Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC.
(Exact name of small business issuer as specified in its charter)
Formerly known as Hazlo! Technologies, Inc.
Commission File No. 333-170480
Nevada
|
80-0638212
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Room 2119 Mingyong Building, No. 60 Xian Road.
Shahekou District, Dalian, China 116021
(Address of Principal Executive Offices)
0086-13909840703
(Issuer’s telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 90 days. YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-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
|
þ
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 66,450,000 Shares of Common Stock, as of May 14, 2012.
Table of Contents
PART I - FINANCIAL INFORMATION | |||||
Item 1. |
Financial Statements
|
4 | |||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
11 | |||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
22 | |||
Item 4. |
Controls and Procedures
|
22 | |||
PART II - OTHER INFORMATION | |||||
Item 1. |
Legal Proceedings
|
24 | |||
Item 1A. |
Risk Factors
|
24 | |||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
24 | |||
Item 3. |
Defaults Upon Senior Securities
|
24 | |||
Item 4. |
Submissions of Matters to a Vote of Security Holders
|
24 | |||
Item 5. |
Other Information
|
24 | |||
Item 6. |
Exhibits
|
25 | |||
SIGNATURES | 26 |
2
As used in this Form 10-Q Quarterly Report, unless the context requires or is otherwise indicated, the terms “we,” “us,” “our,” the “Registrant,” the “Company,” “our company” and similar expressions include the following entities (as defined below):
(i) China Liaoning Dingxu Ecological Agriculture Development, Inc., formerly known as Hazlo! Technologies, Inc., a Nevada corporation (“Company”, “we”, or “us”), which is a publicly traded company;
(ii) China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company ( “DingXu BVI”)
(iii) Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the People’s Republic of China and a ninety-nine percent owned subsidiary of DingXu BVI (“Panjin Hengrun”)
(iv) Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the People’s Republic of China and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”).
“China” or “PRC” refers to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan. “RMB” or “Renminbi” refers to the legal currency of China and “$” or “U.S. Dollars” refers to the legal currency of the United States. We make no representation that the RMB or U.S. Dollar amounts referred to in this report could have been or could be converted into U.S. Dollars or RMB, as the case may be, at any particular rate or at all. “GAAP” unless otherwise indicated refers to accounting principles generally accepted in the United States.
3
ITEM 1. FINANCIAL STATEMENTS
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
(AMOUNTS EXPRESSED IN US DOLLAR)
|
As of
|
||||||||
March 31,
2012
|
December 31,
2011
|
|||||||
(UNAUDITED)
|
||||||||
ASSETS
|
||||||||
Cash and cash equivalents
|
$ | 1,203,724 | 709,812 | |||||
Inventories
|
10,023 | 2,862 | ||||||
Advances to suppliers
|
81,844 | 83,057 | ||||||
Other receivables, net
|
334,249 | 20,997 | ||||||
Total Current Assets
|
1,629,840 | 816,728 | ||||||
Property, plant and equipment, net
|
4,655,930 | 4,743,710 | ||||||
Construction in progress
|
5,871,741 | 4,661,733 | ||||||
Land use right
|
3,199,161 | 3,225,474 | ||||||
Long term prepaid lease
|
983,605 | 999,927 | ||||||
Total Non-Current Assets
|
14,710,437 | 13,630,844 | ||||||
Total Assets
|
$ | 16,340,277 | $ | 14,447,572 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Loan payable - current portion
|
$ | 474,796 | $ | 476,122 | ||||
Due to related parties
|
5,634,908 | 4,186,337 | ||||||
Other payables
|
1,263,752 | 1,267,842 | ||||||
Total Current Liabilities
|
7,373,456 | 5,930,301 | ||||||
Total Liabilities
|
7,373,456 | 5,930,301 | ||||||
Commitments
|
- | - | ||||||
Stockholders' Equity:
|
||||||||
Common stock ($0.001 par value; 75,000,000 shares authorized;
|
||||||||
66,450,000 shares issued and outstanding
|
||||||||
at March 31, 2012 and December 31, 2011, respectively)
|
66,450 | 66,450 | ||||||
Additional paid-in capital
|
7,659,544 | 7,659,544 | ||||||
Statutory reserve
|
122,910 | 57,805 | ||||||
Retained earnings
|
885,899 | 479,420 | ||||||
Accumulated other comprehensive income
|
232,018 | 254,052 | ||||||
Total Stockholders' Equity
|
