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

 
FORM 10-Q
 

 
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________

Commission File No. 000-53379

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

FLORIDA
 
26-1133266
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Tax. I.D. No.)
 
Unit 312, 3rd Floor, New East Ocean Centre
9 Science Museum Road
Kowloon, Hong Kong
(Address of Principal Executive Offices)
 
852-2482-5168
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ    No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ    No  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.  þ     
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o    No   þ     

The number of shares outstanding of each of the issuer’s classes of common stock as of November 3, 2014: 23,725,000

 

 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1 .             FINANCIAL STATEMENTS
Green Dragon Wood Products, Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2014 and March 31, 2014
(Currency expressed in United States Dollars ("US$"), except for number of shares)

  
 
September 30,
   
March 31,
 
   
2014
   
2014
 
   
(Unaudited)
   
(Audited)
 
ASSETS
 
CURRENT ASSETS
           
Cash and cash equivalent
 
$
22,618
   
$
34,597
 
Restricted cash
   
395,436
     
395,893
 
Accounts receivable, net
   
5,453,353
     
6,202,445
 
Bills receivable
   
196,172
     
-
 
Income tax recoverable
   
26,789
     
26,789
 
Prepayments, deposits and other receivables
   
1,501,041
     
1,171,399
 
TOTAL CURRENT ASSETS
   
7,595,409
     
7,831,123
 
Non-current assets:
               
Plant and equipment, net
   
33,630
     
34,101
 
TOTAL NON-CURRENT ASSETS
   
33,630
     
34,101
 
                 
TOTAL ASSETS
 
$
7,629,039
   
$
7,865,224
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES
               
Revolving lines of credit
 
$
4,069,030
   
$
4,441,711
 
Accounts payable, trade
   
550,321
     
655,782
 
Accrued liabilities and other payables
   
850,249
     
564,769
 
Amount due to a director
   
19,733
     
16,318
 
Obligation under finance lease
   
12,442
     
12,219
 
TOTAL CURRENT LIABILITIES
   
5,501,775
     
5,690,799
 
                 
NON-CURRENT LIABILITIES
               
Obligation under finance lease
   
25,212
     
31,548
 
TOTAL NON-CURRENT LIABILITIES
   
25,212
     
31,548
 
                 
TOTAL LIABILITIES
 
$
5,526,987
   
$
5,722,347
 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.001 par value;
50,000,000 preferred shares authorized;
Series A Convertible Preferred Stock, 2,000,000 shares and  
0 shares issued and outstanding, respectively.
   
2,000
     
2,000
 
Common stock, $0.001 par value;
450,000,000 shares authorized;
23,725,000 shares issued and outstanding
   
23,725
     
23,725
 
Additional paid-in capital
   
1,236,400
     
1,236,400
 
Subscription receivable
   
(100,000
)
   
(100,000
)
Deferred stock-based compensation
   
(222,830
)
   
(306,392
)
Retained earnings
   
1,176,006
     
1,293,904
 
Accumulated other comprehensive loss
   
(13,249
)
   
(6,760
)
TOTAL STOCKHOLDERS' EQUITY
   
2,102,052
     
2,142,877
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
7,629,039
   
$
7,865,224
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
Green Dragon Wood Products, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
For the three and six months ended September 30, 2014 and 2013
 (Currency expressed in United States Dollars ("US$"), except for number of shares)
(Unaudited)
 
   
Three Months ended September 30,
   
Six Months ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Revenues, net
 
$
2,186,610
   
$
1,134,893
   
$
5,288,405
   
$
3,602,561
 
                                 
Cost of revenue
   
(2,037,372
)
   
(1,092,269
)
   
(4,887,543
)
   
(3,408,903
)
                                 
Gross profit
   
149,238
     
42,624
     
400,862
     
193,658
 
                                 
General and administrative expenses
   
232,100
     
193,824
     
472,266
     
471,392
 
                                 
Total operating expenses
   
232,100
     
193,824
     
472,266
     
471,392
 
                                 
LOSS FROM OPERATIONS
   
(82,862
)
   
(151,200
)
   
(71,404
   
(277,734
                                 
Other income (expense):
                               
Foreign exchange gain (loss), net
   
10,301
     
7,958
     
(1,049
   
(9,965
Interest income
   
1,027
     
8,798
     
1,356
     
17,574
 
Interest expense
   
(54,809
)
   
(50,278
)
   
(113,768
)
   
(112,728
)
Other income
   
25,740
     
113
     
66,967
     
84,817
 
                                 
LOSS BEFORE INCOME TAXES
   
(100,603
)
   
(184,609
)
   
(117,898
   
(298,036
                                 
Income tax expense
   
-
     
-
     
-
     
(9,104
)
                                 
NET LOSS
   
(100,603
)
   
(184,609
)
   
(117,898
   
(307,140
                                 
Other comprehensive loss:
                               
