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EX-32.1 - CERTIFICATION - TODA INTERNATIONAL HOLDINGS INC.v321890_ex32-1.htm
EX-31.1 - CERTIFICATION - TODA INTERNATIONAL HOLDINGS INC.v321890_ex31-1.htm
EX-32.2 - CERTIFICATION - TODA INTERNATIONAL HOLDINGS INC.v321890_ex32-2.htm
EX-31.2 - CERTIFICATION - TODA INTERNATIONAL HOLDINGS INC.v321890_ex31-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

 

¨ Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

 

000-52346

(Commission file number)

 

TODA INTERNATIONAL HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

CAYMAN ISLANDS N/A
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

 

c/o Dalian TOFA New Materials Development Co, Ltd.

No. 18-2-401 Gangjing Garden,

Dandong Street, Zhongshan District

Dalian, Liaoning Province, PRC  116001

(Address of principal executive offices)

 

+86(411) 8278-9758

(Issuer’s telephone number)

 

N/A

(Former name, former address and former 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      x       No       ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes      x       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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

 

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

Yes      ¨       No       x

 

Indicate the number of shares of the Registrant’s ordinary stock outstanding as of the latest practicable date:

On August 17, 2012, 27,780,000 shares of the registrant's ordinary stock, par value $0.000256 were outstanding.

 

 
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk 45
Item 4. Controls and Procedures 46
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 47
Item 1A. Risk Factors 47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 47
Item 3. Defaults Upon Senior Securities 47
Item 4. (Removed and Reserved) 47
Item 5. Other Information 47
Item 6. Exhibits 47
     
SIGNATURES 48
   
EXHIBITS  

 

 
 

 

TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

 

PART I – FINANCIAL INFORMATION

Item 1.        Financial Statements

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
Assets          
Current assets          
Cash  $6,520,400   $4,407,246 
Restricted cash   3,025,134    1,588,840 
Accounts receivable   15,932,359    16,440,294 
Inventories   11,784,694    12,114,595 
Prepaid expenses and other deposits   3,125,350    4,488,777 
Due from related parties   1,796,819    1,285,791 
Unauthorized distribution   7,915,650    - 
VAT Tax receivable   156,828    61,385 
Total current assets   50,257,234    40,386,928 
Non-current assets          
Property, plant and equipment, net   3,709,688    3,751,659 
Construction in progress   1,682,612    1,676,522 
Land use right, net   289,315    295,312 
Intangible asset, net   3,694,712    3,970,114 
Total non-current assets   9,376,327    9,693,607 
Total assets  $59,633,561   $50,080,535 
Liabilities and stockholders' equity          
Current Liabilities          
Accounts payable  $7,513,040   $4,678,341 
Bank loans   10,059,895    8,918,440 
Income tax payable   663,620    584,579 
Advanced from unrelated parties   1,559,555    257,034 
Accrued liabilities and other payables   1,525,099    1,216,551 
Due to related party   478,190    - 
Total current liabilities   21,799,399    15,654,945 
Total liabilities   21,799,399    15,654,945 
Shareholders' equity          
Ordinary share, $0.000256 par value, 100,000,000 shares authorized; 27,780,000 shares issued and outstanding at June 30, 2012 and at December 31, 2011   7,112    7,112 
Additional paid-in capital   3,115,572    3,047,826 
Statutory reserve   3,316,250    3,316,250 
Retained earnings   28,975,575    25,559,439 
Accumulated other comprehensive income   2,419,653    2,410,341 
Total TODA shareholders' equity   37,834,162    34,340,968 
Non-controlling interest   -    84,622 
Total equity   37,834,162    34,425,590 
Total liabilities and stockholders' equity  $59,633,561   $50,080,535 

 

See notes to consolidated financial statements.

 

1
 

 

TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(IN US DOLLARS)

 

   For the Three Months Ended   For the Six Months Ended 
   June 30   June 30 
   2012   2011   2012   2011 
Revenue                    
- Product sales to third parties  $12,658,694   $14,839,655   $23,711,113   $26,827,761 
- Licensing technology   -    -    -    765,486 
Total revenue   12,658,694    14,839,655    23,711,113    27,593,247 
Cost of sales                    
- Product sales to third parties   (9,492,815)   (10,269,932)   (17,742,310)   (18,219,775)
- Licensing technology   -    -    -    (53,066)
Total cost of sales   (9,492,815)   (10,269,932)   (17,742,310)   (18,272,841)
Gross Profit   3,165,879    4,569,723    5,968,803    9,320,406 
Operating expenses:                    
Selling and marketing expenses   (185,814)   (158,292)   (294,660)   (256,740)
Administrative and other expenses   (720,590)   (448,884)   (1,315,700)   (953,195)
Total operating expenses   (906,404)   (607,176)   (1,610,360)   (1,209,935)
Operating income   2,259,475    3,962,547    4,358,443    8,110,471 
Other income and (expense):                    
Other income   26,403    458,558    190,401    459,163 
Interest expenses   (282,566)   (167,972)   (451,467)   (367,139)
Total other income and (expense)   (256,163)   290,586    (261,066)   92,024 
Income before income taxes   2,003,312    4,253,133    4,097,377    8,202,495 
Income tax expense   (378,249)   (623,032)   (697,994)   (1,112,259)
                     
Net income before allocation of non-controlling interest   1,625,063    3,630,101    3,399,383    7,090,236 
Net loss attributable to non-controlling interest   7,363    -    16,753    - 
Net income attributable to common shareholders  $1,632,426   $3,630,101   $3,416,136   $7,090,236 
Earnings per share                    
- Basic  $0.06   $0.16   $0.12   $0.36 
- Diluted  $0.06   $0.13   $0.12   $0.25 
Weighted average common shares outstanding                    
- Basic   27,780,000    22,608,860    27,780,000    19,616,302 
- Diluted   27,780,000    27,780,000    27,780,000    27,410,879 

 

See notes to consolidated financial statements.

 

2
 

 

TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(IN US DOLLARS)

 

   For the Three Months Ended   For the Six Months Ended 
   June 30   June 30 
   2012   2011   2012   2011 
                 
Net income  $1,625,063   $3,630,101   $3,399,383   $7,090,236 
                     
Other comprehensive income                    
Foreign currency translation adjustment   (245,751)   378,355    9,189    569,942 
Comprehensive income   1,379,312    4,008,456    3,408,572    7,660,178 
                     
Less: Comprehensive loss attributable to non-controlling interests   (7,286)   -    (16,728)   - 
                     
Comprehensive income attributable to TODA  $1,386,598   $4,008,456   $3,425,300   $7,660,178 

 

See notes to consolidated financial statements.

 

3
 

 

TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(IN US DOLLARS)

 

   Ordinary shares with           Accumulated             
   $0.000256 par value   Additional       Other             
   Number of       Paid-in   Statutory   Comprehensive   Retained   Non-controlling   Total 
   Shares   Amount   Capital   reserve   Income   Earnings   interest   Equity 
                                 
Balance at December 31, 2011   27,780,000   $7,112   $3,047,826   $3,316,250   $2,410,341   $25,559,439   $84,622   $34,425,590 
Net income / (loss)   -    -    -    -    -    3,416,136    (16,753)   3,399,383 
Foreign currency translation gain   -    -    -    -    9,164    -    25    9,189 
Acquisition of the additional equity interest in Panjin TOFA Cable Co., Ltd.   -    -    67,746    -    148    -    (67,894)   - 
                                         
Balance as June 30, 2012   27,780,000   $7,112   $3,115,572   $3,316,250   $2,419,653   $28,975,575   $-   $37,834,162 

 

See notes to consolidated financial statements.

 

4
 

 

TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN US DOLLARS)

 

   For the Six Months Ended 
   June 30 
   2012   2011 
Cash flows from operating activities:          
Net income  $3,416,136   $7,090,236 
Add: Net loss attributable to non-controlling interest   (16,753)   - 
Net Income attributable to TODA Stockholders   3,399,383    7,090,236 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation of property, plant and equipment   245,811    184,109 
Amortization of land use right   3,272    3,161 
Amortization of intangible assets   243,113    235,325 
Changes in assets and liabilities:          
Accounts receivable   507,935    (2,874,791)
Inventories   329,901    (2,831,963)
Prepaid expenses and other deposits   1,701,512    (618,342)
VAT tax receivable   (95,443)   - 
Accounts payable   2,834,699    627,750 
Accrued liabilities and other payables   308,548    697,207 
Income tax payable   79,041    (385,775)
Net cash provided by operating activities   9,557,772    2,126,917 
Cash flows from investing activities:          
Advance to third parties   (338,085)   - 
Increase in restricted cash   (1,436,294)   - 
Purchase of property, plant and equipment   (201,680)   (12,448)
Cash paid for construction in progress   (21,687)   - 
Net cash used in investing activities   (1,997,746)   (12,448)
Cash flows from financing activities:          
Advances to related companies   (511,028)   (17,022)
Advances to owners   -    (336,162)
Unauthorized distribution   (7,915,650)   - 
Advances from related party   478,190    - 
Advances from unrelated parties   1,302,521    - 
Proceeds from bank loans   1,226,454    10,093,471 
Repayment of bank loans   (84,999)   (9,850,051)
Net cash used in financing activities   (5,504,512)   (109,764)
Net increase in cash   2,055,514    2,004,705 
Effect on change of exchange rates   57,640    129,407 
Cash as of January 1   4,407,246    3,699,778 
Cash as of June 30  $6,520,400   $5,833,890 
Supplemental disclosures of cash flow information:          
Cash paid during the period for:          
Interest paid  $451,467   $367,139 
Income tax paid  $618,751   $1,474,302 

 

See notes to consolidated financial statements.

 

5
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

1.ORGANIZATION, BUSINESS AND OPERATIONS

 

On September 27, 2006, TODA International Holdings Inc., formerly Summit Growth Corporation ("TODA" or the "Company"), was formed in the Cayman Islands with the objective to acquire, or merge with, an operating business.

 

On March 15, 2011, TODA entered into a Share Exchange Agreement (the "Share Exchange Agreement") with Victor Score Limited, a British Virgin Islands exempted business company ("Victor Score'), and its stockholders (the "Stockholders"). Prior to the share exchange, Victor Score's issued 2,665,075 ordinary shares with par value of $0.00128 to former shareholders of the Company. Pursuant to the terms of the Exchange Agreement, the Stockholders of Victor Score agreed to transfer all of the issued and outstanding shares of common stock in Victor Score to the Company in exchange for the Company's issuing an aggregate of 32,839,910 ordinary shares and 104,572 preference shares of the Company's capital stock to the Victor Score stockholders and Victor Score. The Company initiated a 1 for 2 reverse stock splits effective on May 16, 2011. After the reverse stock split, there were 17,322,805 ordinary shares outstanding. On the same date, 104,572 preference shares were converted into 10,457,195 ordinary shares. As a result, a total of 27,780,000 ordinary shares were outstanding as of May 16, 2011 and June 30, 2012.

 

The Share Exchange was accounted for as a "reverse merger", since the former stockholders of Victor Score own a majority of the outstanding shares of the Company's capital stock immediately following the Share Exchange. Victor Score is deemed to be the accounting acquirer in the reverse merger. Accordingly after the reverse merger, Victor Score became a subsidiary of TODA, with Dalian TOFA New Materials Development Co., Ltd., a company incorporated under the laws of the People's Republic of China ("PRC") on November 12, 1997 ("TOFA"), and Dalian Tongda Equipment Technology Development Co., Ltd., a company incorporated under the laws of PRC on January 28, 2008 ("Tongda") being the variable interest entities ("VIEs") of TODA through a series of contractual agreements made with Dalian Xinding New Materials Technology Consultancy Co., Ltd. ("Dalian Xinding").

 

As a result of the Share Exchange, TODA is now engaged in the business of manufacturing and trading of copper coated aluminum wire and its related products, and in the business of manufacturing of wiring equipment and leasing copper coated aluminum wire technology in the PRC. TODA also exerts effective control over TOFA and Tongda and receives 100% of the net profits derived from the business operations of TOFA and Tongda.

 

Subsequent to the Share Exchange, the Company now holds 100% of Victor Score, which, in turn, holds 100% of the equity interest in Apex Wealth Holdings Limited ("Apex Wealth"), a limited liability company incorporated in Hong Kong, China on February 12, 2010 which, in turn, holds 100% of the equity interest in Dalian Xinding, a wholly foreign owned enterprise approved in the PRC on August 18, 2010 with the registered capital of RMB5,000,000 (US$732,504).

 

Pursuant to a group reorganization completed on October 12, 2010, TOFA and Tongda signed a series of contractual agreements with Dalian Xinding. TOFA and Tongda became variable interest entities ("VIEs") as defined under FASB ASC 810-10.