8,966,821 | 8,517,271 | ||||||
Total Liabilities and Stockholders' Equity
|
$ | 16,340,277 | $ | 14,447,572 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES
|
||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
||||
(AMOUNTS EXPRESSED IN US DOLLAR)
|
||||
(UNAUDITED)
|
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
NET REVENUES
|
$ | 1,705,928 | $ | 946,751 | ||||
COST OF REVENUES
|
1,308,469 | 597,005 | ||||||
GROSS PROFIT
|
397,459 | 349,746 | ||||||
OPERATING EXPENSES:
|
||||||||
Depreciation and amortization
|
105,968 | 646 | ||||||
Selling, general and administrative
|
163,381 | 136,620 | ||||||
Total Operating Expenses
|
269,349 | 137,266 | ||||||
INCOME FROM OPERATIONS
|
128,110 | 212,480 | ||||||
OTHER INCOME:
|
||||||||
Other income
|
353,475 | - | ||||||
Interest expense
|
(10,001 | ) | - | |||||
Total Other Income
|
343,474 | - | ||||||
INCOME BEFORE PROVISION FOR INCOME TAX
|
471,584 | 212,480 | ||||||
PROVISION FOR INCOME TAXES
|
- | - | ||||||
NET INCOME
|
$ | 471,584 | $ | 212,480 | ||||
COMPREHENSIVE INCOME:
|
||||||||
Net income
|
471,584 | 212,480 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS):
|
||||||||
Unrealized foreign currency translation gain (loss)
|
(22,034 | ) | 239,062 | |||||
COMPREHENSIVE INCOME
|
$ | 449,550 | $ | 451,542 | ||||
NET INCOME PER COMMON SHARE:
|
||||||||
Basic
|
$ | 0.01 | $ | 0.04 | ||||
Diluted
|
$ | 0.01 | $ | 0.04 | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
||||||||
Basic
|
66,450,000 | 5,200,000 | ||||||
Diluted
|
66,450,000 | 5,200,000 |
See accompanying notes to unaudited condensed consolidated financial statements.
5
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES
|
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||||
(AMOUNTS EXPRESSED IN US DOLLAR)
|
|||||||
(UNAUDITED)
|
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$ | 471,584 | $ | 212,480 | ||||
Adjustments to reconcile net income to net cash
|
||||||||
used in operating activities:
|
||||||||
Depreciation and amortization
|
105,968 | 646 | ||||||
Interest expense
|
10,001 | - | ||||||
Changes in assets and liabilities:
|
||||||||
Inventories
|
(7,180 | ) | (116,152 | ) | ||||
Other receivables
|
(313,792 | ) | 10,278 | |||||
Advances to suppliers
|
983 | - | ||||||
Other payables
|
(560 | ) | (87,200 | ) | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
267,004 | 20,052 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase of property, plant and equipment
|
(1,225,247 | ) | (1,745,434 | ) | ||||
Acquisition of land use right
|
- | (240,064 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES
|
(1,225,247 | ) | (1,985,498 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payment of interest expense
|
(10,001 | ) | - | |||||
Proceeds from related parties
|
1,458,509 | 3,157,768 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
1,448,508 | 3,157,768 | ||||||
EFFECT OF EXCHANGE RATE ON CASH
|
3,647 | 10,670 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
493,912 | 1,202,992 | ||||||
CASH AND CASH EQUIVALENTS - beginning of period
|
709,812 | 79,178 | ||||||
CASH AND CASH EQUIVALENTS - end of period
|
$ | 1,203,724 | $ | 1,282,170 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Cash paid for:
|
||||||||
Interest
|
$ | 10,001 | $ | - | ||||
Income taxes
|
- | - |
See accompanying notes to unaudited condensed consolidated financial statements.
6
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
China Liaoning Dingxu Ecological Agriculture Development Inc. (the "Company") was incorporated under the laws of State of Nevada on August 19th, 2010. The Company is primarily engaged in the growing and selling of agriculture products in People’s Republic of China (“PRC”).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The company maintains its books and accounting records in Renminbi (“RMB”), and its reporting currency is United States dollars.
ACCOUNTING METHOD
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires management 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. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Cost of finished goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity.
7
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:
Building
|
20 |
years
|
|||
Plant
|
10-May
|
years
|
|||
Office equipment
|
5-Mar
|
years | |||
Vehicles
|
4 |
years
|
Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.
Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.
LAND USE RIGHTS
The Company states land use right at cost less accumulated amortization. The land use right is amortized on straight line method during the contract period of 50 years. For the three months ended March 31, 2012 and 2011, amortization expense amounted to $17,356 and nil, respectively.
LONG TERM PREPAID LEASE
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.
The Company records lease payments at cost less accumulated. As China’s regulations prohibit companies from acquiring land use right of farmlands, the Company entered into long term agreements with certain unrelated parties to rent land. The lease payments for the entire contract period are prepaid at the inception of leases. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years. For the three months ended March 31, 2012 and 2011, the Company recorded lease expense of $13,557 and nil, respectively.
REVENUE RECOGNITION
Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectibility is reasonably assured.
The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).
TAXATION
Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.
The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.
Enterprise income tax
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from enterprise income tax from 2010 to 2012. Accordingly, the Company statutory rate was 0% and 0% for the three months ended March 31, 2012 and 2011, respectively.
8
Value added tax
The Provisional Regulations of The People’s Republic of China Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT from 2010 to 2012.
FOREIGN CURRENCY TRANSLATION
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
In accordance with ASC Topic 230, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
9
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment at March 31, 2012 and December 31, 2011 consists of the following:
March 31,
2012
|
December 31,
2011
|
|||||||
$ | $ | |||||||
Building
|
4,525,703 | 4,538,344 | ||||||
Plant
|
232,768 | 233,418 | ||||||
Vehicles
|
42,219 | 42,337 | ||||||
Office equipment
|
54,230 | 54,008 | ||||||
4,854,920 | 4,868,107 | |||||||
Less: Accumulated depreciation
|
198,990 | 124,397 | ||||||
Property, plant and equipment, net
|
4,655,930 | 4,743,710 | ||||||
Construction in progress
|
5,871,741 | 4,661,733 | ||||||
10,527,671 | 9,405,443 |
For the three months ended March 31, 2012 and 2011, the Company recorded depreciation expense of $75,055 and $646, respectively.
NOTE 4. LOAN PAYABLE
The Company became indebted to Bank of China in December 2011 for $476,122, payable in December 2012, interest at 8.46% per annum. The loan is secured by a land use right with net book value of $570,885 of the Company.
For the three months ended March 31, 2012 and 2011, the Company recorded interest expense of $10,001 and nil, respectively.
NOTE 5. COMMON STOCK
The Company’s capitalization is 75,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
The Company has not granted any stock options and has not recorded any stock-based compensation since inception.
NOTE 6. COMMITMENT AND CONTINGENCIES
Other than in the normal course of business, the Company did not have significant capital and other commitments, or significant guarantees as of March 31, 2012 and December 31, 2011, respectively.
NOTE 7. SUBSEQUENT EVENTS
The Company has performed an evaluation of subsequent events in accordance with ASC Topic 855 and the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
We mainly engage in the business of growing and marketing fresh mushrooms and related mushroom products including mushroom spawn and mushroom seeds through our affiliated variable interest entity LiaoNing DingXu.
We mainly produce and sell two types of products:
(1)
|
Fresh mushrooms. We grow fresh mushrooms in our greenhouse and sell them to markets. Our fresh mushrooms include oyster mushroom, king oyster mushroom, king trumpet mushroom, and button mushroom.
The revenues from the sales of fresh mushrooms constitute approximately 53% and 70% of our total revenues in the first quarter of 2012 and 2011, respectively.
|
(2)
|
Related mushroom products including mushroom spawn and mushroom seeds. The revenues from the sales of related mushroom products constitute approximately 47% and 30% of our total revenues in the first quarter of 2012 and 2011, respectively.
|
History
We was incorporated under the name “Hazlo! Technologies, Inc.” on August 19, 2010 in the State of Nevada. Our initial business plan was to modify and translate software and web applications originally written in English into Spanish and to focus on the needs of the Arizona business community to better serve the Spanish-speaking population. We did not generate any revenue from the said. IT services and data translation services.
On December 12, 2011, we entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which we issue 60,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI. Upon closing of the Share Exchange transaction, DingXu BVI became the wholly owned subsidiary of PUBCO.
China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (the “DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.
11
On July 5, 2011, DingXu BVI formed Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the People’s Republic of China (“Panjin Hengrun”). DingXu BVI owns 99% of the total ownership of Panjing Hengrun.