- Reclassification adjustment for disposal of available-for-sale securities
   
-
     
-
     
-
     
(52,363
- Foreign currency translation adjustment
   
(6,619
)
   
(2,948
)
   
(6,489
   
(6,627
                                 
                                 
COMPREHENSIVE LOSS
 
$
(107,222
)
 
$
(187,557
)
 
$
(124,387
 
$
(366,130
                                 
Net loss per share - Basic and diluted
 
$
(0.004
 
$
(0.008
 
$
(0.005
 
$
(0.013
                                 
Weighted average common shares outstanding
during the year - Basic and diluted
   
23,725,000
     
23,725,000
     
23,725,000
     
22,915,983
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
Condensed Consolidated Statements of Stockholders' Equity
For the six months ended September 30, 2014
 (Currency expressed in United States Dollars ("US$"), except for number of shares)
(Unaudited)

                                                   
Accumulated
       
                           
Additional
         
Deferred
         
other
   
Total
 
   
Preferred stock
   
Common stock
   
paid
   
Subscription
   
stock-based
   
Retained
   
comprehensive
   
stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
in capital
   
receivable
   
compensation
   
earnings
   
(loss) / gain
   
equity
 
                                                             
Balance as of March 31, 2013
   
2,000,000
   
$
2,000
     
20,200,000
   
$
20,200
   
$
1,222,300
   
$
(100,000
)
 
$
(473,059
)
 
$
1,713,255
   
$
51,402
     
2,436,098
 
                                                                                 
Amortization
of deferred stock-based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
166,667
     
-
     
-
     
166,667
 
                                                                                 
Equity Settled
– Share based Payment
   
-
     
-
     
3,525,000
     
3,525
     
14,100
     
-
     
-
     
-
     
-
     
17,625
 
                                                                                 
Reclassification adjustment for disposal on available-for-sales securities
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(52,363
)
   
(52,363
)
                                                                                 
Net loss for the 12 months ended March 31, 2014
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(419,351
)
   
-
     
(419,351
)
                                                                                 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(5,799
)
   
(5,799
)
                                                                                 
Balance as of March 31, 2014
   
2,000,000
   
$
2,000
     
23,725,000
   
$
23,725
   
$
1,236,400
   
$
(100,000
)
 
$
(306,392
)
 
$
1,293,904
   
$
(6,760
)
   
2,142,877
 
                                                                                 
Amortization of deferred stock-based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
83,562
     
-
     
-
     
83,562
 
                                                                                 
Net loss for the six months ended September 30, 2014
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(117,898
)
   
-
     
(117,898
)
                                                                                 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(6,489
   
(6,489
                                                                                 
Balance as of September 30, 2014
   
2,000,000
   
$
2,000
     
23,725,000
   
$
23,725
   
$
1,236,400
   
$
(100,000
)
 
$
(222,830
)
 
$
1,176,006
   
$
(13,249
)
 
$
2,102,052
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
Green Dragon Wood Products, Inc.
Condensed Consolidated Statements of Cash Flows
For the six months ended September 30, 2014 and 2013
 (Currency expressed in United States Dollars ("US$"), except for number of shares)
(Unaudited)
 
   
Six Months ended September 30,
 
   
2014
   
2013
 
Cash flow from operating activities:
           
Net Loss
 
$
(117,898
 
$
(307,140
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
         
Depreciation
   
8,159
     
9,119
 
Stock-based compensation
   
83,562
     
101,187
 
Net loss arising on changes in fair value of life insurance
   
-
     
(10,404
)
Gain on disposal of available-for-sales securities
   
-
     
(84,704
)
Changes in operating assets and liabilities:
               
Accounts receivable
   
749,092
     
1,106,624
 
Prepayments, deposits and other receivables
   
(329,642
)
   
(793,544
)
Income tax recoverable
   
-
     
97,205
 
Accounts payable, trade
   
(105,461
   
(647,674
Bills receivable
   
(196,172
)
   
-
 
Accrued liabilities and other payables
   
285,480
     
55,002
 
Income tax payable
   
-
     
(94,197
                 
Net cash provided by (used in) operating activities
   
377,120
     
(568,526
                 
Cash flows from investing activities:
               
Purchase of plant and equipment
   
(7,688
   
(64
Proceed from disposal of available-for-sales securities
   
-
     
393,362
 
                 
Net cash (used in) provided by investing activities
   
(7,688
   
393,298
 
                 
Cash flows from financing activities:
               
Repayment of revolving lines of credit
   
(372,681
   
(706,972
Change in restricted cash
   
457
     
514,821
 
Repayment of long-term insurance policy loan
   
-
     
(39,130
)
Repayment of finance lease
   
(6,113
)
   
