Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 333-150385
PACIFIC BEPURE INDUSTRY INC.
(Exact name of registrant as specified in its charter)
Delaware 333-150385 26-1272059
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
No. 78 Kanglong East Road, Yangdaili, Chendai Township
Jinjiang City, Fujian Province, P. R. China
(Address of principal executive offices)
(86 595) 8677 0999
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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 (ss.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 [X]
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
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 15, 2011, 15,000,000 shares of the Company's common stock,
$0.0001 par value, were issued and outstanding.
Pacific Bepure Industry Inc.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of September 30, 2011
(unaudited) and December 31, 2010 4
Condensed Consolidated Statements of Income and Comprehensive Income
for the nine months ended September 30, 2011 and 2010 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2011 and 2010 (unaudited) 6
Condensed Consolidated Statement of Stockholders' Equity 8
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 33
Part II OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 1A. Risk Factors 33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 3. Defaults upon Senior Securities 34
Item 4. [Removed or reserved] 34
Item 5. Other Information 34
Item 6. Exhibits 34
Signatures 35
2
Pacific Bepure Industry Inc.
Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2011 and 2010
Index to Condensed Consolidated Financial Statements
Pages
-----
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Income and Comprehensive Income 5
Condensed Consolidated Statements of Cash Flows 6
Condensed Consolidated Statements of Stockholders' Equity 8
Notes to Condensed Consolidated Financial Statements 9
3
Pacific Bepure Industry Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2011 and December 31, 2010
(Stated in US Dollars)
As of As of
September 30, December 31,
2011 2010
----------- ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,687,475 $ 5,815,257
Trade receivables 13,642,032 13,094,012
Prepayments and other receivables - Note 5 158,854 249,118
Advances to customers and distributors - Note 6 1,582,165 1,293,733
Inventories - Note 7 3,456,382 1,232,557
----------- -----------
TOTAL CURRENT ASSETS 23,526,908 21,684,677
Properties, plant and equipment, net - Note 8 8,991,158 7,592,866
Land use rights - Note 9 6,111,970 6,021,489
Intangible asset - Note 10 150,293 190,505
----------- -----------
TOTAL ASSETS $38,780,329 $35,489,537
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Trade payables $ 2,975,826 $ 2,988,361
Other payables and accrued expenses - Note 11 3,389,355 3,524,874
Loans payable - Note 12 6,480,394 4,717,870
Amount due to a director - Note 13 2,061,731 1,998,085
Income tax payable 1,041,404 1,248,649
----------- -----------
TOTAL CURRENT LIABILITIES 15,948,710 14,477,839
----------- -----------
TOTAL LIABILITIES 15,948,710 14,477,839
----------- -----------
COMMITMENTS AND CONTINGENCIES - Note 15
STOCKHOLDERS' EQUITY
Common stock: par value of $0.0001 per share
Authorized 75,000,000 shares; issued and outstanding
15,000,000 shares in 2011 and 2010 - Note 22 1,500 1,500
Additional paid-in capital 3,422,434 3,234,650
Statutory reserve - Note 23 309,688 309,688
Accumulated other comprehensive income 2,674,100 1,987,222
Retained earnings 16,423,897 15,478,638
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 22,831,619 21,011,698
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,780,329 $35,489,537
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements
4
Pacific Bepure Industry Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
For the three and nine months ended September 30, 2011 and 2010
(Stated in US Dollars)
Nine months ended Three months ended
September 30, September 30,
------------------------------ ------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales revenue $ 14,222,604 $ 20,157,801 $ 5,028,655 $ 10,870,624
Cost of sales 10,549,817 13,340,291 3,888,996 7,128,247
------------ ------------ ------------ ------------
Gross profit 3,672,787 6,817,510 1,139,659 3,742,377
------------ ------------ ------------ ------------
OPERATING EXPENSES
Administrative expenses 1,480,218 828,225 512,248 247,180
Selling expenses 313,763 190,424 93,569 46,000
------------ ------------ ------------ ------------
1,793,981 1,018,649 605,817 293,180
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,878,806 5,798,861 533,842 3,449,197
Other income - Note 16 155,554 -- 46,134 10,619
Other expense -- (12,315) -- --
Finance costs - Note 17 (374,752) (194,678) (116,296) (72,102)
------------ ------------ ------------ ------------
Income before income taxes 1,659,608 5,591,868 463,680 3,387,714
Income taxes - Note 18 (714,349) (1,439,944) (223,532) (858,676)
------------ ------------ ------------ ------------
NET INCOME 945,259 4,151,924 240,148 2,529,038
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment 686,878 298,435 260,045 277,500
------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME $ 1,632,137 $ 4,450,359 $ 500,193 $ 2,806,538
============ ============ ============ ============
Earnings per share
Basic and diluted - Note 19 $ 0.063 $ 0.277 $ 0.016 $ 0.169
============ ============ ============ ============
Weighted Average Number of Shares Outstanding
-Note 19
-Basic and diluted 15,000,000 15,000,000 15,000,000 15,000,000
============ ============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements
5
Pacific Bepure Industry Inc.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2011 and 2010
(Stated in US Dollars)
Nine months ended
September 30,
--------------------------------
2011 2010
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 945,259 $ 4,151,924
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 236,590 118,685
Amortization of an intangible asset and land
use rights recognised as expenses 112,321 40,376
Share-based compensation 187,784 --
Changes in operating assets and liabilities:
Trade receivables (128,991) (2,627,797)
Prepayments and other receivables 129,661 (298,762)
Advances to customers and distributors (243,424) --
Inventories (2,150,936) (744,655)
Trade payables (106,049) (1,614,129)
Other payables and accrued expenses (243,962) (951,471)
Income tax payable (243,208) 284,989
------------ ------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (1,504,955) (1,640,840)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and equipment
and construction in progress (1,375,262) (629,921)
------------ ------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (1,375,262) (629,921)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from new loans 5,933,666 4,591,867
Repayment of loans (4,346,218) (1,467,050)
Repayment of amount due to a director -- (4,360)
------------ ------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 1,587,448 3,120,457
------------ ------------
Effect of foreign currency translation on cash and
cash equivalents 164,987 91,547
------------ ------------
Net (decrease)/increase in cash and cash equivalents (1,127,782) 941,243
Cash and cash equivalents - beginning of period 5,815,257 4,325,176
------------ ------------
Cash and cash equivalents - end of period $ 4,687,475 $ 5,266,419
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements
6
Pacific Bepure Industry Inc.
Condensed Consolidated Statements of Cash Flows (cont'd)
For the nine months ended September 30, 2011 and 2010
(Stated in US Dollars)
Nine months ended
September 30,
------------------------------
2011 2010
---------- ----------
(Unaudited) (Unaudited)
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid for:
Interest $ 302,475 $ 190,957
Income taxes $ 957,557 $1,154,955
========== ==========
NON-CASH FINANCING ACTIVITIES:
Dividends - Note $ -- $2,019,252
========== ==========
----------
Note:
On January 26, 2009, the Company declared interim dividend amounting to
$7,299,590 of which $5,280,338 was settled via a current account with a director
in 2009. In 2010, the remaining balance of dividend payable amounting to
$2,019,252 was transferred to current account with a director.
The accompanying notes are an integral part of these
condensed consolidated financial statements
7
Pacific Bepure Industry Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Stated in US Dollars)
Common Stock Accumulated
-------------------- Additional Statutory Other Total
Number of Paid-in Reserve Comprehensive Retained Stockholders'
Shares Amount Capital (Note 23) Income Earnings Equity
------ ------ ------- --------- ------ -------- ------
Balance, December 31, 2010 15,000,000 $ 1,500 $ 3,234,650 $ 309,688 $ 1,987,222 $15,478,638 $21,011,698
Net income -- -- -- -- -- 945,259 945,259
Foreign currency translation
adjustment -- -- -- -- 686,878 -- 686,878
Share-based compensation -- -- 187,784 -- -- -- 187,784
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2011 15,000,000 $ 1,500 $ 3,422,434 $ 309,688 $ 2,674,100 $16,423,897 $22,831,619
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements
8
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
1. CORPORATE INFORMATION AND DESCRIPTION OF BUSINESS
Pacific Bepure Industry Inc. (the "Company") was incorporated on October 9, 2007
under the laws of the State of Delaware with authorized share capital of $7,500,
divided into 75,000,000 common shares of $0.0001 par value each. The Company's
shares are quoted for trading on the Over-the-counter Bulletin Board in the
United States of America.
