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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
FORM 10-K

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

For the fiscal year ended March 31, 2012

or

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

For the transition period from _____________to ______________

Commission file number   000-53379

GREEN DRAGON WOOD PRODUCTS, INC.
(Exact name of registrant as specified in its charter)

Florida
26-1133266
State or other jurisdiction of
Incorporation or organization
(I.R.S. Employer
Identification No.)


Unit 312, 3rd Floor, New East Ocean Centre
9 Science Museum Road
Kowloon, Hong Kong
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:  011   - (852) 2482-5168
 
Securities registered pursuant to Section 12(b) of the Act: None.
 
Securities registered pursuant to section 12(g) of the Act:

Common Stock, par value $0.001 per share.
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o   Yes           x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o   Yes           x No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
o   Yes           x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o   Yes           x No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

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

  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o   Yes           x   No
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (50,000 shares) as of September 30, 2011 was $0, since our securities did not trade during the fiscal year ended March 31, 2012 and we have not recently sold any securities in a private transaction.
 
As of December 10, 2012, there are presently 200,000 shares of common stock, par value $0.001 issued and outstanding.

 


 

   
Page
     
PART I
   
     
3
8
15
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15
     
PART II
   
     
16
17
17
22
22
23
23
24
     
PART III
 
     
25
28
29
30
31
32
     
33

 
 

 
FORWARD LOOKING STATEMENTS

In this annual report, references to “Green Dragon,” “GDWP,” “the Company,” “we,” “our,” “us,” and the Company’s wholly-owned subsidiaries, Green Dragon Industrial Inc. (“GDI”) and Green Dragon Wood Products Company Limited (“GDWPCL”), refer to Green Dragon Wood Products, Inc.

This Annual Report on Form 10-K contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
PART I

Business.

Corporate History

The Company was incorporated under the laws of the State of Florida on September 26, 2007.

On September 26, 2007, GDWP entered into a share exchange transaction with the equity owners of Green Dragon Industrial Inc. (“GDI”) (formerly Fit Sum Group Limited). Pursuant to the share exchange transaction, GDI’s equity owners transferred 100% of the equity interest in GDI in exchange for 200,000 shares of common stock of the Company. Upon completion of the share exchange, GDI became a wholly-owned subsidiary of the Company, and GDWPCL, through GDI, became an indirect wholly-owned operating subsidiary of the Company.

GDWPCL was incorporated as a limited liability company in Hong Kong Special Administrative Region of the People’s Republic of China (“the PRC” or “China”) on March 14, 2000. The principal activity of GDWPCL is trading of wood logs, wood lumber, wood veneers and other wood products in Hong Kong.

 GDI was incorporated as a limited liability company in the British Virgin Islands (“BVI”) on May 30, 2007, for the purpose of holding 100% equity interest in Green Dragon Wood Products Company Limited (“GDWPCL”). On May 30, 2007, GDI entered into an exchange agreement with the equity owners of GDWPCL, whereby GDI transferred 37,500 shares of its common stock to the shareholders of GDWPCL in exchange for 5,000,000 ordinary shares of GDWPCL. Upon the completion of the share exchange, GDWPCL became a wholly-owned subsidiary of GDI.
 
 
 The following diagram sets forth the current corporate structure of Green Dragon:
 
The Company, through its subsidiaries, mainly engages in the re-sale and trading of wood logs, wood lumber, wood veneer and other wood products in Hong Kong.

Neither Green Dragon nor GDI has any operations or plans to have any operations in the future other than acting as a holding company and management company for GDWPCL and raising capital for its operations. However, we reserve the right to change our operating plans regarding Green Dragon and GDI.

Our Business

Overview

Since inception, the Company has engaged in the import/export of various species of wood logs and veneers from the United States, West Africa, Southern China and Europe.  As a natural resource, wood is available in many species.  We spend time researching the various species that will best fit the needs of our customers and the availability of the raw wood.  Different woods have different geographical, seasonal, and cutting season variables.  The decisions we make regarding these three differences are crucial to our business.

Approximately 90% of our business is comprised of trading raw material such as logs, lumber and veneer.  We also trade semi-finished products, such as fancy plywood, to our customers.  Green Dragon collects information from its customers and their demands for wood and veneers.  Our buyer then determines the best source to obtain the wood.  Since wood has historically been susceptible to trends that may last up to a decade, it is necessary for us to keep abreast of the current market trends in the demand for wood.  As a result of the ever changing trend in demand for wood, negotiation of prices and the terms of trade must be completed prior to the execution of any purchase.
  
The raw wood materials we import/export are used in furniture, molding, flooring, furnishings, doors, and musical instruments.  Green Dragon uses third party manufacturers to produce final products to be shipped to our customers.  We trade our products primarily to importers or distributors and do not manufacture any of our semi-finished products.  All finished product is manufactured by outside manufacturers.
 
Principal Products

We import wood logs and veneer from various countries and regions, including the United States, West Africa, Europe, and South China.  These imports are used in wood products such as furniture, flooring, wooden doors and musical instruments.  Currently we export approximately 73.85% of our products to two (2) wood distributors in Southern China, with the remaining 26.15% exported to approximately 30 customers located throughout the world, including India, Italy, and the United Arab Emirates.  
 

Approximately 55% of the wood products we trade are various species of logs, 35% are veneer, 5% are lumber, and 5% are fancy plywood.
 
The sale of our logs, lumber and plywood represents approximately 65% of our total sales due to the higher profit margins. The remaining 35% of our sales are in our veneer product line.  Although we import veneer from all parts of the world to China, they are primarily derived from African and European species of wood.  We also export veneer produced in China to various regions including Europe, the Middle East, South Korea, and India.

When we import our wood logs and veneers, we are always the principal in the transaction.  Prior to importing our wood logs and veneers, we receive a purchase order from our client.  We are occasionally required by suppliers to put up deposit or advance payment for some of the purchase of highly demanded species of logs. Most of our export sales are by Letter of Credit terms and Telegraphic Transfer basis from our clients.

Due to the special relationships that have been built by our President, Mr. Kwok Leung Lee, a client may, under special circumstances, be granted different terms.  This is the exception to our policy.

When the product is ready for shipping and payment has been made and arrangements have been made for shipping, title and responsibility for the product transfer to the client.  The client may insure his shipment with the carrier or not.  Green Dragon will take the responsibility if the quality or shortage of volume become an issue, we will also take the claim to our suppliers.
 
Distribution of our Products

The primary delivery of our wood products is through our office location in Hong Kong. Shipping and delivery of our products to locations within geographical driving distance are shipped via truck.  Products that are shipped internationally are shipped via maritime vessels.
 
Competition

In order to compete effectively in the wood products industry, a company must understand and respond to the needs of its customers. Many of our competitors have greater financial resources than we have, enabling them to finance and purchase in a quick fashion and in greater volume to meet their needs to address rising demands and to reap unexpected business opportunity and economic benefits. In addition, many of these companies can offer additional products and services not provided by us such as open credit terms to their customers, and more variety of wood species . Our competitors may have the luxury of sacrificing profitability in order to capture a greater portion of the market. They may also be in a position to accept lower fees than we would for the same customer. Consequently, we may encounter significant competition in our efforts to achieve our internal and external growth objectives.
 
With our limited financial capacity, we are not able to offer a great variety of species of wood products or services such as open credit and    warehouse facilities to make us stand above our competition, however we have chosen to refine and enhance the availability of the number of types of wood logs and veneers that fall within our capability to import/export.   We are currently in the process of developing a unique website portal to facilitate the veneer trading business by building a platform for finding the right product in the right place within a short time.    The portal will at the same time enable suppliers to reach all potential customers effectively to sell to the right customer for a better price.   We are currently in the research and development stage of the development of this portal and do not believe we will be able to commercialize the portal during the fiscal year ended March 31, 2013.
 
Our primary competitors in China include the following:

Donggyuang Loyalwoods International Co. Ltd.   Based in Dongguan, Guangdong Province, this veneer trading company maintains its own warehouse and outlets to sell the veneer. The veneer sold by Loyalwoods is predominately derived from North American species of timber.

Danzer Group.  Danzer Group is an international wood processing company with factories, warehouses and sales outlets around the world.  Due to the size of its organization however, Danzer Group bears substantially higher operation costs than Green Dragon and is less flexible and adaptive to market changes.

Shanghai Zhanze Industry Group Co., Ltd.    Based in Shanghai, this company trades a wide range of species of veneer and maintains a warehouse and outlet in Shanghai, which is an important market for veneer in China.  However, unlike Green Dragon, Shanghai Zhanzhi Industry Group Co., Ltd. only trades veneer products and not logs or lumber.  The scope of its operations is further limited by its lack of an English speaking staff.
 

Sources and Availability of Raw Materials

While there are many suppliers of wood and veneer, weather conditions can play a major role in availability.  In times of heavy rain we find that there is limited availability. However, we try to import higher volume and encourage our customers to purchase more wood product in times of good weather.   At this time we do not see a critical dependence on any supplier(s) that could adversely affect our operations.  Over the years we have developed good relationships with mutual trust among many of our customers and suppliers.  

Since we are dealing with mostly a primary source of wood in log form in the forest, the supply of such raw material can be adversely affected by seasonal change such as winter, summer, dry and rainy season, as well as by government change of regulation such as ban on log exports. However, we are trying to tackle these risks exposures by engaging only sustainable forest sources. In addition,  we have recently successfully received approval for the FSC COC certificate from the worldwide environment protection agency, Forest Stewardship Council, which means we are obligated to provide certified environmental friendly and sustainable forest products to our clients, and as such our sustainable sourcing helps to curb global warming.
 
Customers

Presently we rely on two major customers in Southern China.   While currently approximately 75% of our business is generated from these two distributors, these relationships are long-term and have become mutually beneficial.  One party without the other is harmful to not only Green Dragon but the distributor. We believe that in the future we will not have to rely on any one or a limited number of customers for our business. We expect to increase our customer base as we continue to grow our business. Our target markets are not limited geographically so we have been able to expand our client base and steadily increase our revenues.  
  
To assist our expansion efforts, we also plan to participate in more sales exhibitions and higher more experienced sales and marketing personnel.

For the years ended March 31, 2012 and 2011, our principal customer, which accounted for 57% and 56% of our revenue, respectively, was Rong Ze Wood Company.  Our other major customer, Bo Tao Mu Ye Company, accounted for approximately 18% and 17% of our revenue for the years ended March 31, 2012 and 2011, respectively.

Suppliers

We work with more than 50 different suppliers throughout the world.  We maintain a strong relationship with our suppliers and their trust and willingness to work with us has given us a competitive edge over other companies in our industry trading companies.

For the years ended March 31, 2012 and 2011, our principal supplier, which accounted for 25% and 20% of our purchases, respectively, was Bo Tao Mu Ye Company.  
 
Research and Development

During the last two fiscal years no money was spent directly on research and development. We have, however, spent minimal monies on travel expenses for our President to inspect wood from different suppliers and approximately $300 (HK$ 2,300) for IT technology maintenance.

