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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

 

 

American Jianye Greentech Holdings, LTD.

(Exact name of registrant as specified in Charter)

 

 

Nevada   333-144228   30-0679981

(State or other jurisdiction of

incorporation or organization)

  (Commission File No.)   (IRS Employee Identification No.)

 

 

136-20 38th Ave. Unit 3G

Flushing, NY 11354

(Address of Principal Executive Offices)

 _______________

 

718-395-8706
(Issuer Telephone number)

_______________

 

 

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes  No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    No  

Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer Accelerated filer
Non-accelerated filer 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

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of May 17, 2012: 33,760,148 shares of common stock.

 
 

 

American Jianye Greentech Holdings, Ltd. and Subsidiaries 

September 30, 2012 and 2011

Index to the consolidated financial statements

 

Contents Page(s)
Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011 F-2
Consolidated Statements of Income and Comprehensive Income for the nine Months Ended September 30 , 2012 and 2011 (Unaudited) F-3
Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2011 and for the nine Months Ended September 30, 2012 F-4
Consolidated Statements of Cash Flows for the nine Months Ended September 30, 2012 and 2011 (Unaudited) F-5
Notes to the Consolidated Financial Statements (Unaudited) F-6

 

 
 

 

American Jianye Greentech Holdings, Ltd. and Subsidiaries
 Consolidated Balance Sheets
                 
                 
          September 30, 2012 December 31, 2012
          (Unaudited)  
 ASSETS          
 CURRENT ASSETS:          
   Cash   $                       41,479 $                       18,266
   Bank acceptance notes receivable                                     -                                   -
   Accounts receivable                             4,893                    2,992,910
   Inventories                         993,546                    1,396,836
   Advances to stockholder                                     -                                   -
   ADVANCES - American Jianye vs. JianYe BVI                                   -                                   -
   ADVANCES - NewJianYe vs. JianYe Development                                   -                                   -
   ADVANCES - NewJianYe vs. ZhaoDong Fuel                                   -                                   -
   ADVANCES - NewJianYe vs. JianYe Property Management Company                                 -                                   -
   ADVANCES - NewJianYe vs. NewJianYe TieLing Branch                                   -                                   -
   ADVANCES - NewJianYe vs. HeiLongJiang Jianye Fuel                                   -                                   -
   ADVANCES - NewJianYe vs. HuanRan New Energy                                   -                                   -
   ADVANCES - NewJianYe vs. NewJianYe ZhaoDong Branch                                   -                                   -
   ADVANCES - ZhaoDong Branch vs. ZhaoDong Fuel                                   -                                   -
   ADVANCES - HK JianYe vs. BVI                                     -                                   -
   ADVANCES - Wang, JianYe                                     -                                   -
   ADVANCES - Yu, GuiLing                                     -                                   -
   ADVANCES - Wang, HaiPeng                                     -                                   -
   Due from Related Parties                                     -                                   -
   Due from Shareholders                                      -                                   -
   Advance on purchases                             8,033                         24,443
   Prepaid value added taxes                         151,800                       215,291
   Prepaid corp. income taxes                             4,635                         14,146
   Stock subscription receivable                                     -                                   -
   Prepayments and other current assets                         155,139                       151,906
                 
     Total Current Assets                      1,359,525                    4,813,798
                 
 INVESTMENTS          
   INVESTMENT in Heilongjiang New Jianye                                   -                                   -
   INVESTMENT in Liaoning Jianye                                     -                                   -
   INVESTMENT in HK Jianye                                     -                                   -
                 
     Total investments                                     -                                   -
                 
 PROPERTY, PLANT AND EQUIPMENT          
   Property, plant and equipment                    15,703,978                  24,431,875
   Accumulated depreciation                           (1,232)                            (836)
                 
     PROPERTY, PLANT AND EQUIPMENT, net                  15,702,746                  24,431,039
                 
 LAND USE RIGHT          
   Land use right-deposit                      9,531,874                    9,483,903
   Accumulated amortization                                     -                                   -
                 
 LAND USE RIGHT                      9,531,874                    9,483,903
                 
 SOFTWARE, net          
                 
 OTHER ASSETS          
                 
       Total Assets   $                26,594,145 $                38,728,740
                 
 LIABILITIES AND STOCKHOLDERS' EQUITY        
 CURRENT LIABILITIES:          
   Loans payable   $                                 - $                                 -
   Banker's acceptance notes payable                                     -                                   -
   Current maturities of capital lease obligation                                   -                                   -
   Current maturities of long-term debt                                     -                                   -
   Accounts payable   $                       34,480 $                  1,901,217
   Accounts payable - related parties                                     -                                   -
   Advances from related parties                         331,269                       221,385
   Advances from Stockholder, Chairman and CEO                    7,820,231                  18,193,848
   Customer deposits                                     -                                   -
   Corporate income tax payable                                     -                                   -
   Taxes payable                             8,793                         47,219
   Accrued expenses and other current liabilities                       103,759                         98,965
                 
     Total Current Liabilities                      8,298,532                  20,462,634
                 
 CAPITAL LEASE OBLIGATION, net of current maturities                                   -                                   -
                 
 LONG-TERM DEBT, net of current maturities                                   -                                   -
                 
 DERIVATIVE LIABILITY                                     -                                   -
                 
 DEFERRED TAX LIABILITIES                                     -                                   -
                 
      Total Liabilities                      8,298,532                  20,462,634
                 
 COMMITMENTS AND CONTINGENCIES        
                 
 STOCKHOLDERS' EQUITY:          
   Common stock: $0.001 par value, 394,500,000 shares authorized,      
     33,760,148 shares issued and outstanding                         33,760                         33,760
   Additional paid-in capital                      1,030,240                    1,030,240
   Stock subscription receivables                                     -                                   -
   Deferred compensation                                     -                                   -
   Statutory surplus reserve and common welfare fund                                   -                                   -
   Retained earnings                    16,395,102                  16,454,333
   Accumulated other comprehensive income:                                   -    
     Change in unrealized loss on marketable securities                                   -                                   -
     Foreign currency translation gain                         836,511                       747,773
                 