On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the People’s Republic of China and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu. Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.
Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entities (“VIE”) of Panjin Hengrun pursuant to FIN 46 (R) and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.
Set forth below is our organizational chart upon completion of the share exchange transaction:
Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司 (“Liaoning Dingxu”) was formed as a limited liability company organized under the laws of the People’s Republic of China on August 6, 2009. It mainly engages in the business of growing mushroom and marketing mushroom and related agricultural products.
Upon the completion of share exchange transaction, our business operations are carried out through Panjin Hengrun and its affiliated operating entity Liaoning Dingxu. On December 12, 2011, we ceased the business of development stage IT service and data translation services and started to engage in the business of growing mushroom and marketing mushroom and related agricultural products through Liaoning Dingxu.
12
Financial condition as of March 31, 2012 and 2011
The following table presents an overview of our results of assets, liabilities and shareholders’ equity as of March 31, 2012 and December 31, 2011.
March 31,
|
December 31,
|
Increase
|
|||||||
2012
|
2011
|
(decrease)
|
|||||||
Current assets
|
|||||||||
Cash
|
1,208,352
|
709,812
|
498,540
|
||||||
Other Receivables
|
334,249
|
20,997
|
313,252
|
||||||
Advance to suppliers
|
81,844
|
83,057
|
(1,213)
|
||||||
Inventory
|
10,023
|
2,862
|
7,161
|
||||||
Total current assets
|
1,629,840
|
816,728
|
813,112
|
||||||
Non-current assets
|
|||||||||
Property, plant and equipment - net of accumulated depreciation
|
4,655,930
|
4,743,710
|
(87,780)
|
||||||
Construction in progress
|
5,871,741
|
4,661,733
|
1,210,008
|
||||||
Land use rights
|
3,199,161
|
3,225,474
|
(26,313)
|
||||||
Long term prepaid lease
|
983,605
|
999,927
|
(16,322)
|
||||||
Total non-current assets
|
14,710,437
|
13,630,844
|
1,079,593
|
||||||
Total assets
|
16,340,277
|
14,447,572
|
1,892,705
|
||||||
Current liabilities
|
|||||||||
Short-term loan
|
474,796
|
476,122
|
(1,326)
|
||||||
Other payables
|
1,263,752
|
1,267,842
|
(4,090)
|
||||||
Due to Related Parties
|
5,634,908
|
4,186,337
|
1,448,571
|
||||||
Total liabilities
|
7,373,456
|
5,930,301
|
1,443,155
|
||||||
Shareholders’ liabilities
|
|||||||||
Common stock
|
66,450
|
66,450
|
-
|
||||||
Paid-in capital
|
7,659,544
|
7,659,544
|
-
|
||||||
Statutory reserve
|
122,910
|
57,805
|
65,105
|
||||||
Retained earnings
|
885,899
|
479,420
|
406,479
|
||||||
Other comprehensive income - foreign currency
|
232,018
|
254,052
|
(22,034)
|
||||||
Total shareholders’ equity
|
8,966,821
|
8,517,271
|
449,550
|
||||||
Total liabilities and shareholders’ equity
|
16,340,277
|
14,447,572
|
1,892,705
|
13
Liquidity and Capital Resources:
To date, our operations have been funded by contributions to non-current liability due to related parties our and the net cash provided by our operations. As a result, at March 31, 2012 we had $1,629,840 current assets, an increase of $813,112 since our last year ended on December 31, 2011. At the same time, we had $ 1,738,548current liabilities consisted of the $ 474,796 bank loan expiring at the end of 2012 and borrowing of the shareholder and the $1,263,752 contract deposit from the mushroom planters. The contract deposit has no limited to pay back in the next year. We had working capital totaling $1,155,044 except the contract deposit. So our capital resources are more than sufficient to fund our operations for the coming period.
During the three months ended March 31, 2012, our operating activities provided $267,004 in net cash. Over the long term, our expectation to see a trend of growing sales for our mushroom series products, including fresh mushrooms & mushroom spawns and seeds, resulting from the growing of the market scales, improving of general agriculture industry, improving of the planting skills and the quality of our products, and the continuing encouragement from local government. As we invested $8,828,000 in 2011 and $1,080,000 in the first quarter of 2012 to develop our mushroom planting greenhouse and structures, mushroom seeds cultivate workshop and manufacturing workshop, the categories and total quantities of our products would be much higher than we produced in the last period.