Intellectual Property

We own the domain name www.greendragonglobal.com.  We do not own any patents, trademarks, licenses (other than the usual business license in Hong Kong), franchises, concessions, royalty agreements or labor contracts. In the future, our success may depend in part upon our ability to preserve our trade secrets, obtain and maintain patent protection for our technologies, products and processes, and operate without infringing upon the proprietary rights of other parties. However, we may rely on certain proprietary technologies, trade secrets, and know-how that are not patentable. Although we may take action to protect our unpatented trade secrets and our proprietary information, in part, by the use of confidentiality agreements with our employees, consultants and certain of our contractors, we cannot guaranty that:

(a)   these agreements will not be breached;
(b)   we would have adequate remedies for any breach; or
(c)   our proprietary trade secrets and know-how will not otherwise become known or be independently developed or discovered by competitors.

We cannot guarantee that our actions will be sufficient to prevent imitation or duplication of our products and services by others.
 

Government Approval of Principal Products or Services

None of the wood products we import/export require specific governmental approval.  The current regulations in Hong Kong and the People’s Republic of China do not place a burden on the company.  Permits may be obtained from our suppliers as needed

Government Regulation

The import/export of our wood logs to and from the United States are subject to a number of U.S. laws, including the National Environmental Policy Act (NEPA) and the National Forest Management Act (NFMA). We are most impacted by NFMA.  This act dictates that the forest service can sell timber on national forest land to private entities only under the following conditions:
  
  
They can sell timber at no less than its appraised value;
  
They must advertise all sales unless extraordinary conditions exist or the appraised value is less than $10,000;
  
They must provide a prospectus with detailed information to prospective buyers;
  
They must ensure open and fair competition in the bidding process and eliminate collusive bidding practices; and
  
They must promote orderly harvesting (usually requiring harvesting within a 3-5 year period).

Our U.S. suppliers must comply with NFMA before any of their logs or lumber can be exported out of the United States.

Logs that are transported to Congo are subject to the appropriate tax and valid documentation must be presented.  The Congo Forestry Law requires that the quota for processing is 85% local and only 15% exported.  Additionally, all Congo exporters, including GDWP’s suppliers, must be registered with SGS Group, a quality control company, for inspection services.

The International Tropical Timber Agreement of 1994, signed by 58 countries, specifically governs the exportation of logs, sawn wood, veneer sheets and plywood.  The primary objectives of this Agreement were to provide a forum for consultation, international cooperation and policy development with regard to all relevant aspects of the world timber economy and to contribute to the process of sustainable development.
 
 The International Tropical Timber Agreement of 1994 currently does not affect our importation of wood logs and veneers.  Government regulation may change in the future and could place a burden on Green Dragon to conform to more paperwork with various government agencies in various countries.   Should there be a change in government regulations, we will endeavor to remain in compliance at all times.  

Environmental Regulation

As an import/export company we are not directly subject to any federal, state or local environmental laws and regulations.   The companies that ship us the wood and veneer that we ship to our customers do have a duty to comply with any environmental impact rules and regulations pertaining to the wood products that we import/export.
 
Employees

As of March 31, 2012, we have 5 regular paid full-time employees.   We currently have no key employees, other than Mr. Lee, our President and Chairman of the Board, and Ms. Law, a Director. Our employees are paid regular salaries for their employment with GDWPCL.   They do not receive stock benefits for their performance. There are no key consulting contracts with any individuals or companies at this time.  

 We use commissioned sales/distribution representatives to sell and distribute our wood logs.  These representatives are not employed by the Company and are not permitted to act on behalf of the Company without our express approval.  These outside sales representatives are used only for selling our wood logs.  Their commission is based on the total sale amount.  We have different payment arrangements with each representative.  Due to the nature of our business being based on mutual trust, we do not have any written agreements with our key sales representatives.

Our key outside sales representatives may be terminated at any time for any reason without prior notice.  Conversely, our outside representatives may choose not to sell our wood logs at any time any for any reason.


Executive Offices

Our executive offices are located at Unit 312, 3rd Floor, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong.  Our telephone number is (011) 852-2482-5168.
 
Risk Factors.

Risks Related To Our Business

We engage in importing/exporting wood products which involves a high degree of risk.

The wood importing/exporting industry is significantly affected by changes in economic and other conditions, such as:

  
Geographical availability;
  
Seasonal availability;
  
Cutting seasons;
  
The popularity of a wood species at any a given time; and
  
Macroeconomic cycles.

These factors can negatively affect the supply of, demand for and pricing of our wood products. We are also subject to a number of factors, many of which are beyond our control, including:

  
Delays in suppliers’ delivery of the raw materials to us;
  
Changes in governmental regulations regarding the importing and exporting of our products;
  
Increases in shipping costs; and
  
A shortage of raw wood.
 
Our dependence on a small number of key third party sales agents to distribute our products may affect our profitability.

Most of our wood sales are currently made through commission-based sales agents. Our other wood product sales are sold through our in-house sales person. The commission-based sales agents perform various tasks in the supply of our products to the customer. Our profitability might be negatively affected if our present relationships with our key sales agents or customers were disrupted or became unstable.

We may experience problems with the outside mills we use and export problems due to a lack of supply of quality logs.

We depend on the supply of logs that produce our wood products. Any interruption of the flow of wood logs from one of our main suppliers, or the lack of an adequate supply of indigenous logs, may cause a disruption of our log import business as well our exporting of veneer. Additionally, outside mills could be over- committed such that they cannnot process the wood products that we may need urgently, which may substantially affect our results of operations.

We are dependent on the furniture and construction industries; lower than expected growth or a downturn in demand for our products in those industries could adversely affect our results of operations.

The sales of our products are dependent to a significant degree on the level of activity in the furniture manufacturing and construction industries. Because of the cyclical demand for our products, we may have short or long-term overcapacity.  A decreased demand for wood products may result in an inability to maximize our resources. Furthermore, it is possible that our expected growth in demand from companies in the furniture manufacturing and construction industries may not occur. The demand for such products can be adversely affected by several factors, including decreases in the level of new residential construction activity, which is subject to changes in economic conditions; increases in interest rates; decreases in population; and other factors. Additionally, weakness in the economies of countries in which we sell our products,  as well as any downturn or continuation of current downturns in these economies, are likely to have a material adverse effect on the construction, home building, and remodeling industries, as well as on the demand for furniture items manufactured by our third party mill with our wood logs or veneers.
 

Our dependence, to a large extent, on maritime transport may affect our ability to deliver products to our offshore markets.

We are highly dependent on maritime means to transport products to our offshore markets. Space on international maritime shipping vessels is limited and difficult to secure. We have at times experienced difficulty in arranging shipping to our export markets. We may not be able to secure in the future adequate container space on ships that deliver our products to our offshore markets. We have no control over established marine shipping routes and the present routes that transport ships use may not continue to be used by maritime transport services. Increases in fuel prices may also increase our shipping costs. In addition, the products we transport may not reach our markets in marketable condition. Moreover, strict security measures regarding maritime transport may be implemented in the future and may increase the cost of shipping our products. These challenges to the maritime transport of our products to our offshore markets could cause an adverse effect on our profitability.

We may face significant competition in the markets in which we sell our products, which could adversely affect both our share of those markets as well as the price at which we sell our products.

Currently, we face strong competition from competitors in all of the countries and regions in which we operate.  In the case of our wood products, we face competition from foreign competitors in other regions of the world, such as West Africa and China. In the future we may face increased competition in other countries in which we operate from domestic or foreign competitors, some of which may have greater financial resources than we do. In addition, we may face increased competition as a result of existing competitors increasing their production capacity. An increase in competition in the wood market or other value added wood products markets could adversely affect both our share of those markets and the price at which we are able to sell our products.
 
 We depend on free international trade and the absence of import and export restrictions in our principal markets.

Our ability to compete effectively in our principal markets could be materially and adversely affected by a number of factors relating to government regulation of trade. Exchange rate manipulation, subsidies or the imposition of increased tariffs, or other trade barriers could materially affect our ability to move raw materials and/or finished products across national borders. If our ability to have our third party mill make, transport, or sell our products competitively in one or more of our principal export markets became impaired by any of these developments, it could be difficult for us to re-allocate our products to other markets on equally favorable terms.  Thus, our business, financial condition, and results of operations could be adversely affected.

Some of our key products, such as wood veneer, may be subject to price volatility, and prolonged or severe weakness in the markets for wood veneer could adversely affect our financial condition and results of operations.

Wood veneer is a globally traded commodity product and is subject to competition from manufacturers worldwide. We, like other participants in the industry, have limited influence over the timing and extent of price changes for wood veneer. Product pricing is significantly affected by the relationship between supply and demand in the primary raw material industry. Demand is also subject to fluctuations due to changes in economic conditions, interest rates, population growth, weather conditions, and other factors. We are not able to predict with certainty market conditions and selling prices for our products and prices for wood veneer may decline from current levels. A prolonged and severe weakness in the markets for wood veneer could adversely affect our financial condition and results of operations.

The majority of raw wood materials used to produce our wood products are supplied by outside mills and companies.

We procure the majority of the raw wood materials that we use in our products from unaffiliated companies in West Africa, United States, Europe and Southern China in accordance with long standing relationships between us and the suppliers. We may not be able to maintain these relationships and continue to secure the raw materials to have our contracted manufacturers produce our products. In addition, the prices we pay for raw materials may increase as a result of higher fuel costs paid by our suppliers. An inability to secure the raw materials used in the production of our wood products or to transport such materials in a cost-effective manner could have an adverse effect on our operations.
 
We may not be able to maintain present favorable tax treatment or exemptions from certain tax payments in certain jurisdictions in which we operate.

One driving force behind some of our efforts has been the goal of achieving more favorable tax treatment in certain jurisdictions in which we operate. It is possible that local governments in certain municipalities may levy higher taxes on us or our products in the future. In addition, we may not be able to maintain important exemptions from certain tax regimes in the various jurisdictions in which we operate. Unfavorable tax treatment of our company in the future or an increase in the taxes levied on us may cause an adverse effect on our results of operations.
 

Adverse climate conditions, wind storms, fires, disease, pests, and other natural threats could adversely affect forests.

Forests that produce our wood are subject to a number of naturally occurring threats such as adverse climate conditions, wind, fire, disease and other pests. Damage caused by strong windstorms, such as uprooting and stem breakage, is considered by management to be a major natural risk to the forests that produce our wood. Fire is a risk to all forests and our warehouses and operations. Accumulation of combustible raw materials and possible deficiencies in our preparation for fires could cause fire hazards and no preventative measures can provide assurance that fires will not occur. We may experience fire in the future and such a fire may materially adversely affect us. Disease and pests are another risk to forests and plantations. Disease or pests may have a material adverse effect on forests and plantations in the future. Other risks to forests that produce our wood include, but are not limited to, losses caused by earthquakes, floods, and other non-man-made catastrophic events.

Energy shortages and increased energy costs could adversely affect our business.

Any shortage of energy could cause disruptions in our manufacturers operations as well as our operations. Higher electricity costs or disruptions in the supply of electricity or natural gas could adversely affect our financial condition and results of operations.

A downturn in the Chinese economy may adversely affect us.

We sell a large part of our products in China, and accordingly, the results of our operations and financial condition are sensitive to and dependent upon the level of economic activity in China. China's recent rates of gross domestic product growth may not continue in the future, and future developments in or affecting the Chinese economy could impair our ability to proceed with our business plan or materially adversely affect our business, financial condition, or results of operations.
 
We currently rely on two customers for a majority of our revenue.

We currently rely on 2 customers for approximately 75% and 73% of our revenue for the fiscal year ended March 31, 2012 and 2011, respectively.  Any disruption in the relationships between us and these clients would adversely affect our business.  In the event of any disruption and loss of business from one or both of these clients, purchasers of our stock would be at risk to lose most or all of their investment.

