Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - CHINA SHIANYUN GROUP CORP., LTD. | ex321.htm |
EX-32.2 - EXHIBIT 32.2 - CHINA SHIANYUN GROUP CORP., LTD. | ex322.htm |
EX-31.1 - EXHIBIT 31.1 - CHINA SHIANYUN GROUP CORP., LTD. | ex311.htm |
EX-31.2 - EXHIBIT 31.2 - CHINA SHIANYUN GROUP CORP., LTD. | ex312.htm |
EXCEL - IDEA: XBRL DOCUMENT - CHINA SHIANYUN GROUP CORP., LTD. | Financial_Report.xls |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF T SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-147084
CHINA GREEN CREATIVE, INC.
(Exact name of Registrant as specified in its charter)
Nevada
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83-0506099
|
|
(State or Other Jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
|
|
|
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Guandong Province, China
|
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n/a
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(Address of principal executive offices)
|
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(Zip Code)
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86-755-23998799
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (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 T No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
Large accelerated filer £
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Accelerated filer £
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Non-accelerated filer £ (Do not check if a smaller reporting company)
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Smaller reporting company T
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
State the number of shares outstanding of each of the issuer’s classes of common equity, as of [ ], 2011, are as follows:
Class of Securities
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Shares Outstanding
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Common Stock, $0.001 par value
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300,000,000 shares
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CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Part I – Financial Information
|
|
Item 1
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Financial Statements
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3
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|
Condensed Balance Sheets, September 30, 2011 and December 31, 2010
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3
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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2011 and 2010
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4
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Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010
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5
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Notes to the Unaudited Condensed Consolidated Financial Statements
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6
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Item 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 3
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Quantitative and Qualitative Disclosures about Market Risk
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19
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Item 4
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Controls and Procedures
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20
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Part II – Other Information
|
||
Item 1
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Legal Proceedings
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21
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Item 2
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Unregistered Sales Of Equity Securities And Use Of Proceeds
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21
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Item 3
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Defaults Upon Senior Securities
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21
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Item 4
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Removed and Reserved
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21
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Item 5
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Other Information
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21
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Item 6
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Exhibits
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21
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PART I – FINANCIAL INFORMATION
CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2011
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December 31,
2010
|
|||||||
(Unaudited)
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(Audited)
|
|||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
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$ | 10,704 | $ | 43,895 | ||||
Accounts receivable
|
794,963 | 35,068 | ||||||
Inventories
|
202,369 | 533,955 | ||||||
Amount due from a director
|
162,072 | 117,845 | ||||||
Prepaid expenses and other receivables
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797,466 | 1,073,992 | ||||||
Total current assets
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1,967,574 | 1,804,755 | ||||||
Property, plant and equipment, net
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3,162,878 | 3,144,434 | ||||||
Land use rights, net
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99,423 | 97,109 | ||||||
Other intangible assets, net
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25,186 | 31,910 | ||||||
Total assets
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$ | 5,255,061 | $ | 5,078,208 | ||||
Liabilities and stockholders’ equity
|
||||||||
Liabilities
|
||||||||
Current liabilities
|
||||||||
Accounts payable
|
$ | 874,537 | $ | 623,930 | ||||
Accrued expenses and other payables
|