Current assets:
1. Other receivables
Other receivables mainly consisted of loan to local farming organization and staff borrowing. We have lend $238,702 to local farming organization to support them developing mushroom plant, hence we observed a significant increase of the other receivables compared to December 31, 2011.
2. Advance to suppliers
The subject of advance to suppliers was mainly used to record the advance paid to raw material suppliers and project contractors or builder.
3. Inventory
The total inventory as at March 31 of 2012 didn’t fluctuate significantly compared to the same period in 2011. The balance at the end of this period consisted of raw materials and expendable materials that were unused and could not be classified as fixed assets as their value was very low.
Non-Current assets:
4. Property, plant and equipment
Our property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:
Building and constructions
|
20 years
|
|||
Plant
|
5-10 years | |||
Office equipment
|
3-5 years
|
|||
Vehicles
|
4 years |
As consistent with the policies in the year of 2011, maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.
Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.
14
Property, Plant and Equipment consists of the following:
March 31,
2012
|
December 31,
2011
|
|||||
USD
|
USD
|
|||||
Building
|
a
|
4,525,703
|
4,538,344
|
|||
Plant
|
b
|
232,768
|
229,443
|
|
||
Vehicles
|
c
|
42,219
|
42,337
|
|||
Office equipment
|
d
|
54,230
|
57,983
|
|||
Less: Accumulated depreciation
|
e
|
198,990
|
124,397
|
|||
Property, plant and equipment, net
|
4,655,930
|
4,743,710
|
||||
Construction in progress
|
f
|
5,871,741
|
4,661,733
|
|||
Total property, plant & equipment
|
10,527,671
|
9,405,443
|
a. |
The building mainly represented for the greenhouses, manufacturing workshops, warehouse and office building, all of which were transferred from the construction in progress (CIP).
|
b. |
The plant represented for the planting area or structures completed and transferred out from CIP.
|
c. |
The vehicles were the truck for transporting raw materials or finish goods.
|
d. |
The office equipment include the office computers, printers, desks and other office appliance.
|
e. |
For the three months ended March 31, 2012 and 2011, the Company recorded depreciation of US$75,055 and US$646, respectively.
|
f. |
The detailed information of the construction projects in progress which was not yet transfer to fixed assets is as below:
|
March 31,
2012
|
December 31, 2011
|
|||||||
USD
|
USD
|
|||||||
Mushroom seeds cultivate workshop and warehouse
|
1,115,252 | 1,114,084 | ||||||
Manufacturing workshops
|
335,889 | 322,494 | ||||||
Greenhouse and Planting structures
|
4,408,521 | 3,218,533 | ||||||
Others
|
12,079 | 6,622 | ||||||
Total amount of CIP
|
5,871,741 | 4,661,733 |
5. Land use right
The Company states land use rights at cost less accumulated amortization. As the business growing and expanding in the period of 2011, the company recognized a total amount of USD 2,965,000 land use right in the year of 2011. The land use right was used to build up greenhouse and planting structures, manufacturing workshop and other buildings. There is no land use right recognized in the first quarter of 2012.
The land use rights are amortized on straight line method during the contract period, varying from 47 to 50 years. Amortization expense of US$ 17,356 and nil for the three months ended March 31, 2012 and 2011 were recorded, respectively. As of March 31, 2012and 2011, the values of land use rights are US$3,199,161 and nil.
15
6. Long-term prepaid lease
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.
The Company records lease payments at cost less accumulated amortization and amount that to be amortized within one year. The amount to be amortized within one year is recorded as current portion of prepaid leases. As China’s regulations prohibit companies from acquiring land use right of farmlands, the Company entered into long term agreements with local government to rent land. The rental payments for the entire contract period are prepaid at the inception of leases and the payment amount was $1,031,599 in 2011. The rental payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years.
Lease expense of US$13,557 and nil were recorded for the three months ended March 31, 2012 and 2011.
Liabilities
Current liabilities:
7.Short-term loan
The Company became indebted to Bank of China in December 2011 for $476,122, payable in December 2012, interest at 8.46% per annum. The loan is secured by a land use right with net book value of $568,583 of the Company.
For the three months ended March 31, 2012 and 2011, $10,001 and nil interest expense was recorded.