(5,761
)
Repayment of short-term bank loan
   
 -
     
 (257,620
)
Repayment of long-term bank loans
   
-
     
(309,144
)
Advances from a director
   
3,415
     
658,056
 
                 
Net cash used in financing activities
   
(374,922
)
   
(145,750
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(6,489
   
12,250
 
                 
Net change in cash and cash equivalents
   
(11,979
)
   
(308,728
)
Cash and cash equivalents, beginning of period
   
34,597
     
342,329
 
Cash and cash equivalents, end of period
 
$
22,618
   
$
33,601
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
Green Dragon Wood Products, Inc.
Condensed Consolidated Statements of Cash Flows
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Currency expressed in United States Dollars ("US$"), except for number of shares)
(Unaudited)
 
   
Six Months ended September 30,
 
   
2014
   
2013
 
Supplemental disclosure of cash flow information:
               
Interest paid
 
$
113,768
   
$
112,728
 
Income tax paid
 
$
-
   
$
6,081
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
  (Unaudited)

1.     BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of March 31, 2014 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2015 or for any future period.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2014.

2.     ORGANIZATION AND BUSINESS BACKGROUND

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”.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

3.     SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
 
The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

Basis of presentation
These accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

Basis of consolidation
The condensed 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 condensed 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 periods 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 September 30, 2014 and March 31, 2014, the Company maintained minimum cash balances of $395,436 and $395,893 in a pledged deposit account as collateral for the revolving lines of credit and issuing back to back LC provided by the financial institutions in Hong Kong.
 
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 collectability. 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.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

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
Motor vehicle
  3 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 three months ended September 30, 2014 and 2013 was $4,186 and $4,057, respectively.

Depreciation expense for the six months ended September 30, 2014 and 2013 was $8,159 and $9,119, respectively.

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 collectability 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, inspection charges  and sales commission. Shipping and handling costs associated with the distribution of the products to the customers totaled approximately $207,905 and $130,880  for the six months ended September 30, 2014 and 2013 respectively, which are recorded in cost of revenue.
 
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 condensed 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.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
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 discloses 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 three months and six months ended September 30, 2014 and 2013, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2014, the Company did not have any significant unrecognized uncertain tax positions.

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 statement of operations.

The reporting currency of the Company is United States Dollar ("US$") and the accompanying condensed consolidated financial statements have been expressed in US$. 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 statement of changes in stockholders’ equity.
 
Translation of amounts from HK$ into US$1 has been made at the following exchange rates for the six months ended September 30, 2014 and 2013:
 
   
September 30,
 
   
2014
   
2013
 
Period-end HK$: US$1 exchange rate
   
7.7653
     
7.7580
 
Period average HK$: US$1 exchange rate
   
7.7539
     
7.7580
 
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

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 three and six months ended September 30, 2014 and 2013, the Company operates one reportable business segment in Hong Kong.

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

4.     ACCOUNTS RECEIVABLE, NET
 
   
September 30,
2014
   
March 31,
2014
 
   
(Unaudited)
   
(Audited)
 
             
Accounts receivable, trade
 
$
5,456,063
   
$
6,205,160
 
Less: allowances for doubtful accounts
   
(2,710
)
   
(2,715
)
Accounts receivable, net
 
$
5,453,353
   
$
6,202,445
 

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 three and six months ended September 30, 2014 and 2013, no provision for doubtful accounts was charged to operations.

5.     PREPAYEMNT, DEPOSITS AND OTHER RECEIVABLES

Prepayments, deposits and other receivables consisted of:
 
   
September 30,
   
March 31,
 
   
2014
   
2014
 
   
(Unaudited)
   
(Audited)
 
             
Purchase deposits to vendors
 
$
1,048,852
   
$
901,824
 
Rental and utilities deposits
   
27,945
     
27,945
 
Other receivables
   
424,244
     
241,630
 
Total
 
$
1,501,041
   
$
1,171,399
 

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
6.     REVOLVING LINES OF CREDIT

Revolving lines of credit consist of:

   
September 30,
   
March 31,
 
   
2014
   
2014
 
   
(Unaudited)
   
(Audited)
 
Payable to financial institutions in Hong Kong:
           
DBS Bank (Hong Kong) Limited
 
$
1,840,662
   
$
1,810,274
 
Industrial and Commercial Bank of China (Asia) Limited
   
917,959
     
875,188
 
Shanghai Commercial Bank Limited
   
468,763
     
650,023
 
ICICI Bank Limited
   
-
     
255,414
 
     
3,227,384
     
3,590,899
 
Payable to third parties (under supplier agreement)
               
Tai Wah Timber Factory Limited
   
841,646
     
850,812
 
                 
Total
 
$
4,069,030
   
$
4,441,711
 

On February 4, 2013, the Company entered into a credit facility and financing agreement with the DBS Bank (Hong Kong) Limited (“DBS”) provides for borrowings up to HK$14,000,000 (approximately $1,803,000) for up to 120 days generally with interest at (i) 1% per annum below Prime Rate for Hong Kong Dollar bills and (ii) Standard Bills Rate quoted by DBS from time to time for foreign currency bills on the outstanding amount from drawdown until repayment in full as conclusively calculated by DBS.