2,297,376 | 2,250,771 | ||||||
Receipt in advance
|
830,840 | 1,104,597 | ||||||
Short term debts
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842,553 | 660,932 | ||||||
Taxes payable
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1,723,088 | 1,695,292 | ||||||
Amount due to a director
|
898,485 | 849,445 | ||||||
Total liabilities
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$ | 7,466,879 | $ | 7,184,967 | ||||
Stockholders’ equity
|
||||||||
Common stock: Par value $0.001 per share; 400,000,000 shares authorized, 300,000,000 shares issued and outstanding
|
300,000 | 300,000 | ||||||
Additional paid in capital
|
1,632,689 | 1,632,689 | ||||||
Accumulated deficits
|
(4,222,513 | ) | (4,270,412 | ) | ||||
Accumulated other comprehensive income
|
78,006 | 230,964 | ||||||
Total stockholders’ equity
|
$ | (2,211,818 | ) | $ | (2,106,759 | ) | ||
Total liabilities and stockholders’ equity
|
$ | 5,255,061 | $ | 5,078,208 |
See accompanying notes to condensed consolidated financial statements
1
CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
AND COMPREHENSIVE INCOME
(UNAUDITED)
For the three months
ended September 30,
|
For the nine months
ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues
|
$ | 322,767 | 1,596,394 | 1,448,868 | 2,168,462 | |||||||||||
Cost of sales
|
73,708 | 156,861 | 387,096 | 360,401 | ||||||||||||
Expenses
|
||||||||||||||||
Selling and distribution
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19,786 | 183,819 | 238,024 | 360,351 | ||||||||||||
General and administrative (inclusive of depreciation)
|
243,134 | 377,006 | 754,340 | 1,096,023 | ||||||||||||
Impairment loss on property, plant and equipment
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- | - | - | 231,754 | ||||||||||||
Total operating expenses
|
262,920 | 560,825 | 992,364 | 1,688,128 | ||||||||||||
Operating profit/(loss)
|
(13,861 | ) | 878,708 | 69,408 | 119,933 | |||||||||||
Other expenses
|
||||||||||||||||
Other expenses
|
190 | 1,098 | 3,959 | 4,201 | ||||||||||||
Interest expense
|
7,312 | 14,103 | 17,550 | 38,430 | ||||||||||||
Total other expenses
|
7,502 | 15,201 | 21,509 | 42,631 | ||||||||||||
Profit/(loss) from operations before provision for income taxes
|
(21,363 | ) | 863,507 | 47,899 | 77,302 | |||||||||||
Provision for income taxes
|
- | 36,984 | - | 36,984 | ||||||||||||
Net income/(loss) for the period
|
$ | (21,363 | ) | 826,523 | 47,899 | 40,318 | ||||||||||
Other comprehensive income
|
||||||||||||||||
(Loss)/gain on foreign currency translation
|
(100,967 | ) | 11,806 | (152,958 | ) | 17,873 | ||||||||||
Total comprehensive income for the period
|
$ | (122,330 | ) | 838,329 | (105,059 | ) | 58,191 | |||||||||
Earnings per share, basic and diluted – continuing operations
|
$ | (0.00 | ) | 0.00 | (0.00 | ) | 0.00 | |||||||||
Weighted average number of shares outstanding, basic and diluted
|
300,000,000 | 300,000,000 | 300,000,000 | 300,000,000 |
See accompanying notes to condensed consolidated financial statements
2
CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Operating activities
|
||||||||
Net income/(loss)
|
$ | 47,899 | $ | 40,318 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation expense
|
104,313 | 281,906 | ||||||
Impairment charges for property, plant and equipment
|
- | 231,754 | ||||||
Amortization expense of land use rights
|
1,193 | 1,139 | ||||||
Amortization expense of other intangible assets
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7,748 | 6,475 | ||||||
Changes in operating assets and liabilities
|
||||||||
Increase in accounts receivable
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(759,895 | ) | (52,172 | ) | ||||
Decrease/(increase) in inventories
|
331,586 | (228,709 | ) | |||||
Decrease/(increase) in prepaid expenses and other receivables
|
276,526 | (1,380,814 | ) | |||||
(Increase)/decrease in amount due from a director
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(44,227 | ) | 28,281 | |||||
Increase in accounts payable
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250,607 | 136,428 | ||||||
Increase in accrued expenses and other payables
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46,605 | 1,503,028 | ||||||
Decrease in receipt in advance
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(273,757 | ) | - | |||||
(Decrease)/increase in taxes payable
|
27,796 | 113,347 | ||||||
Net cash provided by operating activities
|
$ | 16,394 | $ | 680,981 | ||||
Investing activities
|
||||||||
Additions to property, plant and equipment
|
$ | (26,685 | ) | (173,080 | ) | |||
Additions to other intangible assets
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- | (205 | ) | |||||
Net cash used in investing activities
|
$ | (26,685 | ) | $ | (173,285 | ) | ||
Financing activities
|
||||||||
Decrease in other liabilities
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$ | - | (1,494,300 | ) | ||||
Increase in amount due to a director
|
49,040 | 606,795 | ||||||
Increase in other borrowings
|
181,621 | 344,303 | ||||||
Net cash provided by/(used in) financing activities
|
$ | 230,661 | $ | (543,202 | ) | |||
Net increase/(decrease) in cash and cash equivalents
|
$ | 220,370 | $ | (35,506 | ) | |||
Effect of foreign exchange rate changes
|
$ | (253,561 | ) | $ | (29,573 | ) | ||
Cash and cash equivalents at January 1
|
$ | 43,895 | $ | 116,989 | ||||
Cash and cash equivalents at September 30
|
$ | 10,704 | $ | 51,910 | ||||
Supplement disclosure of cash flows information:
|
||||||||
Cash paid for interest
|
$ | 8,460 | $ | 5,310 | ||||
Cash paid for income taxes
|
$ | - | $ | 2,224 |
See accompanying notes to condensed consolidated financial statements
3
CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
China Green Creative, Inc. (“CGC”), a Nevada Corporation, was incorporated on August 17, 2006 under the name of Glance, Inc. On January 21, 2009, we changed our name to China Green Creative, Inc. CGC and its subsidiaries (collectively known as the “Company”) are principally engaged in the distribution of consumer goods in the People’s Republic of China (“China” or the “PRC”).