8. Other payables
The total amount of other payables consisted of the contract deposit from the mushroom planters. The balance had no change in the first quarter of 2012.
9. Due to related parties
The total amount of due to related parties consisted of the borrowing of the shareholder. Since the Mr. Chin lend $1,300,000 to the company for rent the land to build greenhouse and planting structure, the balance had a significant increase as of March 31, 2012 compared to that as of December 31, 2011.
Results of Operations for the three months ended March 31, 2012 and 2011
The following table presents an overview of our results of operation for the three months ended March 31, 2012 and 2011.
Increase
|
||||||||||||
2012
|
2011
|
(decrease)
|
||||||||||
Total revenue
|
1,705,928
|
946,751
|
759,177
|
|||||||||
Total cost of revenue
|
(1,308,469)
|
(597,005)
|
(711,464)
|
|||||||||
Gross profit
|
397,459
|
349,746
|
47,713
|
|||||||||
Operating expenses
|
(269,349)
|
(137,266)
|
(132,083)
|
|||||||||
Income from operations
|
128,110
|
212,480
|
(84,370)
|
|||||||||
Other income
|
353,475
|
-
|
353,475
|
|||||||||
Interest expense
|
10,001
|
-
|
10,001
|
|||||||||
Income before income taxes
|
471,584
|
212,480
|
259,104
|
|||||||||
Income taxes
|
||||||||||||
Net income
|
471,584
|
212,480
|
259,104
|
1. Revenue
The following table sets forth the breakdown of our revenue for the three months ended March 31, 2012 and 2011, respectively:
2012
|
2011
|
|||||||||||||||
USD
|
%
|
USD
|
%
|
|||||||||||||
Fresh Mushrooms sales
|
904,349
|
53.01%
|
660,054
|
69.65%
|
||||||||||||
Mushroom spawns and seeds sales
|
801,579
|
46.99%
|
286,697
|
30.35%
|
||||||||||||
Total revenue
|
1,705,928
|
100%
|
946,751
|
100%
|
Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.
16
We derived our revenues predominantly from sales of our fresh mushrooms, mushroom spawn and seeds. For the three months ended March 31, 2012 and 2011, revenues from sales of our fresh mushrooms sales were $904,349 and $660,054 respectively representing an increase of $244,295 during the three months ended March 31, 2012. Revenues from sales of our mushroom spawn and seeds were $801,579 and $286,697 for the three months ended March 31, 2012 and 2011, which also indicated $514,882 increase compared to the period in 2011.
The increase was primarily due to the increase of the sales volume as a result of an increasing numbers of new customers developed during the year 2011. To be specific, the increase in our revenue was attributable to the following reasons:
a.
|
We started to open and run the business in the second half of 2009. In the years of 2009 and 2010, the company was still under a development stage with relatively low brand name. The company began the mushroom sales in January of 2011, which led to lower amount of sales revenue in first quarter of 2011 compared with 2012. For the first quarter of 2012, as the company progressed toward maturity, we strengthened our sales and marketing campaign which helped to enhance our brand name and increase our sales.
|
b.
|
The business model of cooperation with local farmers and farming organizations developed since local government encouraged the farmers to develop the local agriculture. As a result, our mushroom spawns and seeds were also supported and welcomed by local farmers and farming organizations, which increased our sales.
|
We now have more than four kinds of mushroom products and more than six kinds of mushroom seeds, and the categories of our products are still growing. As the greenhouse and planting structures under construction being completed in the future, the categories and total quantities of our products would be much higher than we produced in the first quarter of 2012.
We expect to see a trend of growing sales for our mushroom series products, including fresh mushroom & mushroom spawns and seeds, resulting from the growing of the market scales, improving of general agriculture industry, improving of the planting skills and the quality of our products, and the continuing encouragement from local government.
2. Cost of revenue
The following table presents a breakdown of our cost of revenue of fresh mushroom and mushroom spawns and seeds for the three months ended March 31, 2012 and 2011.
2012
|
2011
|
|||||||
USD
|
USD
|
|||||||
Cost of fresh mushrooms sales
|
713,945
|
446,599
|
||||||
Cost of mushroom spawns and seeds sales
|
594,524
|
150,406
|
||||||
Total
|
1,231,088
|
597,005
|
Cost of fresh mushrooms sales: Our cost of fresh mushrooms sales consists primarily of costs associated with purchased materials, planting cost and purchased fresh mushroom from farmers or farming organizations. Cost of fresh mushrooms sales are allocated to each kind of mushroom using the specific identification method. Costs are allocated to specific units within a product based on the ratio of the sales quantities of units to the total sellable quantities of the product.
