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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 quarter ended  March 31, 2012 or
   
o Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
  For the transition period from ___________ to ____________

 

Commission File Number: 000-54125

 

ZHONG WEN INTERNATIONAL HOLDING CO, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   99-0368416
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     

1458 North Yunmenshan Rd

Qingzhou, Shandong, PR China

   
(Address of principal executive offices)   (Zip Code)
     
Registrant's telephone number, including area code:   (86536) 330-8317

 

Not Applicable
(Former name, address and fiscal year, if changed since last report)

 

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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES   x                       NO   o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulations 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   x                       NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     o Accelerated filer     o
Non-accelerated filer      o   (Do not check if a smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES     o                           NO   x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

At May 11, 2012, there were issued and outstanding 4,000,000 shares of the Company’s common stock, $.001 par value.

 

(1)

 

 

 

Zhong Wen International Co., Inc. and Subsidiaries

 

TABLE OF CONTENTS

 

    Page No.
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements. 3
     
  Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2011 (audited) 3
     
  Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited) 4
     
  Consolidated Statement of Cash Flows f or the three months ended March 31, 2012 and 2011 (unaudited) 5
     
  Notes to Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
     
Item 4. Controls and Procedures 11
     
PART II. OTHER INFORMATION  
     
Item 5. Other Information 12
     
Item 6. Exhibits 12
     
  Signatures 1.3
     

 

 

(2)

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.   Financial Statements

 

ZHONG WEN INTERNATIONAL HOLDING CO., LTD. AND SUBSIDIARY

 

 

ZHONG WEN INTERNATIONAL HOLDING CO., LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2012 AND DECEMBER 31, 2011
 
ASSETS   3/31/2012   12/31/2011 
Current assets:   (Unaudited)   (Audited) 
  Cash and cash equivalents  $1,245,391  $67,003 
  Trade receivables   219,521   317,500 
  Deposits   —     1,034,624 
  Total current assets   1,464,912   1,419,127 
TOTAL ASSETS  $1,464,912  $1,419,127 
          
LIABILITIES AND STOCKHOLDERS’ DEFICIT         
Current liabilities:         
  Amount due to a director  $1,356,283  $1,301,283 
  Income tax payables   17,249   14,366 
  Other payables and accruals   175,880   220,965 
  Total current liabilities   1,549,412   1,536,614 
          
          
Stockholders' deficit         
Common stock         
  Authorized: 6,000,000 shares, par value $0.001         
  Issued and outstanding: 4,000,000 shares at March 31, 2012 and December 31, 2011   4,000   4,000 
Additional paid-in-capital   36,000   36,000 
Accumulated other comprehensive income   67,295   68,585 
Statutory reserve - restricted   27,751   23,238 
Retained deficit   (219,545)   (249,310)
TOTAL STOCKHOLDERS’ DEFICIT   (84,500)  (117,487)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $1,464,912  $1,419,127 
          

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

(3)

 

ZHONG WEN INTERNATIONAL HOLDING CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
 
  For the three months ended
  3/31/2012 3/31/2011
     
Revenue $68,894  $92,037 
         
Operating Expenses        
General and administrative expenses  (19,574)  (24,567)
Operating income  49,320   67,470 
         
Other income  —     121 
Income before income taxes $49,320   67,591 
         
Income taxes  (15,042)  (19,099)
Net income $34,278   48,492 
         
Other comprehensive income        
  Foreign currency translation  (1,290)  6,815 
Comprehensive income $32,988  $55,307 
         
Earnings per share        
Basic $0.01  $0.01 
         
Diluted $0.01  $0.01 
         
Weighted average number of common stock outstanding        
Basic  4,000,000   4,000,000 
         
Diluted  4,000,000   4,000,000 
         
         

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

(4)

 

ZHONG WEN INTERNATIONAL HOLDING CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
 
       
  For the three months ended
  3/31/2012   3/31/2011
Cash flows from operating activities:      
Net lncome  $              34,278    $                  48,492
Changes in operating assets and liabilities:      
     Trade receivables                  97,497                       (92,515)
     Prepayment, deposits and other receivables             1,031,815                         (6,156)
     Other payables and accrued expenses                 (45,078)                          6,988
     Income tax payables                    2,892                          8,445
Net cash provided by (used in) operating activities             1,121,404                       (34,746)
       