The credit facility with the Industrial and Commercial Bank of China (Asia) Limited (“ICBC”) provides for borrowings up to HK$8,000,000 (approximately $1,030,000), which bears interest at a rate of 2% per annum below the ICBC’s Hong Kong Dollar Best Lending Rate and are guaranteed by the Hong Kong Mortgage Corporation Limited (“HKMC”), and Ms. Mei Ling Law and Mr. Kwok Leung Lee, directors of the Company.

The credit facility with Shanghai Commercial Bank Limited provides for borrowings up to HK$ 6,500,000 (approximately $837,000), 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.

The credit facility with ICICI Bank at September 30, 2014 was the used credit amount of HK$0 (approximately $0), and it is changed from time to time.

During six months ended September 30, 2014, the Company entered into a $4.0 million letter of credit facility with ICICI Bank, on a back-to-back basis against receipt of original letters of credit from a bank upon acceptance. The Company shall, at all times, maintain a cash margin equivalent to 5% of the amount of the facility utilized with the Bank in the form of a fixed deposit. The facility is secured by assignment of receivable under the letter of credit opened in favor of the Customer from time to time to the bank. Availability under this credit facility is reduced by outstanding letters of credit. As of September 30, 2014, there were no borrowings under this letter of credit facility and the Company had not issued letters of credit under this letter of credit facility.  

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 and an interest of 12% per annum, payable monthly. Additional interest is charged on any overdue balance.

At September 30, 2014, the Company had aggregate secured banking facilities of $3,670,174 in which $442,790 is unused.

 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
7.   OBLIGATION UNDER FINANCE LEASE 
 
On February 20, 2013 the Company entered into a finance lease agreement to purchase a motor vehicle. The lease has a term of 54 months expiring August 20, 2017 with a monthly payment of approximately $1,137 (HK$8,828).

As of September 30, 2014, the minimum remaining lease payments under this finance lease are as follows:
 
   
September 30,
   
March 31,
 
   
2014
   
2014
 
   
(Unaudited)
   
(Audited)
 
Finance lease
 
$
39,790
   
$
46,691
 
Less: interest expenses
   
(2,136
)
   
(2,924
)
                 
Net present value of finance lease
 
$
37,654
   
$
43,767
 
                 
Current portion
 
$
12,442
   
$
12,219
 
Non-current portion
   
25,212
     
31,548
 
                 
Total
 
$
37,654
   
$
43,767
 
 
As of September 30, 2014, the minimum remaining lease payments under this finance lease are as follows:
 
Year ending September 30:
 
September 30,
2014
   
March 31,
2014
 
2015
 
$
13,642
   
$
13,666
 
2016
   
13,642
     
13,666
 
2017
   
12,506
     
13,665
 
2018
   
-
     
5,694
 
Subtotal
   
39,790
     
46,691
 
Less: interest
   
(2,136
)
   
(2,924
)
Net minimum lease payment under finance lease
   
37,654
     
43,767
 
Less: current portion of net minimum lease payments
   
(12,442
)
   
(12,219
)
Long-term portion of net minimum lease payments
 
$
25,212
   
$
31,548
 

8.   AMOUNT DUE TO A DIRECTOR

As of September 30, 2014 and March 31, 2013, 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.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

9.   INCOME TAXES
 
For the six months ended September 30, 2014 and 2013, the local (United States) and foreign components of income before income taxes were comprised of the following:
 
   
Six months ended September 30,
 
   
2014
   
2013
 
             
Tax jurisdictions from:
           
-   Local
 
$
-
   
$
-
 
-   Foreign
   
(117,898
)
   
(298,036
)
Loss before income taxes
   
(117,898
)
   
(298,036
)
 
Provision for income taxes consisted of the following:
 
   
Six months ended September 30,
 
   
2014
   
2013
 
             
Current:
           
-   Local
 
$
-
   
$
-
 
-   Foreign
   
-
     
9,104
 
                 
Deferred:
               
-   Local
   
-
     
-
 
-   Foreign
   
-
     
-
 
                 
Income tax expenses
 
$
-
   
$
9,104
 
 
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 six months ended September 30, 2014 and 2013, the Company incurred no operation in the United States of America. GDWP is delinquent in filing its United States corporation income tax returns for the periods from inception in 2007. The Company does not expect any tax to be due upon filing of these delinquent returns.