 

The Company does not conduct any operations or have any assets exclusive of its control of TOFA and Tongda. Through its contractual arrangements with TOFA and Tongda, the Company is engaged in the research, development, production and distribution of composite bimetallic materials, primarily copper clad aluminum ("CCA"), and its manufacturing equipment. The Company is also involved in the research and development of related production technologies and provides consultancy services on such technologies to a number of entities, within and out of China.

 

The VIE Agreements grant Dalian Xinding the power to direct the activities that most significantly impact TOFA's and Tongda's economic performance and right to economic returns in the following manner:

 

(a)Pursuant to the terms of the Business Operation Agreement, Dalian Xinding effectively gained management control of TOFA and Tongda.

 

·Without written consent of Dalian Xinding, neither TOFA nor Tongda can enter into or consummate a transaction that might significantly affect the assets, obligations, rights or operations of TOFA or Tongda.

 

6
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

·Dalian Xinding is entitled to provide advice and guidance regarding hiring and firing employees, daily operations and financial management of TOFA and Tongda. The managements of TOFA and Tongda have agreed to accept such advice and guidance.

 

·Dalian Xinding is entitled to recommend all candidates for directors and executive officers of TOFA and Tongda. TOFA and Tongda have agreed to appoint the candidates recommended by Dalian Xinding.

 

·TOFA and Tongda have issued a letter of authorization that authorizes designated officers of Dalian Xinding to act as their proxies and exercise all rights of shareholders at any shareholders meetings of TOFA or Tongda pursuant to PRC law and the bylaws of TOFA and Tongda.

 

(b)Pursuant to the terms of the Lease Agreement, TOFA and Tongda have leased all of the property, plant and equipment of TOFA and Tongda to Dalian Xinding and Dalian Xinding possess the right to use all of such property, plant and equipment during the lease term.

 

The VIE Agreements each have an initial term of 10 years and may only be extended upon the written agreement of Dalian Xinding. The Company believes that the VIE Agreements provide it with substantial protection and control over the operations of the VIEs.

 

Details of the Company’s subsidiaries and VIEs which are included in these consolidated financial statements as at June 30, 2012 are as follows:

 

Subsidiaries’ names  

Place and date of

incorporation

 

Percentage of

ownership

by the Company

  Principal activities
             
Victor Score Limited   BVI   100%   Intermediate holding company
    May 13, 2010        
             
Apex Wealth Holdings Limited   Hong Kong, PRC   100% (indirect)   Intermediate holding company
    February 12, 2010        
             
Dalian Xinding New Materials   Dalian, PRC   100% (indirect)   Intermediate holding company
Technology Consultancy Co., Ltd.   August 18, 2010        
             
Dalian TOFA New Materials   Liaoning, Dalian, PRC   VIE controlled by TODA   Manufacturing and trading of CCA
Development Co., Ltd.   November 12, 1997       and its related products
             
Dalian Tongda Equipment   Liaoning, Dalian, PRC   VIE controlled by TODA   Manufacturing wiring equipment and
Technology Development Co., Ltd.   January 28, 2008       leasing CCA technology
             
Panjin TOFA Cable Co., Ltd.   Liaoning, Dalian, PRC   100% owned by TOFA (i)   Manufacturing of CCA cables
    June 30, 2011        
             
Zhaodong TOFA Cable Co., Ltd.   Heilongjiang, Zhaodong, PRC   100% owned by TOFA   Sale of CCA cables and related
    November 18, 2011        
             
Mudanjiang TOFA Cable Co., Ltd.   Heilongjiang, Mudanjiang, PRC   100% owned by Panjin   Sale of CCA cables and related
    June 26, 2012   Cable   products

 

The contractual agreements between the Company, TOFA and Tongda have an initial term of 10 years. The parties may mutually seek to extend these agreements upon the expiration of the current term. The Company is not aware of any legal impediments that may affect the renewal of these agreements under current PRC laws. In order for the Company to continue to derive the economic benefits from its interest in operation of TOFA and Tongda, it must renew these contractual agreements. There is no assurance that such contractual agreements will be renewed upon expiration.

 

7
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

(i)On June 17, 2012, TOFA acquired the remaining 10% equity interest of Panjin Cable from its minority shareholders in the amount of $79,157 (RMB500,000). The acquisition of this non-controlling interest has been accounted for as a transaction with equity holders in their capacity as equity holders and accordingly no goodwill has been recognized.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

  

The accompanying unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. All adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the consolidated financial statements have been included. Nevertheless, these consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on April 16, 2012. The results of operation for the six months ended June 30, 2012, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

 

The consolidated financial statements include all accounts of the Company and its wholly-owned subsidiaries and VIE’s (the “Group”) as disclosed in Note 1. All material inter-company balances and transactions have been eliminated.

 

Foreign currency translation

 

The Company uses United States dollars (“U.S. Dollars” or “US$” or “$”) for financial reporting purposes. The subsidiaries and VIEs within the Company maintain their books and records in their respective functional currency, Chinese Renminbi (“RMB”) and Hong Kong dollars (“HKD”), being the lawful currency in the PRC and Hong Kong, respectively. Assets and liabilities of the subsidiaries are translated from RMB or HK$ into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income included in the stockholders’ equity section of the balance sheets. The exchange rates used to translate amounts in RMB and HKD into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:

 

     June 30    December 31
     2012    2011
         
Balance sheet items, except for equity accounts    RMB6.3530=$1    RMB6.2939=$1
     HKD7.7572=$1    HKD7.7663=$1

 

     June 30    June 30
     2012    2011
         
Items in statements of income and cash flows    RMB6.3166=$1    RMB6.5258=$1
for the six months ended    HKD7.7590=$1    HKD8.900=$1
         
Items in statements of income and cash flows    RMB6.3335=$1    RMB6.5739=$1
for the three months ended    HKD7.7592=$1    HKD8.4519=$1

 

8
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

There is no assurance that the RMB and HKD amounts could have been, or could be, converted into U.S. dollars at the above rates.

 

Acquisition of non-controlling interests in VIE's subsidiary

 

The acquisition of a non-controlling interest is accounted for as a transaction with equity holders in their capacity as equity-holders and therefore no goodwill is recognized as a result of such transactions. The difference between the fair value of the consideration paid and the face value of equity shares issued is recorded as additional paid-in capital and the difference between the fair value of the consideration paid and the carrying amount of the non-controlling interest is recorded as an adjustment in equity and is included as part of additional paid-in capital.

 

Consolidation of VIEs

 

TODA has no direct or indirect legal or equity ownership interest in TOFA and Tongda. However, through the VIE Agreements between Dalian Xinding and the shareholders of TOFA and Tongda, the shareholders of TOFA and Tongda have assigned all their rights as shareholders, including voting rights and disposition rights of their equity interests in TOFA and Tongda to Dalian Xinding, our indirect, wholly-owned subsidiary.

 

In accordance with Accounting Standards Codification ("ASC") 810-10-15-14, TOFA and Tongda are deemed VIEs for two reasons. First, the equity stockholders of TOFA and Tongda do not significantly enjoy the benefits of income or suffer the consequences of losses. Second, the equity stockholders of TOFA and Tongda do not possess the direct or indirect ability through voting or similar rights to make decisions regarding their activities that have a significant effect on the success of the companies. Therefore, in accordance with ASC 810-10-25-38A, the Company is deemed to be the primary beneficiary of TOFA and Tongda and the financial statements of TOFA and Tongda are consolidated in the Company's consolidated financial statements.

 

The Company's Consolidated VIEs - Balance Sheet Classification

 

The following table presents the carrying amounts and classifications of consolidated assets that are collateral for consolidated VIE obligations:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
Assets          
Current assets          
Cash  $6,403,856   $4,342,750 
Restricted cash   3,025,134    1,588,840 
Accounts receivable   15,932,359    16,440,294 
Inventories   11,784,694    12,114,595 
Other current assets   3,206,728    4,414,947 
Unauthorized distribution   7,915,650    - 
Due from related companies   1,796,819    1,285,791 
Fixed assets and intangible assets, net   9,375,627    9,693,607 
Total assets of consolidated VIEs  $59,440,867   $49,880,824 

 

9
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

The following table presents the carrying amounts and classification of the third-party liabilities of the consolidated VIEs;

 

Liabilities          
Current liabilities          
Bank loans  $10,059,895   $8,918,440 
Accounts payable   7,513,040    4,678,341 
Other liabilities   2,932,624    961,782 
Total liabilities of consolidated VIEs  $20,505,559   $14,558,563 

 

The consolidated VIEs included in the table above represent the two separate entities and their subsidiaries. The creditors of consolidated VIEs have legal recourse only to the assets of the VIEs and do not have such recourse to the Company. In addition, the assets are generally restricted only to pay such liabilities. Thus, the Company's maximum legal exposure to loss related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets due to outstanding third-party financing. Intercompany liabilities are excluded from the table.

 

Revenue recognition

 

The Group generates revenue primarily from manufacturing and trading of copper coated aluminum wire, equipment and its related products and leasing of copper coated aluminum wire technology.

 

Licensing technology represents the revenue from leasing of several exclusive production technologies, which are internally developed by research and development of the Tongda, to an independent third party. The production technology related to the technical know-how in the production process and has not been registered as patent according to the relevant laws and regulations in the PRC.

 

Revenue represents the invoiced value of goods sold recognized upon the shipment of goods to customers and the rental income of certain production technology to an independent party. Revenue is recognized when all of the following criteria are met:

 

i)Persuasive evidence of an arrangement exists,
ii)Delivery has occurred and the customer takes ownership and assumes risk of loss or services have been rendered,
iii)The seller's price to the buyer is fixed or determinable, and
iv)Collectability is reasonably assured.

 

Cash

 

Cash represents cash in banks and cash on hand.

 

The Company considers all highly liquid investments with original maturities of three months or less to be cash. Substantially all of the cash deposits of the Company are held with financial institutions located in the PRC. Management believes these financial institutions are of high credit quality.

 

Restricted cash

 

Restricted cash represents bank deposits held as collaterals for irrecoverable letter of credit.

 

Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company generally extends unsecured credit to six months to its customers in the ordinary course of business. The Company mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on management's assessment of known requirements, aging of receivables, payment history, the customers' current credit worthiness, and the economic environment. When a specific accounts receivable balance is deemed uncollectible, a charge is taken to statement of income. Recoveries of balances previously written off are reflected as income in the statement of income.

 

10
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

Inventories

 

Inventories consisting of raw material, work-in-progress and finished goods of copper coated aluminum wire and related products which are stated at the lower of cost or net realizable value. Finished goods comprised of direct materials, direct labor and a portion of overheads. Inventory costs are calculated using a weighted average method of accounting.

 

Allowances for obsolete, slow-moving and damaged inventory are deducted from the related inventory balances. No provision was made as of June 30, 2012 and December 31, 2011.

 

Property, plant and equipment

 

Property, plant and equipment are recorded at cost less accumulated depreciation. Maintenance, repairs and minor renewals are expensed as incurred; major renewals and improvements that extend the lives or increase the capacity of plant assets are capitalized.

 

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the reporting period of disposition.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets after taking into account their respective estimated residual value.

 

The estimated useful lives of the assets are as follows:

 

    Estimated Life
Buildings   10 - 20
Plant equipment   5 - 10
Office equipment   3 - 5
Motor vehicles   3 - 4

 

Land use right

 

Land use right represents the prepayments for the use of parcels of land in the PRC where the Company's production facilities are located, and are charged to expense over their respective lease periods of 50 years. According to the laws of the PRC, the government owns all of the land in the PRC. Company or individuals are authorized to use the land only through land use rights leased from the PRC government for a certain period.

 

Intangible assets

 

Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortization and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives of 10 years. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.

 

Gain or losses arising from derecognition of the intangible asset is measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of income when the asset is disposed.

 

Construction in progress

 

Construction in progress represents property, plant and equipment under construction and pending installation and is stated at cost less accumulated impairment losses, if any.

 

11
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and are available for intended use. When the assets are placed in service, the costs are transferred to property, plant and equipment and depreciated in accordance with the accounting policy of the Company.

 

Research and development costs

 

Research and development costs are charged to expense as incurred. Research and development costs mainly consist of remuneration for the research and development staff and material costs for research and development. The Company incurred $140,230 and $138,159 for six months ended June 30, 2012 and 2011, respectively, and $57,670 and $64,335 for the three months ended June 30, 2012 and 2011, respectively.

 

Impairment of long-lived assets

 

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of any asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

Based on the Company’s assessment, no impairment was recognized as of June 30, 2012.

 

Comprehensive income

 

The Company has adopted ASC 220, "Comprehensive Income". This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments.

 

Income taxes

 

The Company accounts for income taxes under FASB ASC Topic 740 "Income Taxes". Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.

 

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.

 

The Company adopted FASB ASC Topic 740, "Income Taxes", which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. As of June 30, 2012 and 2011, there was no amounts that had been accrued with respect of uncertain tax positions.