GDWPCL’s failure to compete effectively may adversely affect our ability to generate revenue.

Through GDWPCL, we compete in a highly developed market with companies that have significantly greater experience and history in our industry. If we do not compete effectively, we could lose market share and experience falling prices, adversely affecting our financial results. Our competitors will expand in the key markets and implement new technologies making them more competitive. There is also the possibility that competitors will be able to offer additional products, services, lower prices, or other incentives that we cannot or will not offer or that will make our products less profitable. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.

We may not be able to effectively control and manage the growth of GDWPCL.

If GDWPCL’s business and markets grow and develop, it will be necessary for us to finance and manage expansion in an orderly fashion. An expansion would increase demands on existing management, workforce and facilities. Failure to satisfy such increased demands could interrupt or adversely affect our  operations and cause delay in delivery of our wood products, as well as administrative inefficiencies.
 
 We may require additional financing in the future and a failure to obtain such required financing will inhibit our ability to grow.

The continued growth of our business may require additional funding from time to time, which we expect to raise in private placements of our equity or debt securities with accredited investors or by offering our securities for sale pursuant to an effective registration statement on a market where our common stock is traded. The proceeds of this funding would be used for general corporate purposes of GDWPCL, which could include acquisitions, investments, repayment of debt and capital expenditures among other things. We may also use the proceeds to repurchase our capital stock or for our corporate overhead expenses. If we borrow funds we expect to be the primary obligor on any debt. Obtaining additional funding would be subject to a number of factors including market conditions, operating performance and investor sentiment, many of which are outside of our control. These factors could make the timing, amount, terms and conditions of additional funding unattractive or unavailable to us. Our management believes that we currently have sufficient funds from working capital to meet our current operating costs over the next 12 months.


The terms of any future financing may adversely affect your interest as stockholders.

If we require additional financing in the future, we may be required to incur indebtedness or issue equity securities, the terms of which may adversely affect your interests in us. For example, the issuance of additional indebtedness may be senior in right of payment to your shares upon our liquidation. In addition, indebtedness may be under terms that make the operation of our business more difficult because the lender's consent could be required before we take certain actions. Similarly the terms of any equity securities we issue may be senior in right of payment of dividends to your common stock and may contain superior rights and other rights as compared to your common stock. Further, any such issuance of equity securities may dilute your interest in us.
  
We, through our subsidiaries GDI or GDWPCL, may engage in future acquisitions that could dilute the ownership interests of our stockholders, cause us to incur debt and assume contingent liabilities.

We, through our subsidiaries GDI or GDWPCL, may review acquisition and strategic investment prospects that we believe would complement the current product offerings of GDWPCL, augment its market coverage or enhance its technical capabilities, or otherwise offer growth opportunities. From time to time we review investments in new businesses and we, through our subsidiaries, GDI or GDWPCL, expect to make investments in, and to acquire, businesses, products, or technologies in the future. We expect that when we raise funds from investors for any of these purposes we will be either the issuer or the primary obligor. In the event of any future acquisitions, we could:

  
issue equity securities which would dilute current stockholders’ percentage ownership;
  
 incur substantial debt;
  
assume contingent liabilities; or
  
expend significant cash.

 These actions could have a material adverse effect on our operating results or the price of our common stock. Moreover, even if through our subsidiaries GDI or GDWPCL, we do obtain benefits in the form of increased sales and earnings, there may be a lag between the time when the expenses associated with an acquisition are incurred and the time when we recognize such benefits. Acquisitions and investment activities also entail numerous risks, including:

  
difficulties in the assimilation of acquired operations, technologies and/or products;
  
 unanticipated costs associated with the acquisition or investment transaction;
  
the diversion of management’s attention from other business concerns;
  
adverse effects on existing business relationships with suppliers and customers;
  
risks associated with entering markets in which GDWPCL has no or limited prior experience;
  
the potential loss of key employees of acquired organizations; and
  
substantial charges for the amortization of certain purchased intangible assets, deferred stock compensation or similar items.

We cannot ensure that we will be able to successfully integrate any businesses, products, technology, or personnel that we might acquire in the future and our failure to do so could have a material adverse effect on our and/or GDWPCL’s business, operating results and financial condition.

We are responsible for the indemnification of our officers and directors.

Our Articles of Incorporation provides for the indemnification and/or exculpation of our directors, officers, employees, agents and other entities which deal with it to the maximum extent provided, and under the terms provided, by the laws and decisions of the courts of the state of Florida. Since we do not hold any indemnification insurance, these indemnification provisions could result in substantial expenditures, which we may be unable to recoup, which could adversely affect our business and financial conditions. Kwok Leung Lee, our President and Chairman of the Board, and Mei-Ling Law, our director, are key personnel with rights to indemnification under our Articles of Incorporation.

We may not have adequate internal accounting controls. While we have certain internal procedures in our budgeting, forecasting and in the management and allocation of funds, our internal controls may not be adequate.

We are constantly striving to improve our internal control over financial reporting. We expect to continue to improve our internal accounting control for budgeting, forecasting, managing and allocating our funds and to better account for them as we grow. There is no guarantee that such improvements will be adequate or successful or that such improvements will be carried out on a timely basis. If we do not have adequate internal accounting controls, we may not be able to appropriately budget, forecast and manage our funds, we may also be unable to prepare accurate accounts on a timely basis to meet our continuing financial reporting obligations and we may not be able to satisfy our obligations under U.S. securities laws.
 
 
We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, sales and marketing, and operational expertise of key personnel. Kwok Leung Lee, our President, and Mei-Ling Law, one of our directors, perform key functions in the operation of our business. There can be no assurance that Green Dragon or GDWPCL will be able to retain these officers. Although we carry key man life insurance for Mr. Lee, the loss of these officers could have a material adverse effect upon our business, financial condition, and results of operations. We must attract, recruit and retain a sizeable workforce of technically competent employees.

We are dependent upon the services of Mr. Lee for the continued growth and operation of our company because of his experience in the industry and his personal and business contacts in the PRC. Neither we nor GDWPCL have an employment agreement with Mr. Lee and do not anticipate entering into an employment agreement in the foreseeable future. Although we have no reason to believe that Mr. Lee will discontinue his services with us or GDWPCL, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our business strategy as well as our results of operations.

We  may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.

Competition for senior management and senior personnel in Hong Kong is intense, the pool of qualified candidates in the Hong Kong is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could materially and adversely affect our future growth and financial condition.  We expect to hire additional sales and plant personnel throughout fiscal year 2013 in order to accommodate our growth.

Our operating results may fluctuate as a result of factors beyond our control.

Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. These factors include:

  
the costs of wood products;
  
seasonality or effect of natural disasters on the availability of our raw materials;
  
the relative speed and success with which we can obtain and maintain customers, merchants and vendors for our products;
  
capital expenditure for equipment;
  
marketing and promotional activities and other costs;
  
changes in our pricing policies, suppliers and competitors;
  
the ability of our suppliers to provide products in a timely manner to their customers;
  
changes in operating expenses;
  
increased competition in the import/export markets; and
  
other general economic and seasonal factors.

 Risks Related To Doing Business In The PRC

Changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of such business.

Due to our significant business in Southern China, our business operations may be adversely affected by the current and future political environment in the PRC. The PRC has operated as a socialist state since the mid-1900s and is controlled by the Communist Party of China. The Chinese government exerts substantial influence and control over the manner in which we and it must conduct our business activities. The PRC has only permitted provincial and local economic autonomy and private economic activities since 1988. The government of the PRC has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy, through regulation and state ownership. Our ability to operate in the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under current leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.
 

The PRC's economy is in a transition from a planned economy to a market oriented economy subject to five-year and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions of the PRC. The PRC government has confirmed that economic development will follow the model of a market economy. Under this direction, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, there can be no assurance that this will be the case.

A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC's political, economic and social life.

A slowdown, inflation or other adverse developments in the PRC economy may harm our customers and the demand for our services and products.

A significant amount of our operations and sales are conducted or generated in the PRC. Although the PRC economy has grown significantly in recent years, we cannot assure you that this growth will continue. A slowdown in overall economic growth, an economic downturn, a recession or other adverse economic developments in the PRC could significantly reduce the demand for our products and harm our business.
 
 While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth could lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may harm our profitability. In order to control inflation in the past, the PRC government has imposed controls on bank credit, limits on loans for fixed assets and restrictions on state bank lending. Such an austere policy can lead to a slowing of economic growth. In October 2004, the People's Bank of China, the PRC's central bank, raised interest rates for the first time in nearly a decade and indicated in a statement that the measure was prompted by inflationary concerns in the Chinese economy. Repeated rises in interest rates by the central bank would likely slow economic activity in the PRC which could, in turn, materially increase our costs and also reduce demand for our products.
 
Because our principal assets are located outside of the United States and most of our directors and all of our officers reside outside of the United States, it may be difficult for you to enforce your rights based on U.S. federal securities laws against us and our officers or to enforce U.S. court judgment against us or them in Hong Kong.

Most of our directors and all of our officers reside outside of the United States. In addition, our operating company is located in Hong Kong and substantially all of our assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. Federal securities laws against us in the courts of either the U.S. or Hong Kong and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in Hong Kong courts. Further, it is unclear if extradition treaties now in effect between the United States and Hong Kong would permit effective enforcement against us or our officers and directors of criminal penalties, under the U.S. Federal securities laws or otherwise.

The relative lack of public company experience of our management team may put us at a competitive disadvantage.

Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. The individuals who now constitute our senior management have not previously had responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately responds to such increased legal, regulatory compliance and reporting requirements. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties and distract our management from attending to the growth of our business.
 

RISKS RELATED TO OUR COMMON STOCK

Our officers and directors control us through their positions and stock ownership and their interests may differ from other stockholders.

As of December 11, 2012, there were 200,000 shares of our common stock issued and outstanding. Our officers and directors beneficially own approximately 75% of our common stock. Mr. Kwok Leung Lee, our President, beneficially owns approximately 60% of our common stock. As a result, he is able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions including business combinations. Yet Mr. Lee’s interests may differ from those of other stockholders. Furthermore, ownership of 75% of our common stock by our officers and directors reduces the public float and liquidity, and may affect the market price, of our common stock as quoted on the Pink Sheets.
   
We are not likely to pay cash dividends in the foreseeable future.

We intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.
 
Investors may have difficulty liquidating their investment because our common stock is subject to the "penny stock" rules, which require delivery of a schedule explaining the penny stock market and the associated risks before any sale.

Our common stock may be subject to regulations prescribed by the SEC relating to "penny stocks." The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price (as defined in such regulations) of less than $5 per share, subject to certain exceptions. These regulations impose additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 and individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 (individually) or $300,000 (jointly with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of these securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Legal remedies, which may be available to the investor, are as follows:

  
If penny stocks are sold in violation of the investor's rights listed above, or other federal or state securities laws, the investor may be able to cancel his purchase and get his money back.
  
If the stocks are sold in a fraudulent manner, the investor may be able to sue the persons and firms that caused the fraud for damages.
  
If the investor has signed an arbitration agreement, however, s/he may have to pursue a claim through arbitration.

If the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in such securities. Accordingly, the SEC's rules may limit the number of potential purchasers of the shares of our common stock and stockholders may have difficulty selling their securities.


A large number of shares may be eligible for future sale and may depress our stock price.