     Total Stockholders' Equity                    18,295,613                  18,266,106
                 
     Total Liabilities and Stockholders' Equity $                26,594,145 $                38,728,740
                 
See accompanying notes to the consolidated financial statements.
F-2

 

 
 

 

American Jianye Greentech Holdings, Ltd. and Subsidiaries
 Consolidated Statements of Operations and Comprehensive Income
                     
                     
        For the Nine Months     For the Nine Months  
        Ended     Ended  
        September 30, 2012     September 30, 2011  
        (Unaudited)     (Unaudited)  
                     
 NET REVENUES    $                   3,678,606      $ 55,191,711  
 COST OF GOODS SOLD                       3,598,217     45,943,489  
 GROSS PROFIT                            80,389       9,248,222  
 OPERATING EXPENSES:                
  Selling and General and administrative expenses                          130,024     542,905  
    Total operating expenses                          130,024     542,905  
 INCOME BEFORE INCOME TAXES                           (49,635)       8,705,317  
 INCOME TAX PROVISION                              9,596     2,268,700  
 NET INCOME (LOSS)                          (59,231)       6,436,617  
 OTHER COMPREHENSIVE INCOME:                
  Foreign currency translation gain                            88,738       232,127  
 COMPREHENSIVE INCOME    $                        29,507      $ 6,668,744  
 NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
 Net loss per common share - basic and diluted    $                          (0.00)      $                           0.20  
  Weighted Average Common Shares Outstanding - basic and diluted                   33,760,148                     31,465,277  
 See accompanying notes to the consolidated financial statements.
F-3

 
 
American Jianye Greentech Holdings, Ltd. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2012 and 2011
 
                                     
       Common Stock, $0.001 Par Value             Accumulated Other Comprehensive Income    
       Number of Shares      Amount    Additional Paid-in Capital    Retained Earnings   Foreign Currency Translation Gain    Total Stockholders' Equity
                                     
 Balance, December 31, 2010    33,110,148    $      33,110    $        926,890    $       9,746,971    $                     261,489    $        10,968,460
 Issuance of common stock for services           50,000                 50              13,950                               14,000
 Issuance of common shares for cash at $0.15 per share                                  
   in the third quarter, 2011           600,000               600              89,400                               90,000
 Comprehensive income                                
   Net income                         6,707,362                    6,707,362
   Foreign currency translation gain                                             486,284                 486,284
   Total comprehensive income                                        7,193,646
 Balance, December 31, 2011    33,760,148          33,760         1,030,240         16,454,333                         747,773            18,266,106
 Comprehensive income                                
   Net income                            (59,231)                       (59,231)
   Foreign currency translation gain                                               88,738                   88,738
   Total comprehensive income                                             29,507
 Balance, September 30, 2012    33,760,148    $      33,760    $     1,030,240    $     16,395,102    $                     836,511    $        18,295,613
                                     
See accompanying notes to the consolidated financial statements.
F-4

 

 
 

 

 

American Jianye Greentech Holdings, Ltd. and Subsidiaries
 Consolidated Statements of Cash Flows
                   
        For the Nine Months     For the Nine Months
        Ended     Ended
        September 30, 2012     September 30, 2011
        (Unaudited)     (Unaudited)
                   
 CASH FLOWS FROM OPERATING ACTIVITIES:              
 Net income (loss)  $ (59,231)                           $ 6,436,617                  
 Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
   Depreciation expense   392                                   382                             
   Changes in operating assets and liabilities:              
     Accounts receivable   1,500,638                         (8,616,035)                 
     Inventories                          410,357                                        -  
     Advance on purchases                             16,535                            (39,763)  
     Prepaid value added taxes                             64,580                                         -  
     Prepaid corp income taxes                          9,583                                        -  
     Prepayments and other current assets                            137,600         (101,944)  
     Accounts payable                       (2,016,418)                         4,082,262  
     Customer deposits                        1,502,518       -  
     Taxes payable                            (38,126)         (2,469,811)  
     Accrued expenses and other current liabilities                               3,956                         1,242,243  
                     
 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                    
                     
 CASH FLOWS FROM INVESTING ACTIVITIES:                
   Restricted Cash                                       -                                        -  
                     
 NET CASH USED IN INVESTING ACTIVITIES                                 8,851,476                                        -  
                     
 CASH FLOWS FROM FINANCING ACTIVITIES:                
   Advances from (repayment made to) related parties                            108,764                          (387,229)  
   Advances from stockholder, Chairman and CEO                       (10,469,627)         (1,039,438)  
   Issuance of common stock      -        104,000  
   Subscription receivable                                       -                                        -  
                     
 NET CASH PROVIDED BY FINANCING ACTIVITIES                       (10,360,780)                       (1,322,667)  
 EFFECT OF EXCHANGE RATE CHANGES ON CASH                          133                            156,604  
 NET CHANGE IN CASH                            23,213                          (632,112)  
 Cash at beginning of the period                             18,266                            655,640  
 Cash at end of period   $                   41,479     $                      23,528  
 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                
     Interest paid   $                                   -     $                                  -  
     Income tax paid   $                                   18,162     $                   2,268,700  
                     
See accompanying notes to the consolidated financial statements.  
F-5  
                         

 

 
 

American Jianye Greentech Holdings, Ltd. and Subsidiaries

September 30, 2012 and 2011

Notes to the Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Operations

 

American Jianye Greentech Holdings, Ltd. (formerly Gateway Certifications, Inc.)

 

American Jianye Greentech Holdings, Ltd. (the ‘Company” or “American Jianye”) was originally incorporated on August 30, 2006, under the laws of the State of Nevada as Gateway Certifications, Inc.