Cash flows from financing activities:      
Amount due to a director                  55,000                          1,650
Net cash provided by financing activities                  55,000                          1,650
       
Effect of exchange rate                    1,984                          6,815
       
Increase in cash and cash equivalents             1,178,388                       (26,281)
       
Cash and cash equivalents at beginning of period                  67,003                        90,718
       
Cash and cash equivalents at end of period  $          1,245,391    $                  64,437
       
Cash paid for:      
   Income tax  $              16,941    $                  10,654
   Interest  -     - 
       

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

(5)

  

ZHONG WEN INTERNATIONAL HOLDING CO., LTD. AND SUBSIDIARY

 

NOTES TO FINANCIAL STATEMENTS MARCH 31, 2011

 

 

NOTE 1. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

 

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2011 and 2010 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2011.

 

NOTE 2. NATURE OF BUSINESS

 

Nature of Business

 

Zhong Wen International Holding Co., Ltd. (the “Company”) was incorporated in the State of Delaware on May 24, 2010. Since November 2010, the Company through its subsidiaries commenced the business, which is product procurement for the construction industry and project consultation for construction projects. During the first quarter of fiscal year 2011, the Company was no longer considered to be in development stage.

 

Hong Kong Zhongwenbo International Group Company Limited

 

Hong Kong Zhongwenbo International Group Company Limited (“Zhongwenbo”) is a private limited liability company incorporated in Hong Kong on June 23, 2010. Zhongwenbo is a holding company and has no operations other than its 100% ownership of Qingzhou RuiDong Trading Limited.

 

Qingzhou RuiDong Trading Limited

 

Qingzhou RuiDong Trading Ltd (“Qingzhou RuiDong”) was incorporated in Shangdong province of the People’s Republic of China (the “PRC”) in September 2010. Qingzhou RuiDong is engaged in export of construction machinery and equipment.

 

Zhong Wen International Holding Co., Ltd., Hong Kong Zhongwenbo International Group Company Limited and Qingzhou RuiDong Trading Limited are hereinafter referred to as (the “Company”).

  

Going Concern Uncertainty

 

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (“US GAAP”), which contemplate continuation of the Company as a going concern. The Company estimates that its cash and cash equivalents will fund its operations through the financial support from the Company’s shareholders. The Company’s shareholders have indicated their continuing support to enable the Company to meet its obligations to third parties as and when they fall due and to continue as a going concern. This belief is based on the Company’s current cost structure and the Company’s current expectations regarding operating expenses and anticipated revenues. As of March 31, 2012, the Company had accumulated deficit of $219,545, and working capital deficit of $84,500. If the Company is unable to obtain additional funds, it will not be able to sustain its operations and would be required to cease its operations and/or seek bankruptcy protection. Given the difficult current economic environment, the Company believes it will be difficult to raise additional funds and there can be no assurance as to the availability of additional financing or the terms upon which additional financing may be available. As a result of these conditions, there is substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

 

In May 2011, FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures.

 

In June 2011, FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  The Company is reviewing ASU 2011-05 to ascertain its impact on the Company’s financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.

 

In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.   We do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.

In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.

 

(6)

 

NOTE 4. DEPOSITS

 

The Company had deposits of $1,034,624 as of December 31, 2011, representing the prepayment to Shandong Zhongwen Industrial Group Company Limited (“SZIG”), a corporation organized and existing under the laws of the PRC, for inventories purchase under a sales agreement, dated June 23, 2010, between the Company and SZIG. The agreement was terminated during the first quarter of 2012 pursuant to mutual agreement, and the deposit of $1,034,624 was returned in full by SZIG.

 

NOTE 5. AMOUNT DUE TO A DIRECTOR

 

The amount due to a director, Sun, Hongyi, was $1,356,283 and 1,301,283 as of March 31, 2012 and December 31, 2011, respectively. It represents a current account between Mr. Sun and the Company, which Mr. Sun paid on behalf of the Company. There is no written agreement between Mr. Sun and the Company. This loan from Mr. Sun is unsecured, interest free and repayable on demand.