We may be required, under terms of future financing arrangements, to offer a large number of common shares to the public, or to register for sale by future private investors a large number of shares sold in private sales to them.

Sales of substantial amounts of common stock, or a perception that such sales could occur, and the existence of options or warrants to purchase shares of common stock at prices that may be below the then-current market price of our common stock, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities, either of which would decrease the value of any earlier investment in our common stock.
 
Unresolved Staff Comments.

Not applicable.
 
Properties.

Our principal business location is at Unit 312, 3rd Floor, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong.  We own our furniture, computers, ancillary equipment, and office supplies.   We occupy approximately 1,296 square feet under a two-year lease, expiring in February 2013 that costs $27,216 Hong Kong dollars or approximately $3,505 USD per month.  At the present time we do not have a showroom for our customers.  

We do not own or lease any warehouse space.  In the event we have an overstock of wood logs or veneers, we rent space on a daily basis from one of our distributors.  This allows us to avoid long term contracts that are expensive for the short term needs that occur for requisite storage of our products when we are overstocked.  Because overstocking occurs on an irregular basis, management believes that the daily rental fees paid are in the best financial interests of the Company.
 
Legal Proceedings.

On February 12, 2009, a claim was filed by Chi Yim (Roger) Yip and Characters Capital Group Limited (“CCGL”) against Kwok Leung Lee, our President, and GDWPCL alleging (i) breach of contract by GDWPCL concerning the engagement of CCGL to assist GDWPCL in securing GDWPCL’s listing on the OTC Bulletin Board and (ii) defamation by Kwok Leung Lee related to the contract dispute.  Damages being sought include $31,287 in liquidated damages from GDWPCL, aggravated/exemplary damages and injunction from further defamation. The claim was filed with the High Court of the Hong Kong Special Administrative Region, Court of First Instance.
 
On April 9, 2009, Kwok Leung Lee and GDWPCL filed a Defense and Counterclaim.  GDWPCL asserted a breach of contract claim against CCGL, alleging that CCGL failed to fulfill its obligations pursuant to the CCGL agreement to effect the listing of GDWPCL through a reverse merger by the use of a company that was listed on the Pink Sheets. Kwok Leung Lee additionally asserted a breach of contract claim against Chi Yim (Roger) Yip for the Stock Purchase Agreement dated March 31, 2007, for failing to deliver a shell company, Tabatha V, Inc., that was listed on the Pink Sheets, which, pursuant to the Stock Purchase Agreement, was to be purchased by Kwok Leung Lee.  Both Kwok Leung Lee and GDWPCL also claimed damages for fraudulent misrepresentation related to the failure to deliver the Pink Sheets shell company. On May 22, 2009, Chi Yim (Roger) Yip and CCGL replied to the counterclaim.
 
On January 26, 2011, the High Court of the Hong Kong Special Administrative Region granted leave to Mr. Yip and CCGL to set the case down for a 7-day trial. The hearing occurred in October 2012 and the parties are waiting for the judgment of the court. In the opinion of Company management, the resolution of this matter will not have a material effect on the Company’s future financial statements.
  `
Other than as disclosed above, we know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.
 
Mine Safety Disclosures.
 
 Not Applicable. 
 
 
PART II
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no established public trading market for our securities and a regular trading market may not develop or, if developed, may not be sustained. We have no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in any of our securities. Our securities are currently qualified for quotation on the Pink Sheets under the symbol “GDWP”, but are unpriced and have not traded.

As of December 11, 2012, we had approximately 27 shareholders of record of our common stock, including the shares held in street name by brokerage firms.(there is no change please put back the old figures)

 Penny Stock Regulations

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share. Our common stock, falls within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).
    
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.

Dividends

Cash dividends have not been paid during the fiscal years ended March 31, 2012 and 2011. In the near future, we intend to retain any earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of cash dividends by us are subject to the discretion of our board of directors. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant at the time by the board of directors. We are not currently subject to any contractual arrangements that restrict our ability to pay cash dividends.

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the fiscal year ended March 31, 2012.

Equity Compensation Plan Information
 
As of the date of this report, we do not have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.

Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers

None. 
 

 
Selected Financial Data.

Not applicable.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K (“Report”) contains forward-looking statements. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.
 
The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

the effect of political, economic, and market conditions and geopolitical events;
legislative and regulatory changes that affect our business;
the availability of funds and working capital;
the actions and initiatives of current and potential competitors;
investor sentiment; and
our reputation.
 
We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report except to the extent as required by law.
 
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Report.

Except as otherwise indicated by the context, references in this Report to “we,” “us,” “our,” “the Registrant”, “our Company,” or “the Company” are to Green Dragon Wood Products, Inc., a Florida corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “BVI” are to British Virgin Islands; (ii) “PRC” and “China” are to the People’s Republic of China; (iii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iv) “RMB” are to Yuan Renminbi of China; (v) “Securities Act” are to the Securities Act of 1933, as amended; and (vi) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
 
Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
 
 We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our condensed consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
  
  
 Revenue recognition
 
In accordance with ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

Revenue from re-sale and trading of wood logs, wood lumber, wood veneer and other wood products is recognized upon shipment to the customer when title and risk of loss are transferred and there are no continuing obligations to the customer. Title and the risks and rewards of ownership transfer to the customer at varying points, which is determined based on shipping terms. Revenue is recorded net of sales discounts, returns, allowances, customer rebates and other adjustments that are based upon management’s best estimates and historical experience and are provided for in the same period as the related revenues are recorded. Based on historical experience, management estimates that sales returns are immaterial and has not made allowance for estimated sales returns.

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
 
Results of Operations

For the Year Ended March 31, 2012 as Compared to the Year Ended March 31, 2011

The following table summarizes the results of our operations during the years ended March 31, 2012 and 2011, and provides information regarding the dollar and percentage increase or (decrease) from the year ended March 31, 2012 to the year ended March 31, 2011.

                         
   
Year Ended March 31,
   
Increase /
   
% increase /
 
   
2012
   
2011
   
(Decrease)
   
(decrease)
 
Revenue
 
$
16,717,288
   
 $
20,286,870
     
(3,569,582)
     
(18)
%
Cost of Revenue
   
15,155,580
     
18,675,790
     
(3,520,210)
     
(19)
%
Gross Profit
   
1,561,708
     
1,611,080
     
(49,372)
     
(3)
%
General and Administrative Expenses
   
1,036,770
     
1,170,999
     
(134,229)
     
(11)
%
Total Operating Expenses
   
1,036,770
     
1,170,999
     
(134,229)
     
(11)
%
Income from Operations
   
524,938
     
440,081
     
84,857
     
19
%
Other Income / (Expense)
   
(374,592)
     
(39,788)
     
334,804
     
841
%
Income before Income Tax
   
150,346
     
400,293
     
(249,947)
     
(62)
%
Income Tax Expense
   
(38,330)
     
(68,214)
     
(29,884)
     
(44)
%
Net Income
   
112,016
     
332,079
     
(220,063)
     
(66)
 %

Revenue

Revenue for the fiscal year ended March 31, 2012 was $16,717,288, a decrease of $3,569,582 or 18% from $20,286,870 for the comparable period in 2011. This decrease was primarily attributable to the global market decrease in demand for the Company's products.

Cost of revenue and gross profit

Cost of revenue for the fiscal year ended March 31, 2012 was $15,155,580, a decrease of $3,520,210 or 19% from $18,675,790 for the comparable period in 2011. This decrease was primarily attributable to the decrease in sales for the Company's product.

Gross profit for the fiscal year ended March 31, 2012 was $1,561,708, a decrease of $49,372 or 3% from $1,611,080 for the comparable period in 2011. This decrease was primarily attributable to the decrease in sales for the Company's product.  The gross profit margin for the fiscal year ended March 31, 2012 increased to 9% from 8% for the comparable period in 2011. The increase was primarily attributable to the decrease on cost of revenues set forth above.
 

General and Administrative

General and administrative expenses for the fiscal year ended March 31, 2012 was $1,036,770, a decrease of $134,229 or 11% from $1,170,999 for the comparable period in 2011. This decrease was primarily attributable to decrease in professional fees, bad debts and cost control measures implemented by the Company.

Income before income tax and income tax expense
 
Income before income tax for the year ended March 31, 2012 was $150,346, a decrease of $249,947 or 62%compared to a profit of $400,293 for the comparable year in 2011. The decrease was attributable to assessable profit decrease. For the year ended March 31, 2012, the provision for income taxes was $38,330, a decrease of $29,884or 44% compared to $68,214for the comparable year in 2011.

Net income

Net income for the fiscal year ended March 31, 2012 was $112,016, a decrease of $220,063 or 66% from $332,079 for the comparable period in 2011. This decrease was primarily attributable to the decrease in sales for the Company's products.
 
Liquidity and Capital Resources
 
Cash and Cash Equivalents

Our cash and cash equivalents as at the beginning of the fiscal year ended March 31, 2012 was $289,076 and decreased to $60,302 by the end of the period, a decrease of $228,774 or 79%. The decrease was mainly due $769,558 purchase of life insurance in investing activity offset by the $283,022 net cash provided by operating activities and $252,025 net cash provided by financing activities .  Our cash and cash equivalents as at the beginning of the fiscal year ended March 31, 2011 was $100,512 and increased to $289,076 by the end of the year, an increase of $188,564 or 188%. The increase was mainly due to an increase of $1,450,704 in cash flows from financing activities offset by $934,494 net cash used in operating activities and $327,014 net cash used in investing activities.

Net cash used in operating activities

Net cash outflow from operating activities was $283,022 for the fiscal year ended March 31, 2012, an increase of $1,217,516 or 130% from cash outflow of $934,494 for the comparable period in 2011. This increase was primarily attributable to a decrease of accounts receivable and an increase of accrued liabilities and other payables.
 
Net cash used in investing activities

Net cash used in investing activities was $769,558 for the fiscal year ended March 31, 2012, an increase of $442,544 or 135% from $327,014 for the comparable period in 2011. This increase was primarily attributable to the purchase of life insurance for our CEO.
 
Net cash provided by financing activities

Net cash provided by financing activities was $252,025 for the year ended March 31, 2012, compared to a net cash outflow of $1,450,704 for the year ended March 31, 2011, a decrease of $1,198,679 or 83%. The net cash inflow from financing activities primarily attributed by the net payments from revolving lines of credit of $419,524 for the year ended March 31, 2012 as compared to a net proceeds on revolving lines of credit of $1,683,752 for the year ended March 31, 2011.

Non-cash transaction

In March 2010, the Company entered into a tri-parties settlement arrangement among two major customers, Customer A and Party B. Under such arrangement, Customer A agreed to transfer its accounts receivable balance to Party B and Party B agreed to receive such accounts receivable balance from Customer A, on behalf of the Company, to offset against its trade payable due to the Company.
 

Pursuant to the terms of Tri-parties Settlement Arrangement among Customer A, Party B and us,

1.  
Customer A agrees to make the cash payment directly to the designated bank accounts of Party B, per our monthly instruction, and
2.  
We and Party B agree to offset the cash proceeds against the accounts payable which we owe to Party B.
3.  
In any event if Party B is not reimbursed by Customer A, we are responsible to chase Customer A for the settlement under the legal obligation among the sales contracts. Meanwhile, we are legally liable to repay the accounts payable to Party B under the purchase contract.