 

The tax effects of temporary differences of the Company as of June 30, 2012 and 2011 are immaterial.

 

12
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

Value added taxes

 

Sales of the goods in the PRC are subject to the VAT at 17% (Output VAT). Input tax on purchases can be deducted from output VAT. The net amount of VAT receivable from, or payable to, the taxation authority is included in “VAT tax receivables” or “VAT tax payables” in the consolidated balance sheets.

 

Revenues, expenses and assets are recognized net of the amount of VAT, except:

 

i)where the VAT incurred on the purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognized as part of the acquisition of the asset or as part of the expense item as applicable, and

 

ii)receivables and payables are stated with the amount of VAT included

 

Employee benefits

 

i)Salaries, wages, annual bonuses, paid annual leave and staff welfare are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

 

ii)Contributions to appropriate local defined contribution retirement schemes pursuant to the relevant labor rules and regulations in the PRC are charged to the cost of sales and administrative and other expenses in the statement of operation as and when the related employee service is provided. The Company incurred $144,967 and $140,978 for the six months ended June 30, 2012 and 2011, respectively, and $72,633 and $74,335 for the three months ended June 30, 2012 and 2011, respectively.

 

Earnings per ordinary share

 

Basic earnings per ordinary share is based on the weighted effect of ordinary shares issued and outstanding, and is calculated by dividing net profit by the weighted average shares outstanding during period. Diluted earnings per ordinary share is calculated by dividing net profit by the weighted average number of ordinary shares used in the basic earnings per share calculation plus the number ordinary shares that would be issued assuming exercise or conversion of all potentially dilutive ordinary shares outstanding.

 

On March 1, 2008 the Company amended the authorized ordinary share capital of the Company from 50,000,000 ordinary shares of $0.0001 par value each to 39,062,500 ordinary shares of $0.0001 par value each. This resulted in every shareholder as of March 1, 2008 receiving 0.78125 ordinary shares for every ordinary share previously held. This was treated as a stock consolidation for US GAAP purposes, and all share and per share data is presented as if the consolidation took place as of the date of inception, September 27, 2006. On March 1, 2008, the Company also amended the authorized preference share capital of the Company from 1,000,000 preference shares of $0.0001 par value each to 781,250 preference shares of $0.000128 par value.

 

On May 16, 2011, by shareholders' resolution, the Company effected a one for two (1 for 2) stock consolidation of its issued and outstanding ordinary shares and increased the amount of the authorized ordinary shares from 39,062,500 shares to 100,000,000 shares.

 

At June 30, 2011 and 2012, there were no potentially dilutive ordinary shares outstanding.

 

13
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

The following table sets forth the computation of basic and diluted net income per ordinary share:

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Net income attributable to TODA's shareholders  $1,632,426   $3,630,101   $3,416,136   $7,090,236 
                     
Weight average outstanding shares of ordinary stock   27,780,000    22,608,860    27,780,000    19,616,302 
Dilutive effect of convertible preference stock   -    5,171,140    -    7,794,577 
                     
Dilutive weighted average outstanding shares   27,780,000    27,780,000    27,780,000    27,410,879 
                     
Earnings per ordinary share:                    
Basic  $0.06   $0.16   $0.12   $0.36 
Diluted  $0.06   $0.13   $0.12   $0.25 

 

Fair value measurements

 

FASB ASC Topic 820, “Fair Value Measurement and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value FASB ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.

 

The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 -Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

 

Level 2 -Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.

 

Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

For certain of the Company’s financial instruments, none of which are held for trading purposes, including cash, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.

 

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

 

There was no asset or liability measured at fair value on a non-recurring basis as of June 30, 2012 and December 31, 2011.

 

14
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

Commitments and contingencies

 

In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, product liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. As management has not become aware of any product liability claims arising from any incident over the year, the Group has not recognized a liability for product liability claims and no contingent liability has been recorded as of June 30, 2012 and December 31, 2011.

 

Economic and political risks

 

The major operations of the Company are conducted in the PRC. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC's economy may influence the business, financial condition, and results of operations of the Company.

 

Among other risks, the Company's operations are subject to the risks of restrictions on: the transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

 

3.CASH

 

Cash represents cash in bank and cash on hand. Cash as of June 30, 2012 and December 31, 2011 consists of the following:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Bank balances and cash  $6,520,400   $4,407,246 

 

RMB is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.

 

4.RESTRICTED CASH

 

As at June 30, 2012 and December 31, 2011 the Company's cash amounting to $3,025,134 and $1,588,840 respectively, were restricted and deposited in certain banks as collateral for irrevocable letters of credit.

 

5.ACCOUNTS RECEIVABLE

 

The majority of the Company's sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts and the management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the Company has determined that no allowance for doubtful accounts is required as of June 30, 2012 and December 31, 2011.

 

15
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

6.INVENTORIES

 

Inventories are stated at the lower of cost (determined using the weighted average cost) or market value and are composed of the following at:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Raw materials  $3,148,251   $4,477,678 
Work-in-process   2,601,495    278,503 
Finished goods   6,034,948    7,358,414 
   $11,784,694   $12,114,595 

 

7.PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following at:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Trade deposits to suppliers  $2,102,194   $3,914,548 
Other short term advances to third parties   415,289    77,204 
Utility and sundry deposits   151,587    12,749 
Short term advances to employees   456,280    484,276 
   $3,125,350   $4,488,777 

 

The other short term advances to third parties are interest free, unsecured and repayable on demand.

 

8.DUE FROM RELATED COMPANIES AND RELATED PARTY TRANSACTIONS

 

Name  Nature  June 30, 2012   December 31, 2011 
      (Unaudited)     
Shenzhen Tofa Complex Metal Material Co., Ltd. (a)  Account receivable  $1,796,819   $1,285,791 

 

(a)Shenzhen Tofa Complex Metal Material Co. Ltd is controlled by Chuan Tao Zheng, Chairman, CEO and Shareholder of the Company.

 

The amount due is interest free and unsecured and repayable on demand.

 

9.DISTRIBUTION IN CONTRAVENTION OF VIE AGREEMENTS

 

On April 30, 2012, TOFA made a distribution in the aggregate principal amount of $7,915,650 to Messrs. Chuan Tao Zheng, Pi Jia Liu and Zong Li Li, as set forth below. The distribution was not properly authorized by Dalian Xinding or the Company under the terms of the VIE agreements and, upon becoming aware of the unauthorized distribution, the Company immediately demanded the repayment of the funds. These funds were repaid in full on August 17, 2012.

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Chuan Tao Zheng  $5,992,148   $- 
Zong Li Li   1,242,757    - 
Pi Jia Liu   680,745    - 
   $7,915,650   $- 

 

16
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

10.PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net consist of the following:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Buildings  $954,571   $963,534 
Plant equipment   4,814,170    4,609,100 
Office equipment   191,994    179,817 
Motor vehicles   628,632    634,536 
    6,589,367    6,386,987 
Less: Accumulated depreciation   (2,879,679)   (2,635,328)
   $3,709,688   $3,751,659 

 

Depreciation expense for the six months ended June 30, 2012 and 2011 amounted to $245,811 and $184,109 respectively, and for the three months ended June 30, 2012 and 2011 amounted to $112,881 and $98,479 respectively.

 

The buildings, plant and equipment are pledged as collateral to Shanghai Pudong Development Bank ("SPDB") for the bank loans.

 

TOFA has the right to use its property from 2002 to 2052 under the terms of Property Certificate issued to TOFA by the Chinese government.

 

11.CONSTRUCTION IN PROGRESS

 

A summary of construction in progress is as follows:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Balance beginning  $1,676,522   $1,368,351 
Additions   21,687    241,622 
Effect of foreign exchange rate changes   (15,597)   66,549 
   $1,682,612   $1,676,522 

 

   Balance at
June 30, 2012
   Estimated cost
to complete as of
June 30, 2012
   Estimated time to complete
   (unaudited)   (unaudited)    
              
Plant  $1,434,900   $-   Before December 31, 2013
Plant equipment   247,712    -   Before December 31, 2012
   $1,682,612   $-    

 

No depreciation has been provided for construction in progress.

 

12.LAND USE RIGHT

 

Land use right represents prepaid lease payments to the local government in the PRC for the use of land where the Company's production facilities are located. Land use rights have a 50-year life from January 1, 2007 to December 2056.

 

17
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

The land use right is pledged as collateral to Shanghai Pudong Development Bank ("SPDB") for the bank loans granted to the Company.

 

Amortization expenses were $3,272 and $3,161 for the six months ended June 30, 2012 and 2011, respectively, and $1,634 and $1,591 for the three months ended June 30, 2012 and 2011, respectively.

 

As of June 30, 2012, the expected amortization expense of the land use right for each of the next five years and thereafter as follows:

 

Year ending December 31,     
2012 (Six months)  $3,250 
2013   6,500 
2014   6,500 
2015   6,500 
2016   6,500 
Thereafter   260,065 
   $289,315 

 

13.INTANGIBLE ASSET

 

Intangible asset represents the following:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
Production technology          
Cost  $4,769,400   $4,814,185 
Less: Accumulated amortization   (1,074,688)   (844,071)
Net  $3,694,712   $3,970,114 

 

Amortization expenses were $243,113 and $235,325 for the six months ended June 30, 2012 and 2011, respectively.

 

Amortization expenses were $122,870 and $116,743 for the three months ended June 30, 2012 and 2011, respectively.

 

As of June 30, 2012, the expected amortization expense of the intangible asset for each of the next five years and thereafter as follows:

 

Year ending December 31,     
2012 (Six months)  $238,470 
2013   476,940 
2014   476,940 
2015   476,940 
2016   476,940 
Thereafter   1,548,482 
   $3,694,712 

 

The Company has reviewed the recoverable amount of the production technology based on value-in-use calculations by discounting future cash flows and no impairment was required as of June 30, 2012 and December 31, 2011, respectively.

 

18
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

14.ACCOUNTS PAYABLE

 

Accounts payable consist of the following at June 30, 2012 and December 31, 2011, respectively:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
         
Account payable  $2,194,709   $1,500,661 
Notes payable   5,318,331    3,177,680 
   $7,513,040   $4,678,341 

 

The notes are payable on demand to Company's creditors. The creditors have given extended credit terms secured by pledge of the Company's restricted cash. All outstanding is due within one year.

 

15.BANK LOANS

 

Bank loans consist of the following:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Short-term bank loans  $10,059,895   $8,918,440 

 

The bank loans as outlined in the following tables are secured by mortgages on the land and buildings, other plant and equipment and personal guarantees of some directors' and third parties. The proceeds of the loans were used to finance the acquisition of property, plant and equipment and working capital of the Company.

 

The details of the short term bank loans outstanding as of June 30, 2012 are as follows:

 

    Outstanding loan   Current Annualized   Nature of        
Name of bank   amount   interest rate   loans   Term of loans   Collateral
                     
China CITIC Bank, Dalian Branch (“China CITIC”)   US$1,574,059 (RMB10,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equal to 8.20%)   Term loan   March 30, 2012 to March 29, 2013   Related party and third party guarantees
                     
Shanghai Pudong Development Bank (“SPDB”)   US$3,138,202 (RMB19,937,000)   China Central Bank benchmark half-year rate of 6.31% plus 20% (equal to 7.57%)   Revolving loan   August 5, 2011 to August 1, 2012   Mortgages on land use right, other plant and equipment
                     
Shenzhen Development Bank (“SDB”)   US$2,361,089 (RMB15,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equals to 8.20%)   Revolving loan   March 26, 2012 to March 26, 2013   Related party and third party guarantees
                     
    US$2,334,412 (RMB14,830,519)   Annual rate of 6.00%   Export loans   March 23, 2012 to February15, 2013   Related party and third party guarantees
                     
Industrial and Commercial Bank Of China (“ICBC”)   US$472,218 (RMB3,000,000)   China Central Bank benchmark annual rate of 8.528%   Revolving loan   September 29, 2011 to September 14, 2012   Factoring business on account receivables
                     
    US$179,915 (RMB1,143,000)   China Central Bank benchmark annual rate of 7.93%   Revolving loan   March 28, 2012 to September 26, 2012   N/A

 

19
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

The details of the short term bank loans outstanding as of December 31, 2011 are as follows:

 

    Outstanding loan   Current Annualized   Nature of        
Name of bank   amount   interest rate   loans   Term of loans   Collateral
                     
China CITIC   US$794,420 (RMB5,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equal to 8.20%)   Term loan   April 1, 2011 to March 30, 2012   Related party and third party guarantees
                     
    US$794,420 (RMB5,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equal to 8.20%)   Term loan   April 1, 2011 to March 23, 2012   Related party and third party guarantees
                     
SPDB   US$3,165,605 (RMB19,924,000)   China Central Bank benchmark half-year rate of 5.85% plus 20% (equal to 7.02%)   Revolving loan   August 5, 2011 to August 1, 2012   Mortgages on land use right, other plant and equipment
                     
SDB   US$1,191,630 (RMB7,500,000)   China Central Bank benchmark annual rate of 6.31%   Revolving loan   April 29, 2011 to April 28, 2012   Related party and third party guarantees
                     
    US$1,191,630 (RMB7,500,000)   China Central Bank benchmark annual rate of 6.31%   Revolving loan   April 27, 2011 to April 26, 2012   Related party and third party guarantees
                     
    US$1,246,885 (RMB7,847,771)   LIBOR plus 3 bps (equal to 4.5%)   Export loans   January 27, 2011 to January 26, 2012   Related party and third party guarantees
                     
ICBC   US$476,652 (RMB3,000,000)   China Central Bank benchmark annual rate of 8.528%   Revolving loan   September 29, 2011 to September 14, 2012   Factoring business on account receivables
                     
    US$28,599 (RMB180,000)   China Central Bank benchmark annual rate of 8.528%   Revolving loan   November 16, 2011 to May 15, 2012   N/A
                     
    US$28,599 (RMB180,000)   China Central Bank benchmark annual rate of 7.73%   Revolving loan   November 16, 2011 to May 15, 2012   N/A

 

Interest expenses for the six months ended June 30, 2012 and 2011 amounted to $451,467 and $367,139 respectively, and for the three months ended June 30, 2012 and 2011 amounted to $248,152 and $167,972, respectively.