As of September 30, 2011, the details of the Company’s subsidiaries are summarized as follows:
Name
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Domicile and date of incorporation
|
Paid-in capital
|
Effective ownership
|
Principal activities
|
||||
Plenty Fame Holding, Limited (“Plenty Fame”)
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British Virgin Islands (the “BVI”)
January 18, 2008
|
$50,000
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100%
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Investment holding
|
||||
Prospect Hong Kong Development Limited (“Prospect”)
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Hong Kong Special Administrative Region (“HKSAR”)
October 17, 2008
|
HK$10,000
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100%
|
Investment holding
|
||||
Jiangxi Jien Industries Limited
(“Jiangxi Jien”)
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The PRC
April 8, 1997
|
RMB16,000,000
|
100%
|
Sale of consumer products in the PRC.
|
||||
Shenzhen Jien Electronic Commerce Company Limited (“Shenzhen Jien”)
|
The PRC
April 13, 2009
|
RMB3,000,000
|
100%
|
Management of regional distribution rights and provision of related services.
|
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the nine months ended September 30, 2011 and 2010 have been prepared pursuant to the rules & regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”), while the reporting currency is the US Dollar.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of September 30, 2011, the results of its operations and cash flows for the nine months ended September 30, 2011 and 2010.
The results of operations for the nine months ended September 30, 2011 are not necessarily indicative of the results for a full year period.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts in China and Hong Kong.
4
(b) Inventories
Inventories consisting of trading goods, packing and other materials are stated at the lower of cost or net realizable value. Inventory costs are calculated using a weighted average method of accounting.
(c) Fair Value of Financial Instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, amount due from/(to) directors, other liabilities, loans from related parties, debts, accounts payable, accrued expenses and other payables, and taxes payable.
The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective period ends.
(d) Revenue Recognition
We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.
The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable.
Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
(e) Earnings Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of September 30, 2011 and 2010, there were no dilutive securities outstanding.
(f) Foreign Currency Translation
The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the period. The translation rates are as follows:
September 30,
2011
|
December 31,
2010
|
September 30,
2010
|
||||||||||
|
||||||||||||
Period/year end RMB : US$ exchange rate
|
0.1569 | 0.1514 | 0.1484 | |||||||||
Average yearly RMB : US$ exchange rate
|
0.1542 | 0.1477 | 0.1472 | |||||||||
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC’s government.
5
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
(g) Recent Accounting Pronouncements
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
NOTE 4 – ACCOUNTS RECEIVABLE
As of the balance sheet dates, the Company’s accounts receivable are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Beijing Shanghan International Trading Limited (“Beijing Shanghan”)
|
$ | - | $ | 5,664,885 | ||||
Zhang De Jun
|
538,914 | - | ||||||
Others
|
256,049 | 35,068 | ||||||
794,963 | 5,699,953 | |||||||
Less: Allowance for doubtful accounts
|
- | (5,664,885 | ) | |||||
Total
|
$ | 794,963 | $ | 35,068 | ||||
Beijing Shanghan is a related party as a director of which is also a shareholder of the Company. The Company reviewed the recoverability of this account and recorded an accumulated allowance of $5,664,885 for the years ended December 31, 2010. For credit risk management, the Company expects there is no transaction with Beijing Shanghan since September 2011 and recovery of the amount is remote, in which case the allowance is written off against the accounts receivable directly.
Zhang De Jun is the agent newly recruited in 2011, which contributed 31% and nil of the Company’s revenues for the nine months ended September 30, 2011 and 2010, respectively.
As of the balance sheet dates, the balances are unsecured, interest free and repayable according to terms of trade. The company will assess the collectibilty of accounts receivable on periodic basis and will make allowance for doubtful accounts when the amount receivable is no longer deemed to be collected by the company.
NOTE 5 – INVENTORIES
As of the balance sheet dates, the Company’s inventories are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Trading inventories
|
$ | 48,743 | $ | 314,871 | ||||
Packing and other materials
|
153,626 | 219,084 | ||||||
Total
|
$ | 202,369 | $ | 533,955 | ||||
6
NOTE 6 – PREPAID EXPENSES AND OTHER RECEIVABLES
As of the balance sheet dates, the Company’s prepaid expenses and other receivables are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Prepaid expenses
|
$ | 710,850 | $ | 895,646 | ||||
Other receivables
|
86,616 | 178,346 | ||||||
Total
|
$ | 797,466 | $ | 1,073,992 | ||||
Prepaid expenses as of September 30, 2011 include prepaid promotion and advertising expenses of $536,467 to Beijing Shanghan International Cultural Creative Development Company Limited. The amount will be charged to expense upon the related services provided by the vender.
The Company evaluates prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company.