 

On November 16, 2009, the Company amended its Articles of Incorporation, and changed its name to American Jianye Greentech Holdings, Ltd. upon acquisition of Jianye Greentech Holdings Limited to better identify the Company with the business conducted, through its wholly owned subsidiaries in China, the manufacturing and distribution of ethanol and methanol based alternative fuel for automobile use.

 

Jianye Greentech Holdings Ltd. and Subsidiaries

 

Jianye Greentech Holdings Ltd.

 

Jianye Greentech Holdings Ltd (“Jianye BVI”) was incorporated on April 17, 2008 under the laws of the Territory of the British Virgin Islands.

 

Formation of Hong Kong Jianye Greentech Holdings Ltd.

 

On May 2, 2008 Jianye BVI formed Hong Kong Jianye Greentech Holdings Limited (“Jianye Hong Kong”) under the laws of under the laws of the Hong Kong Special Administrative Region (“HK SAR”) of the People’s Republic of China (“PRC”).

 

Jianye BVI and Jianye Hong Kong currently have no operations and operate as investment holding companies.

 

Formation of Heilongjian New Jianye New Clean Fuel Distribution Ltd.

 

On September 28, 2009, Jianye Hong Kong formed Heilongjian New Jianye New Clean Fuel Distribution Ltd. (“Heilongjian New Jianye”) with the registered capital of $50,000. Heilongjian New Jianye engages in the manufacturing and distribution of ethanol and methanol based alternative fuel for automobile use.

 

Acquisition of Jianye Greentech Holdings Ltd. and Subsidiaries Recognized as a Reverse Acquisition

 

On November 16, 2009, the Company entered into and consummated the Agreement and Plan of Share Exchange (the “Exchange Agreement”) with all of the shareholders (the “Shareholders”) of Jianye Greentech Holdings, Ltd. ("Jianye BVI"). Pursuant to the Exchange Agreement, (i) the Company and Gateway Certifications, LLC (“GCL”), a New York limited liability company formed by the former controlling shareholders of the Company entered into an Asset Divestiture Agreement whereby the Company assigned all of the previous operating assets of the Company to GCL in exchange for the assumption of all of the Company’s liabilities to the members of GCL, who, as the former principal shareholders of the Company controlling 8,343,000 common shares of the Company, agreed to return and cancel their 7,950,000 shares of Common Stock of the Company; the Company (ii) acquired 100% of the issued and outstanding capital of Jianye BVI for 3,548,796 common shares of the Company; (iii) effectuated a 7.89-for-1 (1:7.89) forward stock split (“Forward Stock Split”) post cancellation of 7,950,000 shares by then controlling stockholder of the Company and issuance of 3,548,796 shares of its common stock to Jianye BVI stockholders; and (iv) amended its Articles of Incorporation to: (iv)(a) authorize the creation of a class of 5,500,000 shares of blank check preferred stock; (iv)(b) increased the number of shares of the authorized capital stock to 400,000,000 shares of which 394,500,000 shall be Common Stock, par value $0.001 per share and 5,500,000 shall be preferred stock, par value $0.001 per share; and (iii)(c) changed its name to American Jianye Greentech Holdings Ltd. Total number of common shares issued represents approximately 90.0% of the Company’s outstanding stock immediately post acquisition; Jianye BVI became a wholly owned subsidiary of the Company; and the management team of Jianye BVI were appointed as the Officers and Directors of the Company.

 

As a result of the ownership interests of the former stockholders of Jianye BVI, for financial statement reporting purposes, the merger between the Company and Jianye BVI has been treated as a reverse acquisition with Jianye BVI deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction and the net assets of Jianye BVI (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Jianye BVI which are recorded at historical cost. The equity of the Company is the historical equity of Jianye BVI retroactively restated to reflect the number of shares issued by the Company in the transaction.

 

Formation of Liaoning Jianye Greentech Fuel Ltd.

 

On June 23, 2010, Jianye Hong Kong formed Liaoning Jianye Greentech Fuel Ltd. (“Liaoning Jianye”) with the registered capital of $5million. Liaoning Jianye engages in the manufacturing and distribution of ethanol and methanol based alternative fuel for automobile use.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation - Unaudited Interim Financial Information

 

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011 and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on May 20, 2012.

 

Principles of Consolidation

 

The consolidated financial statements include all accounts of the Company and its controlled entities as of the reporting period ending date(s) and for the reporting period(s) as follows:

 

Entity Jurisdiction or Place of Incorporation Attributable Interest
     
Jianye Greentech Holdings Ltd. The Territory of the British Virgin Islands 100%
     
Hong Kong Jianye Greentech Holdings Limited Hong Kong SAR 100%
     
Heilongjian New Jianye New Clean Fuel Distribution Ltd. PRC 100%
     
Liaoning Jianye Greentech Energy Ltd. PRC 100%

 

All inter-company balances and transactions have been eliminated.

 

Reclassification

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported earnings.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

 

The Company’s significant estimates and assumptions include the fair value of financial instruments; allowance for doubtful accounts; inventory valuation and obsolescence; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of property, plant and equipment, and land use rights; interest rate; revenue recognized or recognizable; sales returns and allowances; valued added tax rate; income tax rate and related tax provision, reporting currency of the Company, functional currency of the PRC subsidiaries, and foreign currency exchange rate. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole 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.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

     
Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, advance on purchases, prepayments and other current assets, accounts payable, customer deposits, corporate income tax payable, accrued expenses and other current liabilities approximate their fair values because of the short maturity of these instruments.

 

The Company’s Level 3 financial liabilities consist of the derivative warrant issued in July 2008 for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.  The Company valued the automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering provisions using a lattice model, with the assistance of a valuation specialist, for which management understands the methodologies. These models incorporate transaction details such as Company stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of the date of issuance and each balance sheet date.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

It is not, however, practical to determine the fair value of advances from significant stockholder and lease arrangement with the significant stockholder due to their related party nature.