The Company's primary operations consist of the business and operations of
Peakway Worldwide Limited ("Peakway"), which acts as an investment holding
company and currently has three subsidiaries namely, Alberta Holdings Limited
("Alberta"), Fuijang Jinjiang Pacific Shoes Company Limited ("Pacific Shoes")
and Fujian Baopiao Light Industry Company Limited ("Baopiao").
Peakway was incorporated in the British Virgin Islands (the "BVI") on November
3, 2006 as a limited liability company with authorized share capital of $50,000,
divided into 50,000 common shares of $1 par value each. The issued share capital
of Peakway is $1,000, divided into 1,000 common shares of $1 par value each.
Alberta was incorporated in Hong Kong on November 4, 2006 as a limited liability
company with authorized share capital of 10,000 Hong Kong dollars ("HK$"),
divided into 10,000 common shares of HK$1 par value each. The issued share
capital of Alberta is HK$1, being 1 common share of HK$1 par value. Alberta is
also a holding company and had no other operation since its incorporation.
Pacific Shoes was established as a sino-foreign equity joint venture entity in
the People's Republic of China (the "PRC") on April 9, 1993 with registered
capital of 5,000,000 Renminbi ("RMB") (which are not divided into shares) and
its registered capital was fully paid up.
Baopiao was established as a wholly foreign-owned enterprise ("WFOE") in the PRC
on February 15, 2006 with registered capital of HK$50,000,000 (which are not
divided into shares). As of March 31, 2011, its paid up capital was
HK$16,370,478 of which HK$15,401,180 was certified. Baopiao acted as a
subcontracting factory for Pacific Shoes and started operation on April 1, 2011.
The Company, through its subsidiaries, is engaged in the design, manufacturing
and trading of footwear under the brand names of "BEPURE" through a network
across the PRC. The major target market of the Company's products is the PRC.
9
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
2. BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements of the Company and
its subsidiaries have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission (the "SEC"). Certain information and
note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America (the "US GAAP") have been condensed or omitted from these statements
pursuant to such rules and regulation and, accordingly, they do not include all
the information and notes necessary for comprehensive consolidated financial
statements and should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 2010.
In the opinion of the management of the Company, all adjustments, which are of a
normal recurring nature, necessary for a fair statement of the results for the
three-month and nine-month periods have been made. Results for the interim
period presented are not necessarily indicative of the results that might be
expected for the entire fiscal year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
trade receivables and advances to customers and distributors. As of September
30, 2011 and December 31, 2010, substantially all of the Company's cash and cash
equivalents were held by major financial institutions located in the PRC, which
management believes are of high credit quality. With respect to trade
receivables and advances to customers and distributors, the Company extends
credit based on evaluations of the customers' and distributors' financial
positions. The Company generally does not require collateral for customers and
distributors.
10
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Concentrations of credit risk (cont'd)
During the reporting period, customers representing 10% or more of the Company's
sales are as follows:
Nine months ended Three months ended
September 30, September 30,
------------------------ -------------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Taiwan Quanyi
Xingye Co., Ltd. $5,171,555 $4,620,681 $1,245,788 $1,366,604
========== ========== ========== ==========
Details of customers for 10% or more of the Company's trade receivables are:
As of As of
September 30, December 31,
2011 2010
---------- ----------
(Unaudited) (Audited)
Taiwan Quanyi Xingye Co., Ltd. $3,053,019 $1,839,049
========== ==========
Collateralized and uncollateralized short-term bank loans
ASC 820 "Fair Value Measurements and Disclosures" requires the disclosure of the
estimated fair value of financial instruments including those financial
instruments for which the ASC 323 fair value option was not elected. Except for
collateralized borrowings disclosed below, the carrying amounts of other
financial assets and liabilities approximate their fair values due to short
maturities:
As of September 30, 2011 As of December 31, 2010
------------------------ -----------------------
(Unaudited) (Audited)
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Collateralized
short-term bank
loans $6,480,394 $6,445,764 $4,717,870 $4,713,661
========== ========== ========== ==========
The fair values of borrowings are based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
It is management's opinion that the Company is not exposed to significant price
or credit risks arising from these financial instruments.
11
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2010, the FASB issued ASU 2010-20 "Receivables (Topic 310): Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses". The objective of ASU 2010-20 is to provide financial statement users
with greater transparency about an entity's allowance for credit losses and the
credit quality of its financing receivables. Under ASU 2010-20, an entity is
required to provide disclosures so that financial statement users can evaluate
the nature of the credit risk inherent in the entity's portfolio of financing
receivables, how that risk is analyzed and assessed to arrive at the allowance
for credit losses, and the changes and reasons for those changes in the
allowance for credit losses. ASU 2010-20 is applicable to all entities, both
public and non-public and is effective for interim and annual reporting periods
ending on or after December 15, 2010. Comparative disclosure for earlier
reporting periods that ended before initial adoption is encouraged but not
required. However, comparative disclosures are required to be disclosed for
those reporting periods ending after initial adoption. The adoption of this ASU
update has no material impact on the Company's financial statements.
The FASB issued ASU 2011-02, "Receivables (Topic 310): A Creditor's
Determination of Whether a Restructuring is a Troubled Debt Restructuring". The
amendments to Topic 310 clarify the guidance on a creditor's evaluation of
whether a debtor is experiencing financial difficulties. A creditor should
evaluate whether it is probable that the debtor would be in payment default on
any of its debts in foreseeable future without the modification. In addition,
the amendments to Topic 310 clarify that a creditor is precluded from using the
effective interest rate test in the debtor's guidance on restructuring of
payables (paragraph 470-60-55-10) when evaluating whether a restructuring
constitutes a troubled debt restructuring. An entity should disclose the total
amount of receivables and the allowance for credit losses as of the end of the
period of adoption related to those receivables that are newly considered
impaired under Section 310-10-35 for which impairment was previously measured
under Subtopic 450-20, Contingencies - Loss Contingencies. The adoption of this
ASU update has no material impact on the Company's financial statements.
In April 2011, the FASB issued ASU 2011-03, "Transfers and Servicing (Topic
860): Reconsideration of Effective Control for Repurchase Agreements". The
amendments in this ASU update remove from the assessment of effective control
(1) the criterion requiring the transferor to have the ability to repurchase or
redeem the financial assets on substantially the agreed terms, even in the event
of default by the transferee, and (2) the collateral maintenance implementation
guidance related to that criterion. The guidance in this ASU update is effective
for the first interim or annual period beginning on or after December 15, 2011.
The guidance should be applied prospectively to transactions or modifications of
existing transactions that occur on or after the effective date. Early adoption
is not permitted. The adoption of this ASU update is not expected to have a
material impact on the Company's financial statements.
12
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONT'D)
In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs". The FASB and the International Accounting Standard
Board (IASB) works together to ensure that fair value has the same meaning in
U.S. GAAP and IFRSs and that their respective fair value measurement and
disclosure requirements are the same (except for minor differences in wording
and style). The Boards concluded that the amendments in this ASU update will
improve the comparability of fair value measurements presented and disclosed in
financial statements prepared in accordance with U.S. GAAP and IFRSs. The
amendments in this ASU update explain how to measure fair value. They do not
require additional fair value measurements and are not intended to establish
valuation standards or affect valuation practices outside of financial
reporting. The amendments in this ASU update are to be applied prospectively.
For public entities, the amendments are effective during interim and annual
periods beginning after December 15, 2011. Early application by public entities
is not permitted. The adoption of this ASU update is not expected to have a
material impact on the Company's financial statements.
In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220):
Presentation of Comprehensive Income". In this ASU updated, the entity has the
option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component of
net income along with total net income, each component of other comprehensive
income along with a total for other comprehensive income, and a total amount for
comprehensive income. This Update eliminates the option to present the
components of other comprehensive income as part of the statement of changes in
stockholders' equity. The amendments in this ASU update do not change the items
that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The amendments in this
ASU update are to be applied retrospectively. For public entities, the
amendments are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011. Early application by public entities
is permitted. The adoption of this ASU update has no material impact on the
Company's financial statements.