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment in the PRC. As of the balance sheet dates, property, plant and equipment are summarized as follows:
Depreciable
lives
|
September 30,
2011
|
December 31,
2010
|
||||||||||
At cost:
|
||||||||||||
Plant
|
40 years
|
$ | 1,469,643 | $ | 1,418,125 | |||||||
Machinery
|
15 years
|
190,510 | 183,832 | |||||||||
Motor vehicle
|
10 years
|
43,506 | 41,981 | |||||||||
Office equipment
|
5 years
|
222,733 | 207,983 | |||||||||
Leasehold Improvement
|
2 years
|
359,509 | 346,907 | |||||||||
Construction in progress
|
N/A | 1,752,540 | 1,688,058 | |||||||||
4,038,441 | 3,886,886 | |||||||||||
Less: Accumulated depreciation
|
(875,563 | ) | (742,452 | ) | ||||||||
Property, plant and equipment, net
|
$ | 3,162,878 | $ | 3,144,434 | ||||||||
Depreciation expense for the nine months ended September 30, 2011 and 2010 was $104,313 and $281,906, respectively.
Impairment charges for property, plant and equipment for the nine months ended September 30, 2011 and 2010 were nil and $231,754, respectively.
NOTE 8 – LAND USE RIGHTS, NET
The Company’s land use rights represent the cost of purchasing the rights to use the leasehold land in the PRC for the production facilities of Jiangxi Jien. According to the law of the PRC, the government owns all the land in the PRC. Companies or individuals are only authorized to possess and use the land through land use rights granted by the PRC government.
7
As of the balance sheet dates, the Company’s land use rights are summarized as follows:
Useful lives
|
September 30,
2011
|
December 31,
2010
|
|||||||
At cost:
|
|||||||||
Land use rights
|
59 – 60 years
|
$ | 119,291 | $ | 115,109 | ||||
Less: Accumulated amortization
|
(19,868 | ) | (18,000 | ) | |||||
Land use rights, net
|
$ | 99,423 | $ | 97,109 | |||||
Amortization expense of land use rights for the nine months ended September 30, 2011 and 2010 was $1,193 and $1,139, respectively.
NOTE 9 – OTHER INTANGIBLE ASSETS, NET
The Company’s other intangible assets represent cost of setting up information systems for the provision of franchising services. As of the balance sheet dates, the Company’s other intangible assets are summarized as follows:
Useful lives
|
September 30,
2011
|
December 31,
2010
|
|||||||
At cost:
|
|||||||||
Information systems
|
5 years
|
$ | 43,498 | $ | 42,996 | ||||
Less: Accumulated amortization
|
(18,312 | ) | (11,086 | ) | |||||
Other intangible assets, net
|
$ | 25,186 | $ | 31,910 | |||||
Amortization expense of other intangible assets for the nine months ended September 30, 2011 and 2010 was $7,748 and $6,475, respectively.
NOTE 10 – AMOUNT DUE FROM/(TO) DIRECTORS
As of the balance sheet dates, the Company’s current accounts with the directors are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Ye Xin Zhang
|
$ | 162,072 | $ | 117,845 | ||||
Chen Xing Hua
|
$ | (898,485 | ) | $ | (849,445 | ) | ||
The amount due from Mr. Ye Xin Zhang represents temporary advances to the director for the Company’s daily operating expenses. The balances are unsecured, interest free, and have no fixed terms of repayments.
The amount due to Mr. Chen Xing Hua represents temporary advance from the director for the Company’s working capital use. The balance is unsecured, interest free, and has no fixed terms of repayment.
8
NOTE 11– DEBTS
The Company’s debts are summarized as follows:
Effective
interest rate
|
Outstanding balance
|
|||||||||||||||||
Name of parties
|
Due date
|
Nature
|
September 30,
2011
|
December 31,
2010
|
September 30,
2011
|
December 31,
2010
|
||||||||||||
Qin Jianguo
|
December, 2011
|
Unsecured
|
Nil
|
19.1 | % | $ | 238,488 | $ | 230,128 | |||||||||
Shu Jian
|
On demand
|
Unsecured
|
5.85 | % | 5.85 | % | 227,505 | 355,104 | ||||||||||
Shenzhen Datang Hexie Investments Limited
|
On demand
|
Unsecured
|
Nil
|
Nil
|
62,760 | 75,700 | ||||||||||||
China Construction Bank
|
April, 2012
|
Secured
|
6.56 | % | - | 313,800 | - | |||||||||||
Short term debt
|
$ | 842,553 | $ | 660,932 | ||||||||||||||
Interest expense related to these debts for the nine months ended September 30, 2011 and 2010 was $17,550 and $38,430 respectively.
At of 30 September 2011, the bank loans were secured by pledges of certain fixed assets and land use rights held by of Jiangxi Jien.
NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES
As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Accrued operating expenses
|
$ | 135,551 | $ | 93,901 | ||||
Accrued interest expense
|
259,496 | 235,750 | ||||||
Amount due to Shenzhen Hanhong – (i)
|
845,546 | 825,933 | ||||||
Other payables – (ii)
|
1,056,783 | 1,095,187 | ||||||
$ | 2,297,376 | $ | 2,250,771 | |||||
(i)
|
The amount mainly represents consultancy fee payable to Shenzhen Hanhong. Shenzhen Hanhong is a related party as Mr. Chen Xing Hua is a common director of the Company and Shenzhen Hanhong. The amount is interest free, unsecured and has no fixed terms of repayment.
|
(ii)
|
Included in other payable as of September 30, 2011, there is an amount payable for office decoration and expenses in the amount of $251,040, an amount payable for marketing and promotional expenses of $439,343 and fixed assets payable amounting to $123,951. The remaining balance consists of amounts owed by the Company to various entities that are incurred by the Company in daily business operations other than trading nature. These liabilities and accrued operating expenses are non interest bearing and are payable within one year.
|
9
NOTE 13 – RECEIPT IN ADVANCE
Receipt in advance mainly consists of money received from customers for regional distribution rights which are yet to be performed. Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
NOTE 14 – TAXES PAYABLE
As of the balance sheet dates, the Company’s taxes payable are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Income tax payables
|
$ | 285,780 | $ | 275,762 | ||||
Value added tax payables
|
1,435,391 | 1,276,919 | ||||||
Business sales tax
|
- | 46,111 | ||||||
Other tax payables
|
1,917 | 96,500 | ||||||
Total
|
$ | 1,723,088 | $ | 1,695,292 |
NOTE 15 – COMMON STOCK
As of the balance sheet dates, the Company has authorized 400,000,000 shares $0.001 par value of common stock, of which 300,000,000 shares have been issued and outstanding. The Company has also authorized 10,000,000 shares of preferred class of stock, but no shares have been issued as of September 30, 2011.
NOTE 16 – PROVISION FOR INCOME TAXES
Based on management's present assessment, the Company has determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the net operating loss carry-forward as of September 30, 2011 will be realized. The Company will continue to review this valuation allowance and make adjustments as appropriate.
A reconciliation of the expected tax with the actual tax expense is as follows:
Nine months ended September 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Income from continuing operations before provision for income taxes
|
$ | 47,899 | 77,302 | |||||||||||||
Expected PRC income tax expense at statutory tax rate of 25%
|
11,974 | 25.0 | 19,326 | 25.0 | ||||||||||||
Tax effect of expenses that are not deductible for tax purposes
|
17,658 | 22.8 | ||||||||||||||
Utilization of tax loss brought forward
|
(11,974 | ) | (25.0 | ) | - | - | ||||||||||
Provision for Income Taxes
|
$ | - | - | $ | 36,984 | 47.8 |
(i)
|
Both Jiangxi Jien and Shenzhen Jien are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
|
(ii)
|
Plenty Fame is not subject to tax in accordance with the relevant tax laws and regulations of the BVI.
|
(iii)
|
Prospect did not generate any assessable profits since its incorporation and therefore is not subject to HKSAR tax.
|
10
NOTE 17 – RELATED PARTY TRANSACTIONS
In addition to the transactions detailed elsewhere in these financial statements, the Company entered into the following significant transactions with related parties:
Nine months ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Chen Xing Hua
|
||||||||
Rental expenses payable for the Company’s office premises in Shenzhen, the PRC
|
$ | 9,724 | $ | 38,245 | ||||
Mr. Chen Xing Hua, the director of Shenzhen Hanhong, is also a director of the Company. Details of which please refer to note 10 to the consolidated financial statements.
In the opinion of the directors, the above transactions were entered into by the Company in the normal course of business.
NOTE 18 – CONCENTRATION OF RISK
The Company is exposed to the following concentrations of risk:
Zhang De Jun contributed 31% and nil and Beijing Shanghan International Trading Limited (“Beijing Shanghan”), a related party as a director of which is also a shareholder of the Company, contributed 10% and 9% of the Company’s revenues for the nine months ended September 30, 2011 and 2010, respectively.
NOTE 19 – CAPITAL COMMITMENT
Capital Commitment:
As of the balance sheet dates, the Company’s capital commitment are summarized as follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Construction-in-progress:
|
||||||||
Contracted but not provided for
|
$ | 1,961,250 | $ | 1,856,164 | ||||
NOTE 20 – GOING CONCERN
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since the fourth quarter of 2009, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant losses. As of September 30, 2011, the Company has accumulated deficits of $4,222,513, and a negative working capital of $5,499,305.
As of September 30, 2011 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
11
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report.
Forward Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "our company believes," "management believes" and similar language. These forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Description of Business" and "Management's Discussion and Analysis", including under the heading “– Risk Factors”. Our actual results may differ materially from results anticipated in these forward-looking statements. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe that such comparisons cannot be relied upon as indicators of future performance.