Cost of mushroom spawns and seeds sales: Our cost of mushroom spawns and seeds sales mainly represented the costs of purchased and cultivate seeds or spawns. We used our workshop to cultivate well mushroom seeds or spawns and sold them to local farmers or farming organizations. We also purchased some good quality mushroom seeds from third party and sold them to our customers as well after our selection. The costs are as well allocated to specific units within a product based on the ratio of the sales quantities of units to the total sellable quantities of the product.
17
3. Gross profit
The following table presents the gross profit of our businesses for the three months ended March 31, 2012 and March 31 of 2011:
2012
|
2011
|
|||||||||||||||
Gross
|
Gross
|
Gross
|
Gross
|
|||||||||||||
Production Category
|
Profit
|
Margin
|
Profit
|
Margin
|
||||||||||||
USD
|
%
|
USD
|
%
|
|||||||||||||
Fresh mushrooms sales
|
190,404
|
21.1
|
%
|
213,455
|
32.3%
|
|||||||||||
Mushroom spawns and seeds sales
|
207,055
|
25.8
|
%
|
136,291
|
47.5%
|
|||||||||||
Total gross profit
|
397,459
|
23.3
|
%
|
349,746
|
36.9%
|
Gross profit from our mushroom growing business increased by $ 397,459 for three months ended March 31, 2012 from $349,746 for the three months ended March 31, 2011. The increase was a primary result from cumulative effect of our business development and sales volume increase. The gross margin of our Fresh mushrooms decreased from 32.3% for the three months ended March 31, 2011 to 21.1% for the three months ended March 31, 2012.And the gross margin of our mushroom spawns and seeds decreased from 47.5% for the three months ended March 31, 2011 to 23.3% for the three months ended March 31, 2012.
The decrease of gross margin was principally attributed to that the price of oyster mushroom and oyster mushroom seeds came down in the first quarter of 2012. Since oyster mushroom is low technical to plant, the local farmers and farming organizations preferred to plant it and got good harvest, that resulted in the market price of oyster mushroom came down and oyster mushroom seeds price came down accordingly.
4. Operating expenses
For the three months ended March 31, 2012, our operating expenses were $269,349, representing an increase of $ 132,082 or 96.2%, as compared to that for the three months ended March 31, 2011. The increase was primarily a result of increase in land lease expenses, company organization cost and depreciation or amortization expenses, which increased $105,322 or 80% of the total increased operating expense. The increase in operating expenses in the current year was also a result of increased office expenses, salaries and bonus in response to the increased sales.
We expect that our operating expenses will increase as we will further expand our business and operations. In addition, as a result of business development, we will also build up more greenhouses and structures, which would lead to a significant increase of the depreciation or amortization expenses. Moreover, our operating expense may also increase due to our need for more personnel as our business continues to grow.
5. Other income
Other income is used to record the company’s non operating income, such as government grant, inventory profit and donation from other third parties, etc. For the three months ended in March 31, 2012, we recognized other income from the government grant for encourage developing local agriculture.
6. Income taxes
Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.
18
Results of Operations for the three months ended March 31, 2012 and 2011 (Continued)
6. Income taxes (continued)
The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from corporate income tax from 2010 to 2012. Accordingly, the company statutory rate was 0% and 0% for the three months ended March 31, 2012 and 2011.
Cash flow for the three months ended March 31, 2012 and 2011
The following table presents selected cash flow data from our cash flow statements for the three months ended March 2012 and 2011, respectively.
2011
|
2010
|
|||||||
Net cash provided by (used in) operating activities
|
$
|
267,004
|
$
|
20,052
|
||||
Net cash used in investing activities
|
(1,225,247)
|
(1,985,498)
|
||||||
Net cash provided by (used in) financing activities
|
1,448,508
|
3,157,768
|
||||||
Effect of exchange rate changes on cash and cash equivalents
|
3,647
|
10,670
|
||||||
Net increase(decrease) in cash and cash equivalents
|
493,912
|
1,202,992
|
||||||
Cash and cash equivalents, beginning of year
|
709,812
|
79,178
|
||||||
Cash and cash equivalents, end of year
|
$
|
1,203,724
|
$
|
1,282,170
|
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2012 was $267,004, which was primarily due to (i) an increase of the net income $471,584 and (ii) an total increase of $105,968 of the depreciation and amortization of fixed assets, land use right and prepaid lease and (iii)an total decrease of $310,548 of the changes in assets and liabilities.