British Virgin Island

Under the current BVI law, GDI is not subject to tax on income or profit. For the six months ended September 30, 2014 and 2013, GDI incurred no operation in the BVI.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

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 six months ended September 30, 2014 and 2013 are as follows:

   
Six months ended September 30,
 
   
2014
   
2013
 
             
Loss before income taxes
 
$
(117,898
)
 
$
(298,036
)
Statutory income tax rate
   
16.5
%
   
16.5
%
Income tax at Hong Kong statutory income tax rate
   
(19,453
)
   
(49,176
                 
Tax loss not recognized
   
19,453
 
   
49,176
 
Tax adjustment for prior year
   
-
     
9,104
 
Income tax expenses
 
$
-
   
$
9,104
 

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 September 30, 2014 and March 31, 2014, therefore no deferred tax assets or liabilities have been recognized.
 
10.   EQUITY SETTLED – STOCK BASED COMPENSATION
 
On January 30, 2013, the Company executed an Employment Agreement with Mr. Kwok Leung Lee , which has a term of 3 years (1095 days). In connection of this agreement, 2,000,000 shares of Series A Convertible Preferred stock issued to Mr. Lee.
 
Every share of Series A convertible Preferred stock has a right for conversion to 50 shares of common stock, and the fair value of the common stock on the issuing date was $0.005 per share.
 
On January 30, 2013, $500,000 was recorded as deferred stock-based compensation in the stockholder’s equity, and was being amortized over Mr. Lee’s contracted employment period of 3 years.
 
For the six months period ended September 30, 2014, the amortization of deferred stock-based compensation was $83,562, which was recognized as the administration expenses in the operation.
 
As of September 30, 2014, $222,830 deferred stock-based compensation was recorded in the stockholder’s equity.
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
11.   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:

   
Six months ended September 30,
 
   
2014
   
2013
 
             
Revenue, net:
           
~ The PRC (including Hong Kong)
 
$
3,432,817
   
$
2,330,117
 
~ Middle East
   
182,592
     
260,370
 
~ India
   
1,032,673
     
470,806
 
~ Europe
   
50,211
     
36,599
 
~ Others
   
590,112
     
504,669
 
Total
 
$
5,288,405
   
$
3,602,561
 

   
Three months ended September 30,
 
   
2014
   
2013
 
             
Revenue, net:
           
~ The PRC (including Hong Kong)
 
$
1,093,103
   
$
801,243
 
~ Middle East
   
18,077
     
33,584
 
~ India
   
632,140
     
194,489
 
~ Europe
   
-
     
10,528
 
~ Others
   
443,290
     
95,049
 
Total
 
$
2,186,610
   
$
1,134,893
 

All of the Company’s long-lived assets are located in Hong Kong.

 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
12.   CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)         Major customers

For the three and six months ended September 30, 2014 and 2013, 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:

   
Three months ended
September 30, 2014
   
September 30, 2014
 
   
Revenues
   
Percentage of revenues
   
Accounts receivable
 
Customer D
 
$
386,928
     
18
%
 
$
386,360
 
Customer B (Vendor A)
   
361,681
     
17
%
   
3,183,759
 
Customer H
   
275,975
     
13
%
   
275,570
 
Customer E
   
261,555
     
12
%
   
142,252
 
Total
 
$
1,286,139
     
60
%
 
$
3,987,941
 
 
   
Six months ended
September 30, 2014
   
September 30, 2014
 
   
Revenues
   
Percentage of revenues
   
Accounts receivable
 
Customer E
 
$
727,352
     
14
%
 
$
142,252
 
Customer B (Vendor A)
   
719,661
     
14
%
   
3,183,759
 
Customer D
   
551,413
     
10
%
   
386,360
 
Total
 
$
1,998,426
     
38
%
 
$
3,712,371
 
 
   
Three months ended
September 30, 2013
   
September 30, 2013
 
   
Revenues
   
Percentage of revenues
   
Accounts receivable
 
Customer A
 
$
652,849
     
58
%
 
$
920,631
 
                         
Total
 
$
652,849
     
58
%
 
$
920,631
 
 
   
Six months ended
September 30, 2013
   
September 30, 2013
 
   
Revenues
   
Percentage of revenues
   
Accounts receivable
 
Customer A
 
$
1,646,549
     
46
%
 
$
920,631
 
Customer B (Vendor A)
   
537,156
     
15
%
   
3,600,708
 
Customer C
   
358,303
     
10
%
   
74,696
 
Total
 
$
2,542,008
     
71
%
 
$
4,596,035
 
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

(b)         Major vendors

For the three and six months ended September 30, 2014 and 2013, 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:
 
   
Three months ended
September 30, 2014
   
September 30, 2014
 
   
Purchases
   
Percentage of purchases
   
Accounts payable
 
                   
Vendor A (Customer B)
 
$
849,300
     
44
%
 
$
-
 
Vendor D
   
222,919
     
12
%
   
6,595
 
Total
 
$
1,072,219
     
56
%
 
$
6,595
 
 
   
