discretion of the board of directors, to the statutory reserves. The statutory reserves include the surplus reserve fund and the collective welfare fund. These statutory reserves represent restricted retained earnings.
F-17
CGL’s subsidiary in China are required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the their respective registered capital.
The transfer to this reserve must be made before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
As stipulated by the relevant laws and regulations applicable to PRC foreign-invested enterprises, the foreign invested PRC companies are required to make appropriations from net income as determined under PRC GAAP to non-distributable reserves which include a general reserve, an enterprise expansion reserve and an employee welfare and bonus reserve.
Wholly-foreign-owned PRC companies are not required to make appropriations to the enterprise expansion reserve but appropriations to the general reserve are required to be made at not less than 10% of the profit after tax as determined under PRC GAAP.
The employee welfare and bonus reserve is determined by the respective companies’ board of directors. The general reserve is used to offset future extraordinary losses. The subsidiaries may, upon a resolution passed by the shareholders, convert the general reserve into capital. The employee welfare and bonus reserve is used for the collective welfare of the employees of the subsidiaries. The enterprise expansion reserve is used for the expansion of the subsidiaries’ operations and can be converted to capital subject to approval by the relevant authorities. These reserves represent appropriations of retained earnings determined according to PRC law.
For the three months ended March 31, 2011 the Company made $Nil propriations to statutory reserves.
|
14.
|
Segment and Geographic Information
|
The Company has only one reportable operating segment.
Sales to South American, Asia (except for China), and China are $1,059,415 and $73,097, $1,270,834 and $1,037,645 and $Nil , $1,043,874 for the first quarters ended March 2011 and 2010, respectively
|
15.
|
Subsequent Event
|
Management has considered all events and transactions that occurred after March 31, 2011 and through the date the financial statements are issued, and has determined no subsequent events require disclosure in the consolidated financial statements.
On May 13, 2011 (the “Closing Date”), the Company closed a voluntary share exchange transaction (the “Exchange Transaction”) with Transit Management Holding Corp., a Colorado corporation (“TRMH”), pursuant to a Share Exchange Agreement dated May 13, 2011 (the “Exchange Agreement”) by and among TRMH, a majority shareholder of TRMH (“TRMH Shareholder”), the Company and the shareholders of the Company (“CGL Shareholders”). As a result of the Exchange Transaction, TRMH acquired 100% of the issued and outstanding capital stock of the Company in exchange for the issuance of 39,200 shares of Series A Convertible Preferred Stock to the CGL Shareholders. Each share of Series A Preferred Stock is convertible into 1000 shares of common stock, $0.001 par value, which will constitute approximately 98.0% of TRMH's issued and outstanding common stock on an as-converted basis and after giving effect to a proposed 1 for 3 reverse stock split.
TRMH was organized as a corporation under the laws of the State of Colorado on August 15, 2007. Its main business was the management of property assets along high density corridors and transit areas. The Company believes that TRMH is an attractive business combination partner, due in part, to the perceived benefits of being a publicly registered company, allowing for increased access to capital raising. Accordingly, the parties entered into, and closed the Exchange Transaction on May 13, 2011.