 

NOTE 6. INCOME TAXES

 

The Company conducts all its operating business through its subsidiaries in China. The subsidiaries are governed by the income tax laws of the PRC and do not have any deferred tax assets or deferred tax liabilities under the income tax laws of the PRC because there are no temporary differences between financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company by itself does not have any business operating activities in the United States and is therefore not subject to United States income tax.

 

The Company’s subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (the Income Tax Laws). Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the previous laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate previously applicable to both DEs and FIEs.

 

The Company generated substantially its net income from its PRC operation and has recorded income tax expenses for the three months ended March 31, 2012 and 2011, respectively.

 

The components of (loss) income before income taxes separating U.S. and PRC operations are as follows:

 

    For the three months ended  
    3/31/2012     3/31/2011  
                 
Loss subject to U.S. operation   $ (10,000)   $ (56,000)
Income (loss) subject to PRC operation     59,320       123,591  
Income (loss) before income taxes   $ 49,320     $ 67,591  

 

United States of America

 

The Company is registered in the State of Delaware and is subject to United States of America tax law.

 

As of March 31, 2012, the U.S. operation had $464,014 of net operating losses available for federal tax purposes, which are available to offset future taxable income.  The net operating loss carry forwards begin to expire in 2031.  The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

The PRC

 

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes stated in the consolidated statement of operations for the three months ended March 31, 2012 and 2011, respectively, is as follows:

 

    For the three months ended  
    3/31/2012     3/31/2011  
             
Income (loss) before income taxes   $ 59,320     $ 123,591  
Statutory income tax rate     25 %     25 %
      14,830       30,899  
Non-deductible and other various items for tax purposes     212       (11,800)
Income tax expense   $ 15,042     $ 19,099  

 

 

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of March 31, 2012 and December 31, 2011, respectively:

 

    As of  
    3/31/2012     12/31/2011  
Deferred tax assets:            
- Net operating loss carryforwards   $ 162,405     $ 158,905  
Less: valuation allowance     (162,405)     (158,905)
Deferred tax assets   $ -     $ -  

 

 

As of March 31, 2012 and December 31, 2011, valuation allowances of $162,405 and $158,905, respectively, were provided to the deferred tax assets due to the uncertainty surrounding their realization.

 

The following table reconciles the U.S. statutory rate to the Company’s effective tax rate:

 

 

    For the three months ended  
    3/31/2012     3/31/2011  
             
U.S. Statutory rate     35 %     35 %
Foreign income not recognized in USA     (35 )     (35 )
China income taxes     25       25  
China exemption     (25 )     (25 )
Total provision for income taxes   $ -     $ -  

 

 

(7)

 

NOTE 6. INCOME TAXES (CONT’D)

 

The Company accounts for income taxes under ASC topic 740, Income Taxes, ASC topic 740 defines an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. ASC topic 740 further requires that a tax position must be more likely than not to be sustained before being recognized in the financial statements, as well as the accrual of interest and penalties as applicable on unrecognized tax positions.

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period, if any, and the change during the period in deferred tax assets and liabilities.

Valuation allowance are recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred income taxes.

Because the Company has no operations within the United States, there is no provision for US income taxes and there are no deferred tax amounts as of March 31, 2012 and December 31, 2011, respectively.

 

NOTE 7. EARNINGS PER SHARE

 

Earnings per share is computed using the weighted average number of the common shares outstanding during the periods.  There were no dilutive common stock equivalents for the three months ended March 31, 2012 and 2011, respectively.  

 

The following table sets forth the computation of earnings per share for the three months ended:

 

  March 31, 2012   March 31, 2011  
Numerator:        
- Net income $ 34,278   $ 48,492  
             
Denominator:            
- Weighted average common shares outstanding   4,000,000     4,000,000  
             
Earnings per share $ 0.01   $ 0.01  
             

 

NOTE 8. CONCENTRATION AND RISK

 

(a) Concentration

 

For the three months ended March 31, 2012 and 2011, majority of the Company’s assets were located in the PRC and 100% of the Company’s revenues and purchases were derived from customers and vendors located in the PRC.

 

For the three months ended March 31, 2012, the Company had 100% revenue from Shandong Zhongwen Industrial Group Company Limited (“SZIG”), a corporation organized and existing under the laws of the PRC, since the Company serves as an agent of SZIG to sell product procurement for the construction industry.