Six months ended
September 30, 2014
   
September 30, 2014
 
   
Purchases
   
Percentage of purchases
   
Accounts payable
 
                   
Vendor A (Customer B)
 
$
1,492,388
     
32
%
 
$
-
 
Vendor D
   
688,152
     
15
%
   
6,595
 
Total
 
$
2,180,540
     
47
%
 
$
6,595
 
 
   
Three months ended
September 30, 2013
   
September 30, 2013
 
   
Purchases
   
Percentage of purchases
   
Accounts payable
 
                   
Vendor A (Customer B)
 
$
284,813
     
28
%
 
$
-
 
Vendor E
   
279,792
     
27
%
   
-
 
Total
 
$
564,605
     
55
%
 
$
-
 
 
   
Six months ended
September 30, 2013
   
September 30, 2013
 
   
Purchases
   
Percentage of purchases
   
Accounts payable
 
                   
Vendor A (Customer B)
 
$
1,122,701
     
34
%
 
$
-
 
Vendor F
   
416,764
     
13
%
   
-
 
Vendor E
   
383,183
     
12
%
   
-
 
Total
 
$
1,922,648
     
59
%
 
$
-
 

 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
(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 September 30, 2014, all of borrowings were at variable rates. The interest rates and terms of repayment of the borrowings are disclosed in Note 6, 7 and 8.

 (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.

13.   COMMITMENTS 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 2015. Total rent expenses for the six months ended September 30, 2014 and 2013 was $63,900 and $63,867, respectively.

As of September 30, 2014, the Company has the future minimum rental payments approximately $165,318 (HK$1,283,740) under various non-cancelable operating leases in the next two years, as follows:

Year ending September 30:
 
2015
 
$
94,235
 
2016
   
71,083
 
Total
 
$
165,318
 
 
 
GREEN DRAGON WOOD PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2014
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

14.  COMMITMENTS AND CONTINGENCIES
 
(b)         Legal proceedings
 
(i) 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 trial occurred in October 2013 and the parties are waiting for the judgment of the court.

At September 30, 2014, in the opinion of Company management, the resolution of this matter will not have a material effect on the Company’s financial statements in the foreseeable future.

(ii) On March 17, 2014, Paul Stamper (“Plaintiff”) filed a complaint (the “Complaint”) against, among other parties, GDWPCL, in the Hendricks Superior Court located in Hendricks County in the State of Indiana, Case No. 32D05-1403-MI-70, seeking, among other things, enforcement of a judgment entered into against all defendants on December 8, 2011 in Wabash County Circuit Court, Case No. 85C01-1112-MI-1013, in the aggregate principal amount of $42,697.14 plus interest and costs  (the “Judgment”).   The Company, its officers and directors deny the material allegations of the Complaint since the Company does not conduct business in the State of Indiana and intend to vigorously defend itself in this action.

(c)         Contractual commitment

The Company is committed to a series of 22 structured foreign exchange contracts with DBS bank to hedge the fluctuation between USD and RMB for a term of period from November 2013 to August 2015, monthly expiry.  As of September 30, 2014, 11 contracts were fully executed and the remaining 11 contracts are outstanding. The Company expects no material contingent loss from these committed contracts in the next twelve months.
 
15.   SUBSEQUENT EVENTS
 
In accordance with ASC Topic 855, “ Subsequent Events ”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2014 up through the date was the Company presented this condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.
 
 
ITEM 2.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Cautionary Note Regarding Forward-Looking Statements
 
We make certain forward-looking statements in this report. 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 as required by law.
 
The following discussion and analysis should be read in conjunction with our condensed 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 Form 10-Q to “we,” “us,” “our,” “the Registrant”, “Green Dragon”, “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 condensed consolidated 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 condensed consolidated our financial statements.
 
 
We believe the following is among the most critical accounting policies that impact our condensed 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.
 
Accounts receivable and allowance for doubtful accounts
 
Accounts receivable are recorded at the invoiced amount 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 collectability. 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.
 
The credit terms of our two major customers are summarized as below:
 
Major Customers
 
Contractual Credit Term
 
Repayment Term #
         
Customer A
 
60 to 90 days
 
Accounts receivable are repaid on a regular basis to the Company and the cash receipt is made to Customer B upon the instruction of the Company.
         
Customer B (also a major supplier)
 
90 to 180 days
 
Customer B receives the cash settlement from Customer A and the aggregate receivable will offset against its trade payable.
 
In March 2010, the Company entered into a tri-parties settlement arrangement among Customer A and Customer B. Under such arrangement, Customer A agreed to transfer its accounts receivable balance to Customer B and Customer 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.
 
Accounting Standard Codification ("ASC") Topic 605
 
We recognize revenue in accordance with ASC Topic 605, “Revenue Recognition” when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.
 
The majority of the Company's revenue results from sales contracts with direct customers and revenues are generated upon the shipment of goods. The Company's pricing structure is fixed and there are no rebate or discount programs. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectability. Based on these factors, the Company believes that it can apply the provisions of ASC Topic 605 with minimal subjectivity.
 