In September 2011, the FASB issued ASU 2011-08, "Intangibles - Goodwill and
Other (Topic 350)". The amendments in this update will allow an entity to first
assess qualitative factors to determine whether it is necessary to perform the
two-step quantitative goodwill impairment test. Under these amendments, an
entity would not be required to calculate the fair value of a reporting unit
unless the entity determines, based on a qualitative assessment, that it is more
likely than not that its fair value is less than its carrying amount. The
amendments include a number of events and circumstances for an entity to
consider in conducting the qualitative assessment. The adoption of this ASU
update is not expected to have a material impact on the Company's financial
statements.
13
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
5. PREPAYMENTS AND OTHER RECEIVABLES
As of As of
September 30, December 31,
2011 2010
-------- --------
(Unaudited) (Audited)
Prepayments to suppliers $ 57,572 $131,846
Advances to staff 101,282 117,272
-------- --------
$158,854 $249,118
======== ========
6. ADVANCES TO CUSTOMERS AND DISTRIBUTORS
As of As of
September 30, December 31,
2011 2010
---------- ----------
(Unaudited) (Audited)
Interest-free loans advanced to
customers and distributors $1,582,165 $1,293,733
========== ==========
In order to improve the market shares and increase the number of retailing
points in the PRC, the management advanced cash to the potential retailers for
them to increase the number of retail shops and distribution points in the
related provinces in which they are located. The amounts are interest-free,
unsecured and payable upon demand.
7. INVENTORIES
As of As of
September 30, December 31,
2011 2010
---------- ----------
(Unaudited) (Audited)
Raw materials $1,028,147 $ 227,572
Work-in-progress 1,721,254 445,249
Finished goods 706,981 559,736
---------- ----------
$3,456,382 $1,232,557
========== ==========
14
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
8. PROPERTIES, PLANT AND EQUIPMENT
As of As of
September 30, December 31,
2011 2010
------------ ------------
(Unaudited) (Audited)
Costs:
Plant and machinery $ 1,462,141 $ 985,609
Office equipment 219,053 115,060
Buildings 8,742,604 1,337,557
------------ ------------
10,423,798 2,438,226
Accumulated depreciation (1,436,439) (1,261,688)
Construction-in-progress 3,799 6,416,328
------------ ------------
$ 8,991,158 $ 7,592,866
============ ============
During the reporting period, depreciation is included in:
Nine months ended September 30,
---------------------------------
2011 2010
-------- --------
(Unaudited) (Unaudited)
Cost of sales and overheads $133,654 $ 68,799
Administrative expenses 102,936 49,886
-------- --------
$236,590 $118,685
======== ========
----------
Notes:
As of September 30, 2011 and December 31, 2010, buildings with carrying value of
$7,280,065 and $852,833 respectively, were pledged for the collateralized bank
loans (Note 12b).
Construction-in-progress consist mainly the new manufacturing plant under
construction.
9. LAND USE RIGHTS
As of As of
September 30, December 31,
2011 2010
------------ ------------
(Unaudited) (Audited)
Cost $ 6,618,675 $ 6,414,392
Accumulated amortization (506,705) (392,903)
------------ ------------
$ 6,111,970 $ 6,021,489
============ ============
The Company obtained the rights from the relevant PRC land bureau for a period
of 50 years to use the land on which the office premises, production facilities
and warehouse of the Company are situated.
As of September 30, 2011 and December 31, 2010, the land use rights with
carrying value of $6,111,970 and $6,021,489 respectively, was pledged for
collateralized bank loans (Note 12b).
15
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
9. LAND USE RIGHTS (CONT'D)
During the nine months ended September 30, 2011 and 2010, amortization for the
land use rights amounted to $99,730 and $94,932 of which $32,975 and $94,166
have been capitalized in construction-in-progress, respectively.
The estimated aggregate amortization expenses for the land use rights for the
five succeeding years are as follows :-
Year
----
2012 $133,426
2013 133,426
2014 133,426
2015 133,426
2016 133,426
--------
$667,130
========
10. INTANGIBLE ASSET
As of As of
September 30, December 31,
2011 2010
---------- ----------
(Unaudited) (Audited)
Software
Cost $ 342,803 $ 332,223
Accumulated amortization (192,510) (141,718)
---------- ----------
$ 150,293 $ 190,505
========== ==========
This software represents integrated software in designing footwear and purchased
by Pacific Shoes. Pursuant to the management experience, this software estimated
useful life was 5 years. Since its acquisition, an annual impairment review was
performed by management and no impairment was identified.
During the nine months ended September 30, 2011 and 2010, amortization for
intangible asset amounted to $45,566 and $39,610, respectively.
The estimated aggregate amortization expenses for software for the three
succeeding years are as follows:
Year
----
2012 $ 59,800
2013 59,800
2014 30,693
--------
$150,293
========
16
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
11. OTHER PAYABLES AND ACCRUED EXPENSES
As of As of
September 30, December 31,
2011 2010
---------- ----------
(Unaudited) (Audited)
Value added tax and other tax payable $1,063,300 $1,712,724
Staff welfare payables (Note (a)) 1,209,244 1,046,724
Accrued expenses and other payables 558,532 536,147
Salaries payable 558,279 229,279
---------- ----------
$3,389,355 $3,524,874
========== ==========
----------
Notes:
a) Staff welfare payable represents accrued staff medical, industry injury
claims, labor and unemployment insurances. All of which are covered by
third parties insurance and the insurance premiums are based on certain
percentage of salaries. The obligations of the Company are limited to those
premiums contributed by the Company.
12. LOANS PAYABLE
As of As of
September 30, December 31,
2011 2010
---------- ----------
(Unaudited) (Audited)
Collateralized short-term bank loans (Note (b)) $4,915,082 $3,079,510
Uncollateralized short-term bank loans 1,565,312 1,638,360
---------- ----------
$6,480,394 $4,717,870
========== ==========
----------
Notes:
a) The bank loans are denominated in RMB and carried average interest rate as
of September 30, 2011 and December 31, 2010 at 6.16% and 5.82%
respectively.
During the reporting period, there was no covenant requirement under the
banking facilities granted to the Company.
(b) These bank loans were collateralized by the buildings and land use right
with carrying values of $7,280,065 (Note 8), and $6,111,970 (Note 9),
respectively, and guaranteed by Mr. Li Haiting, the sole director of the
Company and his brother and a third party.
17
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
13. AMOUNT DUE TO A DIRECTOR
The amount is interest-free, unsecured and repayable on demand. The directors
consider the carrying amount approximates its fair value.
14. SHARE-BASED COMPENSATION
The Company granted share options to employees and a director to reward for
services.
On December 6, 2010, the Company has granted 3 tranches of share option. The
option granted was designated as Incentive Stock Option. The Board of Directors
adopted the Pacific Bepure Industry Inc. Stock Option Plan (the "2010 Plan") and
the plan was approved in the Annual General Meeting on January 14, 2011. The
2010 Plan authorized the issuance of 560,000 options of the Company's common
stock. The exercise price of the options granted, pursuant to the 2010 Plan,
must be at least equal to the market value of the Company's common stock at the
date of grant.
Pursuant to the Plan, the Company issued 560,000 options with an exercise price
of $1.75 per share on December, 6, 2010. The 3 tranches of options will vest and
become exercisable from the date of January 5, 2011 to January 5, 2013.
A summary of share option plan activity for the period ended September 30, 2011
is presented below:
Number of Exercise Price
Shares Per Share
------ ---------
Outstanding as of January 1, 2011 560,000 $ 1.75
Granted -- --
Exercised -- --
Forfeited -- --
Cancelled -- --
-------- --------
Outstanding as of September 30, 2011 560,000 $ 1.75
======== ========
Exercisable as of September 30, 2011 168,000 $ 1.75
======== ========
The grant-date fair values for tranches 1, 2 and 3 of options granted in 2010
were $0.62, $0.67 and $0.72 per option respectively. Compensation expense of
$187,784 arising from above mentioned share options granted was recognized for
the nine months ended September 30, 2011.