 

(b) Credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

 

NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES

 

Operating Lease Commitments

 

The Company leases its office space under non-cancellable operating leases in PRC. Minimum future rental payments required under non-cancellable operating leases in effect as of December 31, 2011 are as follows by year:

 

2012   $ 2,785  
2013     2,785  
2014     2,785  
2015     2,785  
2016     2,785  
         
    $ 13,925  

 

Rent expenses were $696 and $515 for the three months ended March 31, 2012 and 2011, respectively.

 

(8)

 

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations; Plan of Operations

 

Cautionary Statement

 

The following discussion and analysis should be read in conjunction with the balance sheets as of March 31, 2012 (unaudited) and December 31, 2011 (audited) and the accompanying financial statements for the three months ended March 31, 2012 and 2011.

 

The discussion and analysis contains forward-looking statements, based on current expectations with respect to future events and financial performance and operating results, which statements are subject to risks and uncertainties, including but not limited to those discussed below and elsewhere in this Report that could cause actual results to differ from the results contemplated by these forward looking statements. We urge you to carefully consider all of the information set forth in this Report, and the “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2011.

 

Overview

 

Zhong Wen International Holding Co., Ltd. (the “Company,” “we,” “us”) was incorporated under the laws of the State of Delaware on May 24, 2010.  On June 23, 2010, our wholly-owned subsidiary, Hong Kong Zhongwenbo International Group Company Limited (“Zhongwenbo”), was incorporated in Hong Kong.  In September 2010, Qingzhou RuiDong Trading Ltd (“Qingzhou RuiDong”) was incorporated in Shandong province of the People’s Republic of China.  Qingzhou RuiDong is wholly owned by Zhongwenbo, and is engaged in export of construction machinery and equipment. Zhongwenbo has no operations other than its ownership of Qingzhou RuiDong Trading Limited.  We are a holding company and conduct all of our operations through our indirect, wholly-owned subsidiary, Qingzhou RuiDong, which acts as an agent under a Sales Agency Agreement with Shandong Zhongwen Industrial Group Co. Limited (“SZIG”), which focus on developing sales of certain construction industry machinery.

 

A Sales Agency Agreement (the “Agreement”) was entered into between SZIG and Zhongwenbo on June 23, 2010.  Under the Agreement, Zhongwenbo acts as an exclusive agent to sell SZIG’s products in the territory other than Brazil and the PRC (excluding the Special Adminstration Region of Hong Kong and Macau and Taiwan).  Zhongwenbo is entitled to the commission equal to 5% of the Net Sales Value of all products for which a contract of sales is made by Zhongwenbo on behalf of SZIG. The Agreement continues in force for a period of two (2) years unless or until either party gives to the other written notice expiring.  An amendment to the Sales Agency Agreement (the “Amended Agreement”) was entered into on November 8, 2010 between SZIG and Qingzhou RuiDong.  Under the Amended Agreement, Qingzhou RuiDong also acts as an agent to sell SZIG’s products.  Qingzhou RuiDong is entitled to the commission equal to 5% of market price of all products for which a contract sale is made by Qingzhou RuiDong on behalf of SZIG and additional 50% of any sales value above market price. In the event that Qingzhou RuiDong does not fulfill 80% of the sales according to the sales plan, SZIG has the right to terminate the Amended Agreement. Otherwise, the duration of the Amended Agreement is two (2) years.

 

For the three months ended March 31, 2012 we had 23 transactions. In order to enhance our operations, we need to continue to improve our marketing strategy. We also have to initiate marketing of consulting services to the civil and commercial construction industry, which is expected to include some companies to be targeted for selling SZIG products.

 

Results of Operations

 

The following table shows the financial data of the consolidated statements of operations of the Company and its subsidiaries for the three months ended March 31, 2012 and 2011. The data should be read in conjunction with the audited consolidated financial statements of the Company and related notes thereto.