 

Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

 

The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property, plant and equipment and land use rights are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

 

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

The key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels, gross margins, and operating costs of the manufacturing facilities. These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions. Any difficulty in manufacturing or sourcing raw materials on a cost effective basis would significantly impact the projected future cash flows of the Company’s manufacturing facilities and potentially lead to an impairment charge for long-lived assets. Other factors, such as increased competition or a decrease in the desirability of the Company’s products, could lead to lower projected sales levels, which would adversely impact cash flows. A significant change in cash flows in the future could result in an impairment of long lived assets.

 

The impairment charges, if any, is included in operating expenses in the accompanying consolidated statements of income and comprehensive income (loss).

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

 

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any. Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.

 

The Company does not have any off-balance-sheet credit exposure to its customers.

 

Advance on Purchases

 

Advance on purchases primarily represent amounts paid to vendors for future delivery of products ranging from three (3) months to nine (9) months, all of which were fully or partially refundable depending upon the terms and conditions of the purchase agreements.

 

Inventories

 

Inventory Valuation

 

The Company values inventories, consisting of raw materials, packaging material and finished goods, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method for raw materials and packaging materials and the weighted average cost method for finished goods. Cost of finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.

 

Inventory Obsolescence and Markdowns

 

The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. Other significant estimates include the allocation of variable and fixed production overheads. While variable production overheads are allocated to each unit of production on the basis of actual use of production facilities, the allocation of fixed production overhead to the costs of conversion is based on the normal capacity of the Company’s production facilities, and recognizes abnormal idle facility expenses as current period charges. Certain costs, including categories of indirect materials, indirect labor and other indirect manufacturing costs which are included in the overhead pools are estimated. The management of the Company determines its normal capacity based upon the amount of operating hours of the manufacturing machinery and equipment in a reporting period.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives ranging from five (5) years to twenty (20) years. Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of income and comprehensive income. Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Construction in progress represents direct costs of construction or the acquisition cost of long-lived assets. Under U.S. GAAP, all costs associated with construction of long-lived assets should be reflected as long-term as part of construction-in-progress. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all of the activities necessary to prepare the long-lived assets for their intended use are completed. No depreciation is provided until the construction of the long-lived assets is complete and ready for their intended use.

 

Land Use Right

 

Land use right represents the cost to obtain the right to use certain parcel of land in the City of Tieling, Liaoning Province, PRC. Land use right is carried at cost and amortized on a straight-line basis over the life of the right of fifty (50) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Customer Deposits

 

Customer deposits primarily represent amounts received from customers for future delivery of products, all of which were fully or partially refundable depending upon the terms and conditions of the sales agreements.

 

Leases

 

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). When substantially all of the risks and benefits of property ownership have been transferred to the Company, as determined by the test criteria in Paragraph 840-10-25-1, the lease then qualifies as a capital lease. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

 

Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; ; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitment and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Revenue Recognition

 

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed acknowledgement of receipt from the customers or a signed bill of lading from the third party trucking company and title transfers upon shipment, based on free on board (“FOB”) warehouse terms; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.

 

The Company markets and distributes ethanol and methanol based alternative fuel for automobile use and follows Section 605-45-45 (formerly EITF 99-19) (“ASC Section 605-45-45”) of the FASB Accounting Standards Codification for revenue recognition to report revenue gross as a principal for its sales since the Company (1) acts as principal in the transaction, (2) takes title to the products, (3) has risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns, and (4) does not act as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis on its sales. The management of the Company determined that the Company should report revenue based on the gross amount billed to a customer when considering each of the following eight (8) indicators of gross revenue reporting listed in ASC Paragraph 605-45-45-4 through 605-45-45-14 as specified (1) The entity is the primary obligor in the arrangement — The Company signs a product sales agreement with its customer and represents in writing that the Company is responsible for fulfillment, including the acceptability of the product(s) or service(s) ordered or purchased by the customer; (2) The entity has general inventory risk (before customer order is placed or upon customer return); (3) The entity has latitude in establishing price — The Company has reasonable latitude, within economic constraints, to establish the exchange price with a customer for the product or service; (4) The entity changes the product or performs part of the service — The Company developed a method for blending the raw materials in its manufacturing process, through its proprietary technology, catalysts can be mixed with fuel and alcohols to become a finished product to be sold after pumping and piping; (5) The entity has discretion in supplier selection — The Company has multiple suppliers for the products ordered by a customer and discretion to select the supplier that will provide the product(s) or service(s) ordered by a customer; (6) The entity is involved in the determination of product or service specifications — The Company determines the nature, type, characteristics, or specifications of the product(s) or service(s) ordered by the customer; (7) The entity has physical loss inventory risk of purchased inventories after customer order; and (8) The entity has credit risk — The Company is responsible for collecting the sales price from its customer but must pay the amount owed to its supplier after the supplier performs, regardless of whether the sales price is fully collected.

 

Net sales of products represent the invoiced value of goods, net of consumption tax (“Consumption Tax”) and value added taxes (“VAT”). The Company is subject to (i) Consumption Tax and (ii) VAT which are levied on all of the Company’s products at the rate of 2% and 17%, respectively, on the invoiced value of sales. Sales or Output VAT is borne by customers in addition to the invoiced value of sales and Purchase or Input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

 

Shipping and Handling Costs

 

The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.

 

Foreign Currency Transactions

 

The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency or Chinese Yuan or Renminbi, the Company’s Chinese operating subsidiaries' functional currency. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments. Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

Pursuant to Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

 

The fair value of share options or warrant award is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

 

· Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-50-S99-1, it may be appropriate to use the simplified method, if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

· Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

· Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected life of the share options and similar instruments.

 

· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the share options and similar instruments.

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, nonforfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, nonforfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, nonforfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

 

Pursuant to paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

 

Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which 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 Consolidated Statements of Income and Comprehensive Income in the period that includes the enactment date.