 

16.ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accrued liabilities and other payables consist of the following:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Wages and welfare payables  $49,824   $- 
Accrued expenses   117,800    272,063 
Other payables   1,357,475    944,488 
   $1,525,099   $1,216,551 

 

20
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

Other payables consist of amounts owed by the Company to various unrelated entities that are incurred in the normal course of business operations. These liabilities do not carry any interest rate and will be repayable on demand.

 

17.DUE TO RELATED PARTY

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
           
Yu Kai Wang  $478,190   $- 

 

This represents certain operating expenses of the Group that were paid by Mr. Wang, a director and executive officer of the Company. The amount due is interest free, unsecured and repayable on demand.

 

18.OTHER INCOME

 

Other income consists of the following:

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2012   2011   2012   2011 
                 
Interest income  $23,569   $19,446   $29,993   $20,058 
Sale of raw materials   2,834    -    2,834    - 
Foreign exchange gain   -    282,270    -    282,270 
Sundry income   -    156,842    157,574    156,835 
   $26,403   $458,858   $190,401   $459,163 

 

During the six months ended June 30, 2012, the Company manages to recover its bad debt as of $152,197 on other receivable that was written off in previous year. It was recorded as sundry income.

 

19.ORDINARY SHARES

 

As detailed in Note 1, in March 2011, in connection with the consummation of the transactions contemplated by the Share Exchange Agreement, the Company issued an aggregate of 32,839,910 ordinary shares to the Victor Score's Stockholders in connection with the reverse merger.

 

The Company effected a one-for-two reverse stock split, effective May 16, 2011. After the reverse stock split, there were 17,322,805 ordinary shares outstanding. On May 16, 2011, 104,572 preference shares were converted into 10,457,195 ordinary shares. As a result, a total of 27,780,000 ordinary shares were outstanding as of May 16, 2011, December 31, 2011 and June 30, 2012.

 

20.PREFERENCE SHARES

 

The Company is authorized to issue 781,250 shares of preference shares with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

 

As detailed in Note 1, in March 2011, in connection with the consummation of the transactions contemplated by the Share Exchange Agreement, the Company issued 104,572 preference shares to one of the Victor Score Stockholders. Each share of these preference shares have 100 ordinary shares voting right and is convertible 100 ordinary shares. On May 16, 2011, immediately following the approval of a one-for-two reverse stock split, the preference shares were converted into 10,457,195 ordinary shares of the Company. There was no preference share issued and outstanding as of June 30, 2012 and December 31, 2011.

 

21
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

21.STATUTORY RESERVES

 

The Company's subsidiaries and VIEs incorporated in the PRC are required on an annual basis to make appropriations to the statutory reserve based on after-tax net earnings at certain percentage of after-tax profit determined in accordance with PRC regulations.

 

The statutory reserve requires annual appropriations of 10% of after-tax profit (as determined at each year-end and after setting off against any accumulated losses from prior years) until such fund has reached 50% of VIEs' registered capital. Appropriation to the statutory reserve fund must be made before distribution of dividends to stockholders. The statutory reserve fund can only be used for specific purposes, such as setting off the accumulated losses, enterprise expansion or increasing the registered capital.

 

For the six months ended June 30, 2012 and the year ended December 31, 2011, the Company's subsidiaries and VIEs contributed nil and $1,054,278 to statutory reserve respectively.

 

22.BUSINESS SEGMENTS

 

A)Business segment reporting - by product

 

The Company has two reportable business segments: Manufacturing and trading of bimetallic composite wire products and its related products ("Bimetallic Composite Wire Products"), and manufacturing of wiring equipment and leasing copper coated aluminum wire technology ("Wiring Equipment").

 

The following tables set forth the Company's two main segments:

 

   Bimetallic             
   composite
wire products
   Wiring equipment   Corporate and other   Consolidated Total 
Three Months Ended June 30, 2012                    
Product sales                    
Sales to third parties  $12,548,085   $110,609   $-   $12,658,694 
Licensing technology   -    -    -    - 
    12,548,085    110,609    -    12,658,694 
                     
Cost of sales                    
Sales to third parties   (9,440,421)   (52,394)   -    (9,492,815)
Licensing technology   -    -    -    - 
    (9,440,421)   (52,394)   -    (9,492,815)
Gross profit   3,107,664    58,215    -    3,165,879 
                     
Selling and distribution expenses   (152,981)   (32,833)   -    (185,814)
Administrative and other expenses   (551,466)   (147,932)   (21,192)   (720,590)
                     
Operating income/(loss)   2,403,217    (122,550)   (20,192)   2,259,475 
Other income   26,403    -    -    26,403 
Interest expenses   (266,950)   (15,616)   -    (282,566)
                     
Income/(loss) before income taxes   2,162,670    (138,166)   (21,192)   2,003,312 
Income tax expenses   (378,249)   -    -    (378,249)
Net income/(loss)  $1,784,421   $(138,166)  $(21,192)  $1,625,063 
                     
Total assets  $49,036,297   $10,072,690   $524,574   $59,633,561 

 

22
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

   Bimetallic             
   composite
wire products
   Wiring
equipment
   Corporate
and other
   Consolidated Total 
Three Months Ended June 30, 2011                    
Product sales                    
Sales to third parties  $13,513,896   $1,325,759   $-   $14,839,655 
Licensing technology   -    -    -    - 
    13,513,896    1,325,759         14,839,655 
                     
Cost of sales                    
Sales to third parties   (9,673,809)   (596,123)   -    (10,269,932)
Licensing technology   -    -    -    - 
    (9,673,809)   (596,123)   -    (10,269,932)
Gross profit   3,840,087    729,636    -    4,569,723 
                     
Selling and distribution expenses   (116,562)   (41,730)   -    (158,292)
Administrative and other expenses   (314,118)   (134,366)   (400)   (448,884)
                     
Operating income/(loss)   3,409,407    553,540    (400)   3,962,547 
Other income   382,680    75,878    -    458,558 
Interest expenses   (167,579)   (658)   265    (167,972)
                     
Income/(loss) before income taxes   3,624,508    628,760    (135)   4,253,133 
Income tax expenses   (545,033)   (77,999)   -    (623,032)
Net income/(loss)  $3,079,475   $550,761   $(135)  $3,630,101 
                     
Total assets  $37,161,020   $8,039,891   $613,317   $45,814,228 

 

   Bimetallic             
   composite
wire products
   Wiring
equipment
   Corporate
and other
   Consolidated Total 
Six Months Ended June 30, 2012                    
Product sales                    
Sales to third parties  $22,456,795   $1,254,318   $-   $23,711,113 
Licensing technology   -    -    -    - 
    22,456,795    1,254,318    -    23,711,113 
                     
Cost of sales                    
Sales to third parties   (17,127,466)   (614,844)   -    (17,742,310)
Licensing technology   -    -    -    - 
    (17,127,466)   (614,844)   -    (17,742,310)
Gross profit   5,329,329    639,474    -    5,968,803 
                     
Selling and distribution expenses   (234,464)   (60,196)   -    (294,660)
Administrative and other expenses   (876,766)   (325,423)   (113,511)   (1,315,700)
                     
Operating income/(loss)   4,218,099    253,855    (113,511)   4,358,443 
Other income   185,024    5,377    -    190,401 
Interest expenses   (418,224)   (33,243)   -    (451,467)
                     
Income/(loss) before income taxes   3,984,899    225,989    (113,511)   4,097,377 
Income tax expenses   (639,327)   (58,667)   -    (697,994)
                     
Net income/(loss)  $3,345,572   $167,322   $(113,511)  $3,399,383 
                     
Total assets  $49,036,297   $10,072,690   $524,574   $59,633,561 

  

23
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

   Bimetallic             
   composite
wire products
   Wiring
equipment
   Corporate and other   Consolidated
Total
 
Six Months Ended June 30, 2011                    
Product sales                    
Sales to third parties  $24,503,973   $2,323,788   $-   $26,827,761 
Licensing technology   -    765,486    -    765,486 
    24,503,973    3,089,274    -    27,593,247 
                     
Cost of sales                    
Sales to third parties   (17,228,682)   (991,093)   -    (18,219,775)
Licensing technology   -    (53,066)   -    (53,066)
    (17,228,682)   (1,044,159)   -    (18,272,841)
Gross profit   7,275,291    2,045,115    -    9,320,406 
                     
Selling and distribution expenses   (209,119)   (47,621)   -    (256,740)
Administrative and other expenses   (586,907)   (290,637)   (75,651)   (953,195)
                     
Operating income/(loss)   6,479,265    1,706,857    (75,651)   8,110,471 
Other income   383,267    75,896    -    459,163 
Interest expenses   (366,481)   (658)   -    (367,139)
                     
Income/(loss) before income taxes   6,496,051    1,782,095    (75,651)   8,202,495 
Income tax expenses   (976,229)   (136,030)   -    (1,112,259)
                     
Net income/(loss)  $5,519,822   $1,646,065   $(75,651)  $7,090,236 
                     
Total assets  $37,161,020   $8,039,891   $613,317   $45,814,228 

 

B)Business segment reporting – by geography

 

As its secondary segments, the Company reports two geographical areas, which are the main market areas: PRC and foreign market. There is no single foreign country market accounting for more than 10% of total revenues for the six months ended June 30, 2012 and 2011, respectively.

 

The following tables set forth revenues from customers of products sold by geographic segment:

 

   Three Months Ended June 30   Six Months Ended June 30 
Geographical information:  2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
PRC  $9,413,308   $12,775,621   $18,697,340   $23,220,813 
Others   3,245,386    2,064,034    5,013,773    4,372,434 
   $12,658,694   $14,839,655   $23,711,113   $27,593,247 

 

23.INCOME TAXES EXPENSES

 

The entities within the Company file separate tax returns in the respective tax jurisdictions that they operate.

 

The Company is incorporated in the Cayman Islands, the laws of which do not require the Company to pay any income taxes or other taxes based on income, business activity or assets.

 

Victor Score is domiciled in the British Virgin Islands, the law of which does not require the Company to pay any income taxes or other taxes based on income, business activity or assets.

 

Apex Wealth is domiciled in Hong Kong and subject to statutory profits tax of 16.5% if it incurred revenue and profits in Hong Kong.

 

Dalian Xinding is domiciled in PRC and subject to statutory profits tax of 25% if it incurred revenue and profits there.

 

24
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

TOFA, Tongda and their subsidiaries, all domiciled in PRC, are subject to PRC enterprise income tax of 15% for the six months ended June 30, 2012. As for the comparative periods ended June 30, 2011, TOFA and Tongda were subject to PRC enterprise income tax of 15% and 25% respectively.

 

The Company's income tax represents the income tax expenses from VIEs. The Company's other entities sustained losses and accordingly no income tax was provided.

 

   Three Months Ended June 30   Six Months Ended June 30 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Current tax:                    
PRC income tax  $378,249   $623,032   $697,994   $1,112,259 

 

The Company's income tax for the quarter ended June 30, 2012 and 2011 can be reconciled to the income before income tax expenses in the statement of operations as follows:

 

   Three Months Ended June 30   Six Months Ended June 30 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Income before tax  $2,003,312   $4,253,133   $4,097,377   $8,202,495 
                     
Expected PRC income tax expense at a statutory tax rate of 25%  $500,828   $1,063,283   $1,024,344   $2,050,624 
Expense / (Income) not deductible/subject to PRC tax   77,752    (333,923)   83,388    (735,198)
Tax concession   (200,331)   (106,328)   (409,738)   (203,167)
Actual income tax expense  $378,249   $623,032   $697,994   $1,112,259 

 

In December 2008 and November 2010, TOFA and Tongda respectively were registered as the State Encouraged High and New Technology Enterprises. According to the PRC Law on Enterprise Income Tax promulgated on March 16, 2007, TOFA and Tongda are entitled to a concessionary rate of income tax at 15%. Accordingly TOFA is subject to an income tax rate of 15% in both 2011 and 2010, while Tongda has been subject to an income tax rate of 15% since January 1, 2011.