 

 

    For the three months ended  
    March 31, 2012   March 31, 2011  
    In dollars   As a percentage of net sales       In dollars   As a percentage of net sales    
Revenue   $ 68,894     100 %   $ 92,037     100 %  
General and administrative expenses     (19,574)     (28) %     (24,567)     (27) %  
Operating income     49,320     72 %     67,470     73 %  
Other income               121       %  
Income before income taxes     49,320     72 %     67,591     73 %  
Income taxes     (15,042)     (22) %     (19,099)     (21) %  
Net income     34,278     50 %     48,492     53 %  
Other comprehensive income                              
Foreign currency translation     (1,290)     2 %     6,815     7 %  
Comprehensive income   $ 32,988     48 %   $ 55,307     60 %  
                               
Earnings per share                              
Basic   $ 0.01           $ 0.01          
Diluted   $ 0.01           $ 0.01          
                                 

 

Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

 

Operating Revenue

 

For the three months ended March 31, 2012, we had revenue of $68,894 compared to $92,037 for the three months ended March 31, 2011. The 25% decrease in revenue between the two periods is mainly attributable to less commission income from SZIG due to lower product sales in the first quarter of 2012.

   

Operating Expenses

 

General and administrative expenses decreased by approximately 20% to $19,574 for the three months ended March 31, 2012 from $24,567 for the corresponding period in 2011. The lower general and administrative expenses were primarily due to decreased expenses related to a reduction in sales of SZIG products for the quarter.

 

Net Income

 

We had net income of $34,278 for the three months ended March 31, 2012 compared to $48,492 for the corresponding period in 2011, a decrease of $14,214 or approximately 29%. The decrease in net income was mostly the result of an decrease in revenues for the period.

 

Liquidity and Capital Resources

 

At March 31, 2012, we had cash and cash equivalents of $1,245,391 compared to $64,437 at March 31, 2011. The following table provides detailed information about our net cash flow for all financial statement periods presented in revenue.

 

Cash Flow

 

    For the three months ended  
    March 31, 2012   March 31, 2011  
     
Net cash provided by (used in) operating activities   $ 1,121,404   $ (34,746)  
Net cash provided by financing activities     55,00     1,650  
Effect of exchange rate on cash and cash equivalents     1,984     6,815  
Cash and cash equivalents at end of period     1,245,391     64,437  

 

Operating Activities

  

Net cash provided by (used in) operating activities was $1,121,404 and $(34,746) for the three months ended March 31, 2012 and 2011, respectively. The net cash provided by operating activities for the three months ended March 31, 2012 was mainly attributable to the decrease in prepayment and other receivables and increase in deposits of $1,031,815.

 

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Financing Activities

 

Net cash provided by financing activities was $55,000 and $1,650 for the three months ended March 31, 2012 and 2011, respectively. During the first quarter of 2012, the cash provided by financing activities was due to an advance from a director, Mr. Sun Hongyi, of $55,000 to working capital.

 

Contractual Obligations

 

At March 31, 2012, we had operating lease obligations of $13,925 for the years ending December 31, 2012 to 2016, but we do not have any debt (other than the obligation to repay the advance to Mr. Sun Hongyi), or capital lease or purchase obligations or long term liabilities.

 

Going Concern

 

We have incurred net losses and losses from operations and we expect that we will continue to have negative cash flows for the foreseeable future. There is no assurance we will be able to successfully execute our business plan and be able to operate as a going concern.

 

The Company estimates that its cash and cash equivalents will fund its operations through the financial support from the Company’s shareholders. The Company’s shareholders have indicated their continuing support to enable the Company to meet its obligations to third parties as and when they fall due and to continue as a going concern. This belief is based on the Company’s current cost structure and the Company’s current expectations regarding operating expenses and anticipated revenues. If the Company is unable to obtain additional funds, it will not be able to sustain its operations and would be required to cease its operations and/or seek bankruptcy protection. Given the difficult current economic environment, the Company believes it will be difficult to raise additional funds and there can be no assurance as to the availability of additional financing or the terms upon which additional financing may be available. As a result of these conditions, the Company may be unable to continue as a going concern.

   

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available for such items as depreciable lives. The Company revises the recorded estimates when better information is available, facts change or actual amounts can be determined. These revisions can affect operating results.

 

The critical accounting policies and use of estimates are discussed in and should be read in conjunction with the annual consolidated financial statements and notes included in the Company’s latest 10-K, as filed with the SEC on April 16, 2012, which includes audited consolidated financial statements for the year ended December 31, 2011.