The fair values of the above option awards were estimated on the date of grant
using the Black-Scholes Option Valuation Model with the following assumptions.
Tranche 1 Tranche 2 Tranche 3
--------- --------- ---------
Expected life 2.583 years 3.083 years 3.583 years
Expected dividends Nil Nil Nil
Expected volatility 54.743% 54.743% 54.743%
Risk-free interest rate 1.572% 1.572% 1.572%
18
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
15. COMMITMENTS AND CONTINGENCIES
a. Capital commitment
As of September 30, 2011, there was no capital commitment for the Company
(December 31, 2010 : the Company had capital commitment in respect of the
construction of properties, amounting to $47,116, which was contracted but not
provided for in the financial statements).
b. Operating lease commitment
As of September 30, 2011, there was no operating lease arrangement for the
Company.
The rental expense was $18,456 for the nine months ended September 30, 2011.
c. Contingencies
In accordance with the PRC tax regulations, the Company's sales are subject to
value added tax ("VAT") at 17% upon the issuance of VAT invoices to its
customers. When preparing these financial statements, the Company recognized
revenue when goods were delivered, and made full tax provision in accordance
with relevant national and local laws and regulations of the PRC.
The Company follows the practice of reporting its revenue for PRC tax purposes
when invoices are issued. In the local statutory financial statements prepared
under PRC GAAP, the Company recognized revenue on an "invoice basis" instead of
when goods are delivered. Accordingly, despite the fact that the Company has
made full tax provision in the financial statements, the Company may be subject
to a penalty for the deferred reporting of tax obligations. The exact amount of
penalty cannot be estimated with any reasonable degree of certainty. The
director considers it is very unlikely that the tax penalty will be imposed.
16. OTHER INCOME
Nine months ended Three months ended
September 30, September 30,
--------------------- ---------------------
2011 2010 2011 2010
-------- -------- -------- --------
(Unaudited) (Unaudited)
Government grant income $ 70,549 $ -- $ 15,915 $ --
Sales of scrap materials 81,946 -- 30,189 --
Others 3,059 -- 30 10,619
-------- -------- -------- --------
$155,554 $ -- $ 46,134 $ 10,619
======== ======== ======== ========
19
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
17. FINANCE COSTS
Nine months ended Three months ended
September 30, September 30,
-------------------- --------------------
2011 2010 2011 2010
-------- -------- -------- --------
(Unaudited) (Unaudited)
Bank loan interest expenses $302,475 $190,957 $113,775 $ 67,520
Interest income (3,484) (3,066) (1,254) (661)
Bank charges 75,761 6,787 3,775 5,243
-------- -------- -------- --------
$374,752 $194,678 $116,296 $ 72,102
======== ======== ======== ========
18. INCOME TAXES
United States
Pacific Bepure Industry Inc. is subject to the United States of America Tax law
at tax rate of 34%. No provision for the US federal income taxes has been made
as the Company had no taxable income in this jurisdiction for the reporting
period.
BVI
Peakway was incorporated in the BVI and, under the current laws of the BVI, is
not subject to income taxes.
Hong Kong
Alberta was incorporated in Hong Kong and is subject to profits tax rate of
16.5% (2010 : 16.5%). It is currently not subject to income taxes because it
derived no taxable income during the reporting period.
PRC
On March 16, 2007, the National People's Congress approved the Corporate Income
Tax Law of the People's Republic of China (the "New CIT Law"). The New CIT Law
reduces the standard corporate income tax rate from 33% to 25% with effect from
January 1, 2008. Pursuant to the New CIT Law, Pacific Shoes and Baopiao have
been subjected to EIT at a unified rate of 25% from January 1, 2008 onwards.
According to the PRC tax laws and regulations, Pacific Shoes and Bapiao being a
sino-foreign equity joint venture entity and a WFOE respectively, were entitled
to, starting from the first profitable year, a two-year exemption from
enterprise income tax followed by a three-year 50% reduction in its enterprise
income tax ("Tax Holiday").
The Tax Holiday of Pacific Shoes commenced in year 1993 and ended in year 1997.
Baopiao has not started commercial operations and had no reportable profit under
China Accounting Regulations since its incorporation on February 15, 2006.
Baopiao had not applied for such Tax Holiday to the relevant PRC authority
before the New CIT Law became effective on January 1, 2008. However, pursuant to
the transitional provisions in the New CIT Law, companies qualified for Tax
Holiday must make application prior to January 1, 2008 and the Tax Holiday would
be deemed commence on January 1, 2008 regardless of results of operation.
Baopiao is therefore not entitled to Tax Holiday.
20
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
18. INCOME TAXES (CONT'D)
In July 2006, the FASB issued ASC 740-10-25 (previously Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes"). This interpretation requires
recognition and measurement of uncertain income tax positions using a
"more-likely-than-not" approach. The Company adopted this ASC 740-10-25 on
January 1, 2007. Under the New CIT Law which became effective on January 1,
2008, the Company might be deemed to be a resident enterprise by the PRC tax
authorities. If the Company was deemed to be resident enterprise, the Company
might be subject to the CIT at 25% on the worldwide taxable income and dividends
paid from the RPC subsidiaries to their overseas holding companies might be
exempted from 10% PRC withholding tax. Given that all of the Company's income is
generated from the PRC and the PRC subsidiaries do not intend to pay dividends
for the foreseeable future operation, the management considers that the impact
arising from resident enterprise on the Company's financial position is not
significant. The management evaluated the Company's tax positions and considered
that no provision for uncertainty in income taxes is necessary as of September
30, 2011.
The components of the provision for income taxes from continuing operation are:
Nine months ended Three months ended
September 30, September 30,
------------------------- ------------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Current taxes - PRC $ 714,349 $1,439,944 $ 223,532 $ 858,676
Deferred taxes - PRC -- -- -- --
---------- ---------- ---------- ----------
$ 714,349 $1,439,944 $ 223,532 $ 858,676
========== ========== ========== ==========
The effective income tax expenses differ from the PRC statutory income tax rate
from continuing operations in the PRC as follows:
Nine months ended Three months ended
September 30, September 30,
------------------------- ------------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Provision for income
taxes at PRC statutory
income tax rate - 25% $ 414,902 $1,397,967 $ 115,920 $ 846,929
Non-deductible items 299,447 41,977 107,612 11,747
---------- ---------- ---------- ----------
$ 714,349 $1,439,944 $ 223,532 $ 858,676
========== ========== ========== ==========
21
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
19. EARNINGS PER SHARE
The basic and diluted earnings per share is calculated using the net income and
the weighted average number of shares outstanding during the reporting periods.
The share options in issue are considered anti-dilative. Accordingly, the basic
and diluted earnings per share are the same.
20. RELATED PARTIES TRANSACTIONS
Apart from the transactions as disclosed in Notes 12(b) and 13 to the financial
statements, the Company had no material transactions carried out with related
parties during the period.
21. TRADEMARKS
Pacific Shoes, currently owns two trademarks, namely "??" ("Bepure"), and "???"
("Dilks") which were registered in the PRC. These trademarks were transferred to
the subsidiary from a major stockholder of the Company for nil consideration
during 2008.
22. COMMON STOCK
The Company was incorporated on October 9, 2007 with authorized share capital of
$7,500 divided into 75,000,000 common shares of $0.0001 par value each.
23. STATUTORY RESERVE
The Company's statutory reserve comprise of the following:
As of As of
September 30, December 31,
2011 2010
-------- --------
(Unaudited) (Audited)
Statutory reserve $309,688 $309,688
======== ========
Under PRC regulations, Pacific Shoes and Baopiao may pay dividends only out of
their accumulated profits, if any, determined in accordance with PRC GAAP. In
addition, these companies are required to set aside at least 10% of their
after-tax net profits each year, if any, to fund the statutory reserves until
the individual balance of the reserve reaches 50% of their corresponding
individual registered capital. The statutory reserves are not distributable in
the form of cash dividends to the Company and can be used to make up cumulative
prior year losses.