 

The Company's effective income tax rate is 17% and 13.5% for the six months ended June 30, 2012 and 2011, respectively.

 

The Company's effective income tax rate is 18.9% and 14.6% for the three months ended June 30, 2012 and 2012, respectively.

 

25
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

24.CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a)Major customers

 

For the six month period ended June 30, 2012, the customers who accounted for 10% or more of the Company's revenues and its outstanding balance at the period-end are presented as follows:

 

   Six Month Period ended June 30, 2012 
   (unaudited)   (unaudited) 
       Percentage of 
   Revenues   revenues 
Customer A  $3,296,077    13.9%
Customer B   3,006,364    12.7%
Customer C   2,990,532    12.6%
Customer D   2,526,676    10.7%
   $11,819,649    49.9%

 

   Six Month Period ended June 30, 2011 
   (unaudited)   (unaudited) 
       Percentage of 
   Revenues   revenues 
Customer A  $3,309,939    12.3%
Customer B   3,087,744    11.5%
Customer C   2,617,304    9.8%
Customer D   2,496,245    9.3%
   $11,511,232    42.9%

 

(b)Major vendors

 

For the six month period ended June 30, 2012, the customers who accounted for 10% or more of the Company's purchases and its outstanding balance at the period-end are presented as follows:

 

   Six Month Period ended June 30, 2012 
   (unaudited)   (unaudited) 
       Percentage of 
   Purchases   purchases 
Vendor A  $4,784,219    28.0%
Vendor B   4,584,745    26.0%
Vendor C   981,541    6.0%
   $10,350,505    60.0%

 

   Six Month Period ended June 30, 2011 
   (unaudited)   (unaudited) 
       Percentage of 
   Purchases   purchases 
Vendor A  $5,395,507    31.3%
Vendor B   4,635,447    26.9%
Vendor C   1,089,521    6.3%
   $11,120,475    64.5%

 

All of the vendors mentioned above are located in the PRC.

 

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

 

(d)Exchange rate risk

 

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates against US$, the value of the RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

 

26
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

25.COMMITMENTS AND CONTINGENCIES

 

(a)The Company may become subject to various claims and litigation during the normal course of business. The Company vigorously defends its legal position when these matters arise. The Company is neither a party to, nor the subject of, any material pending legal proceeding.

 

(b)On October 12, 2010, Dalian Xinding entered into the Loan Agreements with the stockholders of TOFA and Tongda respectively. Under the Loan Agreements, Dalian Xinding is obliged to provide the interest free loan to stockholders of TOFA and Tongda in order to clear the debt occurred when to establish TOFA and Tongda. As of June 30, 2012, in providing the interest free loan to the stockholders of TOFA and Tongda, the Company has a ten year commitment of $3.3 million which is contracted for but not provided in the financial statement.

 

(c)Rental expense amounted to $53,875 (RMB340,304) for the quarter ended June 30, 2012. The total future minimum lease payments under non-cancellable operating leases with respect to premises as of June 30, 2012 are payable as follows:

 

Year Ended December 31,  Rental 
2012  $54,016 
2013   108,033 
2014   112,354 
2015   116,848 
2016   121,522 
Over five years   2,187,404 
   $2,700,177 

 

26.CONDENSED PARENT COMPANY FINANCIAL INFORMATION OF TODA INTERNATIONAL HOLDINGS INC.

 

The Company records its investment in subsidiaries under the equity method of accounting as prescribed in FASB ASC Topic 323, “Investments - Equity Method and Joint Ventures”. Such investment and long-term loans to subsidiaries are presented on the balance sheet as “Investments in subsidiaries” and the income of the subsidiaries is presented as “Equity in income of subsidiaries” on the statement of income.

 

These supplemental condensed parent company financial statements should be read in conjunction with the notes to the Company’s Consolidated Financial Statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

 

As of June 30, 2012, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately disclosed in the Company’s Consolidated Financial Statements.

  

27
TODA INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)

 

CONDENSED BALANCE SHEETS

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
Assets          
Current assets          
Cash  $44,594   $64,496 
Prepaid expense and other current assets   75,450    73,830 
Investments in subsidiaries   38,934,417    35,299,024 
Total assets  $39,054,461   $35,437,350 
           
Liabilities and Shareholders' equity          
Current liabilities          
Accrued expenses and other payables  $1,220,299   $1,096,382 
Total liabilities   1,220,299    1,096,382 
Total shareholders' equity   37,834,162    34,340,968 
Total liabilities and stockholders' equity  $39,054,461   $35,437,350 

 

CONDENSED STATEMENT OF INCOME

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Administrative and other expenses  $(20,306)  $(400)  $(113,511)  $(75,651)
Equity income of subsidiaries   1,645,369    3,630,501    3,512,894    7,165,887 
Net income  $1,625,063   $3,630,101   $3,399,383   $7,090,236 

 

CONDENSED STATEMENT OF CASH FLOWS

 

   Six Months Ended June 30, 
   2012   2011 
   (Unaudited)   (Unaudited) 
         
Net cash (used in) / provided by operating activities  $(19,902)  $58,569 
Cash, beginning of period   64,496    1,218 
Cash, end of period  $44,594   $59,787 

 

28
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

 

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth under the sections entitled “Risk Factors” located in our Annual Report on Form 10-K, filed with the SEC on April 16, 2012. We may use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

In this Quarterly Report on Form 10-Q, we will refer to TODA International Holdings, Inc., a Cayman Islands exempted company, as "TODA," "Company," "we," "us," and "our."

 

COMPANY OVERVIEW

 

Overview

 

We were incorporated as Summit Growth Corporation on September 27, 2006 in the Cayman Islands as an exempted company. Since March 15, 2011, our principal place of business has been based in the People’s Republic of China (the “PRC” or “China”). Our name was changed to TODA International Holdings, Inc. as of May 16, 2011. Our headquarters are located at: c/o Dalian TOFA New Materials Development Co, Ltd., No. 18-2-401 Gangjing Garden, Dandong Street, Zhongshan District, Dalian, Liaoning Province, PRC  116001, Telephone: 011-86-(411) 8278-9758.  

 

We are primarily engaged in the research and development, production and distribution of composite bimetallic materials, primarily copper-clad aluminum, or CCA, and its manufacturing equipment. We are also involved in the research and development of additional related production technologies and we provide consultancy services on such technologies to a number of entities, within and without China. Due to PRC legal restrictions on foreign ownership and investment in businesses in China, we operate our business primarily through Dalian TOFA New Materials Development Co., Ltd. (“TOFA”) and Dalian Tongda Equipment Technology Development Co, Ltd. (“Tongda” and, collectively with TOFA, the “VIEs”), each a consolidated affiliated entity of TODA in China.

 

Organization

 

We are a holding company and parent of Victor Score Limited, a British Virgin Islands business company incorporated on May 13, 2010 (“Victor Score”). Victor Score is the parent company of Apex Wealth Holdings Limited, a Hong Kong limited liability company incorporated on February 12, 2010 (“Apex Wealth”). Apex Wealth is the parent of Dalian Xinding New Materials Technology Consultancy Co., Ltd., a wholly-owned foreign enterprise incorporated in China (“Dalian Xinding”) on August 18, 2010. None of Victor Score, Apex Wealth or Dalian Xinding conducts any independent business operations. Dalian Xinding entered into a series of contractual arrangements with each of the VIEs and their respective shareholders on October 12, 2010 (collectively, the “VIE Agreements”), pursuant to which Dalian Xinding effectively controls, and is able to derive substantially all of the economic benefits from, the VIEs. The VIE Agreements include a Loan Agreement, Equity Interest Pledge Agreement, Equity Interest Purchase Agreement, Business Operation Agreement and Lease Agreement.

 

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Pursuant to the terms of the Loan Agreement, Equity Interest Pledge Agreement and Equity Interest Purchase Agreement, Dalian Xinding effectively gained equity control of TOFA and Tongda.

 

·Under the Loan Agreement, each of the TOFA and Tongda shareholders received a loan from Dalian Xinding to pay off the debts arising from their capital contributions to TOFA and Tongda.

 

For TOFA shareholders, Pi Jia Liu, Zong Li Li and Chuan Tao Zheng, the aggregate amount of the loans is approximately $2.25 million (based on conversion rate of 1 RMB = $0.149849 on October 12, 2010).  The individual loan amounts for Messrs. Liu, Li and Zheng are approximately $0.19 million, $0.35 million and $1.70 million, respectively.

 

For Tongda shareholders, Li Zhi Fei, Di Wang and Yu-Kai Wang (YK Wang), the aggregate amount of the loans is approximately $1.05 million (based on conversion rate of 1 RMB = $0.149849 on October 12, 2010).  The individual loan amounts for Messrs. Fei, D Wang and YK Wang are approximately $0.08 million, $0.43 million and $0.53 million, respectively.

 

Each of the loans contains the following additional material terms:

 

·Interest free
·10 year term
·Repayment limited to transfer of all equity held in TOFA or Tongda, as applicable, to Dalian Xinding

 

·Under the Equity Interest Pledge Agreement, each of the TOFA and Tongda shareholders pledged 100% of their equity interest in TOFA and Tongda to Dalian Xinding as collateral for their obligation under the Loan Agreement, Equity Interest Purchase Agreement and Business Operation Agreement. Messrs. Liu, Li and Zheng currently hold 8.6%, 15.7% and 75.7%, respectively, of the equity interest in TOFA.  Messrs. Fei, D Wang and YK Wang currently hold 7.8%, 41.2% and 51.0%, respectively, of the equity interest in Tongda.

 

As pledgee, Dalian Xinding has the right to sell the pledged equity pursuant to the law or through any other approach. If Dalian Xinding decides to enforce the pledge agreement, the pledgor shareholder must ensure that all of his rights as a shareholder are transferred to Dalian Xinding.

 

·Under the Equity Interest Purchase Agreement, Dalian Xinding has the right to purchase all or part of the TOFA and Tongda equity interest held by the shareholders at any time for a purchase price equal to the shareholder’s original investment price for the equity interest. For each of Messrs. Liu, Li and Zheng, the original investment price was approximately $22,477 for each percentage of equity interest held by him.  For each of Messrs. Fei, D Wang and YK Wang, the original investment price was approximately $10,489 for each percentage of equity interest held by him.  The total purchase price for the equity interests held by each of the TOFA and Tongda shareholders equals the amount of the Loan Agreements that they entered into with Dalian Xinding.

 

Pursuant to the terms of the Business Operation Agreement, Dalian Xinding effectively gained management control of TOFA and Tongda.

 

·Without written consent of Dalian Xinding, neither TOFA nor Tongda can enter into or consummate a transaction that might significantly affect the assets, obligations, rights and operations of TOFA or Tongda.

 

·Dalian Xinding is entitled to provide advice and guidance regarding hiring and firing employees, daily operations and financial management of TOFA and Tongda, and the management of TOFA and Tongda have agreed to accept such advice and guidance.

 

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·Dalian Xinding is entitled to recommend all candidates for directors and executive officers of TOFA and Tongda and TOFA and Tongda have agreed to appoint the candidates recommended by Dalian Xinding.

 

·TOFA and Tongda have issued a letter of authorization that authorizes designated officers of Dalian Xinding to act as their proxies and exercise all rights of shareholders at any shareholders meetings of TOFA or Tongda pursuant to PRC law and the bylaws of TOFA and Tongda.

 

Pursuant to the terms of the Lease Agreement, TOFA and Tongda have leased all of the property, plant and equipment of TOFA and Tongda to Dalian Xinding and Dalian Xinding possesses the right to use all of such property, plant and equipment during the lease term.

 

The following diagram sets forth the current ownership structure of the Company:

 

 

Each of TOFA and Tongda is a private limited company incorporated and headquartered in Dalian, Liaoning Province, China. Mr. Zheng, our Chairman of the Board, President and Chief Executive Officer, is the majority owner of TOFA, holding 75.7% of the equity interest in TOFA. Mr. YK Wang, our Chief Technology Officer and a director, is the majority owner of Tongda, holding 51.0% of the equity interest in Tongda. Zhaodong TOFA Cable Co., Ltd. (“Zhaodong Cable”) was formed on November 18, 2011 and is a wholly-owned subsidiary of TOFA. Panjin TOFA Cable Co., Ltd. (“Panjin Cable”) was formed on June 30, 2011. Two minority shareholders of TODA held an aggregate 10% equity interest in Panjin Cable until June 16, 2012, when their interest in Panjin Cable was freely transferred to TOFA. Mudanjiang TOFA Cable Co., Ltd. (“Mudanjiang Cable”) was formed on June 26, 2012 and is a wholly-owned subsidiary of Panjin Cable.