Recent Accounting Pronouncements
 
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do 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.
 
 
Results of Operations
 
Comparison of the Three Months Ended September 30, 2014 and 2013
 
The following table summarizes the results of our operations during the three months ended September 30, 2014 and 2013, and provides information regarding the dollar and percentage increase or (decrease) from the three months ended September 30, 2014 to the three months ended September 30, 2013.
 
   
Three Months Ended
   
$
   
%
 
   
September 30,
   
Increase/
   
Increase/
 
   
2014
   
2013
   
(Decrease)
   
(Decrease)
 
                           
Revenue, net
 
$
2,186,610
   
$
1,134,893
   
$
1,051,717
     
93
%
Cost of Revenue
   
(2,037,372
)
   
(1,092,269
)
   
945,103
     
87
%
Gross Profit
   
149,238
     
42,624
     
106,614
     
250
%
                                 
General and Administrative Expenses
   
232,100
     
193,824
     
38,276
     
20
%
Total Operating Expenses
   
232,100
     
193,824
     
38,276
     
20
%
Loss from Operations
   
(82,862
)
   
(151,200
)
   
(68,338
)
   
(45
)%
Other Expense
   
(17,741
)
   
(33,409
)
   
(15,668
 )
   
(47
)%
Loss before Income Tax
   
(100,603
)
   
(184,609
)
   
(84,006
)
   
(46
) %
Income Tax Expense
   
-
     
-
     
-
     
-
%
Net  Loss
 
$
(100,603
)
 
$
(184,609
)
 
$
(84,006
   
(46
)%

Revenue
 
Revenue for the three months ended September 30, 2014 was $2,186,610, an increase of $1,051,717 or 93% from $1,134,893 for the comparable period in 2013. This increase was primarily attributable to the result of our effort in broadening the customer base in China and India market.
 
Cost of revenue and gross profit
 
Cost of revenue for the three months ended September 30, 2014 was $2,037,372, an increase of $945,103 or 87% from $1,092,269 for the comparable period in 2013. This increase was primarily attributable to the increase in sales.
 
Gross profit for the three months ended September 30, 2014 was $149,238, an increase of $106,614 or 250% from $42,624 for the comparable period in 2013. This increase was primarily attributable to the increase in sales. The gross profit margin for the three months ended September 30, 2014 increased from 3.76% to 6.83% for the comparable period in 2013. The increase was primarily attributable to increase of sales of high profit margin products.
 
General and Administrative
 
General and administrative expenses mainly consist of payroll, rental expenses, professional fee, bank charges and exchange gain or loss on foreign currency.

General and administrative expenses for the three months ended September 30, 2014 was $232,100, an increase of $38,276 or  20% from $193,824 for the comparable period in 2013. This increase was primarily attributable to the loss on exchange on EURO.
 
Other Expense

Other expense for the three months ended September 30, 2014 was $17,741, a decrease of $15,668 or 47% from $33,409 for the comparable period in 2013. This decrease in other expense was primarily attributable to a gain on non-deliverable structured forward contract was recognized other income in Year 2014 and no such gain in Year 2013.
 
 
Loss before income tax
 
Loss before income tax for the three months ended September 30, 2014 was loss of $100,603, a decrease of $84,006 in loss or 46% compared to loss of $184,609 for the comparable year in 2013. The decrease was primarily attributable to increase in sales.
 
Net loss
 
Net loss for the three months ended September 30, 2014 was a loss of $100,603, a decrease of $84,006 loss or 46% from net loss of $184,609 for the comparable period in 2013. This decrease was primarily attributable to the increase in sales.
 
Comparison of the Six Months Ended September 30, 2014 and 2013

The following table summarizes the results of our operations during the six months ended September 30, 2014 and 2013, and provides information regarding the dollar and percentage increase or (decrease) from the six months ended September 30, 2014 to the six months ended September 30, 2013.

   
Six Months Ended
   
$
   
%
 
   
September 30,
   
Increase/
   
Increase/
 
   
2014
   
2013
   
(Decrease)
   
(Decrease)
 
                           
Revenue, net
 
$
5,288,405
   
$
3,602,561
   
$
1,685,844
     
47
%
Cost of Revenue
   
(4,887,543
)
   
(3,408,903
)
   
(1,478,640
)
   
43
%
Gross Profit
   
400,862
     
193,658
     
207,204
     
107
%
                                 
General and Administrative Expenses
   
472,266
     
471,392
     
874
     
0
%
Total Operating Expenses
   
472,266
     
471,392
     
874
     
0
%
Loss from Operations
   
(71,404
   
(277,734
   
(206,330)
     
(74
)%
Other(Expense
   
(46,494
)
   
(20,302
)
   
26,192
     
129
%
Loss  before Income Tax
   
(117,898
)
   
(298,036
)
   
(180,138
)
   
(60
)%
Income Tax Expense
   
-
     
(9,104
)
   
(9,104
 )
   
(100
)%
Net loss
 
$
(117,898
 
$
(307,140
 
$
(189,242
)
   
(62
)%

Revenue

Revenue for the six months ended September 30, 2014 was $5,288,405, an increase of $1,685,844 or 47% from $$3,602,561 for the comparable period in 2013.  This increase was primarily attributable to the result of our effort in broadening our customer base in China and India market.