 

Recent Accounting Pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

 

In May 2011, FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures.

 

In June 2011, FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  The Company is reviewing ASU 2011-05 to ascertain its impact on the Company’s financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.

 

In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.   We do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.

 

In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”)) and the SEC did not or are not believed by management to have a material impact on the Company ’ s present or future financial statements.

 

Uncertainties and Trends

 

Our operations and possible revenues principally are dependent upon signing up customers to buy SZIG’s machinery products, and to a lesser extent, on engaging parties for our consulting services.

 

Off-balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Effects of Inflation

 

Inflation has not had a material effect on our business and we do not expect that inflation will materially affect our business in the foreseeable future. However, our management will closely monitor the inflation, if any, and continually maintain effective cost control in operations.

 

Plan of Operations

 

Our plan of operations for fiscal year 2012 is set forth below.

 

We will focus our development of business in the PRC during the first two quarters of fiscal year 2012. At the same time, we will further expand our marketing service team and improve our distribution networks in order to promote the products to customers outside the PRC. According to our business plan, our target of commission on sales of construction equipment will increase 3.8 times to approximately RMB 1,769,000, equivalent to $262,000, but this target is not certain of attainment.

 

Apart from the sales of manufacture machinery, we started our consultancy services in the third quarter of fiscal year 2011. Since we currently do not have enough professional employees to perform consultancy services, we will hire additional professional employees and/or retain consultants in the future, especially the first two quarters of fiscal year 2012, depending on business volume.

 

Since expansion of our business plan, our general and administrative expense is expected to increase as more employees are employed for both marketing and consulting services. Besides, to improve our distribution network, travel expense is also expected to increase in proportion. We will need additional funds to develop and implement the plan.

 

From January 1, 2012 through April 30, 2012, we have already signed 29 new contracts and sold 36 construction industry machines.  In these transactions, we have already generated approximately $80,625 of commission income in 2012.

 

 

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ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

(a) Concentration

 

For the three months ended March 31, 2012 and 2011, majority of the Company’s assets were located in the PRC and 100% of the Company’s revenues and purchases were derived from customers and vendors located in the PRC.

 

For the three months ended March 31, 2012, the Company had 100% revenue from Shandong Zhongwen Industrial Group Company Limited (“SZIG”), a corporation organized and existing under the laws of the PRC, since the Company serves as an agent of SZIG to sell product procurement for the construction industry.

 

(b) Credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

 

 

ITEM 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31, 2012, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)).  Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded:

 

  (a) That the Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure; and

 

  (b) That the Company’s disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

During the three months ended March 31, 2012, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 

 

 

(11)

 

PART II.  OTHER INFORMATION

 

ITEM 5. Other Information

 

 

Termination of a Product Purchase Contract with SZIG

 

On November 29, 2010, in view of our client’s purchase intent we signed a Product Purchase Contract with SZIG, in which we agreed to purchase 8 building machines amounting to $1,181,250. We prepaid $1,017,375 to SZIG for this contract.

 

In March 2012, our client informed us that they would postpone their purchase due to the downturn in the building market. As they could not assure us when they will carry out this purchase, we terminated the Product Purchase Contract with SZIG. All the prepayment regarding this contract was returned to us on March 18, 2012.

 

The termination of Product Purchase Contract will not affect the agent relationship between SZIG and us.

 

 

ITEM 6.   Exhibits

 

31.1* Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) / Rule 15d-15(e)
31.2* Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) / Rule 15(e)/15d-15(e)
32.1* Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350
101.INS** XBRL Instance
101.SCH** XBRL Taxonomy Extension Schema
101.CAL** XBRL Taxonomy Extension Calculation
101.DEF** XBRL Taxonomy Extension Definition
101.LAB** XBRL Taxonomy Extension Labels
101.PRE** XBRL Taxonomy Extension Presentation

 

* Filed herewith.
   
** Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

    Zhong Wen International Holding Co, Inc.  
    (Registrant)  
       
       
       
Date: May 11, 2012   By: /s/ Sun Hongyi  
      Sun Hongyi, CEO and CFO  
       (Principal Executive Officer and Principal Financial and Accounting Officer)  
         

 

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