Investing Activities
Net cash used in investing activities was $1,225,247 for the three months ended March 31, 2012, which was primarily attributable to our payments of $1,225,247 for the construction in progress to build greenhouse and planting structures.
Financing activities
Net cash provided by financing activities was $1,448,508 for the three months ended March 31, 2012, which was mainly attributable to a total $1,458,509 of the current account from a related party and a $10,001 interest expense.
19
Significant Accounting Policies
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires management 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. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Cost of finished goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity.
REVENUE RECOGNITION
Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.
The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is the RMB and the RMB is not freely convertible into foreign currencies. The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities translated at exchange rates at the balance sheet date, revenue and expenses are translated at the average exchange rates for the period, and members' equity is translated at historical exchange rates. Translation adjustments are included in accumulated other comprehensive income, a component of members’ equity.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.
TAXATION
Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.
20
Significant Accounting Policies (Continued)
TAXATION (continued)
The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.
Enterprise income tax
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from corporate income tax from 2010 to 2012. Accordingly, the company statutory rate was 0% and 0% for the three months ended March 31, 2012 and 2011.
Value added tax
The Provisional Regulations of The People’s Republic of China Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT for the three months ended March 31, 2012 and 2011.
PROPERTY, PLANT and EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:
Building and constructions
|
20 years | |||
Plant
|
5-10 years | |||
Office equipment
|
3-5 years
|
|||
Vehicles
|
4 years |
Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.
Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.
LAND USE RIGHTS
The Company states land use rights at cost less accumulated amortization. The land use rights are amortized on straight line method during the contract period, varying from 47 to 50 years.
LONG TERM PREPAID LEASE
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act.
Based upon the required evaluation, our CEO and CFO concluded that as of March 31, 2012, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company has identified the following weaknesses in internal control:
The Company does not have an independent board of directors or audit committee or adequate segregation of duties;
All of our financial reporting is carried out by our financial consultant.
We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
22
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of March 31, 2012, the Company’s internal control over financial reporting was not effective due to the following weakness:
The Company does not have an independent board of directors or audit committee or adequate segregation of duties;
All of our financial reporting is carried out by our financial consultant.
We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Controls
We have also evaluated our internal controls for financial reporting, and there has been no change in our internal control over financial reporting that occurred during the year ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
Not required for Smaller Reporting Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 29, 2011, Chin Yung Kong acquired 4,700,000 shares of common stock from Michael Klinicki and Alejandra De La Torre and subsequently Chin Yung Kung took control of the Company. The sales of 4,700,000 shares of common stock were pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.
On December 12, 2011, we entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which we issue 60,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI. The sales of 60,000,000 shares of common stock were pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
24
ITEM 6. EXHIBITS
Exhibit No.
|
Description
|
|
3.1
|
Articles of Incorporation*
|
|
3.2
|
Bylaws*
|
|
10.1
|
Share Exchange Agreement**
|
|
10.2
|
Consulting Service Agreement (Panjin Hengrun and Liaoning Dingxu)**
|
|
10.3
|
Operating Agreement (Panjin Hengrun and Liaoning Dingxu)**
|
|
10.4
|
Equity Pledge Agreement (Panjin Hengrun and Liaoning Dingxu)**
|
|
10.5
|
Option Agreement (Panjin Hengrun and Liaoning Dingxu)**
|
|
10.6
|
Proxy Agreement (Panjin Hengrun and Liaoning Dingxu)**
|
|
31.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
|
|
31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6) | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6) | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6) | |
101***
|
The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.
|
|
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
|
_________
* Incorporated by reference to our Registration Statement on Form S-1, filed on November 9, 2010
**Incorporated by reference to the Form 8-K Current Report filed on December 13, 2011.
*** XBRL 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.
25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
China Liaoning Dingxu Ecological Agriculture Development, Inc.
Formerly known as Hazlo! Technologies, Inc
|
|||
May 17, 2012
|
By:
|
/ S / Chin Yung Kong | |
Chin Yung Kong | |||
President and Chief Executive Officer |
26