 

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended September 30, 2012 or 2011.

 

Foreign Currency Translation

 

The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.

 

The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered. If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss). If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).

 

Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiaries’ local currencies to be their respective functional currencies.

 

The financial records of the Company's Chinese operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency. Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.

 

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. The exchange rate of the US dollar against the RMB was adjusted from approximately RMB 8.28 per U.S. dollar to approximately RMB 8.11 per U.S. dollar on July 21, 2005. Since then, the PBOC administers and regulates the exchange rate of the U.S. dollar against the RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.

 

Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation (www.oanda.com) contained in its consolidated financial statements. Management believes that the difference between RMB vs. U.S. dollar exchange rate quoted by the PBOC and RMB vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial. Translations do not imply that the RMB amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars. Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates for the respective periods:

 

 

 

September30, 2012

   

 

December 31, 2011

   

 

September30, 2011

   

 

December 31, 2010

 
                               
Balance sheets   6.3265       6.3585       6.3952       6.5918  
                               
Statements of income and comprehensive income (loss)   6.3180       6.4640       6.4972       6.7696  

 

Comprehensive Income (Loss)

 

The Company has applied section 220-10-45 of the FASB Accounting Standards Codification. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income (loss), for the Company, consists of net income (loss), change in unrealized loss of marketable securities and foreign currency translation adjustments and is presented in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) and Stockholders’ Equity.

 

Net Income (Loss) per Common Share

 

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants.

 

There were no potentially dilutive shares outstanding for the interim period ended September 30, 2012 or 2011.

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

FASB Accounting Standards Update No. 2011-05

 

In June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 “Comprehensive Income” (“ASU 2011-05”), which was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now gives entities the option to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.

 

The amendments in this Update should be applied retrospectively and are effective for public entity for fiscal years, and interim periods within those years, beginning after December 15, 2011.

 

FASB Accounting Standards Update No. 2011-08

 

In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

 

The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.

 

FASB Accounting Standards Update No. 2011-10

 

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-10 “Property, Plant and Equipment: Derecognition of in Substance Real Estate-a Scope Clarification” (“ASU 2011-09”). This Update is to resolve the diversity in practice as to how financial statements have been reflecting circumstances when parent company reporting entities cease to have controlling financial interests in subsidiaries that are in substance real estate, where the situation arises as a result of default on nonrecourse debt of the subsidiaries.

 

The amended guidance is effective for annual reporting periods ending after June 15, 2012 for public entities. Early adoption is permitted.

 

FASB Accounting Standards Update No. 2011-11

 

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

 

The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

 

FASB Accounting Standards Update No. 2011-12

 

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-12 “Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). This Update is a deferral of the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. FASB is to going to reassess the costs and benefits of those provisions in ASU 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the time required to properly make such a reassessment and to evaluate alternative presentation formats, the FASB decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of Update 2011-05.

 

All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011.

 

Other Recently Issued, but Not Yet Effective Accounting Pronouncements

 

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

 

Note 3 – Accounts Receivable

 

Accounts receivable at September 30, 2012 and December 31, 2011 consisted of the following:

 

    September30, 2012     December 31, 2011  
                 
Accounts receivable   $ 4,893     $ 2,992,910  
Allowance for doubtful accounts     (- )     (- )
             
    $ 4,893     $ 2,992,910  
             

 

Note 4 – Inventories

 

Inventories at September 30, 2012 and December 31, 2011 consisted of the following:

 

    September 30, 2012     December 31, 2011  
                 
Raw materials   $ 993,546     $ 1,396,836  
             
    $ 993,546     $ 1,396,836  
             

 

Slow-Moving or Obsolescence Markdowns

 

The Company did not record any inventory obsolescence adjustments for the interim period ended September 30, 2012 or 2011.

 

Lower of Cost or Market Adjustments

 

There was no lower of cost or market adjustments for the interim period ended September 30, 2012 or 2011.

 

Note 5 – Property, Plant and Equipment

 

Property, plant and equipment, stated at cost, less accumulated depreciation at September 30, 2012 and December 31, 2011 consisted of the following:

 

  Estimated Useful Life (Years)   September 30, 2012     December 31, 2011  
                   
Construction-in-progress (i)(ii)     $ 15,702,146     $ 24,430,232  
                   
Office equipment 5     1,832       1,643  
                   
               
        15,703,978       24,431,875  
                   
Less accumulated depreciation (iii)       (1,232 )     (836 )
                   
               
      $ 15,702,746     $ 24,431,039  

 

(i) Construction-in-progress

 

Liaoning Jianye expended RMB155,339,629 to construct an ethanol and methanol manufacturing facility as of December 31, 2012, which was recorded as construction in progress included in the consolidated balance sheets. The cost of construction-in-progress was reduced to RMB 99,339,629 as of September 30,2012, due to the construction plan was modified and plan to narrow construction scale in the interim period ended September,2012.

 

(ii) Capitalized Interest

 

For the interim period ended September 30, 2012 and 2011, the Company did not capitalize any interest to fixed assets.

 

(iii) Depreciation and Amortization Expense

 

Depreciation and amortization expense for the interim period ended September, 2012 and 2011 was $396 and $382, respectively.

 

Note 6 – Land Use Right and Land Use Right Deposit

 

Liaoning Jianye

 

On September 2, 2010, the Company entered into an agreement with the Chinese government, whereby the Company made a deposit of RMB11,000,000 in aggregate towards the acquisition of the right to use 80,404.50 square meter of land for RMB60,303,400. On April 13, 2011, the Company paid an additional RMB49,303,400 to acquire the land use right and is in the process of obtaining the related certificate of the land use right expiring September 9, 2060. The purchase price and related acquisition costs shall be amortized over the term of the right of approximately fifty (50) years when the land is ready for its intended use.