Results of Operations – Three Months Ended September 30, 2011 as Compared to Three Months Ended September 30, 2010
Three months ended
|
||||||||||||||||
September 30
|
Increase/
|
%
|
||||||||||||||
2011
|
2010
|
(decrease)
|
change
|
|||||||||||||
Revenue
|
$ | 322,767 | $ | 1,596,394 | $ | (1,273,627 | ) | (79.8 | ) | |||||||
Cost of sales
|
73,708 | 156,861 | (83,153 | ) | (53.0 | ) | ||||||||||
Selling and distribution expenses
|
19,786 | 183,819 | (164,033 | ) | (89.2 | ) | ||||||||||
General and administrative expenses
|
243,134 | 377,006 | (133,872 | ) | (35.5 | ) | ||||||||||
(Loss)/income before income taxes
|
(21,363 | ) | 863,507 | (884,870 | ) | N/A | ||||||||||
Provision for income taxes
|
- | 36,984 | (36,984 | )- | N/A | |||||||||||
Net (loss)/income
|
$ | (21,363 | ) | $ | 826,523 | $ | (847,886 | ) | N/A |
Revenues
We generate revenues from two sources: saleof consumer products, and income for granting regional distribution rights.
Revenue for the three months ended September 30, 2011 amounted to $322,767, compared to $1,596,394 for the same period in 2010, representing a significant increase of 79.8%. Revenue for the three months ended September 30, 2011 and 2010 is analyzed as follows:
Three months ended
September 30,
|
Increase/
|
%
|
||||||||||||||
2011
|
2010
|
(decrease)
|
change
|
|||||||||||||
Sale of consumer products
|
$ | 140,101 | $ | 419,950 | (279,849 | ) | (66.6 | ) | ||||||||
Regional distribution rights
|
182,666 | 1,176,444 | (993,778 | ) | (84.5 | ) | ||||||||||
322,767 | $ | 1,596,394 | $ | (1,273,627 | ) | (79.8 | ) |
(a)
|
Sale of consumer products
|
Our sales of consumer products consist of providing herbal teas and beverages, coffees and milk teas, trendy notebook computers, sauces, healthy blend oils and health liquors. Sales decreased drastically by $279,849, or 66.6%, from $419,950 for the three months period ended September 30, 2010 to $140,101 for the three months period ended September 30, 2011. The decrease resulted primarily as a result of increasingly intensive competition in consumer products business and the contraction of economic activity. There has not been any new agents recruited in the third quarter of 2011. To cope with the changes of market, we plan to continue our efforts to strengthen the product quality, enhance market recognition of brand awareness, and improve the efficiency of our distribution network
(b)
|
Regional distribution rights
|
Since third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark.
Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
The continuing supporting services will include adverting campaigns, band promotion activities and training services provided to the distributor for the next three years after the distribution rights are granted.
Revenues from regional distribution rights decreased $993,778 or 84.5% from $1,176,444 for the three months ended September 30, 2010 to $182,666 in the same period of 2011. The decrease is primarily due to no new regional rights granted and only the continuing management fee was recognized as revenue in the third quarter of 2011.
Cost of sales
Cost of sales represents cost of consumer products sold. The cost for regional distribution rights are expenses incurred to recruit new agents, promote the brand image and implement strategic advertising campaigns, all of which are included in selling and marketing expenses.
Cost of sales decreased substantially from $156,861 for the three months ended September 30, 2010 to $73,708 for the same period in 2011. The decrease in cost of sales was a result of a drop in sales of consumer products during the third quarter of 2011.
Selling and distribution expenses
Selling and distribution expenses for the three months period ended September 30, 2011 and 2010 amounted to $19,786 and $183,819, respectively. The drop of $164,033 or 89.2% was mainly attributable to the modification of ourmarketing strategy. The Company incurred significant costs during the third quarter of 2010, when it launched an advertising campaign and increased smarketing costs to promote the selling of regional distribution rights. The Company did not have a corresponding campaign during the third quarter of 2011.
General and administrative expenses
General and administrative expenses decreased by $133,872 or 35.5% from $377,006 for the third quarter of 2010 to $243,134 for the same quarter of 2011. The Company reorganized the internal structure of the company, consolidating operations and eliminating departments that did not fit into the long-range plans in the second quarter of 2011. After the restructure, the Company has incurred less personnel costs, office expenses and traveling expenses in the third quarter of 2011.
(Loss)/income before income taxes and provision for income taxes
The Company recorded a pretax loss of $21,363 for the for the three months ended September 30, 2011, compared to a income of $863,507 for the comparative period of last year. The income in the three months ended September 30, 2010 was generated from the an increase in revenues relating to the sald of regional distribution rights. However, the loss in the same period of 2011 was mainly due to the substantial decline in our revenue, which was offset in part by a reduction in selling expenses and administrative expenses.