 

History

 

From incorporation to March 15, 2011, the business of the Company, as Summit Growth Corporation, consisted solely of identifying and entering into a business combination with a privately held business or company, domiciled and operating in an emerging market that was seeking the advantages of being a publicly held corporation whose stock is eventually traded on a major United States stock exchange.

 

On March 15, 2011, the Company and its controlling shareholders entered into and consummated a share exchange with Victor Score and the Victor Score shareholders. Pursuant to the terms of a Share Exchange Agreement among the parties (the “Share Exchange Agreement”), all of the issued and outstanding shares of Victor Score were exchanged for shares of the Company.

 

In addition, the following actions occurred under the terms of the Share Exchange Agreement:
 

·The Company issued an aggregate of 32,839,910 ordinary shares to 35 former Victor Score shareholders in exchange for 30,546.31 shares of Victor Score stock then held by them and 104,571.95 preference shares to Mr. Zheng in exchange for 19,453.69 shares of Victor Score stock then held by him.   Upon effectiveness of the share exchange, the Company had 34,645,610 ordinary shares and 104,571.95 preference shares issued and outstanding. Mr. Zheng held 100% of the outstanding preference shares, or 23.19% of the voting power, of the Company.

 

·As a condition to the closing of the share exchange, Mr. Joseph Rozelle resigned as a director of the Company, such resignation was effective on May 5, 2011, and Messrs. Zheng, YK Wang and Yu-Long Wang (YL Wang) were appointed to the board of directors of the Company, with Mr. Zheng being named Chairman of the Board. Mr. Zheng’s appointment was effective immediately and the appointments of Messrs. YK Wang and YL Wang were effective on May 5, 2011.

 

·Also as a condition to the closing of the share exchange, Mr. Karl Brenza resigned as the President and Chief Executive Officer of the Company, Mr. Zheng was appointed Chief Executive Officer and President, Mr. Anthony Zhang was appointed Chief Financial Officer and Secretary, Mr. Pi-Jia Liu was appointed Chief Operating Officer and Mr. YK Wang was appointed Chief Technology Officer.

 

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As of May 16, 2011, we effected a one-for-two consolidation of our issued and outstanding ordinary shares and increased the amount of our authorized ordinary shares from 39,062,500 shares to 100,000,000 shares.  The preference shares issued in connection with the share exchange were automatically converted into 10,457,195 ordinary shares upon effectiveness of the share consolidation.

 

As a result of the consummation of the share exchange and the one-for-two share consolidation, as of May 16, 2011, we had 27,780,000 ordinary shares and no preference shares of the Company's capital stock issued and outstanding.

 

CRITICAL ACCOUNTING POLICIES

 

While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

 

Consolidation of VIEs

 

Our consolidated financial statements include the financial statements of Dalian Xinding and TOFA and Tongda, two variable interest entities in which we are the primary beneficiary and Panjin Cable and Zhaodong Cable, the subsidiaries of TOFA. All significant inter-company transactions and balances have been eliminated on consolidation.

 

We have no direct or indirect legal or equity ownership interest in TOFA or Tongda. However, through the VIE Agreements between Dalian Xinding and the shareholders of TOFA and Tongda, the shareholders of TOFA and Tongda have assigned all their rights as shareholders, including voting rights and disposition rights of their equity interests in TOFA and Tongda to Dalian Xinding, our indirect, wholly-owned subsidiary.

 

In accordance with Accounting Standards Codification (“ASC”) 810-10-15-14, TOFA and Tongda are deemed variable interest entities for two reasons.  First, the equity shareholders of TOFA and Tongda do not significantly enjoy the benefits of income or suffer the consequences of losses.  Second, the equity shareholders of TOFA and Tongda do not possess the direct or indirect ability through voting or similar rights to make decisions regarding their activities that have a significant effect on the success of the two companies.

 

Therefore, in accordance with ASC 810-10-25-38A, we are deemed to be the primary beneficiary of TOFA and Tongda and the financial statements of TOFA and Tongda are consolidated in our consolidated financial statements.

 

The following table presents the carrying amounts and classifications of consolidated assets that are collateral for consolidated VIE obligations:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
Current assets          
Cash  $6,403,856   $4,342,750 
Restricted Cash   3,025,134    1,588,840 
Accounts receivable   15,932,359    16,440,294 
Inventories   11,784,694    12,114,595 
Other current assets   3,206,728    4,414,947 
Short term loans to shareholders   7,915,650    - 
Due from a related companies   1,796,819    1,285,791 
Fixed assets and intangible assets, net   9,375,627    9,693,607 
           
Total assets of consolidated VIEs  $59,440,867   $49,880,824 

 

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The following table presents the carrying amounts and classification of the third-party liabilities of the consolidated VIEs:

 

   June 30, 2012   December 31, 2011 
   (Unaudited)     
Current liabilities          
Bank loans  $10,059,895   $8,918,440 
Accounts payable   7,513,040    4,678,341 
Other liabilities   2,932,624    961,782 
           
Total liabilities of consolidated VIEs  $20,505,559   $14,558,563 

 

The consolidated VIEs included in the table above represent the two separate entities with which the Company is involved. The creditors of consolidated VIEs have legal recourse only to the assets of the VIEs and do not have such recourse to the Company. In addition, the assets are generally restricted only to pay such liabilities. Thus, the Company's maximum legal exposure to loss related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets due to outstanding third-party financing. Intercompany liabilities are excluded from the table.

 

Revenue Recognition

 

We generate revenue primarily from manufacturing and trading copper coated aluminum wire, equipment and related products and licensing copper coated aluminum wire technology.

 

Licensing technology represents the revenue from the leasing of several exclusive production technologies to independent third parties.  The technologies are internally developed by Tongda’s research and development department. The production technologies related to the technical know-how in the production process have not been patented in accordance with the relevant laws and regulations of the PRC.

 

Revenue represents the invoiced value of goods sold and the rental income of certain production technologies to independent parties.  Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and the customer has taken ownership and assumed the risk of loss, or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectability is reasonably assured.

 

Accounts Receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. We generally extend unsecured credit up to six months to our customers in the ordinary course of business and mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on management’s assessment of known requirements, such as aging of receivables, payment history, the customer's current creditworthiness, and the economic environment. When a specific account receivable balance is deemed uncollectible, a charge is taken to the statement of income. Recoveries of balances previously written off are reflected as income in the statement of income.

 

Inventories

 

Inventories - consisting of raw material, work-in-progress and finished goods of copper coated aluminum wire and related products - are stated at the lower of cost or net realizable value. Finished goods are comprised of direct materials, direct labor and a portion of overhead. Inventory costs are calculated using a weighted average method of accounting. Allowances are recorded for obsolete, slow-moving and damaged inventory and are deducted from the related inventory balances. No provision was made as of June 30, 2012 and December 31, 2011.

 

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. Actual results may differ from those estimates.

 

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Foreign Currency Transaction

 

We maintain our books and accounting records in RMB, which is determined as the functional currency. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date of the transactions. Monetary assets and liabilities denominated in currencies other than RMB are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. Gain and losses resulting from foreign currency transactions are included in operations.

 

Our financial statements are translated into USD, which is our reporting currency. Assets and liabilities are translated at the prevailing exchange rate at each reporting period end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from translation of these financial statements are reflected as other comprehensive income in the statements of operations and accumulated other comprehensive income in the statements of changes in shareholders' equity.

 

The translation rates are as follows:

 

     June 30      December 31 
    2012     2011 
            
Balance sheet items, except for equity accounts    RMB6.3530=$1      RMB6.2939=$1 
     HKD7.7572=$1      HKD7.7663=$1 

 

     June 30     June 30 
    2012    2011 
           
Items in statements of income and cash flows    RMB6.3166=$1     RMB6.5258=$1 
for the six months ended    HKD7.7590=$1     HKD8.3900=$1 
           
Items in statements of income and cash flows    RMB6.3335=$1     RMB6.5739=$1 
for the three months ended    HKD7.7592=$1     HKD8.4519=$1 

 

Recently Adopted Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Overview

 

We believe that there are currently approximately 20 manufacturers that are of sufficient size, with production capacity, technological know-how, and R&D capability to effectively compete in China’s composite bimetallic materials production market and less than five, including TOFA, are considered major players who have the ability to produce the kind of composite bimetallic products that are in great demand and could yield higher margin, like the electricity and power cables on a larger scale, without the need to compete on price alone.

 

The composite bimetallic materials market is expected to grow at a very fast pace as new buildings and other infrastructure will have to be constructed every year with the continuous urbanization in China. Although there are no official statistics indicating how large this segment of the market is, management believes, based on its experience and internal market research, this may be worth billions of dollars in the coming ten to fifteen years.

 

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We believe that our patented technology, both in the development of innovative manufacturing equipment and in the manufacturing process itself, knowledge of the markets and growing brand recognition, coupled with the expansion of business opportunities within China and internationally, as businesses look to contain cost while growing will positively impact our bottom line going forward.

 

Significant Factors Affecting Our Results of Operation

 

The most significant factors that may influence our operating results, both positively and negatively, include:

 

·economic conditions in the PRC;

 

·the market prices for copper and aluminum;

 

·production capacity and utilization;

 

·supply and costs of principal raw materials; and

 

·product mix and implications on gross margins,

 

Economic conditions in the PRC

 

We operate our manufacturing facilities in the PRC and derive the majority of our revenues from sales to customers in the PRC. As such, economic conditions in the PRC will affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our raw materials and our other expenses. According to McKinsey’s Business Strategy to Enter the Fast Moving Consumer Goods Market in China, dated January 10, 2008 and published by Baidu, Inc. at http://wenku.baidu.com/view/50a6f74c2b160b4e767fcffe.html, the Chinese economy has been the fastest growing economy (9.6% CAGR ) in the world for the past 15 years and, at the time of publication, was the 4th largest. We believe that this will lead to a much higher demand for CCA wires and in fact that the whole composite bimetallic materials industry shall be significantly boosted. We believe that economic conditions in the PRC will continue to improve and will positively affect our business and results of operations.

 

The market prices for copper, aluminum and steel

 

The price for TOFA’s composite bimetallic wire products is generally calculated by adding mark-up, which is essentially our gross profit, to the basic costs of raw materials (copper, aluminum and steel) and other production costs like direct labor and other manufacturing overhead. Therefore, lower raw material costs would result in lower prices for these products. As raw materials prices rise, our mark-up per ton represents a relatively lower percentage of our gross sales (which is generally based on tons processed) and therefore our gross profit margin as a percentage of sales is relatively lower; as copper prices decline, the reverse is true and we report relatively higher gross profit margins on a percentage basis.  

 

We price our CCA power wire/cable products based on a certain discount to pure copper power wire/cables. Since the price of aluminum is much lower than that of copper, the raw material costs of our CCA power wire/cable is greatly lower than that of pure copper cables. So even if the selling price of CCA power wire/cable is discounted, there are still considerable mark-up for the product.    

 

Production capacity and utilization

 

In order to capture the market opportunity for our products, we have expanded, and plan to continue to expand, our production capacity. Increased capacity has had, and could continue to have, a significant effect on our results of operations, by allowing us to produce and sell more products to generate higher revenues and net income.

 

Supply and costs of principal raw materials

 

Our ability to manage our operating costs depends significantly on our ability to secure affordable and reliable supplies of raw materials. We have at least two or three suppliers for our principal materials.

 

The price of our primary raw materials varies with reference to copper prices, and changes in copper price affect our cost of sales.  However, we are able to price our bimetallic composite material products based on our material procurement costs plus a mark-up, which is essentially our gross profit.  Therefore, despite the implications of copper price movement on our gross and net profit margin figures, our gross profit in absolute dollars, have not been materially affected by the change in copper prices.

 

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Products mix and implications on gross margins

 

Our gross margin is also affected by our product mix. We produce and sell products according to customer orders.  Our product mix consists of composite bimetallic wire products, intelligent bimetallic composite material production line, and CCA power wire/cables. Composite bimetallic wire products, with gross margin of 26% in 2011, used to contribute the majority of our gross profits. We launched our intelligent bimetallic composite material production line to the market in late 2009, and this product line had a gross profit margin of 43% in 2011. We introduced another new product in the second half of 2010, CCA power wire/cables, that had a gross margin of 33% in 2011. We believe such CCA power wires/cables, with higher gross margins, will become the major products in our product mix and a significant revenue and profits contributor in the future, although, for the six months ended June 30, 2012, the gross profit margin in this product line declined to 25% due to intense market competition.

