NOTE 2 SUMMARY OF SIGNIFICANT
Basis of Presentation
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US
GAAP). The consolidated financial statements include the financial statements of CHWG and its subsidiaries. All significant
intercompany balances and transactions have been eliminated on consolidation.
In preparing the accompanying
audited consolidated financial statements, the Company evaluated the period from December 31, 2011 through the date the financial
statements were issued for material subsequent events requiring recognition or disclosure. No such event was noted.
Use of Estimates
The preparation of consolidated
financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results
may differ from these estimates under different assumptions or conditions.
Risk and Uncertainties
The Company's operations are carried
out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the PRCs
political, economic and legal environments as well as by the general state of the PRCs economy. The Company's business may
be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other things.
We recognize revenue using various
revenue recognition policies based on the nature of the sale and the terms of the contract. Revenues from sale of bottled water
are recognized when goods are delivered. The contractual terms of the purchase agreements dictate the recognition of revenues by
us. We recognize revenue in accordance with Staff Accounting Bulletin No. 104, codified in ASC Topic 480. Accordingly, four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and
(4) are based on managements judgments regarding the fixed nature of the selling prices of the products or services delivered
and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are recorded. We defer any revenue for which the product
has not been delivered or is subject to refund until such time that we and our customer jointly determine that the product has
been delivered or no refund will be required.
Cash and Cash Equivalents
In accordance with ASC 230-10 (formerly
SFAS No. 95, Statement of Cash Flows), the Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Because of the short maturity of these investments, the carrying
amounts approximate their fair value.
Accounts receivable are stated
at historical cost, net of allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on
managements assessment of the collectability of accounts receivables and other receivables. A considerable amount of judgment
is required in assessing the amount of the allowance; the Company considers the historical level of credit losses and applies percentages
to aged receivable categories. The Company makes judgments about the creditworthiness of each customer based on ongoing credit
evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial
condition of the customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.
Bad debts are written off when
identified. The Company extends unsecured credit to customers ranging from three to six months in the normal course of business.
The Company does not accrue interest on accounts receivables.
Historically, losses from uncollectible
accounts have not significantly deviated from the general allowance estimated by the management and no significant additional bad
debts have been written off directly to the profit and loss.
The balance of allowance for doubtful
accounts amounted to $746,439 and $721,788 as of December 31, 2011 and 2010, respectively.
Inventories are stated at the lower
of cost, determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in
bringing the products to their present location and condition. Market value is determined by reference to selling prices after
the balance sheet date or to managements estimates based on prevailing market conditions. The management will write down
the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories
to identify slow-moving and obsolete inventories to determine if valuation allowance is required.
Cost of Sales
Cost of sales comprises labor and
other cost of personnel directly engaged in providing the product, as well as raw materials and amortization expense.
Property, plant and equipment are
stated at cost less accumulated depreciation and amortization and impairment loss. Maintenance, repairs and betterments, including
replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation and amortization
are provided using the straight-line method over the following estimated useful lives:
||Estimated Useful Life|
|Furniture and fixtures
|Tools and equipment
||5 - 10 years|
||10 - 20 years|
In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, codified in ASC Topic 360-10-35, the Company reviews
the recoverability of its long-lived assets on a periodic basis in order to identify business conditions, which may indicate a
possible impairment. The assessment for potential impairment is based primarily on the Companys ability to recover the carrying
value of its long-lived assets from expected future discounted cash flows. If the total of the expected future discounted cash
flows is less than the total carrying value of the assets, a loss is recognized for the difference between the fair value (computed
based upon the expected future discounted cash flows) and the carrying value of the assets.
Intangible assets are stated at
cost. Intangible assets with finite life are amortized over their estimated useful life using straight-line method. Estimated useful
life of intangible assets is as follows:
||Estimated Useful Life|
|Land use right
The Company accounts for business
acquisitions in accordance with ASC 805-10 (formerly SFAS No. 141 Business Combinations), which may result in the
recognition of goodwill. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business
combinations accounted for under the purchase method. Goodwill is not subject to amortization but will be subject to periodic evaluation
for impairment. Goodwill is stated in the consolidated balance sheet at cost less accumulated impairment loss, if any.