 

Land use right, stated at cost, less accumulated amortization at December 31, 2011 and 2010, consisted of the following:

 

    September 30, 2012     December 31, 2011  
                 
Liaoning Jianye                
                 
Land use right and land use right deposit   $ 9,531,874     $ 9,483,903  
                 
Accumulated amortization (i)     (- )     (- )
                 
    $ 9,531,874     $ 9,483,903  
             

 

(i) Amortization Expense

 

The Company did not record any amortization expense for the interim period ended September 30, 2012 or 2011.

 

Note 7 – Related Party Transactions

 

Related parties

 

Related parties with whom the Company had transactions are:

 

Related Parties   Relationship
     
Haipeng Wang   Chairman, President and CEO of the Company
     
Harbin Dayang Trading Co., Ltd. (“Dayang”)   An entity owned by the Chairman (15%) and his farther (70%)
     
Heilongjiang Jianye Real Estates Co., Ltd.   An entity owned by the Chairman (1.14%) and Dayang (97.72%)
     
Heilongjiang Jianye Fuel Co., Ltd.   An entity owned by the Chairman and Heilongjiang Jianye Real Estates Co., Ltd. (97.83% in aggregate)
     
Heilongjiang Jianye Property Management Co., Ltd.   An entity owned and controlled by the Chairman (8.33%) and his farther (25%)
     
Zhaodong Jianye Fuel Co., Ltd.   An entity owned by the farther of the Chairman (100%)

 

Advances from Related Parties

 

From time to time, the Chairman, CEO and significant stockholder of the Company and related parties advance funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.

 

Transactions with Zhao Dong Jianye Fuel Co., Ltd.

 

Purchases from Zhao Dong Jianye Fuel Co., Ltd.

 

For the interim period ended September 30, 2012 or 2011, Heilongjiang New Jianye did not purchase any fuel from Zhao Dong Jianye Fuel Co., Ltd.

 

Operating Lease of Property, Plant and Equipment and Facilities with Zhao Dong Jianye Fuel Co., Ltd.

 

On December 1, 2011, Heilongjiang New Jianye entered into a non-cancellable operating lease for certain property, plant, equipment and facilities expiring one (1) year from date of signing. Heilongjiang New Jianye is required to pay RMB100,000 per month over the term of the lease.

 

Note 8 – Stockholders’ Equity

 

Shares Authorized

 

Upon formation the aggregate number of shares which the Corporation shall have authority to issue is fifty million (50,000,000) shares, all of which are designated as “Common Stock” with a par value of $0.001 per share.

 

On November 16, 2009, the Company amended its Articles of Incorporation to: (a) authorize the creation of a class of 5,500,000 shares of blank check preferred stock; (b) increased the number of shares of the authorized capital stock to 400,000,000 shares of which 394,500,000 shall be Common Stock, par value $0.001 per share and 5,500,000 shall be preferred stock, par value $0.001 per share.

 

Common Stock

 

Immediately prior to the consummation of the Exchange Agreement giving retroactive effect of share cancellation in connection with the Exchange Agreement on November 16, 2009, the Company had 3,100,770 common shares issued and outstanding.

 

The Company issued 28 million shares of its common stock to Jianye BVI stockholders upon consummation of the Exchange Agreement on November 16, 2009.

 

Issuance of Common Stock

 

In April, 2010, 299,378 of the cancelled shares were restored and reported as issued and fully paid common stock.

 

In the second quarter of 2010 the Company issued 10,000 shares for financial consulting services, valued at $1.00 per share or $10,000 on the date of issuance.

 

On October 1, 2010, the Company sold 100,000 shares of its common stock at $0.40 per share for $40,000 in cash.

 

On December 14, 2010, the Company sold 1,000,000 shares of its common stock at $0.70 per share for $350,000 in cash and $350,000 in stock subscription receivable, 200,000 shares of common stock at $0.50 per share for $100,000 in stock subscription receivable and 600,000 shares of common stock at $0.15 per share for $60,000 in stock subscription receivable, all of the stock subscription receivables were reported as an asset on the consolidated balance sheet at December 31, 2010 as the proceeds have been received in the first quarter of 2011 prior to the issuance of the financial statements.

 

In the third quarter of 2011 the Company issued 50,000 shares of its common stock for financial consulting services, valued at $0.28 per share or $14,000 on the date of issuance.

 

On December 14, 2010, the Company entered into a stock subscription agreement with an investor whereby the Company agreed to sell 600,000 shares of its common stock at $0.15 per share for $90,000. In the third quarter of 2011 the Company received the $90,000 proceeds and issued 600,000 shares of its common stock pursuant to the stock subscription agreement.

 

Note 9 – Concentrations and Credit Risk

 

 

Customers and Credit Concentrations

 

 

Customer concentrations for the interim period ended September, 2012 and 2011 and credit concentrations at September 30, 2012 and December 31, 2011 are as follows:

 

 

 

 

 

Net Sales

for the Interim Period Ended

   

Accounts receivable

At

 
Customer September 30, 2012     September 30,2011     September 30, 2012     December 31, 2011  
                               
                               

A

 

  - %     - %     28.2 %     - %
                               
B.     %     - %     31.3 %     - %
                               
C   58.0 %       %     - %     28.3 %
                               
D   42.0 %       %     - %     71.7 %
                               
E     %       %     40.5 %     - %
                               
F     %     33.59 %       %     - %
                               
G     %     23.24 %       %     - %
                               
H     %     21.59 %       %     - %
                               
I     %     20.11 %       %     - %
                               
                           
    100.0 %     98.55 %     100.0 %     100.0 %
             

 

A reduction in sales from or loss of such customers would have a material adverse effect on the Company’s results of operations and financial condition. The significant slow down of net sales due to the company reduced selling in China, also plans to build new factory and sell the products in US.