For the nine months ended September 30, 2011 and 2010 respectively, no
appropriation to this statutory reserve was made as the reserve reached 50% of
the Pacific Shoes' registered capital and Baopiao did not make any profit during
the period.
22
Pacific Bepure Industry Inc.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)
24. DEFINED CONTRIBUTION PLAN
Pacific Shoes and Baopiao have defined contribution plans for all qualified
employees in the PRC. Pacific Shoes and Baopiao and their employees are each
required to make contributions to the plans at the rates specified in the plans.
The only obligation of Pacific Shoes and Baopiao with respect to retirement
schemes are to make the required contributions under the plans. No forfeited
contribution is available to reduce the contribution payable in the future
years. The defined contribution plan contributions were charged to the
consolidated statements of income and comprehensive income. The Company
contributed $124,039 and $86,124 for the nine months ended September 30, 2011
and 2010 respectively.
25. SEGMENT INFORMATION
The Company uses the "management approach" in determining reportable operating
segments. The management approach considers the internal organization and
reporting used by the Company's chief operating decision maker for making
operating decisions and assessing performance as the source for determining the
Company's reportable segments. Management, including the chief operating
decision maker, reviews operating results solely by monthly revenue and
operating results of the Company and, as such, the Company has determined that
the Company has one operating segments - footwear, as defined by ASC 280,
Segments Reporting" (previously SFAS No. 131).
All of the Company's long-lived assets are located in the PRC. Geographic
information about the revenues, which are classified based on the customers, is
set out as follows:
Nine months ended Three months ended
September 30, September 30,
------------------------------ -------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
PRC $ 9,051,049 $ 15,493,515 $ 3,782,867 $ 9,504,439
Taiwan 5,171,555 4,664,286 1,245,788 1,366,185
------------ ------------ ------------ ------------
$ 14,222,604 $ 20,157,801 $ 5,028,655 $ 10,870,624
============ ============ ============ ============
26. SUBSEQUENT EVENTS
The company evaluated all events or transactions that occurred after September
30, 2011 and through the date the financial statements were issued, and has
determined that there are no material subsequent events nor transactions which
would require recognition or disclosure in these consolidated financial
statements.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains both historical and "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.
Forward-looking statements, written, oral or otherwise made, represent the
Company's expectation or belief concerning future events. All statements, other
than statements of historical fact, are or may be forward-looking statements.
For example, statements concerning projections, predictions, expectations,
estimates or forecasts, and statements that describe our objectives, future
performance, plans or goals are, or may be, forward-looking statements. These
forward-looking statements reflect management's current expectations concerning
future results and events and can generally be identified by the use of words
such as "may," "will," "should," "could," "would," "likely," "predict,"
"potential," "continue," "future," "estimate," "believe," "expect,"
"anticipate," "intend," "plan," "foresee" and other similar words or phrases, as
well as statements in the future tense.
Forward-looking statements involve known and unknown risks, uncertainties,
assumptions, and other important factors that may cause our actual results,
performance or achievements to be different from any future results, performance
and achievements expressed or implied by these statements. The following
discussion and analysis should be read in conjunction with our consolidated
financial statements and the related notes thereto and other financial
information contained elsewhere in this Form 10-Q. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's opinions only as of the date hereof. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the factors described in the Section
entitled "Risk Factors" on Form 10-K and other documents we file from time to
time with the Securities and Exchange Commission ("SEC").
OUR HISTORY AND CORPORATE STRUCTURE
We are a Delaware corporation that was incorporated on October 9, 2007. We are
headquartered in Fujian Province, China. On November 11, 2009, we completed a
reverse acquisition transaction ("Reverse Merger") with Peakway Worldwide
Limited ("Peakway"), a company incorporated under the laws of the British Virgin
Islands pursuant to the terms of a Share Exchange Agreement dated as of November
5, 2009 ("Share Exchange Agreement"). Alberta Holdings Limited is a Hong Kong
company incorporated on November 4, 2006 and was acquired by Peakway on November
1, 2007. Alberta presently has two wholly-owned subsidiaries: Fujian Jinjiang
Pacific Shoes Co., Limited and Fujian Baopiao Light Industry Co., Limited.
Fujian Jinjiang Pacific Shoes Co., Limited ("Pacific Shoes") was established as
a sino-foreign equity joint venture entity in the PRC on April 9, 1993. On
January 12, 2009, Alberta acquired 100% equity interest in Pacific Shoes.
Currently, all of our revenues have been generated from Pacific Shoes.
Fujian Baopiao Light Industry Co., Limited ("Baopiao ") was established as a
wholly foreign-owned enterprise ("WFOE") in the PRC on February 15, 2006. On
February 26, 2009, Alberta acquired 100% equity interest in Baopiao Shoes. As of
the date of this report, Baopiao is still in its development stage and has not
yet generated any revenue.
We are now a fully reporting issuer with our common stock publicly quoted on the
OTC bulletin board under the symbol "PBEP". To the best of the Company's
knowledge and information, as of November 15, 2011, we had 15,000,000 shares of
common stock issued and outstanding.
BUSINESS REVIEW
No matter how was the global economic condition, China economy was still
increasing at a steady growth. Yet it took longer to achieve the same growth as
compared with the same period in 2010. Influenced by macro control economic
policies imposed on real estate, investments conducted less contributions to the
increase of GDP. In general, the global economy was retrieving growth in slow
paces, and China met continuous decreases of growth rate in export.
Simultaneously CPI in China made a breakthrough in historical records, and the
actual consumption was growing at a lower rate as compared with the same period
in last year.
The Company is mainly engaged in professional design, manufacture and
distribution of sports and casual footwear through its Chinese Subsidiaries. We
target at both female and male customers, particularly the 20-35 years old
female consumers, among whom our Baopaio (or "Bepure") label has witnessed an
increasing recognition. For nine months ended September 30, 2011, the Company's
sales revenues decreased by $5,935,197 or 29.44% to $14,222,604 compared with
$20,157,801 in the same period of 2010.
24
SALES NETWORK
We design, develop, manufacture and distribute sports and casual footwear in
China and South America through our indirectly owned Chinese subsidiaries. All
of our products are sold under the brand "" ("Baopiao" in English). We sell our
products to consumers in the People's Republic of China (for purpose of this
Form 10-Q, excludes Hong Kong Special Administration Region, Macau Special
Administration Region and Taiwan), or so-called "domestic market" and South
America. In the domestic market, we sell our products substantially on a
wholesale basis to our distributors who are responsible for distribution to
retail outlets. Through our distributors, our sales network covers 24 provinces
and administrative regions in various modes, including retail outlets, counters
in department stores and shopping malls, and wall racks in large supermarkets.
Our products, including our branded products and ODM (Original Design
Manufacture) products, are sold in the South America through our distributors.
We have certain control over these distributor appointed retailers because when
we enter into distribution agreements with distributors, we have the right to
approve or reject the distributor's request to appoint certain retailers. As of
September 30, 2011, retail locations are 98, and 1,523 counters in the shopping
malls are now authorized to sell our products and they are under the direct
management of our distributors. We continue to refresh our brand image with
in-store advertising and decorations, so that consumers will enjoy a much
happier purchase experience at the retail outlets.
Through years of effort in expanding the market share, the Company now maintains
a solid distribution base with a retail management system is under development
as well. This enables us to monitor the overall retail situation and respond to
the market changes in a more timely manner. As part of our online marketing and
distribution strategy, we improved our online shopping portal and registered
Bepure official online store with Taobao, a leading Internet destination for
shopping, socializing and information sharing in China.
PRODUCT R&D
The Company consistently aims to develop attractive footwear products to satisfy
the demand of its target market and to interpret fashion trends. To help
accomplish this, the Company has been focused on the R&D and application of new
craftsmanship, new materials and new technologies, to streamline the Company's
innovative brand concept and international sports fashion. We increased the R&D
cost, updated the equipment and introduced additional talents to develop
fashionable and practical products. In addition, the Company keeps adding new
elements into the product designs to earn more selling points and consumer
recognition on the Baopiao brand, thus constantly striving for the fashion
leader position of "Baopiao" in the female sports and casual footwear market.