Net (loss)/income
We recorded a net loss of $21,363 for the third quarter of 2011, as compared to an income of $826,523 for the same period in 2010. The changes mainly resulted from the decrease in sales revenue and adecrease in selling and administrative expenses.
Results of Operations – Nine Months Ended September 30, 2011 as Compared to Nine Months Ended September 30, 2010
Nine months ended
|
||||||||||||||||
September 30,
|
Increase/
|
%
|
||||||||||||||
2011
|
2010
|
(decrease)
|
change
|
|||||||||||||
Revenue
|
$ | 1,448,868 | 2,168,462 | (719,594 | ) | (33.2 | ) | |||||||||
Cost of sales
|
387,096 | 360,401 | 26,695 | 7.4 | ||||||||||||
Selling and distribution expenses
|
238,024 | 360,351 | (122,327 | ) | (33.9 | ) | ||||||||||
General and administrative expenses
|
754,340 | 1,327,777 | (573,437 | ) | (43.2 | ) | ||||||||||
Income before income taxes
|
47,899 | 77,302 | (29,403 | ) | (38.0 | ) | ||||||||||
Provision for income taxes
|
- | 36,984 | (36,984 | ) | N/A | |||||||||||
Net income
|
$ | 47,899 | 40,318 | 7,581 | 18.8 |
Revenues
Revenue for the nine months ended September 30, 2011 amounted to $1,448,868, representing a $719,594 or 33.2% decrease when compare to $2,168,462 for the same period last year. Revenue for the nine months ended September 30, 2011 and 2010 is analyzed as follows:
Nine months ended September 30,
|
Increase/
|
%
|
||||||||||||||
2011
|
2010
|
(decrease)
|
change
|
|||||||||||||
Sale of consumer products
|
1,048,418 | 992,018 | 56,400 | 5.7 | ||||||||||||
Regional distribution rights
|
400,450 | 1,176,444 | (775,994 | ) | (66.0 | ) | ||||||||||
1,448,868 | 2,168,462 | (719,594 | ) | (33.2 | ) | |||||||||||
(a)
|
Sale of consumer products
|
Sales increased by $56,400 or 5.7%, from $992,018 for the nine month period ended September 30, 2010 to $1,048,418 for the nine month period ended September 30, 2011. We undertook a series of measures to expand our customer base in different provinces in the PRC. The sales in the first quarter of 2011 increased significantly as a result of new agents recruited. With the changes of market demand and increasingly intensive competition, the sales significantly declined, which substantially offset the sales growth in the first quarter of 2011.
(b)
|
Regional distribution rights
|
Revenue arising from the regional distribution rights operations for the nine months ended September 30, 2011 and 2010 amounted to $400,450 and 1,176,444, respectively. The decreased revenue from regional distribution rights was primarily a result of less initial fee income received in 2011..
Cost of sales
Cost of sales represents cost of consumer products sold. The amount increased from $360,401 for nine months ended September 30, 2010 to $387,096 for the same period in 2011. The increase in cost of sales was in line with the increase in sales revenue in consumer products.
Selling and distribution expenses
Selling expenses for the nine months ended September 30, 2011 and 2010 amounted to $238,024 and $360,351, respectively. The decrease in selling and distribution expenses of $122,327 or 33.9% was primarily reflected less promotion and advertising expenses incurred during the nine months ended September 30, 2011
General and administrative expenses
General and administrative expenses decreased by $573,437 or 43.2% from $1,327,777 for the nine months ended September 30, 2010 to $754,340 for the nine months ended September 30, 2011. The difference is represented by the impairment loss on property, plant, and equipment of $231,597 incurred in the second quarter last year for certain machineries, equipment and motor vehicle, as well as the implementation of a Company wide cost saving plan, which led to efficient reduction in professional expenses, payroll and office expenses
Income before income taxes and provision for income taxes
The Company recorded a pretax income of $47,899 for the for the nine months ended September 30, 2011, compared to a income of $77,302 for the comparative period last year. The decrease was mainly due to the significant decrease in sales revenue, which was offset in part by reduction in selling expenses and administrative expenses.
There was no PRC income tax provision for the nine months ended September 30, 2011 as substantial amount of pretax income were absorbed by accumulated losses incurred in previous years. Tax provision for the nine months ended September 30, 2010 was $36,984, mainly arising from our revenue from regional distribution rights.
Net income
We recorded a net income of $47,899 for the nine months ended September 30, 2011, as compared to net income of $40,318 for the same period in 2010. This increase was due to the decrease of selling expense and general and administrative expenses and no PRC income tax provision provided, which was offset by the decrease of sales revenue from regional distribution rights.