 

Vendor Concentrations

 

Vendor purchase concentrations for the interim period ended September 30, 2012 and 2011 and accounts payable concentration at September 30, 2012 and December 31, 2011 are as follows:

 

Net Purchase

for the Interim Period Ended

   

Accounts Payable

at

 
  September 30, 2012     September 30,2011     September 30, 2012    

December 31,

2011

 
                               
A     %     3.22 %     100.0 %     10.5 %
                               
B   8.8 %     81.42 %       %     7.4 %
                               
C   33.9 %       %     - %     - %
                               
D   - %     12.43 %     - %     - %
                               
E   0.6 %                        
                               
F   1.4  %                        
                               
G (Significant Business Party)   55.1 %             - %     82.1 %
                               
H                                      2.79 %                
                               
I     %     0.14 %     - %       %

 

 

                             
                    %      
    100.0 %     100.0 %     100.0 %     100.0 %
             

 

 

Significant Business Party

 

The Company purchases the raw material and sells finished products from a significant business party (“Significant Business Party”). A reduction in sales from or loss of the Significant Business Party would have a material adverse effect on the Company’s results of operations and financial condition.

 

Credit Risk

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents.

 

As of September 30, 2012, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, none of which are insured. However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

 

Foreign Currency Risk

 

The Company is exposed to fluctuations in foreign currencies for transactions denominated in currencies other than RMB, the functional currency due to the fact the majority of the Company’s purchasing activities are transacted in foreign currencies.

 

The Company had no foreign currency hedges in place for the interim period ended September 30, 2012 or 2011 to reduce such exposure.

 

Note 10 - Foreign Operations

 

Operations

 

Substantially all of the Company’s operations are carried out and all of its assets are located in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, monetary policies, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

 

Dividends and Reserves

 

Under the laws of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) cumulative prior years’ losses, if any; (ii) allocations to the “Statutory Surplus Reserve” of at least 10% of net income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital; (iii) allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “Statutory Common Welfare Fund”, which is established for the purpose of providing employee facilities and other collective benefits to employees in PRC; and (iv) allocations to any discretionary surplus reserve, if approved by stockholders.

 

As of September 30, 2012, the Company had no Statutory Surplus Reserve and the Statutory Common Welfare Fund established and segregated in retained earnings.

 

Note 11 – Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued.  The Management of the Company determined that there were no reportable subsequent events to be disclosed.

 

Item 2. Management's Discussion and Analysis Of Financial Condition And Plan Of Operation.

 

 

This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "management believes" and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. Actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

 

Investors are also advised to refer to the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.

 

Results of Operations

 

Jianye Greentech Holdings Ltd (“Jianye BVI”) was incorporated on April 17, 2008 under the laws of British Virgin Islands. Jianye BVI is a holding company that owns 100% of Hong Kong Jianye Greentech Holdings Limited (“Jianye Hong Kong”), a corporation incorporated on May 2, 2008 under the laws of Hong Kong. Jianye BVI and Jianye Hong Kong currently have no operations and operate as investment holding companies. On September 28, 2009, Jianye Hong Kong established Heilongjiang New Jianye New Clean Fuel Ltd. (“Jianye China”), a wholly owned subsidiary in China, with registered capital of US$50,000. As a result, Jianye BVI owns 100% of the equity of Jianye China through Jianye Hong Kong. Jianye China’s primary business is to distribute and manufacture ethanol and methanol as alternative fuel for automobile use.

 

Heilongjian New Jianye Clean Fuel Ltd. (“Jianye China”) commenced operations in September 2009. Jianye China’s primary business is to distribute and manufacture ethanol and methanol as alternative fuel for automobile use.

 

For the nine months ended September 30, 2012, we derived our revenues of $3,678,606 from the sales of methanol-based and ethanol based fuels to our customers, comparing to $55,191,711 for the nine months ended September 30, 2011. The Company experienced major drop in revenues due to the company reduced selling in China, also plans to build new factory and sell the products in USA.

 

Our gross profit margin during the Nine months ended September 30, 2012 was2 %, compared to 16% for the same period in 2011. This figure represents our regular gross profit margin as a marketing company and distributor. The price increase in the raw materials contributed to the increase in cost of goods sold and thus the decrease of the gross margin in 2012 in comparison with that of 2011. We expect our gross profit margin to improve once the Company’s own refinery is built and commences fuel production. The construction of factory and production facilities is expected to be complete by the end of 2012.

 

Selling, general and administrative expenses for the nine months ended September 30, 2012 were $130,024 or 4% of net sales, compared to $542,905 or 1% for the same period of the last fiscal year. Selling, general and administrative expenses consist primarily of bad debt, payroll, local taxes, investor relation expenses and professional fees.

 

Due to the factors discussed above, income from operations for the nine months ended September 30, 2012 was $-49,635, and net loss after income taxes for the same period was $-59,231, compared to $8,705,317 and $9,492,288 respectively for the same period in 2011.

 

Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments.  While our net income is added to the retained earnings on our balance sheet; the translation adjustments are added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the nine months ended September 30, 2012, the effect of converting our financial results to Dollars was to add $88,738 to our accumulated other comprehensive income. 

 

 

Liquidity and Capital Resources

 

Overview

 

As of September 30, 2012 we had working capital deficiency of $6,939,007, an increase of $8,709,829 over net working capital deficiency of $15,648,836 at December 31, 2011.

 

We finances our daily operations mainly by cash flows generated from our business operations and advance from our major shareholders. Major capital expenditures in the year of 2011 were primarily financed by cash flows generated from business operations and advance from our Chairman and CEO. As of September30, 2012 we had approximately $25,234,020 in capital expenditure that were mainly related to acquisition of land use right and the construction cost of an ethanol and methanol manufacturing facility located in Liaoning Province, P.R China.  