Fair Value Measurement
And Financial Instruments
The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157) on
January 1, 2009. SFAS 157 has been codified as ASC 820-10, Fair Value Measurements. ASC 820-10, among other things,
defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and
liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820-10 clarifies that fair value is
an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs
such as quoted prices in active markets;
Level 2: Inputs, other than the
quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in
which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Companys financial instruments
primarily consist of cash and cash equivalents, accounts receivable, other current assets; accounts payable, accrued expenses,
short-term bank loans and other current liabilities. As of the balance sheet dates, the estimated fair values of the financial
instruments were not materially different from their carrying values as presented due to the short maturities of these instruments
and that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity
and risk profile at respective year ends.
The Company utilizes the asset
and liability method of accounting for income taxes whereby deferred taxes are determined based on the temporary differences between
the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences
are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Basic earnings (loss) per share
is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for
the period. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common
shares had been issued.
The Company has adopted ASC 220
Reporting Comprehensive Income which establishes rules for the reporting and display of comprehensive income, its
components and accumulated balances. ASC 220 defines comprehensive income to include all changes in equity, including adjustments
to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on available-for-sale
marketable securities, except those resulting from investments by owners and distributions to owners.
Translation and Transactions
The Company has evaluated the determination
of its functional currency based on the guidance in ASC Topic, Foreign Currency Matters, which provides that an entitys
functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency
of the environment in which an entity primarily generates and expends cash. On its own, the Company raises financing in the U.S.
dollar, pays its own operating expenses primarily in the U.S. dollar, paid dividends to its shareholders of common stock and expects
to receive any dividends that may be declared by its subsidiaries in U.S. dollars.
Therefore, it has been determined
that the Companys functional currency is the U.S. dollar based on the expense and financing indicators, in accordance with
the guidance in ASC 830-10-85-5.
The Company uses United States
dollars (U.S. Dollar or US$ or $) for financial reporting purposes. The subsidiaries
within the Company maintain their books and records in RenMinBi (RMB), the primary currency of the economic environment
in which their operations are conducted. Assets and liabilities of the subsidiaries in RMB are translated into U.S. Dollars using
the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income
and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical
rates. Adjustments resulting from the translation of the Companys financial statements are recorded as accumulated other
The exchange rates used to translate
amounts in RMB into US Dollars for the purposes of preparing the consolidated financial statements were as follows:
|December 31, 2011
||December 31, 2010|
|Balance sheet items, except for stockholders equity items
||RMB 1: US$0.15740
||RMB 1: US$0.15170|
|Amounts included in the statements of operations, comprehensive loss, and statements of cash flows
||RMB 1: US$0.15496
||RMB 1: US$0.14794|
|Stockholders equity items
In December 2011, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-12, Comprehensive
Income (Topic 220) (ASU 2011-12). ASU 2011-12 allows deferral of the effective date for amendments to the presentation
of reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05. This update is effective at the
same time as the amendments in ASU No. 2011-05. The adoption of this ASU will not have a material impact on the Companys
2011, FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) (ASU 2011-11). ASU 2011-11 provides enhanced disclosures that
will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entitys
financial position. The objective of this update is to facilitate comparison of entities that prepare their financial statements
on the basis of U.S. generally accepted accounting principles (GAAP) with those preparing their financial statements
on the basis of International Financial Reporting Standards (IFRS). ASU 2011-11 is effective for annual reporting
periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU will not
have a material impact on the Companys financial statements.
In June 2011, the FASB issued Accounting
Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, (ASU
2011-05). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of
changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders equity be presented in either a single
continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied
retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption
of this standard will not change the presentation of its consolidated financial statements.
In May 2011, the FASB issued Accounting
Standards Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs, (ASU 2011-04). ASU 2011-04 expands the disclosures for fair
value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.
This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard
will not materially affect its consolidated financial statements.
Certain amounts as
of December 31, 2010 were reclassified for presentation purposes.