Cash and cash equivalents
As of September 30, 2011, the Company had a total cash and cash equivalents of $10,704 compared to $43,895 as of December 31, 2010. The cash was mainly used to fund our operations. The Company’s cash flows for the nine months ended September 30, 2011 are analyzed as follows:
Cash Flow from Continuing Operations
Nine months ended
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
Net cash provided by operating activities
|
$ | 16,394 | $ | 680,981 | ||||
Net cash used in investing activities
|
(26,685 | ) | (173,285 | ) | ||||
Net cash provided by/(used in) financing activities
|
230,661 | (543,202 | ) | |||||
Net increase/(decrease) in cash and cash equivalents
|
$ | 220,370 | $ | (35,506 | ) |
During the nine months ended September 30, 2011, we had net cash provided by operating activities of $16,394, as compared to net cash provided by operating activities of $680,981 for the same period last year. The decrease in cash inflow from operating activities was primarily due to the increase in accounts receivables.
Our cash flow used in investing activities for the nine months ended September 30, 2011 and 2010 amounted to $26,685 and $173,285, respectively. The net cash used in investing activities represents purchase of equipment and machinery during the both period. The decrease in cash inflows from investing activities was mainly due to a decrease in capital expendituresfor property, plant and equipment, and intangible assets.
Our cash flows provided by financing activities for the nine months ended September 30, 2011 amounted to $230,661, as compared to net cash used in financing activities of $543,202 for the same period last year.
Working Capital
As of September 30, 2011, the Company recorded a working capital deficit of $5,499,305, as compared to a deficit of $5,380,212 as of December 31, 2010. The slight decrease in working capital was mainly due to less revenue from regional distribution rights in the nine months ended September 30, 2011. The Company is developing a manufacturing base in Anyi County, Jiangxi Province, China, with an expected cost of approximately $3.6 million. As of September 30, 2011, an amount of $1.7 million has been incurred under this expansion pand and the Company expects to spend $1.9 million for the next 12 months for the manufacturing base.
Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since the fourth quarter of 2009, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant losses. As of September 30, 2011, the Company has accumulated deficits of $4,222,513, and a negative working capital of $5,499,305.
As of September 30, 2011 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Off-Balance Sheet Transactions
We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, cash flows, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements.
We believe that the following critical accounting policy reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial statements and affect our financial condition and results of operations.
Revenue Recognition
We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.
The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable.
Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
Recent Accounting Pronouncements
The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to various market risks arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and interest rates, which could impact our results of operations and financial position. We do not currently engage in any hedging or other market risk management tools, and we do not enter into derivatives or other financial instruments for trading or speculative purposes.
Foreign Currency Exchange Rate Risk
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Chinese Renminbi, could adversely affect our financial results. During the nine months ended September 30, 2011, approximately all of our sales are denominated in foreign currencies. We expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby mitigating our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not substantial. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.
All of our sales denominated in foreign currencies are denominated in the Chinese Renminbi. Our principal exchange rate risk therefore exists between the U.S. dollar and this currency. Fluctuations from the beginning to the end of any given reporting period result in the re-measurement of our foreign currency-denominated receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other income (expense), net in our combined consolidated financial statements. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.
Interest Rate Risk
Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant.
Inflation
In recent years, China has not experienced significant inflation, and thus inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 5.9%, -0.7% and 4.6% in 2008, 2009 and 2010, respectively.
Currency Exchange Fluctuations
All of the Company's revenues are denominated in Chinese Renminbi, while its expenses are denominated primarily in Chinese Renminbi ("RMB"). The value of the RMB-to-U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People's Bank of China, which are set daily based on the previous day's inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the RMB from the United States dollar. At the recent quarterly regular meeting of People's Bank of China, its Currency Policy Committee affirmed the effects of the reform on RMB exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of RMB has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so.
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions as described below:
|
1. Approximately 31% of the Company’s revenue and 68% of net accounts receivable are contributed by a major agent in the People’s Republic of China (the “PRC”).
|
|
2. Approximately 100% of the Company's revenue is derived from the PRC. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.
|
|
3. If the Company is unable to derive any revenues from China, it would have a significant, financially disruptive effect on normal operations of the Company.
|
ITEM 4. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures are appropriate and effective. They have evaluated these controls and procedures as of the date of this report on Form 10-Q. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Our management believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
PART II.
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OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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None.
ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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None.
ITEM 3.
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DEFAULT UPON SENIOR SECURITIES
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None.
ITEM 4.
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[REMOVED AND RESERVED]
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None.
ITEM 5.
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OTHER INFORMATION
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None.
ITEM 6. EXHIBITS
Exhibits
Exhibit Number
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Description
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31.1
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Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
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31.2
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Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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32.1
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Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS
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XBRL Instance Document
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA GREEN CREATIVE, INC.
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Dated: November 14, 2011
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/s/ Ye Xing Zhang
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Ye Xing Zhang
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Chief Executive Officer
|
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Dated: November 14, 2011
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/s/ Deng Lin
|
Deng Lin
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|
Chief Financial Officer
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