 

Cash

 

Our cash as of September 30, 2012 was $41,479, an increase of $23,212 from $18,266 as of December 31, 2011.   The increase in the interim period ended September 30, 2012 was primarily attributable to a number of factors, including the following:

 

  • Net cash provided by operating activities

 

Net cash provided by operating activities was $1,532,384 for the nine months ended September 30, 2012, representing an decrease of $998,433 or 187% from $(533,951) for the comparable period in 2011.  The net loss for the nine months ended September 30, 2012 in the amount of $59,231 represented a decrease of $6,495,848 or 99% from $6,436,617 for the comparable period in 2011.  In addition to net loss, there are non-cash charges of depreciation in the amount of $392 that increased the net income but did not have the effect of reducing the balance of cash and cash equivalents. The net increase of operating cash flow is the also a result of accounts receivable decrease in the amount of $10,116,673 inventory increase in the amount of $410,357, advance on purchase decrease in the amount of $56,298, prepaid valued added and income tax and other prepayment increase in the amount of $74,163, customer deposit increase in the amount of $1,502,518, tax payable increase in the amount of $2,431,685 and accrued liabilities decrease of $1,238,287, net with an accounts payable decrease of $6,098,680.

 

  • Net cash used in investing activities

 

The Company used in investing activities was 8,851,476 during the nine months ended in September 30, 2012,representing an increase of 8,851,476 or 100% from $(0) for the comparable period in 2011.

 

  • Net cash used in financing activities

Net cash used in financing activities was $-10,360,780 for the nine months ended September 30, 2012, as compared to $-1,322,667 for the comparable period in 2011.  During the nine months ended September 30, 2012, the company paid back $10,469,627 of advances from Stockholder, Chairman and CEO and received advances from related parties in the amount of $108,764.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

Critical Accounting Policies and Estimates

 

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us 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 periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates. The most critical accounting policies are listed below:

 

Revenue Recognition

 

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed acknowledgement of receipt from the customers or a signed bill of lading from the third party trucking company and title transfers upon shipment, based on free on board (“FOB”) warehouse terms; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.

 

The Company markets and distributes ethanol and methanol based alternative fuel for automobile use and follows Section 605-45-45 (formerly EITF 99-19) (“ASC Section 605-45-45”) of the FASB Accounting Standards Codification for revenue recognition to report revenue gross as a principal for its sales since the Company (1) acts as principal in the transaction, (2) takes title to the products, (3) has risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns, and (4) does not act as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis on its sales. The management of the Company determined that the Company should report revenue based on the gross amount billed to a customer when considering each of the following eight (8) indicators of gross revenue reporting listed in ASC Paragraph 605-45-45-4 through 605-45-45-14 as specified (1) The entity is the primary obligor in the arrangement — The Company signs a product sales agreement with its customer and represents in writing that the Company is responsible for fulfillment, including the acceptability of the product(s) or service(s) ordered or purchased by the customer; (2) The entity has general inventory risk (before customer order is placed or upon customer return); (3) The entity has latitude in establishing price — The Company has reasonable latitude, within economic constraints, to establish the exchange price with a customer for the product or service; (4) The entity changes the product or performs part of the service — The Company developed a method for blending the raw materials in its manufacturing process, through its proprietary technology, catalysts can be mixed with fuel and alcohols to become a finished product to be sold after pumping and piping; (5) The entity has discretion in supplier selection — The Company has multiple suppliers for the products ordered by a customer and discretion to select the supplier that will provide the product(s) or service(s) ordered by a customer; (6) The entity is involved in the determination of product or service specifications — The Company determines the nature, type, characteristics, or specifications of the product(s) or service(s) ordered by the customer; (7) The entity has physical loss inventory risk of purchased inventories after customer order; and (8) The entity has credit risk — The Company is responsible for collecting the sales price from its customer but must pay the amount owed to its supplier after the supplier performs, regardless of whether the sales price is fully collected.

 

Foreign Currency Translation

 

The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity.

 

The functional currency of the Company is Chinese Yuan Renminbi (“RMB”).The current exchange rates used by the Company as of September 30, 2012 and December 31, 2011 to translate the Chinese RMB to the U.S. Dollars are 6.3265:1 and 6.3585:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at 6.3180:1, and 6.4972:1 for the nine months ended September 30, 2012 and 2011, respectively. Translation adjustments are included in other comprehensive income (loss).

 

Impact of Accounting Pronouncements

 

There were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required for smaller reporting companies.

 

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.

 

In light of the material weaknesses described below, we performed additional analysis to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that, as of September 30, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level:

 

1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ending September 30, 2012. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

Management's Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

·            Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

 

·                     Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and

 

·                     Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of the end of our most recent quarter, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of September 30, 2012, such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets. The aforementioned material weaknesses were identified by our Chief Financial Officer in connection with the review of our financial statements as of September 30, 2012.

 

Management believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.

 

Management's Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

We intend to our personnel resources and technical accounting expertise within the accounting function. First, we intend to create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we intend to create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. We anticipate the costs of implementing these remediation initiatives will be approximately $37,500 to $50,000 a year in increased salaries, legal and accounting expenses.

 

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

 

 
 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

To the best knowledge of the officers and directors, the Company was not a party to any legal proceeding or litigation as of September 30, 2012.

 

 

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.

 

Exhibit   Description of Exhibit 
31.1   Chief Executive Officer Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Chief Financial Officer Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
     
32.2   Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
     
101   The following materials from American Jianye Greentech Holdings, Ltd.’s Quarterly Report on Form 10-Q for the period ended September 30, 2012 are formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheet; (ii) the Condensed Consolidated Statement of Operations;, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements. This Exhibit 101 is deemed not filed for purposes of Sections 11 or 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections

 

 
 

 

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.

 

AMERICAN JIANYE GREENTECH HOLDINGS, LTD.
 
By: /s/ Haipeng Wang
Name: Haipeng Wang
Title: President
Date: September 30, 2012
(Principal Executive Officer)

 

By: /s/ Yulin Yang
Name:  Yulin Yang
Title: Chief Financial Officer
Date: September 30, 2012
(Principal Accounting Officer)