Under this arrangement, we can assure the collection from Customer A to meet with the purchase payable due to Party B on a timely basis. We also can reduce the time and costs to handle the fund remittance among Customer A, Party B and ourselves. As we continue to make the purchase orders to Party B, the accounts receivable originally due from Customer A will be gradually eliminated and offset by our future accounts payable due to Party B.
 
 We have developed a prolonged business relationship with Party “B” in the sale and purchase of wood veneer and the related products with a history of 10 years. In the normal course of business, Party B is acting as a “customer” or a “vendor”, who generally sells and buys different types of wood products to and from us in an arm-length basis. These sale and purchases transactions are independent.

We expect to sustain and continue this prolonged business relationship with Party B, because:

Party B has a long-term commercial history and experience in sale and procurement of wood products in China.
Party B has developed an extensive marketing and sourcing network in China.
We have built up a prolonging trust and confidence in doing businesses with each other.

We believe that there is no collectability concern with regard to the accounts receivable balance due from Party B, which will be recoverable by our future purchase orders.

As of March 31, 2012 and 2011, the accounts receivable balance transferred from Customer A to Party B was $808,473 and $ $8,469,215, respectively. The accounts receivable balances of Customer A and Party B under the tri-parties settlement arrangement is presented as follows:

   
As of March 31, 2012
 
   
Customer A
   
Party B
 
             
Accounts receivable
 
$
1,424,232
   
$
3,612,173
 
Accounts payable
   
-
     
-
 
     
1,424,232
     
3,612,173
 
Add (less): Transfer of accounts receivable from Customer A to Party B
   
(808,473
)
   
808,473
 
                 
Accounts receivable
 
$
615,759
   
$
4,420,646
 
   
As of March 31, 2011
 
   
Customer A
   
Party B
 
             
Accounts receivable
 
$
9,488,528
   
$
2,820,304
 
Accounts payable
   
-
     
(6,400,919
)
     
9,488,528
     
(3,580,615
)
Add (less): Transfer of accounts receivable from Customer A to Party B
   
(8,469,215
)
   
8,469,215
 
                 
Accounts receivable
 
$
1,019,313
   
$
4,888,600
 
 

As of March 31, 2012 and 2011, the aging analysis of Party B is as follow:

   
As of March 31,
 
   
2012
   
2011
 
             
0 – 90 days
 
$
3,092,762
   
$
1,302,674
 
91 – 180 days
   
673,885
     
1,756,474
 
181 – 270 days
   
346,734
     
1,343,477
 
271 – 360 days
   
29,291
     
485,975
 
Over 360 days
   
277,974
     
-
 
Total
 
$
4,420,646
   
$
4,888,600
 
 
We have also received cash settlement of approximately $980,299 and recognized purchases of approximately $2,032,878 due to Party B during the subsequent period from April through October 2012.

Trends
 
We are not aware of any trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.
 
Inflation
 
We believe that inflation has not had a material or significant impact on our revenue or our results of operations.

Working Capital
 
Our working capital was $2,433,072 as of March 31, 2012.
 
We currently generate our cash flow through our operations. We believe that our cash flow generated from operations will be sufficient to sustain operations for at least the next 12 months. There is no identifiable expansion plan as of March 31, 2012, but from time to time, we may identify new expansion opportunities for which there will be a need for the use of cash.

Capital Resources

As of March 31, 2012, the Company has a revolving line of credit with Shanghai Commercial Bank with an outstanding balance of $381,179, a revolving line of credit with the Hongkong and Shanghai Banking Corporation Limited with an outstanding balance of $1,897,665, and a trade financing payable to Tai Wah Timber Factory Limited in an aggregate amount of $1,102,699. If we are to acquire another business or further expand our operations, we will need additional capital.

Bank Credit Facilities

The credit facility with Shanghai Commercial Bank Limited provides the available limit of $837,005, which bears interest at a rate of 0.25% per annum over Hong Kong prime for HK dollars facilities and at a rate of 0.25% per annum over US prime for US dollars facilities and is personally guaranteed by Mr. Lee, the director of the Company. The Company also is required to maintain a minimum cash deposit not less than $264,500 that is considered restricted as compensating balances to the extent the Company borrows against this line of credit. In addition, the Company is subject to the settlement of accounts due and payable to the restricted vendors under the line of credit at the bank’s discretion. The line will be extended or renewed on a regular basis at the option of the bank. Weighted average interest rate approximates 5.25% and 5.25% per annum for the years ended March 31, 2012 and 2011, payable monthly.

The credit facility with the Hongkong and Shanghai Banking Corporation Limited provides the available limit of $1,931,550, which bears interest at a rate of 3% per annum over Hong Kong Interbank Offered Rate (“HIBOR”) for HK dollars facilities and at a rate of 3% per annum over London Interbank Offered Rate (“LIBOR”) for foreign currency facilities and is personally guaranteed by Mr. Lee, the director of the Company. The facility is secured by the cash value of the life insurance policy of the key executive and guaranteed by the Government of HKSAR. The Company also is required to maintain a minimum cash deposit of approximately $400,000 or its equivalent in other foreign currencies  and to pledge the marketable securities (see note 3) as collateral. In the event the value of the foreign currency deposit and marketable securities fall below the respective required amount, additional security will be required. In addition, the Company is subject to the settlement of accounts due and payable to the restricted vendors under the line of credit at the bank’s discretion. The line will be extended or renewed on a regular basis at the option of the bank. Weighted average interest rate approximates 3.26% per annum for the year ended March 31, 2012, payable monthly.
 
 
The Company also received an installment loan of $772,620 from the Hongkong Shanghai Banking Corporation Limited for the working capital purpose. The loan bears interest at a rate of 2% per annum over 1 month HIBOR with 60 monthly installments of $12,877 each and will mature on March 14, 2015. The installment loan is personally guaranteed by Mr. Lee, the director of the Company and guaranteed by the Government of HKSAR. As of March 31, 2012, the outstanding long-term bank borrowings was $463,572

The Company also received an installment loan of $118,468 from Shanghai Commercial Bank . The loan bears interest at a rate of 5% over the Hong Kong Prime Rate with 12 monthly installments of principal and interest and will mature on January 31, 2013. This loan is guaranteed by the Company’s director, Mr. Lee. As of March 31, 2012, the outstanding short-term bank borrowings was $98,861.

As of March 31, 2012 and 2011, Mr. Lee, our President and Chairman, had advanced a total of $382,437 and $150,212, respectively to the Company as temporary advance.. The amount owed bears no interest and has no fixed repayment term.

Financing Arrangement

The Company has a financing arrangement with Tai Wah Timber Factory Limited which provides the borrowings for trade payable financing. Under the terms of this arrangement, the Company received the revolving line of credit with the maturities of 2 to 3 months and charged with a commission fee of 5% on each amount drawn from the line, payable monthly. An additional interest will be charged on overdue balance, if any.

As of March 31, 2012 and 2011, the outstanding balance was $0 and $747 along with accrued interest and accrued commission charge in the amount of $141,628 and $35,123, respectively.

While the capital resources of the Company are stable from a cash perspective, the credit of the Company for debt financing if necessary is extremely strong due to our strong banking relations and the credit facilities provided for our veneer products.  From time to time we do have a need to exercise our credit options on a short term basis due to the nature of our business as importers/exporters. The company has established lines of credit with banks and management maintains very strong relations with these banks.  Management believes that its current lines of credit are more than sufficient to cover any short and long term liquidity needs.  Our historical financial liquidity needs have been shown to be more than adequately covered by our credit facilities.  We believe that the strength of our management team to maintain strict internal control of its cash flow and liquidity that the current credit facilities are adequate for our needs.
 
Our accounts receivable represent approximately 34% of our revenue.  Our accounts receivable are not considered by management to be high due to the nature of payment for our products.  Our clients are required to provide credit facilities for their product by a Letter of Credit or other negotiable method of payment for the amount owed.  We draw off of the Letter of Credit prior to delivery only in the event that it is needed to maintain sufficient cash flow to cover our operations.  We do pay the cost of drawing on any Letter of Credit.  Because our cash flow is typically sufficient to cover our operations we do not carry accounts receivable unless prior arrangements have been made.  It is company policy to recognize revenue when the product is shipped to our customers.

In the event we are unable to generate sufficient funds to continue our business efforts or if the company is pursued by a larger company for a business combination, we will analyze all strategies to continue the company and increase shareholder value.  Only under these circumstances would we consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination to increase business and potentially increase the shareholder value of the Company.  Management believes its responsibility to increase shareholder value is of paramount importance, which means the Company should consider the aforementioned alternatives in the event funding is not available on favorable terms to the Company when and if needed.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.
  
Critical accounting policies and estimates

The 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 (See Note 2 in the Notes to Financial Statements).
 
Recent Accounting Pronouncements
 
Quantitative and Qualitative Disclosures About Market Risk.
 
Not Applicable.
 
Financial Statements and Supplementary Data.
 
Our audited consolidated financial statements for the fiscal years ended March 31, 2012 and 2011, together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1.
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders of Green Dragon Wood Products, Inc.
 
We have audited the accompanying consolidated balance sheets of Green Dragon Wood Products, Inc. and its subsidiaries (“the Company”) as of March 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive income, cash flows and changes in stockholders’ equity for the years ended March 31, 2012 and 2011. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2012 and 2011 and the results of operations and cash flows for the years then ended and in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/ HKCMCPA Company Limited
 
HKCMCPA Company Limited
Certified Public Accountants
 
Hong Kong, China
December 3, 2012
 
 
Green Dragon Wood Products, Inc.
Consolidated Balance Sheets
As of March 31, 2012 and 2011
(Currency expressed in United States Dollars ("US$"), except for number of shares)
(Audited)

 
   
March 31,
   
March 31,
 
   
2012
   
2011
 
             
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalent
  $ 60,302     $ 289,076  
Restricted cash
    652,087       650,103  
Marketable securities
    336,430       323,378  
Accounts receivable, net
    5,754,559       6,236,643  
Inventories
    122,419       72,175  
Income tax recoverable
    13,081       -  
Prepayments, deposits and other receivables
    848,928       626,537  
TOTAL CURRENT ASSETS
    7,787,806       8,197,912  
                 
Non-current assets:
               
Plant and equipment, net
    6,266       14,183  
Cash surrender value of life insurance, net
    124,899       -  
Non-current portion of prepaid life insurance
    114,900       -  
TOTAL NON-CURRENT ASSETS
    246,065       14,183  
                 
TOTAL ASSETS
  $ 8,033,871     $ 8,212,095  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Revolving lines of credit
  $ 3,381,543     $ 3,801,067  
Current portion of long-term bank loan
    154,524       154,069  
Short-term bank loan
    98,861       -  
Accounts payable, trade
    513,484       1,046,982  
Accrued liabilities and other payables
    823,885       294,985  
Income tax payable
    -       63,323  
Amount due to a director
    382,437       150,212  
TOTAL CURRENT LIABILITIES
    5,354,734       5,510,638  
                 
NON-CURRENT LIABILITIES
               
Long-term bank loan
    309,048       462,208  
TOTAL NON-CURRENT LIABILITIES
    309,048       462,208  
                 
TOTAL LIABILITIES
    5,663,782       5,972,846  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.001 par value;
               
 50,000,000 preferred shares authorized;
               
 no shares issued and outstanding
    -       -  
Common stock, $0.001 par value;
               
450,000,000 shares authorized;
               
200,000 shares issued and outstanding, respectively
    200       200  
Additional paid-in capital
    644,300       644,300  
Retained earnings
    1,735,472       1,623,456  
Accumulated other comprehensive loss
    (9,883 )     (28,707 )
TOTAL STOCKHOLDERS' EQUITY
    2,370,089       2,239,249  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 8,033,871     $ 8,212,095  
 
See accompanying notes to consolidated financial statements.
 