 

Principal Components of Our Income Statement

 

Sales

 

Our sales are derived from sales of our products net of value-added taxes.  The most significant factors that affect our sales are shipment volume and average selling prices.  Our collection practices vary from customer to customer. They consist of (i) cash payment on delivery for small orders and new customer and (ii) credit for 30 days to 90 days to our established regular customers who have long term cooperative relationship.

 

Cost of Sales

 

Our cost of sales primarily consists of direct material costs, and direct labor costs and manufacturing overhead costs. Direct material costs generally accounted for the majority of our cost of sales.

 

Gross Profit

 

Our gross profit of composite bimetallic wire products is affected primarily by the cost of raw materials, which is defined with reference to the cost of copper and aluminum or steel.  We are also able to price our composite bimetallic wire products based on the market price for materials plus mark-up, which is essentially our gross profit.

 

We price our CCA power wire/cable products based on the pure copper power wire/cables prices minus some percentage of discounts. Since the cost difference between copper and aluminum exists, the cost of CCA power wire/cable primarily consisting of copper and aluminum is greatly lower than the cost of pure copper cables. Even if the selling price of CCA power wire/cable is discounted, there are still considerable mark-up for the product.

 

Operating Expenses

 

Our operating expenses consist of selling, administrative and other expenses including research and development expenses.

 

Selling and Distribution Expenses and Administrative and Other Expenses

 

Our selling expenses include shipping expenses, salaries and traveling expenses for our sales personnel.  Our administrative and other expenses include administrative staff costs and other benefits, depreciation of office equipment, professional service fees, research and development expenditures and other miscellaneous expenses related to our administrative activities.

 

Our sales activities are conducted through direct selling by our internal sales staff. Because of the strong demand for our products and continuing improvement on efficiency, it is not necessary for us to add sales forces to start to aggressively market and distribute our products. Our selling expenses have been relatively small as a percentage of our revenues.

 

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With the anticipated expansion of business, we anticipate the absolute dollars of selling, and administrative expenses will increase. But comparing to the stronger growth of business, we estimate they will still account for a similar percentage against revenues to the present.

 

Other Comprehensive Income

 

Other comprehensive income reflects foreign currency translation adjustment according to our accounting policies.

 

Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011

 

The following table presents the unaudited consolidated results of operations of the Company for the three months ended June 30, 2012 as compared to the results of operations for the three months ended June 30, 2011.

 

   For the Three Months Ended 
   June 30, 
   2012   2011 
         
Revenue  $12,658,694   $14,839,655 
Cost of Sales   (9,492,815)   (10,269,932)
Gross Profit   3,165,879    4,569,723 
Selling and Distribution Expenses   (185,814)   (158,292)
Administrative and other expenses   (720,590)   (448,884)
Total operating expenses   (906,404)   (607,176)
Operating Income   2,259,475    3,962,547 
Interest expenses   (282,566)   (167,972)
Other Income   26,403    458,558 
Income tax expenses   (378,249)   (623,032)
           
Net Income before allocation of non-controlling interest   1,625,063    3,630,101 
Other comprehensive income/(loss)   (245,751)   378,355 
           
Total comprehensive income before allocation of non-controlling interest   1,379,312    4,008,456 
Comprehensive loss attributable to non-controlling interests   (7,286)   - 
Comprehensive income attributable to TODA  $1,386,598   $4,008,456 

 

Revenue

 

We recorded revenue of $12.6 million for the three months ended June 31, 2012 , representing a decrease of $2.2 million, or 15%, compared to $14.8 million for the corresponding period of 2011. The decrease in both the bimetallic composite wire products and wiring equipment revenue is due primarily to a more intense competition in the Chinese composite bimetallic metal market for the three months ended June 30, 2012 compared to the corresponding period of 2011.

 

Revenue from our bimetallic composite wire products segment (which includes CCA and copper-clad steel, or CCS, wire products and CCA power cables) decreased by 7%, from $13.5 million for the three months ended June 30, 2011 to $12.5 million for the corresponding period of 2012. Revenue from CCA and CCS wire products increased by 0.3%, from $10.01 million for the three months ended June 30, 2011 to $10.04 million for the corresponding period of 2012. The increase in revenue of CCA and CCS wire product sales is due to a 28% increase in sale volume compared to the same period in 2011, offset by a decrease of 21% in the sales price of these products. Revenue from CCA power cables decreased 25% to $2.5 million for the three months ended as June 30, 2012, down from 3.5 million for the corresponding period of 2011. The decrease in CCA power cable is due primarily to the more intense competition in the CCA power cable product market and a 32% decrease in sales volume, partially offset by a 5% increase in the sales price for these products in the second quarter of 2012 compared to the corresponding period of 2011. Revenue from our wiring equipment segment (which includes licensing technology and intelligent composite bimetallic material production equipment) decreased 92% to $0.1 million for the three months ended June 30, 2012, down from $1.3 million for the corresponding period of 2011. The decrease in wiring equipment revenue is due primarily to a more intense competition in the intelligent composite bimetallic material production equipment market in the second quarter of 2012 compared to the corresponding period of 2011.

 

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The following tables break down our product sales by specific business segment and product category for each period.

 

    Three Months Ended June 30,  
    2012     2011  
                Average                 Average  
    Sales     Volume*     Price     Sales     Volume*     Price  
Bimetallic composite wire products segment                                                
                                                 
CCA(S) wire products   $ 10,045,114       2,271     $ 4,423     $ 10,013,569       1,776     $ 5.638  
CCA power cables     2,502,971       170       14,723       3,500,327       250       14.001  
Segment Total:     12,548,085       4,388               13,513,896       2,026          
                                                 
Wiring equipment segment                                                
                                                 
Intelligent composite bimetallic material production line     110,609       N/A       N/A       1,325,759       N/A       N/A  
Segment Total:     110,609       N/A       N/A       1,325,759       N/A       N/A  
TOTAL:   $ 12,658,694                     $ 14,839,655                  

* metric tons

 

Cost of Sales and Gross Profit

 

The following table sets forth our cost of sales and gross profit, both in amounts and as a percentage of total revenue for the three months ended June 30, 2012 and 2011:

 

    Three Months Ended June 30,        
    2012     2011     Percentage  
          % of           % of     Change  
    US$     Sales     US$     Sales     Year to Year  
Revenue   $ 12,658,694       100 %   $ 14,839,655       100 %     -15 %
                                         
Cost of sales                                        
- Product sales to third parties     (9,492,815 )     -75 %     (10,269,932 )     -69 %     -8 %
                                         
Gross profit   $ 3,165,879       25 %   $ 4,569,723       31 %     -31 %

 

The cost of sales decreased $0.97 million, or 5%, to $9.5 million for the three months ended June 30, 2012 from $10.3 million for the corresponding period of 2011. As a percentage of total sales, our cost of sales increased to 75% of revenue for the three months ended June 30, 2012, compared to 69% of revenue for the corresponding period of 2011. Gross profit decreased to $3.2 million for the three months ended June 30, 2012 compared to $4.6 million for the corresponding period of 2011, a decrease of about $1.4 million, or 32%. Our gross profit margin decreased to 25% for of the three months ended June 2012 from 31% for the corresponding period of 2011. Contributing to the decrease in gross profit margin is the fact that we price our refined copper and CCA wire products based on the market price for materials plus a fixed dollar mark-up, and our gross profit is essentially this mark-up net of costs classified as part of cost of goods sold. As copper prices rose during of the second quarter of 2012, our fixed dollar mark-up per ton processed represented a relatively lower percentage of our gross sales (which is generally based on tons processed) and therefore our gross profit margin as a percentage of sales was relatively lower.

 

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Selling and Distribution Expenses, Administrative and Other Expenses

 

The following table sets forth operating expenses and income from operations both in amounts and as a percentage of total revenue for selling and distribution expense, as well as administrative and other expenses for the three months ended June 30, 2012 and 2011:

 

    Three Months Ended March 31,        
    2012     2011      Percentage  
          % of           % of     Change  
    US$     Sales     US$     Sales     Year to Year  
Gross profit   $ 3,165,879       25.0 %   $ 4,569,723       31.0 %     -6.0 %
Selling and Distribution Expenses   $ (185,814 )     -1.5 %   $ (158,292 )     -1.1 %     -0.4 %
Administrative and Other Expenses   $ (720,590 )     -5.7 %   $ (448,884 )     -3.0 %     -2.7 %
Operating Income   $ 2,259,475       17.8 %   $ 3,962,547       26.7 %     -8.9 %

 

Selling and distribution expenses and administrative and other expenses remained virtually unchanged year over year.

 

Other Income

 

For three months ended June 30, 2012, we had other income of $0.03 million, down $0.43 million, or 94%, from the $0.46 million posted for the corresponding period of 2011. The decrease in other income was primarily due to a decrease in foreign exchange gain.

 

Net Income before Allocation of Non-Controlling Interest

 

Net income before allocation of non-controlling interest of $1.6 million for the three months ended June 30, 2012, down $1.8 million, or 53%, from the $3.4 million posted for the corresponding period of 2011. The decrease in net income was primarily due to a decrease in gross profit margin while there was no significant fluctuation in ratio of selling and distribution expenses and administrative and other expenses against total revenue.

 

Net Income Attributed to Non-Controlling Interest

 

For the three months ended June 30, 2012, we attributed $7,363 to the minority shareholders of Panjin Cable that was established on June 30, 2011.

 

Other Comprehensive Income

 

Other comprehensive income represents the foreign currency translation adjustment. During the three months ended June 30, 2012, the RMB devalued against the US dollar, and we recognized a foreign currency translation loss of $245,751.

 

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Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

 

The following table presents the unaudited consolidated results of operations of the Company for the six months ended June 30, 2012 as compared to the results of operations for the six months ended June 30, 2011.

 

    For the Six Months Ended  
    June 30,  
    2012     2011  
             
Revenue   $ 23,711,113     $ 27,593,247  
Cost of Sales     (17,742,310 )     (18,272,841 )
Gross Profit     5,968,803       9,320,406  
Selling and Distribution Expenses     (294,660 )     (256,740 )
Administrative and Other Expenses     (1,315,700 )     (953,195 )
Total operating expenses     (1,610,360 )     (1,209,935 )
Operating Income     4,358,443       8,110,471  
Interest expenses     (451,467 )     (367,139 )
Other Income     190,401       459,163  
Income tax expenses     (697,994 )     (1,112,259 )
                 
Net Income before allocation of non-controlling interest     3,399,383       7,090,236  
Other comprehensive income     9,189       569,942  
                 
Total comprehensive income before allocation of non-controlling interest     3,408,572       7,660,178  
Comprehensive loss attributable to non-controlling interests     (16,728 )     -  
Comprehensive income attributable to TODA   $ 3,425,300     $ 7,660,178  

 

Revenue

 

We recorded revenue of $23.7 million for the six months ended June 31, 2012, representing a decrease of $3.9 million, or 14%, compared to $27.6 million for the corresponding period of 2011. The decrease in both the bimetallic composite wire products and wiring equipment revenue is due primarily to more intense competition in the Chinese composite bimetallic metal market for the six months ended June 30, 2012 compared to the corresponding period of 2011.

 

Revenue from our bimetallic composite wire products segment decreased by 8.8%, from $24.5 million for the six months ended June 30, 2011 to $22.4 million for the corresponding period of 2012. Revenue from CCA and CCS wire product increased by 1.1%, from $17.9 million for the six months ended June 30, 2011 to $18.1 million for the corresponding period of 2012. The increase in revenue of CCA and CCS wire product sales is due to a 19% increase in sale volume, offset by a 15% decrease in sales price, compared to the same period in 2011. Revenue from CCA power cable decreased 34% to $4.3 million for the six months ended June 30, 2012, down from 6.5 million for the corresponding period of 2011. The decrease in CCA power cable is due primarily to more intense competition in the CCA power cable product market in the first half of 2012 compared to the corresponding period of 2011. Revenue from our wiring equipment segment decreased 58% to $1.3 million for the six months ended June 30, 2012, down from $3.1 million for the corresponding period of 2011. The decrease in wiring equipment revenue is due primarily to a more intense competition in the intelligent composite bimetallic material production equipment market in the first half of 2012 compared to the corresponding period of 2011.

 

40
 

 

The following tables break down our product sales by specific business segment and product category for each period.