In order to build an appropriate, scalable and multiple product structure, the
Company has increased the percentage of men's products to the total sales and
divided its products into four categories, namely, the "Free Travel," the
"Business Travel," the "Outdoor Travel" and the "Urban Travel".
CHAIN SUPPLY MANAGEMENT
We have adopted a cost control system in its business operation. Our procurement
team works closely with engaged suppliers and outsourcing companies to shares
the cost trend of main materials. Meanwhile, we are able to decrease both costs
and pollutants by implementing strict production standards at our existing
facilities while outsourcing certain low margin products. We also try to reduce
the cost of raw materials through bulk purchases, in which our outsourcing
partners are co-buyers.
INFORMATION MANAGEMENT
The Company has set up an information management system which consists of
financial management, sales management, supply chain management, production
management, decision-making support and database service functions, which
contributes significantly to the operation development.
This is an integrated IT system that is able to handle the ever-increasing
requirements of business development. The Company will continue to extend the
new system to its sales channels, especially retail outlets.
The Enterprise Resource Planning (ERP) System of the Company was in full
operation at the end of 2010. The system (i) comprehensively records the
information of sales and goods allotment which is the basis for implementation
of sales policies; (ii) provides exact and thorough analysis data for management
of production; (iii) assists the management in planning and decision-making by
providing access to close domination each department.
25
SUMMARY OF CRITICAL ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company accounts and transactions have
been eliminated in consolidation.
Use of estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements, as well as the reported amounts of revenue and expenses during the
reported period. These amounts and estimates include, but are not limited to,
the valuation of trade and bills receivables, inventories and estimation on
useful lives and residual values of properties, plant and equipment and
intangible asset. Actual results could differ from these estimates.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined
on a weighted average basis and includes all expenditures incurred in bringing
the goods to the point of sale and putting them in a saleable condition.
In addition, the Company estimates net realizable value based on intended use,
current market value and inventory ageing analyses. The Company writes down the
inventories for estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventories and the estimated market value based
upon assumptions about future demand and market conditions.
There were no provision of obsolete inventories made during the reporting
period. Historically, the actual net realizable value is close to the management
estimation.
Properties, plant and equipment
Properties, plant and equipment are stated at cost less accumulated
depreciation. Cost represents the purchase price of the asset and other costs
incurred to bring the asset into its existing use.
Depreciation is provided on a straight-line basis over the assets' estimated
useful lives. The useful lives are as follows :-
Estimated
Useful Lives
------------
Plant and machinery 3 to 8 years
Office equipment 3 to 5 years
Buildings 30 to 40 years
Maintenance or repairs are charged to expense as incurred. Upon sale or
disposal, the applicable amounts of asset cost and accumulated depreciation are
removed from the accounts and the net amount less proceeds from disposal is
charged or credited to income.
Construction-in-progress
Construction-in-progress represents assets under construction and is stated at
cost. This includes cost of construction of buildings and other direct costs.
Construction-in-progress is not depreciated until such time the relevant assets
are completed and put into use.
Intangible asset
The intangible asset of the Company is comprised of accounting software and
shoes designing software. The software is determined to have useful life of 5
years pursuant to the management experience. The software is stated at cost of
purchase less accumulated amortization and any identified impairment losses in
the annual impairment review.
26
Land use rights
Land use rights are stated at cost less accumulated amortization. Amortization
is provided using the straight-line method over the terms of the lease of 50
years obtained from the relevant PRC land bureau.
Impairment of long-lived assets
Long-lived assets are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. The Company recognizes impairment of long-lived assets in the event
that the net book values of such assets exceed the future undiscounted cash
flows attributable to such assets. During the reporting period, the Company has
not identified any indicators that would require testing for impairment.
Revenue recognition
Revenue from sales of the Company's products is recognized when the significant
risks and rewards of ownership have been transferred to the buyer at the time of
delivery, the sales price is fixed or determinable and collection is reasonably
assured. Returns and exchange require approval from management and discounts are
based on trade terms. The Company reviews and estimates the rates of return and
exchange monthly and made provision for return based on customers' and
distributors' past records. From the past records, the return and exchange are
insignificant.
Cost of sales
Cost of sales consists primarily of material costs, purchasing and receiving
costs, inspection costs, wages, employees' compensation, depreciation and
related costs, which are directly attributable to the production of products.
Write down of inventory to lower of cost or market value is also recorded in
cost of sales.
Share-based compensation
The Company adopted the provisions of ASC 718, which requires the use of the
fair value method of accounting for share-based compensation. Under the fair
value based method, compensation cost related to employee stock options or
similar equity instruments which are equity-classified awards, is measured at
the grant date based on the value of the award and is recognized over the
requisite service period, which is usually the vesting period. ASC 718 also
requires measurement of cost of a liability-classified award based on its
current fair value.
Fair value of share options granted is determined using the Black-Scholes Option
Valuation Model. Under this model, certain assumptions, including the risk-free
interest rate, the expected life of the options and the estimated fair value of
the Company's common stock and the expected volatility, are required to
determine the fair value of the options. If different assumptions had been used,
the fair value of the options would have been different from the amount the
Company computed and recorded, which would have resulted in either an increase
or decrease in the compensation expense.
Income taxes
The Company uses the asset and liability method of accounting for income taxes
pursuant to SFAS No.109 "Accounting for Income Taxes". Under the asset and
liability method of SFAS No.109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between the financial statements carrying amounts of existing assets and
liabilities and loss carried forward and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
27
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
2011 AND SEPTEMBER 30, 2010
The following table summarizes our operating results and key financial ratios
for the nine months ended September 30, 2011 and September 30, 2010,
respectively:
Nine months ended September 30 Comparison
------------------------------- ---------------------------
2011 2010 Amount %
------------ ------------ ------------ ---------
Sales revenue $ 14,222,604 $ 20,157,801 $ (5,935,197) (29.44%)
Cost of sales 10,549,817 13,340,291 (2,790,474) (20.92%)
Gross profit 3,672,787 6,817,510 (3,144,723) (46.13%)
Gross profit margin 25.82% 33.82%
Total operating expenses 1,793,981 1,018,649 775,332 76.11%
Income from operations 1,878,806 5,798,861 (3,920,055) (67.60%)
Other expense (155,554) 12,315 (167,869) (1363.13%)
Finance costs 374,752 194,678 180,074 (92.50%)
Income before income taxes 1,659,608 5,591,868 (3,932,260) (70.32%)
Income taxes 714,349 1,439,944 (725,595) (50.39%)
Net income $ 945,259 $ 4,151,924 $ (3,206,665) (77.23%)
The following table summarizes our operating results and key financial ratios
for three months ended September 30, 2011 and September 30, 2010, respectively:
Three months ended September 30 Comparison
------------------------------- -------------------------
2011 2010 Amount %
------------ ------------ ------------ -------
Sales revenue $ 5,028,655 $ 10,870,624 $ (5,841,969) (53.74%)
Cost of sales 3,888,996 7,128,247 (3,239,251) (45.44%)
Gross profit 1,139,659 3,742,377 (2,602,718) (69.55%)
Gross profit margin 22.66% 34.43%
Total operating expenses 605,817 293,180 312,637 106.64%
Income from operations 533,842 3,449,197 (2,915,355) (84.52%)
Other income (46,134) (10,619) (35,515) 334.45%
Finance costs 116,296 72,102 44,194 61.29%
Income before income taxes 463,680 3,387,714 (2,924,034) (86.31%)
Income taxes 223,532 858,676 (635,144) (73.97%)
Net income $ 240,148 $ 2,529,038 $(2,288,890) (90.50%)
This table below illustrates our key operating results and financial indicators
for the nine months ended September 30, 2011 and September 30, 2010,
respectively:
28
Nine months ended September 30 Comparison
------------------------------- ---------------------------
2011 2010 Amount %
------------ ------------ ------------ --------
MAIN OPERATING RESULTS
Sale revenue $ 14,222,604 $ 20,157,801 $ (5,935,197) (29.44%)
Gross profit 3,672,787 6,817,510 (3,144,723) (46.13%)
Income from operations 1,878,806 5,798,861 (3,920,055) (67.60%)
Net income $ 945,259 $ 4,151,924 $ (3,206,665) (77.23%)
MAIN FINANCIAL RATIOS
PROFITABILITY RATIO
Gross profit margin 25.82% 33.82% (8.00%)
Operating profit margin 13.21% 28.77% (15.56%)
Net profit margin 6.65% 20.60% (13.95%)
Ratio of general administrative
expenses to revenue 10.41% 4.11% 6.30%
Ratio of sales and marketing
expenses to revenue 2.21% 0.94% 1.26%
ASSET-EFFICIENCY RATIO
Average inventory turnover days 60 22
Turnover days of accounts receivable 254 116
Turnover days of accounts payable 76 54
REVENUE
For the nine months ended September 30, 2011, our revenues were $14,222,604,
which represented a decrease of $5,935,197 or 29.44%, as compared with
$20,157,801 for the same period in 2010. It is mainly because the purchasing
power declines due to the higher price of merchandise. Moreover, the sales of
winter products was shortened as the temperature stayed relatively high.