 
Green Dragon Wood Products, Inc.
Consolidated Statements of Operations and Comprehensive Income
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars ("US$"), except for number of shares)
(Audited)

 
   
Years ended March 31,
 
   
2012
   
2011
 
             
Revenues, net
  $ 16,717,288     $ 20,286,870  
                 
Cost of revenue
    15,155,580       18,675,790  
                 
Gross profit
    1,561,708       1,611,080  
                 
General and administrative expenses
    1,036,770       1,170,999  
                 
Total operating expenses
    1,036,770       1,170,999  
                 
INCOME FROM OPERATIONS
    524,938       440,081  
                 
Other income (expense):
               
Foreign exchange loss, net
    (194,942 )     (12,952 )
Interest income
    426       515  
Interest expense
    (180,112 )     (131,752 )
Other income
    36       104,401  
                 
INCOME BEFORE INCOME TAXES
    150,346       400,293  
                 
Income tax expense
    (38,330 )     (68,214 )
                 
NET INCOME
    112,016       332,079  
                 
Other comprehensive income (loss):
               
- Unrealized holding gain on available-for-sales securities
    12,087       1,345  
- Foreign currency translation adjustment
    6,737       (6,455 )
                 
COMPREHENSIVE INCOME
  $ 130,840     $ 326,969  
                 
Net income per share - Basic and diluted
  $ 0.56     $ 1.66  
                 
Weighted average common shares outstanding
               
during the year - Basic and diluted
    200,000       200,000  
 
See accompanying notes to consolidated financial statements.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars ("US$"), except for number of shares)
(Audited)

 
   
Common stock
   
Additional paid in capital
   
Retained earnings
   
Accumulated other comprehensive loss
   
Total stockholders’ equity
 
                                     
                                     
   
Shares
   
Amount
                         
                                     
Balance as of March 31, 2010
    200,000     $ 200     $ 644,300     $ 1,291,377     $ (23,597 )   $ 1,912,280  
                                                 
Net income for the year
    -       -       -       332,079       -       332,079  
                                                 
Unrealized gain on available-for-sales securities
    -       -       -       -       1,345       1,345  
                                                 
Foreign currency translation adjustment
    -       -       -       -       (6,455 )     (6,455 )
                                                 
Balance as of March 31, 2011
    200,000     $ 200     $ 644,300     $ 1,623,456     $ (28,707 )   $ 2,239,249  
                                                 
Net income for the year
    -       -       -       112,016       -       112,016  
                                                 
Unrealized gain on available-for-sales securities
    -       -       -       -       12,087       12,087  
                                                 
Foreign currency translation adjustment
    -       -       -       -       6,737       6,737  
                                                 
Balance as of March 31, 2012
    200,000     $ 200     $ 644,300     $ 1,735,472     $ (9,883 )   $ 2,370,089  
              -       -       -       -       -  
 
See accompanying notes to consolidated financial statements.
 
 
Green Dragon Wood Products, Inc.
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars ("US$"), except for number of shares)
(Audited)

 
   
Years ended March 31,
 
   
2012
   
2011
 
Cash flow from operating activities:
           
Net income
  $ 112,016     $ 332,079  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
         
Depreciation
    7,952       8,693  
Net loss arising on changes in fair value of life insurance
    19,858       -  
Allowance for doubtful accounts
    3,612       13,733  
Write-off of uncollectible accounts receivable
    -       29,712  
Changes in operating assets and liabilities:
               
Accounts receivable
    478,472       (943,124 )
Inventories
    (50,244 )     140,533  
Prepayments, deposits and other receivables
    (207,642 )     34,721  
Income tax recoverable
    (13,081 )     -  
Accounts payable, trade
    (533,498 )     125,093  
Accrued liabilities and other payables
    528,900       78,585  
Income tax payable
    (63,323 )     (754,519 )
                 
Net cash provided by (used in) operating activities
    283,022       (934,494 )
                 
Cash flows from investing activities:
               
Purchase of life insurance
    (769,558 )     -  
Purchase of marketable securities
    -       (322,583 )
Purchase of plant and equipment
    -       (4,431 )
                 
Net cash used in investing activities
    (769,558 )     (327,014 )
                 
Cash flows from financing activities :
               
(Repayment of) proceeds from revolving lines of credit
    (419,524 )     1,683,752  
Change in restricted cash
    (1,984 )     (46,346 )
Draw down from long-term insurance policy loan
    495,152       -  
(Repayment of) proceeds from short-term bank loan
    98,861       -  
(Repayment of) proceeds from long-term bank loans
    (152,705 )     (154,332 )
(Repayment to) advances from a director
    232,225       (32,370 )
                 
Net cash provided by financing activities
    252,025       1,450,704  
                 
Effect of exchange rate changes on cash and cash equivalents
    5,737       (632 )
                 
Net change in cash and cash equivalents
    (228,774 )     188,564  
Cash and cash equivalents, beginning of year
    289,076       100,512  
Cash and cash equivalents, end of year
  $ 60,302     $ 289,076  
      -       -  
Supplemental disclosure of cash flow information:
               
Interest paid
  $ 180,112     $ 2,490  
Income tax paid
  $ 114,850     $ 131,752  
 
See accompanying notes to consolidated financial statements.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
1.   ORGANIZATION AND BUSINESS BACKGROUD

Green Dragon Wood Products, Inc., (the “Company” or “GDWP”) was incorporated under the laws of the State of Florida on September 26, 2007.

The Company, through its subsidiaries, mainly engages in re-sale and trading of wood logs, wood lumber, wood veneer and other wood products in Hong Kong.

Details of the Company’s subsidiaries:

   
Company name
Place/date of incorporation
Particulars of issued share capital
Principal activities
 
Effective interest held
 
                 
  1.  
Green Dragon Industrial Inc. (“GDI”)
British Virgin Islands (“BVI”),
May 30, 2007
37,500 issued shares of common stock of US$1 each
Investment holding
    100 %
                     
  2.  
Green Dragon Wood Products Co., Limited (“GDWPCL”)
Hong Kong, March 14, 2000
 
5,000,000 issued shares of ordinary shares
Re-sale and trading of wood
    100 %
                     

GDWP and its subsidiaries are hereinafter referred to as the “Company”.

2.   SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
 
  
Basis of presentation
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

  
Basis of consolidation
The consolidated financial statements include the accounts of GDWP and its subsidiaries. All inter-company balances and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

  
Use of estimates
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
 
  
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

  
Restricted cash
As of March 31, 2012 and 2011, the Company maintained minimum cash balances of $652,087 and $650,103 in a pledged deposit account as collateral for the revolving lines of credit and long-term bank borrowings provided by the financial institutions in Hong Kong.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
  
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount less an allowance for any uncollectible accounts and do not bear interest, which are due within contractual payment terms, generally 60 to 180 days from shipment. The Company extends unsecured credit to its customers in the ordinary course of business, based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 180 days and those over a specified amount are reviewed individually for collectibility. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
 
  
Inventories
Inventories mainly include wood veneers for re-sale and are stated at lower of cost or market value using weighted average method.

  
Marketable securities
The Company classifies marketable securities as “available-for-sale”, which are stated at fair value, with the unrealized gains and losses, reported in accumulated other comprehensive income. The Company uses quoted prices in active markets for identical assets (consistent with the Level 1 definition in the fair value hierarchy) to measure the fair value of its investments on a recurring basis pursuant to Accounting Standards Codification ("ASC") Topic 820, “Fair Value Measurements and Disclosures”.

  
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
 
   
Expected useful life
Computer equipment
 
3-5 years
Office equipment
 
5 years

Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
 
Depreciation expense for the year ended March 31, 2012 and 2011 was $7,952 and $8,693, respectively.

  
Cash Value of life insurance
The cash value of life insurance relates to the Company-owned life insurance policies on a current executive officer, which is stated at the cash surrender value of the contract, net of policy loans.

  
Impairment of long-lived assets
In accordance with Accounting Standards Codification ("ASC") Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets, including plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that useful lives are no longer appropriate. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for the years presented.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
  
Revenue recognition
In accordance with ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

Revenue from re-sale and trading of wood logs, wood lumber, wood veneer and other wood products is recognized upon shipment to the customer when title and risk of loss are transferred and there are no continuing obligations to the customer. Title and the risks and rewards of ownership transfer to the customer at varying points, which is determined based on shipping terms. Revenue is recorded net of sales discounts, returns, allowances, customer rebates and other adjustments that are based upon management’s best estimates and historical experience and are provided for in the same period as the related revenues are recorded. Based on historical experience, management estimates that sales returns are immaterial and has not made allowance for estimated sales returns.

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
 
  
Cost of revenue
Cost of revenue includes cost of wood logs, wood lumber and wood veneers for re-sale to the customers, purchase returns and sales commission. Shipping and handling costs associated with the distribution of the products to the customers totaled approximately $374,940 and $544,591 for the years ended March 31, 2012 and 2011, respectively, which are recorded in cost of revenue.

  
Advertising cost
Advertising costs are expensed as incurred under ASC Topic 720-35, “Advertising Costs”. The Company incurred $20,648 and $4,617 advertising expenses during the years ended March 31, 2012 and 2011.

  
Comprehensive income
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
 
  
Income taxes
The provision for income taxes is determined in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the years ended March 31, 2012 and 2011, the Company did not have any interest and penalties associated with tax positions. As of March 31, 2012, the Company did not have any significant unrecognized uncertain tax positions.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 

The Company conducts major businesses in Hong Kong and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.

  
Net income per share
The Company calculates net income per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common share outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common share that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

  
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.

The reporting currency of the Company is United States Dollar ("US$") and the accompanying consolidated financial statements have been expressed in US$. In addition, the Company’s operating subsidiary in Hong Kong maintains its books and record in its local currency, Hong Kong Dollar (“HK$”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholders’ equity.
 
Translation of amounts from HK$ into US$1 has been made at the following exchange rates for the year ended March 31, 2012 and 2011:
 
   
March 31,
 
   
2012
   
2011
 
Year-end HK$: US$1 exchange rate
    7.7658       7.7887  
Annual average HK$: US$1 exchange rate
    7.7773       7.7754  

  
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

  
Segment reporting
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. For the year ended March 31, 2012 and 2011, the Company operates one reportable business segment in Hong Kong.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
  
Retirement plan costs
Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the statements of operation and comprehensive income as and when the related employee service is provided.

  
Fair value of financial instruments

The carrying value of the Company’s financial instruments (excluding revolving lines of credit and long-term bank borrowings): cash, accounts receivable, prepayments, deposits and other receivables, accounts payable, amount due to a director, income tax payable, accrued liabilities and other payable approximate at their fair values because of the short-term nature of these financial instruments. The fair value of the marketable securities is based on quoted prices in active exchange-traded or over-the-counter markets.

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its revolving lines of credit and long-term bank borrowing approximate the carrying amount.
 
The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
 
  ~ Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active  markets;
   
  ~Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
   
  ~Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
 
Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
 
  
Economic and political risk
The Company’s major operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in Hong Kong, as well as the general state of Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.