 

    Six Months Ended June 30,  
    2012     2011  
                Average                 Average  
    Sales     Volume*     Price     Sales     Volume*     Price  
Bimetallic composite wire products segment                                                
                                                 
CCA(S) wire products   $ 18,140,820       3,772     $ 4,809     $ 17,955,271       3,174     $ 5.657  
CCA power cables     4,315,975       357       12,103       6,548,702       459       14.267  
Segment Total:     22,456,795       4,388               24,503,973       3,633          
                                                 
Wiring equipment segment                                                
                                                 
Intelligent composite bimetallic material production line     1,254,318       N/A       N/A       3,089,274       N/A       N/A  
Segment Total:     1,254,318       N/A       N/A       3,089,274       N/A       N/A  
TOTAL:     23,711,113                       27,593,247                  

* metric tons

 

Cost of Sales and Gross Profit

 

The following table sets forth our cost of sales and gross profit, both in amounts and as a percentage of total revenue for the six months ended June 30, 2012 and 2011:

    Six Months Ended June 30,        
    2012     2011     Percentage  
          % of           % of     Change  
    US$     Sales     US$     Sales     Year to Year  
Revenue   $ 23,711,113       100 %   $ 27,593,247       100 %     -14 %
                                         
Cost of sales                                        
- Product sales to third parties     (17,742,310 )     75 %     (18,272,841 )     66 %     -3 %
                                         
Gross profit   $ 5,968,803       25 %   $ 9,320,406       34 %     -36 %

 

The costs of sales decreased $0.5 million, or 5%, to $17.7 million for the six months ended June 30, 2012 from $18.2 million for the corresponding period of2011. As a percentage of total sales, our cost of sales increased to 75% of revenue for the six months ended June 30, 2012, compared to 66% of revenue for the corresponding period of 2011. Gross profit decreased to $6 million for the six months ended June 30, 2012 compared to $9.3 million for the corresponding period of 2011, a decrease of about $3.3 million, or 36%. Our gross profit margin decreased to 25% for of the six months ended June 30 2012 from 34% for the corresponding period of 2011. Contributing to the decrease in gross profit margin is the fact that we price our refined copper and CCA wire products based on the market price for materials plus a fixed dollar mark-up, and our gross profit is essentially this mark-up net of costs classified as part of cost of goods sold. As copper prices rise during of the first and second quarter of 2012, our fixed dollar mark-up per ton processed represents a relatively lower percentage of our gross sales (which is generally based on tons processed) and therefore our gross profit margin as a percentage of sales is relatively lower.

 

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Selling and Distribution Expenses, Administrative and Other Expenses

 

The following table sets forth operating expenses and income from operations both in amounts and as a percentage of total revenue for selling and distribution expense, as well as administrative and other expenses for the six months ended June 30, 2012 and 2011:

 

    Six Months Ended March 31,        
    2012     2011        
          % of           % of     Percentage Change  
    US$     Sales     US$     Sales     Year to Year  
Gross profit   $ 5,968,803       25 %   $ 9,320,406       34 %     -35.9 %
Selling and Distribution Expenses   $ (294,660 )     1 %   $ (256,740 )     0.93 %     14.8 %
Administrative and Other Expenses   $ (1,315,700 )       6%   $ (953,195 )     10 %     38.0 %
Operating Income   $ 4,358,443       18 %   $ 8,110,471       29 %     -46.3 %

 

Selling and distribution expenses l remained virtually unchanged year over year. The increase in administrative and other expenses was resulting from the expansion of operations into new subsidiaries of TOFA.

 

Other Income

 

For six months ended June 30, 2012, we had other income of $0.19 million, down $0.27 million, or 59%, from the $0.46 million posted for the corresponding period of 2011. The decrease in other income was primarily due to the fact was primarily due to a decrease in foreign exchange gain.

 

Net Income before Allocation of Non-Controlling Interest

Net income before allocation of non-controlling interest of $3.4 million for the six months ended June 30, 2012, down $3.6 million, or 51%, from the $7 million posted for the corresponding period of 2011. The decrease in net income was primarily due to a decrease in gross profit margin while there was no significant fluctuation in ratio of selling and distribution expenses against total revenue.

 

Net Income Attributed to Non-Controlling Interest

 

For the six months ended June 30, 2012, we attributed $16,753 to the minority shareholders of Panjin Cable that was established on June 30, 2011.

 

Other Comprehensive Income

 

Other comprehensive income represents the foreign currency translation adjustment. During the six months ended June 30, 2012, the RMB rose against the US dollar, and we recognized a foreign currency translation gain of $9,189.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2012, we had cash on hand of approximately $6.5 million, which represents an increase of $2.1 million from $4.4 million at December 31, 2011. Current assets were $50.2 million, and current liabilities of $21.8 million. Working capital was $28.4 million and the ratio of current assets to current liabilities was 2.3 to 1 as of June 30, 2012.

 

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The following is a summary of cash provided by or used in each of the indicated type of activities during the six months ended June 30, 2012 and 2011, respectively:

 

    As of June 30,  
    2012     2011  
Cash provided by (used in):                
Operating Activities   $ 9,557,772     $ 2,126,917  
Investing Activities     (1,997,746 )     (12,448 )
Financing Activities     (5,504,512 )     (109,764 )
                 
Effect of foreign exchange rate changes     57,640       129,407  
                 
Cash, beginning of the period     4,407,246       3,699,778  
Cash, end of the period   $ 6,520,400     $ 5,833,890  

 

·Net cash provided by operating activities was $9.6 million for the six months ended June 30, 2012, as compared to $2.1 million for corresponding period of 2011. The increase was mainly due to (i) a $2.8 million accounts payable increase resulting from larger operation and (ii) a $1.7 million prepaid expense and other deposit increase.

 

·Net cash used in investing activities was $2.0 million for the six months ended June 30, 2012, as compared to $12 thousand for the corresponding period of 2011. The increase was mainly due to the increase in restricted cash for the six months ended June 30, 2012.

 

·Net cash used in financing activities was $5.5 million for the six months ended June 30, 2012, as compared to $0.11 million for the corresponding period of 2011. The increase was, in substantial part, due to an unauthroized distribution to Messrs. Zheng, Liu and Li, in the aggregate principal amount of $7,915,650 as discussed in Note 9 to the financial statements.  Subsequent to the end of the quarter, these funds were repaid in full.

 

Bank loans consist of the following:

 

    June 30, 2012     December 31, 2011  
    (Unaudited)        
                 
Short-term bank loans   $ 10,059,895     $ 8,918,440  

 

The bank loans as outlined in the following table are secured by mortgages on the land and buildings, other plant and equipment and personal guarantees of some directors’ and third parties. The proceeds of the loans were used to finance the acquisition of property, plant and equipment and working capital of the Company.

 

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The details of the short term bank loans outstanding as of June 30, 2012 are as follows:

 

    Outstanding loan   Current Annualized   Nature of        
Name of bank   amount   interest rate   loans   Term of loans   Collateral
                     
China CITIC Bank, Dalian Branch (“China CITIC”)   US$1,574,059 (RMB10,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equal to 8.20%)   Term loan   March 30, 2012 to March 29, 2013   Related party and third party guarantees
                     
Shanghai Pudong Development Bank (“SPDB”)   US$3,138,202 (RMB19,937,000)   China Central Bank benchmark half-year rate of 6.31% plus 20% (equal to 7.57%)   Revolving loan   August 5, 2011 to August 1, 2012   Mortgages on land use right, other plant and equipment
                     
Shenzhen Development Bank (“SDB”)   US$2,361,089 (RMB15,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equals to 8.20%)   Revolving loan   March 26, 2012 to March 26, 2013   Related party and third party guarantees
                     
    US$2,334,412 (RMB14,830,519)   Annual rate of 6.00%   Export loans   March 23, 2012 to February15, 2013   Related party and third party guarantees
                     
Industrial and Commercial Bank Of China (“ICBC”)   US$472,218 (RMB3,000,000)   China Central Bank benchmark annual rate of 8.528%   Revolving loan   September 29, 2011 to September 14, 2012   Factoring business on account receivables
                     
    US$179,915 (RMB1,143,000)   China Central Bank benchmark annual rate of 7.93%   Revolving loan   March 28, 2012 to September 26, 2012   N/A

 

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The details of the short term bank loans outstanding as of December 31, 2011 are as follows:

 

    Outstanding loan   Current Annualized   Nature of        
Name of bank   amount   interest rate   loans   Term of loans   Collateral
                     
China CITIC   US$794,420 (RMB5,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equal to 8.20%)   Term loan   April 1, 2011 to March 30, 2012   Related party and third party guarantees
                     
    US$794,420 (RMB5,000,000)   China Central Bank benchmark annual rate of 6.31% plus 30% (equal to 8.20%)   Term loan   April 1, 2011 to March 23, 2012   Related party and third party guarantees
                     
SPDB   US$3,165,605 (RMB19,924,000)   China Central Bank benchmark half-year rate of 5.85% plus 20% (equal to 7.02%)   Revolving loan   August 5, 2011 to August 1, 2012   Mortgages on land use right, other plant and equipment
                     
SDB   US$1,191,630 (RMB7,500,000)   China Central Bank benchmark annual rate of 6.31%   Revolving loan   April 29, 2011 to April 28, 2012   Related party and third party guarantees
                     
    US$1,191,630 (RMB7,500,000)   China Central Bank benchmark annual rate of 6.31%   Revolving loan   April 27, 2011 to April 26, 2012   Related party and third party guarantees
                     
    US$1,246,885 (RMB7,847,771)   LIBOR plus 3 bps (equal to 4.5%)   Export loans   January 27, 2011 to January 26, 2012   Related party and third party guarantees
                     
ICBC   US$476,652 (RMB3,000,000)   China Central Bank benchmark annual rate of 8.528%   Revolving loan   September 29, 2011 to September 14, 2012   Factoring business on account receivables
                     
    US$28,599 (RMB180,000)   China Central Bank benchmark annual rate of 8.528%   Revolving loan   November 16, 2011 to May 15, 2012   N/A
                     
    US$28,599 (RMB180,000)   China Central Bank benchmark annual rate of 7.73%   Revolving loan   November 16, 2011 to May 15, 2012   N/A

 

OFF-BALANCE SHEET ARRANGEMENTS

 

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

Item 3.          Quantitative and Qualitative Disclosures About Market Risk

 

Not required pursuant to Item 305(e) of Regulation S-K.

 

45
 

 

Item 4.          Controls and Procedures

 

Disclosure Controls and Procedures

 

Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and (2) accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our chief executive officer and chief financial officer concluded that as of June 30, 2012, our controls and procedures were not effective due to certain significant deficiencies (as defined in Public Company Accounting Oversight Board Standard No. 2) in our internal controls over financial reporting.

 

This is due to the fact that we lack sufficient personnel with the appropriate level of knowledge, experience and training in the application of US GAAP standards, especially related to complicated accounting issues. This could cause us to be unable to fully identify and resolve certain accounting and disclosure issues that could lead to a failure to maintain effective controls over preparation, review and approval of certain significant account reconciliation from Chinese GAAP to US GAAP and necessary journal entries. Our internal audit function is significantly deficient due to insufficient qualified resources and appropriate systems to perform such function. Therefore, the ability to prevent and control lapses and errors in our accounting function could not be rendered effectively.

 

Also, we are integrating the financial resources of several businesses in our new corporate structure. The relatively small number of professionals we employ in bookkeeping and accounting functions prevents us from appropriately segregating duties within our internal control systems. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

 

Based on the control deficiencies identified above, we intend to design and plan to implement, specific remediation initiatives which include:

 

·Evaluating the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal auditing staff in China that will test and monitor the implementation of our accounting and internal control procedures.

 

·Engaging an outside, independent internal controls consultant to assist us in addressing the aforementioned deficiencies and generally provide guidance on proper US accounting practices.

 

·Increasing our accounting and financing personnel resources, by retaining more US GAAP knowledgeable financial professionals.

 

These remedial measures may not be fully effectuated or may be insufficient to address the significant deficiencies we identified, and there can be no assurance that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified or occur in the future. If additional significant deficiencies (or if material weaknesses) in our internal controls are discovered or occur in the future, among other similar or related effects: (i) we may fail to meet future reporting obligations on a timely basis, (ii) our consolidated financial statements may contain material misstatements, (iii) we may be required to restate prior period financial results, (iv) we may be subject to litigation and/or regulatory proceedings, and (v) our business and operating results may be harmed.

 

46
 

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II.  OTHER INFORMATION

 

Item 1.          Legal Proceedings

 

There have been no material changes from the disclosure provided in (i) Part 1, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Item 1A.       Risk Factors

 

Not required.

 

Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3.          Defaults Upon Senior Securities

 

None.

 

Item 4.          Mine Safety Disclosures

 

Not applicable.

 

Item 5.          Other Information

 

None.

 

Item 6.          Exhibits

 

(a) Exhibits

 

Exhibit Number   Description of Exhibit
     
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
     
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
     
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
     
32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
     
101   Interactive Data Files (XBRL) – to be filed by amendment.

 

47
 

 

SIGNATURES

 

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

 

  TODA International Holdings Inc.
   
August 20, 2012 By: /s/ Chuan-Tao Zheng
  Name: Chuan-Tao Zheng
  Title: President and Chief Executive Officer

  

  TODA International Holdings Inc.
   
August 20, 2012 By: /s/ Yue Kou
  Name: Yue Kou
  Title: Chief  Financial Officer

 

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