For the third quarter of 2011, our revenues were 5,028,655, a decrease of
5,841,969 or 53.74%, as compared with $10,870,624 for the same period in 2010.
It is mainly attributed to the higher temperature .
GEOGRAPHIC SEGMENTS OF REVENUES IN THE NINE MONTHS ENDED SEPTEMBER30, 2011 AND
2010:
Nine months ended Nine months ended
September 30, 2011 September 30, 2010 Comparison
--------------------- ---------------------- ---------------------
$ % $ % $ %
---------- ------ ---------- ------ ---------- ------
Foreign markets 5,171,555 36.36 4,664,286 23.14 507,269 10.88
PRC market 9,051,049 63.64 15,493,515 76.86 (6,442,466) (41.58)
The eastern section (1) 2,367,459 16.65 3,256,803 16.16 (889,344) (27.31)
The northern section (2) 3,936,934 27.68 6,824,213 33.85 (2,887,279) (42.31)
The southern section (3) 2,746,656 19.31 5,412,499 26.85 (2,665,843) (49.25)
---------- ------ ---------- ------ ---------- ------
Total revenues 14,222,604 100.00 20,157,801 100.00 (5,935,197) (29.44)
========== ====== ========== ====== ========== ======
----------
NOTE:
1. THE EASTERN SECTION REFERS TO THE CITY OF SHANGHAI AND THE PROVINCES OF
ZHEJIANG, JIANGSU, ANHUI, HUBEI, HUNAN, JIANGXI AND SHANDONG IN THE PRC;
2. THE NORTHERN SECTION REFERS TO THE CITY OF BEIJING AND THE PROVINCES OF
XINJIANG, GANSU, NINGXIA, HEBEI, HENAN, TIANJIN, SHANXI, INNER MONGOLIA,
LIAONING, JILIN AND HEILONGJIANG IN THE PRC;
3. THE SOUTHERN SECTION REFERS TO THE CITY OF CHONGQING AND PROVINCES OF
GUANGDONG, GUANGXI, FUJIAN, HAINAN, SICHUAN, GUIZHOU, YUNNAN AND TIBET IN
THE PRC.
29
For the nine months ended September 30, 2011, $5,171,555 of our sales revenues
were generated from the foreign (non PRC) markets, representing an increase of
10.88% when compared to $4,664,286 from the same period in 2010.
For the nine months ended September 30, 2011, the domestic Eastern market
contributed $2,367,459 to the Company's sales revenue, representing an decrease
of 27.31%, when compared to $3,256,803 earned in the same period of 2010. The
Northern market generated sales revenue of $3,936,934, representing a decrease
of 42.31%, when compared to $6,824,213 for the same period in 2010. The Southern
market achieved sales revenue of $2,746,656, representing a decrease of 49.25%,
when compared to $5,412,499 for the same period in 2010. Such changes are mainly
due to the following:
* We witnessed an increase in sales revenues in the foreign markets in the
first half of 2011, which was due to the competitive pricing of our
products compared with other similar products. On the other hand, more
diversified products we sold in the foreign markets also led to the
increase in sales revenues during the first half of 2011. This increase in
sales revenue reflects improving brand awareness and a bigger market share
as well as great potentials of our products in the foreign markets.
* In the third quarter of 2011, the sales in Eastern market decreased. We
believe this was due to the decreased sales in provinces of Zhejiang,
Jiangsu and Shangdong.
* In the third quarter of 2011, the sales in Northern market decreased
because of the relative high temperature.
* In the third quarter of 2011, the sales in Southern market decreased
because of the sales in provinces of Sichuan and Guizhou dropped.
GEOGRAPHIC SEGMENTS OF REVENUES IN THE THIRD QUARTER OF 2011 & 2010:
Three months ended Three months ended
June 30, 2011 June 30, 2010 Comparison
---------------------- ---------------------- ----------------------
$ % $ % $ %
--------- ------ ---------- ------ ---------- ------
Foreign markets 1,245,788 24.77 1,366,185 12.57 (120,397) (8.81)
PRC market 3,782,867 75.23 9,504,439 87.43 (5,721,572) (60.20)
The eastern section (1) 844,231 16.79 2,062,288 18.97 (1,218,057) (59.06)
The northern section (2) 1,662,045 33.05 4,019,357 36.97 (2,357,312) (58.65)
The southern section (3) 1,276,591 25.39 3,422,794 31.49 (2,146,203) (62.70)
--------- ------ ---------- ------ ---------- ------
Total revenues 5,028,655 100.00 10,870,624 100.00 (5,841,969) (53.74)
========= ====== ========== ====== ========== ======
----------
NOTE:
1. THE EASTERN SECTION REFERS TO THE CITY OF SHANGHAI AND THE PROVINCES OF
ZHEJIANG, JIANGSU, ANHUI, HUBEI, HUNAN, JIANGXI AND SHANDONG IN THE PRC;
2. THE NORTHERN SECTION REFERS TO THE CITY OF BEIJING AND THE PROVINCES OF
XINJIANG, GANSU, NINGXIA, HEBEI, HENAN, TIANJIN, SHANXI, INNER MONGOLIA,
LIAONING, JILIN AND HEILONGJIANG IN THE PRC;
3. THE SOUTHERN SECTION REFERS TO THE CITY OF CHONGQING AND PROVINCES OF
GUANGDONG, GUANGXI, FUJIAN, HAINAN, SICHUAN, GUIZHOU, YUNNAN AND TIBET IN
THE PRC.
For the three months ended September 30, 2011, $1,245,788 of our sales revenues
were generated from the foreign markets, representing an decrease of 8.81%
compared to $1,366,185 for the same period in 2010.
For the three months ended September 30, 2011, the Eastern section generated
sales revenues of $844,231, representing a decrease of 59.06%, compared to
$2,062,288 for the same period in 2010. The Northern section achieved sales
revenues of $1,662,045, representing a decrease of 58.65%, compared to
$4,019,357 for the same period in 2010. The Southern section achieved sales
revenues of $1,276,591, representing a decrease of 62.70%, compared to
$3,422,794 for the same period in 2010.
GROSS PROFIT AND GROSS PROFIT MARGIN FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2011 AND 2010:
Nine months ended
September 30 Comparison
--------------------------- ------------------------
2011 2010 Amount %
------------ ------------ ------------ --------
Sales revenue $ 14,222,604 $ 20,157,801 $ (5,935,197) (29.44%)
Cost of sales 10,549,817 13,340,291 (2,790,474) (20.92%)
Gross profit $ 3,672,787 $ 6,817,510 $ (3,144,723) (46.13%)
Gross profit margin 25.82% 33.82% (8.00%)
30
For the nine months ended September 30, 2011, our gross profit was $3,672,787,
representing a decrease of $3,144,723 or 46.13%, compared to $6,817,510 for the
same period of 2010. We mainly attribute this to the decreased sales.
For the nine months ended September 30, 2011, our gross profit margin was
25.82%, representing a decrease of 8.00% compared with 33.82% in the same period
of 2010. Such decrease is mainly due to the increased employee salaries and
materials cost(collectively increased by around 10%).