The Company’s major operations in Hong Kong are subject to considerations and significant risks typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

  
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
3.   MARKETABLE SECURITIES

Marketable securities consist of:

   
March 31,
   
March 31,
 
   
2012
   
2011
 
             
13,727.21 units Franklin Templeton Global Total Return Fund (A-EUR):
           
   At original cost
  $ 322,033     $ 322,033  
   Unrealized holding gain
    13,447       1,345  
   Add: foreign currency translation adjustment
    950       -  
   Fair value
  $ 336,430     $ 323,378  
 
Marketable securities consist of investments in unit trust fund of Franklin Templeton Global Total Return Fund. Such mutual fund investments are stated at fair market value and are classified as available-for-sale, with the corresponding unrealized holding gains or losses, recorded as a separate component of other comprehensive income within stockholders’ equity. The fair value of marketable security is determined based on quoted market prices at the balance sheet date. Realized gains and losses are determined by the difference between historical purchase price and gross proceeds received when the marketable securities are sold. These marketable securities are pledged as collateral against HK$ 15,000,000 (approximately $1,931,550) credit facility with the Hongkong and Shanghai Banking Corporation Limited (see Note 7).
 
4.   LIFE INSURANCE

The Company has purchased insurance on the life of a key executive officer, Mr. Kwok Leung Lee, the stockholder and director of the Company. As beneficiary, the Company receives the cash surrender value if the policy is terminated and, upon death of the insured, receives all benefits payable. The cash surrender value of this life insurance is pledged as collateral against HK$ 15,000,000 (approximately $1,931,550) credit facility with the Hongkong and Shanghai Banking Corporation Limited (see Note 7).  Cash value of this life insurance is presented in the accompanying financial statement, net of policy loans. The loans carry interest at an effective rate of 1% per annum over 1 or 3 months Hong Kong Interbank Offered Rate (“HIBOR”), payable monthly and mature in July 2018, which are secured by the cash value of the life insurance policy.

A summary of net cash value of life insurance as of March 31, 2012 is reported as below:

Cash surrender value of life insurance
  $ 620,051  
Less: policy loans balances outstanding
    (495,152 )
Cash value of life insurance, net
  $ 124,899  
 
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
As of March 31, 2012, the maturities of the policy loans for the next five years and thereafter are as follows:

Years ending March 31:
     
2013
  $ 78,181  
2014
    78,181  
2015
    78,181  
2016
    78,181  
2017
    78,181  
Thereafter
    104,247  
Total policy loans balances
  $ 495,152  

For the year ended March 31, 2012, the HIBOR is 0.84% per annum.

5.   ACCOUNTS RECEIVABLE, NET

   
March 31,
   
March 31,
 
   
2012
   
2011
 
             
Accounts receivable, trade
  $ 5,771,924     $ 6,250,353  
 Less: allowances for doubtful accounts
    (17,365 )     (13,710 )
Accounts receivable, net
  $ 5,754,559     $ 6,236,643  

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required.

For the year ended March 31, 2012, the Company provided an allowance for doubtful accounts of $3,612 and wrote-off uncollectible accounts of $0.

For the year ended March 31, 2011, the Company provided an allowance for doubtful accounts of $13,733 and wrote-off uncollectible accounts of $29,712.

6.   PREPAYEMNT, DEPOSITS AND OTHER RECEIVABLES

Prepayments, deposits and other receivables consisted of:

   
March 31,
   
March 31,
 
   
2012
   
2011
 
             
Purchase deposits to vendors
  $ 724,226     $ 570,281  
Rental and utilities deposits
    50,494       50,346  
Current portion of prepaid life insurance expense
    14,749       -  
Other receivables
    59,459       5,910  
Total
  $ 848,928     $ 626,537  

Purchase deposits represent deposit payments made to vendors for procurement, which are interest-free, unsecured and relieved against accounts payable when goods are received by the Company.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
7.   REVOLVING LINES OF CREDIT

Revolving lines of credit consist of:

   
March 31,
   
March 31,
 
   
2012
   
2011
 
             
Payable to financial institutions in Hong Kong:
           
   The Hongkong and Shanghai Banking Corporation Limited
  $ 1,897,665     $ 2,001,391  
   Shanghai Commercial Bank Limited
    381,179       345,309  
      2,278,844       2,346,700  
Payable to third parties (under supplier agreement)
               
  Tai Wah Timber Factory Limited
    1,102,699       1,325,976  
  Glory Idea Investment Limited
    -       128,391  
      1,102,699       1,454,367  
                 
Total
  $ 3,381,543     $ 3,801,067  

The credit facility with the Hongkong and Shanghai Banking Corporation Limited provides for borrowings up to HK$15,000,000 (approximately $1,931,550), which bears interest at a rate of 3% (2011: 2%) per annum over Hong Kong Interbank Offered Rate (“HIBOR”) for HK dollars facilities and at a rate of 3% (2011: 2%) per annum over London Interbank Offered Rate (“LIBOR”) for foreign currency facilities and is personally guaranteed by Mr. Lee, director of the Company. The facility is secured by the cash value of the life insurance policy of the key executive and guaranteed by the Government of HKSAR. The Company also is required to maintain a minimum cash deposit of approximately $400,000 or its equivalent in other foreign currencies and has pledged the marketable securities (see note 3) as collateral. In the event the value of the foreign currency deposit and marketable securities fall below the respective required amount, additional security will be required. In addition, the Company is subject to the settlement of accounts due and payable to the restricted vendors under the line of credit at the bank’s discretion. The line will be extended or renewed on a regular basis at the option of the bank. Weighted average interest rate approximates 3.26% and 2.21% per annum for the years ended March 31, 2012 and 2011, payable monthly.

The credit facility with Shanghai Commercial Bank Limited provides for borrowings up to HK$ 6,500,000 (approximately $837,005), which bears interest at a rate of 0.25% per annum over Hong Kong prime for HK dollars facilities and at a rate of 0.25% per annum over US prime for US dollars facilities and is personally guaranteed by Mr. Lee, director of the Company. The Company also is required to maintain a minimum cash deposit not less than $264,500 that is considered restricted as compensating balances to the extent the Company borrows against this line of credit. In addition, the Company is subject to the settlement of accounts due and payable to the restricted vendors under the line of credit at the bank’s discretion. The line will be extended or renewed on a regular basis at the option of the bank. Weighted average interest rate approximates 5.25% and 5.25% per annum for the years ended March 31, 2012 and 2011, payable monthly.

The financing arrangement with Tai Wah Timber Factory Limited provides for borrowings for trade payable financing with maturities of 2 to 3 months. The Company is charged a commission fee of 5% on each amount drawn from the line, payable monthly. Additional interest is charged on any overdue balance.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
8.  SHORT-TERM BANK LOAN

In January 16, 2012, the Company obtained a loan of HK$ 920,000 (approximately $118,468) from Shanghai Commercial Bank. The loan bears interest at a rate of 5% over the Hong Kong Prime Rate with 12 monthly installments of principal and interest and will mature on 31 January 2013. This loan is guaranteed by the Company’s director, Mr. Lee.

9.  LONG-TERM BANK LOAN

In March 2010, the Company received an installment loan of HK$6,000,000 (approximately $772,620) from The Hongkong and Shanghai Banking Corporation Limited for working capital purposes. The loan bears interest at a rate of 2% per annum over 1 month HIBOR with 60 monthly installments of HK$100,000 (approximately $12,877) each and will mature on March 14, 2015. The installment loan is personally guaranteed by Mr. Lee, director of the Company and guaranteed by the Government of HKSAR.

Maturities of the long-term bank loan for each of the three years following March 31, 2012 are as follows:

Year ending March 31:
 
2013
  $ 154,524  
2014
    154,524  
2015
    154,524  
Total
  $ 463,572  

10.   AMOUNT DUE TO A DIRECTOR

As of March 31, 2012 and 2011, the balance represented temporary advances made to the Company by Mr. Lee, the director, which was unsecured, interest-free with no fixed terms of repayment.
 
11.   INCOME TAXES
 
For the years ended March 31, 2012 and 2011, the local (United States) and foreign components of income before income taxes were comprised of the following:
 
   
Years ended March 31,
 
   
2012
   
2011
 
             
Tax jurisdictions from:
           
- Local
  $ -     $ -  
- Foreign
    150,346       400,293  
Income before income taxes
    150,346       400,293  
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
Provision for income taxes consisted of the following:
 
   
Years ended March 31,
 
   
2012
   
2011
 
             
Current:
           
- Local
  $ -     $ -  
- Foreign
    38,330       68,214  
                 
Deferred:
               
- Local
    -       -  
- Foreign
    -       -  
                 
Income tax expenses
  $ 38,330     $ 68,214  

The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company and its subsidiaries are mainly operated in the United States of America, BVI and Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:

United States of America

GDWP is registered in the State of Florida and is subject to the tax laws of the United States of America. For the years ended March 31, 2012 and 2011, the Company incurred no operation in the United States of America.
 
British Virgin Island

Under the current BVI law, GDI is not subject to tax on income or profit. For the years ended March 31, 2012 and 2011, GDI incurred no operation in the BVI.

Hong Kong

The Company’s major operating subsidiary is subject to Hong Kong Profits Tax, which is charged at the statutory income tax rate of 16.5% on its assessable income.

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes from foreign operation for the years ended March 31, 2012 and 2011 are as follows:

   
Years ended March 31,
 
   
2012
   
2011
 
             
Income before income taxes
  $ 150,346     $ 400,293  
Statutory income tax rate
    16.5 %     16.5 %
Income tax at Hong Kong statutory income tax rate
    24,807       66,048  
                 
Tax effect of non-deductible expenses
    12,965       1,434  
Tax effect of depreciation allowances
    (215 )     (775 )
Under provision for prior years
    773       1,507  
                 
Income tax expenses
  $ 38,330     $ 68,214  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There was no significant temporary difference as of March 31, 2012 and 2011, no deferred tax assets or liabilities have been recognized.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
12.   NET INCOME PER SHARE
 
Basic net income per share is computed using the weighted average number of the common share outstanding during the year. The dilutive effect of potential common shares outstanding is included in diluted net income per share. The following table sets forth the computation of basic and diluted net income per share for the years ended March 31, 2012 and 2011:
 
   
Years ended March 31,
 
   
2012
   
2011
 
             
Net income attributable to common stockholders
  $ 112,016     $ 332,079  
                 
Weighted average common shares outstanding
    200,000       200,000  
                 
Basic and diluted net income per share
  $ 0.56     $ 1.66  

There were no dilutive financial instruments for the years ended March 31, 2012 and 2011.
 
13.   PENSION PLAN

The Company’s subsidiary participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance “MPF Scheme” for all its eligible employees in Hong Kong.

The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by the Company’s subsidiary operating in Hong Kong at 5% of the participants’ relevant income with a ceiling of HK$20,000 (approximately $2,575). The participants are entitled to 100% of the Company’s contributions together with accrued returns irrespective of their length of service with the Company, but the benefits are required by law to be preserved until the retirement age of 65. The only obligation of the Company with respect to MPF Scheme is to make the required contributions under the plan. The assets of the schemes are controlled by trustees and held separately from those of the Company. The total contributions made for MPF Scheme were $7,146 and $9,445 for the years ended March 31, 2012 and 2011, respectively.