GROSS PROFIT AND GROSS PROFIT MARGIN FOR THE THIRD QUARTER OF 2011 & 2010:
Three months ended
September 30 Comparison
--------------------------- ------------------------
2011 2010 Amount %
------------ ------------ ------------ --------
Sales revenue $ 5,028,655 $ 10,870,624 $ (5,841,969) (53.74%)
Cost of sales 3,888,996 7,128,247 (3,239,251) (45.44%)
Gross profit $ 1,139,659 $ 3,742,377 $ (2,602,718) (69.55%)
Gross profit margin 22.66% 34.43% (11.77%)
For the three months ended September 30, 2011, our gross profit was $1,139,659,
representing a decrease of $2,602,718 or 69.55%, compared to $3,742,377for the
same period of 2010.
For the three months ended September 30, 2011, our gross profit margin was
22.66%, representing a decrease of 11.77% as compared to the 34.43% in the same
period of 2010. The decrease was mainly resulted from increased labor costs and
raw material costs.
In future, we intend to achieve the targeted gross profit margin through
adoption of following measures:
* Conducting the procurements on a wholesale basis so as to reduce the
cost of the materials; and
* Releasing more products into the market at a higher price which has
been properly adjusted.
OPERATING AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the nine months ended September 30, 2011, the selling expenses were
$313,763, representing an increase of $123,339 or 64.77%, compared to $190,424
for the same period in 2010. The reasons were mainly as following:
* The salaries of sales workers were adjusted to a higher level;
* The advertisement expense increased as the Company renewed the
advertising policies.
For the nine months ended September 30, 2011, the administrative expenses were
$1,408,218, representing an increase of 70.03% compared to $828,225 of the same
period in 2010. It was mainly due to as following:
* The increase of R&D expenses in improving new products;
* The increased administrative expenses in management of new factory
located in Hui'an County;
* The additional administrative expenses in implementing stock option
plan.
FINANCING COST
For the nine months ended September 30, 2011, the finance cost was $374,752,
representing an increase of $180,074 or 92.50% comparing to $194,678 for the
same period in 2010. The increase primarily relates to increase in debt
servicing cost on the increase in bank loans which were applied to finance our
marketing expansion and consolidated construction of retails.
NET PROFIT
For the nine months ended September 30, 2011, the net profit was $945,259,
representing a decrease of $3,206,665 or 77.23% compared to $4,151,924 for the
same period in 2010, primarily as a result of the decrease in revenues, higher
cost and huge increase of administrative expenses from the new factory in
Quanzhou.
31
NET PROFIT MARGIN
For the nine months ended September 30, 2011, the net profit margin is 6.65%,
representing a decrease of 13.95% compared to 20.60% for the same period in
2010.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2011, our total assets were $33,780,329, which consist of
cash and cash equivalents of $4,687,475, trade receivables of $13,642,032,
inventories of $3,456,382, prepayments and other receivable of $1,741,019,
properties, plant and equipment of $8,991,158, intangible asset of $150,293 and
land use rights of $6,111,970.
As of September 30, 2011, total liabilities were $15,948,710. Total liabilities
are composed of trade payables of $2,975,826, short-term loans of $6,480,394,
income tax payable of $1,041,404, and other payables and accrued expense of
$5,451,086. As of September 30, 2011, stockholders' equity was $22,831,619. As
of September 30, 2011, the gearing ratio is 41.13%.
We offer reasonable credit limits to our customers at credit terms of 60-180
days to maintain control of trade receivable. As of September 30, 2011, the
average trade receivables turnover was 254 days which was 116 days for the same
period of 2010.
As of September 30, 2011, the average inventory trade turnover was 60 days for
our inventories which was 22 days for the same period of 2010.
Our cash and bank deposits are mainly denominated in RMB, while the revenue,
expense, assets and liabilities are denominated in RMB and US dollars. The PRC
currency is exchanged to US dollars at a floating rate. It did not have any
substantial impact on our financial condition because we own few assets
denominated in US dollars.
CASH FLOW
As of September 30, 2011, our cash and cash equivalents were $4,687,475,
representing a decrease of $1,127,782, compared to $5,266,419 for the same
period of 2010.
As of September 30, 2011, net cash used in operating activities was $1,504,955.
Net cash used in investing activities was $1,375,262. Such cash was mainly used
in the construction of the new production facility and acquisition of plant and
machinery.
As of September 30, 2011, net cash provided by financing activities was
$1,587,448.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer
(the "Certifying officers"), as appropriate, to allow timely decisions regarding
required disclosure.
As of September 30, 2011, the end of the fiscal quarter covered by this report,
we carried out an evaluation, under the supervision and with the participation
of our management, including our Certifying officers, of the effectiveness of
the design and operation of our disclosure controls and procedures. Based on the
foregoing, the Certifying Officers concluded that our disclosure controls and
procedures were effective as of the end of the third fiscal quarter of 2011.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during
the quarter ended September 30, 2011 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no pending legal proceedings to which we are a party which are
material or potentially material, either individually or in the aggregate. We
are from time to time, during the normal course of our business operations,
subject to various litigation claims and legal disputes. We do not believe that
the ultimate disposition of any of these matters will have a material adverse
effect on our financial position, results of operations or liquidity.
ITEM 1A. RISK FACTORS
Except as set forth below, there were no material changes from the risk factors
as previously described in our Annual Report on Form 10-K filed with the SEC on
March 31, 2011.
WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD
DUE TO THE FACT THAT OUR BOOKS AND RECORDS ARE MAINTAINED AND PREPARED IN PRC
GAAP AND OUR EMPLOYEES WHO HAVE PRIMARY RESPONSIBILITIES OF PREPARING AND
SUPERVISING THE PREPARATION OF THE FINANCIAL STATEMENTS UNDER U.S. GAAP DO NOT
HAVE KNOWLEDGE OF AND PROFESSIONAL EXPERIENCE WITH U.S. GAAP AND SEC RULES. AS A
RESULT, CURRENT AND POTENTIAL SHAREHOLDERS COULD LOSE CONFIDENCE IN OUR
FINANCIAL REPORTING, WHICH WOULD HARM THE VALUE OF OUR SECURITIES.
Our CFO is tasked with the primary responsibility of preparing and supervising
the preparation of the Company's financial statements and evaluating the
effectiveness of the Company's internal control over financial reporting. He has
not had prior or ongoing training in the application of the U.S. GAAP or SEC
rules. This individual has spent approximately 5 years in the capacity of
financial manager at a U.S. public company where he was involved in preparation
of financial statements in accordance with the U.S. GAAP. In addition, our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding financial
reporting and the preparation of financial statements for external purposes in
accordance with United States Generally Accepted Accounting Principles. All of
the business operations of the Company are located in Mainland China. For the
purposes of maintaining controls and addressing financial reporting risks, we
are using assignment of responsibility, authorization controls, reviews and
approvals, budget controls, property protections, accounting controls, internal
reporting, analysis of operations, performance assessment and other methods to
address the risks of financial reporting. In addition, currently, our books and
records are maintained and prepared in PRC GAAP and the employees who have
primary responsibilities of preparing and supervising the preparation of the
financial statements under U.S. GAAP do not have knowledge of and professional
experience with U.S. GAAP and SEC rules and regulations. If we fail to maintain
an effective system of internal control over financial reporting, we may not be
able to accurately report our financial results or prevent fraud. As a result,
current and potential shareholders could lose confidence in our financial
reporting, which would harm the value of our shares.
33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2011, the Company did not (i) sell
any unregistered securities, or (ii) repurchase any of its equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. [REMOVED OR RESERVED]
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
10.5 Purchase Contract, dated January 11, 2008, between Fujian Jinjiang
Pacific Shoe Co.,Ltd and Huachang Footwear Materials Company.
10.6 Distribution Agreement, dated April 30, 2009, of Fujian Jinjiang
Pacific Shoes Co., Ltd.
10.7* Zhong Zhao Employment Agreement.
21.1 List of Subsidiaries.
31.1 Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2. Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
----------
* Compensatory or management employment contract
34
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 14, 2011
By: /s/ Haiting Li
------------------------------------
Haiting Li
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2011
By: /s/ Zhong Zhao
------------------------------------
Zhong Zhao
Chief Financial Officer
(Principal Accounting and Financial
Officer)
3