14.   SEGMENT INFORMATION

The Company considers its business activities to constitute one single reportable segment. The Company’s chief operating decision makers use consolidated results to make operating and strategic decisions. The geographic distribution analysis of the Company’s revenues by region is as follows:

   
Years ended March 31,
 
   
2012
   
2011
 
             
Revenue, net:
           
~ The PRC (including Hong Kong)
  $ 12,346,721     $ 15,088,861  
~ Middle East
    1,256,721       1,790,025  
~ India
    900,395       1,179,659  
~ Europe
    981,743       727,422  
~ Others
    1,231,708       1,500,903  
                 
Total
  $ 16,717,288     $ 20,286,870  
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
All of the Company’s long-lived assets are located in Hong Kong.
 
15.   CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)         Major customers

For the years ended March 31, 2012 and 2011, the customer who accounts for 10% or more of the Company's revenues and its outstanding accounts receivable at year-end date, are presented as follows:

   
Year ended March 31, 2012
   
March 31, 2012
 
   
Revenues
   
Percentage of revenues
   
Accounts receivable
 
                   
Customer A
  $ 9,576,076       57 %   $ 615,759  
Customer B
    2,939,102       18 %     4,420,646  
Total
  $ 12,515,178       75 %   $ 5,036,405  

   
Year ended March 31, 2011
   
March 31, 2011
 
   
Revenues
   
Percentage of revenues
   
Accounts receivable
 
                   
Customer A
  $ 11,347,240       56 %   $ 1,019,313  
Customer B
    3,451,304       17 %     4,888,600  
Total
  $ 14,798,544       73 %   $ 5,907,913  
 
(b)         Major vendors

For the years ended March 31, 2012 and 2011, the vendor who accounts for 10% or more of the Company's purchases and its outstanding accounts payable at year-end date, are presented as follows:

   
Year ended March 31, 2012
   
March 31, 2012
 
   
Purchases
   
Percentage of purchases
   
Accounts payable
 
                   
Vendor A (Customer B)
  $ 3,709,785       25 %   $ -  
Vendor B
    1,421,141       10 %     -  
Total
  $ 5,130,926       35 %   $ -  

 
Year ended March 31, 2011
March 31, 2011
 
 
Purchases
   
Percentage of purchases
Accounts payable
 
                   
Vendor A (Customer B)
  $ 3,627,432       20 %   $ -  
Total
  $ 3,627,432       20 %   $ -  
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 
 (c)         Credit risk
 
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
 
(d)         Interest rate risk
As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.

The Company’s interest-rate risk arises from revolving lines of credit and bank borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of March 31, 2012 and 2011, all of borrowings were at variable rates. The interest rates and terms of repayment of the borrowings are disclosed in Note 7, 8 and 9.

(e)         Exchange rate risk

The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HK$ converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
 
16.   COMMENTS AND CONTINGENCIES

(a)         Operating lease commitments

The Company’s subsidiary in Hong Kong is committed under several non-cancelable operating leases with fixed monthly rentals, due through February 2013. Total rent expenses for the years ended March 31, 2012 and 2011 was $113,618 and $104,871, respectively.

As of March 31, 2012, the Company has the future minimum rental payments of HK$527,694 (approximately $67,951) under various non-cancelable operating leases in the next twelve months.

(b)         Legal proceedings

On February 12, 2009, a claim was filed by Chi Yim Yip, Roger (“Mr. Yip”) and Characters Capital Group Limited (“CCGL”) against Mr. Kwok Leung Lee (“Mr. Lee”), a director of the Company, and GDWPCL alleging (i) breach of contract by GDWP concerning the engagement of CCGL to assist GDWPCL in securing GDWP’s listing on the OTC Bulletin Board and (ii) defamation by Mr. Lee related to the contract dispute. Damages being sought include $31,287 in liquidated damages from GDWPCL, aggravated/exemplary damages and injunction from further defamation. The claim was filed with the High Court of the Hong Kong Special Administrative Region, Court of First Instance.
 
On April 9, 2009, Mr. Lee and GDWPCL filed a Defense and Counterclaim. GDWPCL asserted a breach of contract claim against CCGL, alleging that CCGL failed to fulfill its obligations pursuant to the CCGL agreement to effect the listing of GDWP through a reverse merger by the use of a company that was listed on the Pink Sheets. Mr. Lee additionally asserted a breach of contract claim against Mr.Yip for the Stock Purchase Agreement dated March 31, 2007, for failing to deliver a shell company, Tabatha V, Inc., that was listed on the Pink Sheets, which, pursuant to the Stock Purchase Agreement, was to be purchased by Mr. Lee. Both Mr. Lee and GDWPCL also claimed damages for fraudulent misrepresentation related to the failure to deliver the Pink Sheet shell company. On May 22, 2009, Mr.Yip and CCGL replied to the counterclaim.

On January 26, 2011, the High Court of the Hong Kong Special Administrative Region granted leave to Mr. Yip and CCGL to set the case down for a 7-day trial. The hearing occurred in October 2012 and the parties are waiting for the judgment of the court. In the opinion of Company management, the resolution of this matter will not have a material effect on the Company’s future financial statements.

17.   SUBSEQUENT EVENTS

The Company has evaluated the subsequent events through the filing date of this Form 10-K and has determined that there were no subsequent events to recognize or disclose in these financial statements.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.
 
Controls and Procedures.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management carried out an evaluation, with the participation of our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act), as of the period covered by this report. Disclosure controls and procedures are defined as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon their evaluation, our management (including our Chief Executive Officer) concluded that our disclosure controls and procedures were not effective as of March 31, 2012 based on the material weaknesses defined below. 
 
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 a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets,

 
provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with US GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

 
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including its principal executive officer and principal financial officer, the Company’s management assessed the design and operating effectiveness of internal control over financial reporting as of March 31, 2012 based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
Based on this assessment, management concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2012. 
 

In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at March 31, 2012:
 
   
The Company did not implement proper segregation of duties due to the Company’s small size and only one executive officer. In certain instances, persons responsible to review transactions for validity, completeness and accuracy were also responsible for preparation.
 
 
Due to the Company’s limited resources, the Company does not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in the Company’s financial transactions in accordance with US GAAP.  Additionally, the Company does not have a formal audit committee, and the Board does not have a financial expert, thus the Company lacks the board oversight role within the financial reporting process.
 
MANAGEMENT’S REMEDIATION PLAN

While management believes that the Company’s financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US  GAAP, based on the control deficiencies identified above, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

 
·
The Company is currently looking for an outside consultant with considerable  public company reporting experience and breadth of knowledge of US GAAP to assist it with the preparation and review of its financial statements.  The Company is committed to establishing procedures and utilizing experienced individuals with professional supervision to properly segregate duties, prepare and approve the consolidated financial statements and footnote disclosures in accordance with US GAAP.
     
 
·
The Board of Directors will be more actively involved in providing additional oversight of the Company’s internal controls, formal review of our financial statements,  and more detailed review of the periodic reports we anticipate filing with the SEC.

 
·
The Company has initiated efforts to ensure our employees understand the importance of internal controls and compliance with corporate policies and procedures.

 
·
The Company may retain third party specialists to assist us in the design, implementation and testing of our internal controls as necessary.
 
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.
 
Other Information.

None.


PART III

Directors, Executive Officers and Corporate Governance

Set forth below is certain information regarding our directors and executive officers.  Our Board of Directors is comprised of two directors. Except as described below, there are no family relationships between any of our directors or executive officers. Each of our directors is elected to serve until the next annual meeting of our shareholders and until his successor is elected and qualified or until such director’s earlier death, removal or termination.
  
The following table sets forth certain information with respect to our directors and executive officers:
 
Name
 
Age 
 
Position/Title
         
Kwok Leung Lee 
 
44
 
President, Secretary, Treasurer, and Chairman of the Board
         
Mei Ling Law
 
66 
 
Director
 
Our directors hold office until the next annual meeting of our shareholders and until their successors have been qualified after being elected or appointed. Our officers serve at the discretion of our Board of Directors.

Set forth below is biographical information about our current directors and executive officers:

Kwok Leung Lee has served as our President/Chairman of the Board of Directors since September 1998. Mr. Lee, also known as Stephen Lee, is a graduate of Michigan State University with a Bachelors Degree in Social Sciences.  He received a Master of Science in Management from Shiga University in Japan in 1993 with a specialization in management and economics.  Mr. Lee is fluent in Chinese, Japanese and English. Mr. Lee has traveled extensively worldwide for Green Dragon handling purchasing, negotiations with client companies, logistics, and administration and finance.  He has more than twelve (12) years of diverse product knowledge and global experience in wood products ranging from softwood to hardwood, log to lumber to veneer.  His experience extends to furniture, flooring, interior decoration, musical instruments, and sports equipment.

Mei Ling Law has served as a director since our original formation in 1998.  She is also the mother of our President, Mr. Lee.  Ms. Law has been in the wood business for more than 10 years and is mainly responsible for the internal affairs of Green Dragon.  Ms. Law has been an entrepreneur for more than 30 years, has good connections in China, and possesses profound China trade experience as well as joint ventures in China.  
  
To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:
 
 
o
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
 
 
o
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
     
 
o
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
     
 
o
Been found by a court of competent jurisdiction (in a civil action), the SEC, the Commodities Futures Trading Commission, or any self-regulatory organization or equivalent exchange, association, entity or organization that has disciplinary authority over the Company or the executive officer/director to have violated a federal or state securities or commodities law, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, and the judgment or administrative order has not been reversed, suspended or vacated.
 
 
25

 
Board of Directors

Our Directors are elected by the vote of a plurality in interest of the holders of our voting stock and hold office for a term of one year and until a successor has been elected and qualified.  
  
A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action.

The board held 5 meeting during the fiscal year of 2012.  These meetings include meetings that were held by means of a conference telephone call, but do not include actions taken by unanimous written consent.  

Each director attended at least 100 % of the total number of meetings of the board during the year. Our non-management directors did not meet in executive session during the fiscal year of 2012.

Director Experience

Our Board believes that each of the Company’s directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the Company’s shareholders. When evaluating candidates for election to the Board, the Board seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment, and leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly relevant positions. Our directors have served in our operating entity, GDWPCL, for many years and benefit from an intimate knowledge of our operations and corporate philosophy.

Audit Committee Financial Expert

The Company’s does not have an audit committee financial expert since Company’s board of directors currently acts as the audit committee and the board of directors currently consists of only two directors one of which is the Company’s sole officer. While the Company believe that the members of Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting the Company is currently engaged in a search to identify a qualified individual who will meet the definition of “audit committee financial expert as that term is defined by Item 407(d)(5) of Regulation S-K.

Audit Committee

We have not yet appointed an audit committee, and our Board of Directors currently acts as our audit committee. The Company intends to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, during its 2013 fiscal year.
 
Code of Ethics

We have adopted a code of ethics as of August 31, 2007 that applies to our principal executive officer, principal financial officer, and principal accounting officer as well as our employees.  Our standards are in writing and are posted on our website www.greendragonglobal.com.  A copy of the Company’s code of ethics are available to any person without charge upon written request to the Company at Unit 312, 3rd Floor, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong, Attn: President.
 
  
Board Leadership and Risk Oversight

Our President also serves as Chairman of the Board. The Board believes that the Company’s President is best situated to serve as Chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having one person serve as both Chairman and President eliminates potential for confusion and provides clear leadership for the Company, with a single person setting the tone and managing our operations. The Board oversees specific risks, including, but not limited to:
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