Cost of revenue and gross profit

Cost of revenue for the six months ended September 30, 2014 was $4,887,543, an increase of $1,478,640 or 43% from $3,408,903 for the comparable period in 2013. This increase was primarily attributable to the increase in sales.

Gross profit for the six months ended September 30, 2014 was $400,862, an increase of $207,204 or 107% from $193,658 for the comparable period in 2013. This increase was primarily attributable to the increase in sales. The gross profit margin for the six months ended September 30, 2014 increased from 5.38% to 7.58% for the comparable period in 2013. The increase was primarily attributable to increase of sales of high profit margin products.
 
 
General and Administrative

General and administrative expenses mainly consist of payroll, rental expenses, professional fee, bank charges and exchange gain or loss on foreign currency.

General and administrative expenses for the six months ended September 30, 2014 was $472,266, closely to $471,392 for the comparable period in 2013.

Other Expense

Other expense for the six months ended September 30, 2014 was $46,494 an increase of $26,192 or 129% from $20,302 for the comparable period in 2013. This increase was primarily attributable to a gain of disposal on available-for-sales security was recognized in Year 2013 to set off other expense and no such income was recognized in 2014.
 
Loss before income tax

Loss before income tax for the six months ended September 30, 2014 was $117,898 an decrease of $180,138 in loss, compared to loss of $298,036 for the comparable year in 2013. The decrease in loss was due primarily to the increase in sales.

Net loss

Net loss for the six months ended September 30, 2014 was $117,898 decrease of $189,242 in loss from net loss of $307,140 for the comparable period in 2013. This decrease was due primarily to the increase of income before income tax discussed above.

Liquidity and Capital Resources
 
Cash and Cash Equivalents
 
Our cash and cash equivalents as at the beginning of the six months ended September 30, 2014 was $34,597, decreased to $22,618 by the end of the period, a decrease of $11,979 or 35%. The decrease was primarily attributable to the decrease in cash inflow on the advance from director.
 
Net cash provided by (used in) operating activities
 
Net cash provided by operating activities for the six months ended September 30, 2014 was $377,120, an increase of $945,646 or 166% from cash used in operating activities of $568,526 for the comparable period in 2013. This increase was primarily attributable to a decrease of cash outflow to suppliers.

Net cash (used in) provided by investing activities
 
Net cash (used in) provided by investing activities was ($7,688) and $393,298 for the six months ended September 30, 2014 and 2013, respectively. The decrease of $400,986 was mainly attributable to cash inflow on the proceeds of disposal of available-for-sales securities.
 
Net cash used in financing activities
 
Net cash used in financing activities for the six months ended September 30, 2014 was $374,922, an increase of $229,172 in cash outflow or 157% when compared to net cash used in financing activities of $145,750 for the comparable period in 2013. The increase was primarily attributable to the decrease in cash inflow on the advance from director. 
 
 
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 the Tri-parties Settlement Arrangement among Customer A, Party B and us;
 
1.
Customer A agrees to make cash payments directly to the designated bank accounts of Party B, per our monthly instruction;
2.
We and Party B agree to offset the cash proceeds against the accounts payable which we owe to Party B, and;
3.
In any event if Party B is not reimbursed by Customer A, we are responsible to chase Customer A for the settlement under 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 on 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;
 
1.
Party B has a long-term commercial history and experience in sale and procurement of wood products in China;
2.
Party B has developed an extensive marketing and sourcing network in China, and;
3.
We have built up a prolonged trust and confidence in doing business 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 September 30, 2014 and March 31, 2014, the accounts receivable balance transferred from Customer A to Party B was $0 and $951,161, respectively. The accounts receivable balances of Customer A and Party B under the tri-parties settlement arrangement is presented as follows:
 
   
As of September 30, 2014
 
   
Customer A
   
Party B
 
Accounts receivable
 
$
-
   
$
3,183,758
 
Accounts payable
   
-
     
-
 
Add (less): Transfer of accounts receivable from Customer A to Party B
   
-
     
-
 
Accounts receivable, net
 
$
       
3,183,758
 
 
   
As of March 31, 2014
 
   
Customer A
   
Party B
 
Accounts receivable
 
$
1,935,073
   
$
2,889,446
 
Accounts payable
   
-
     
-
 
Add (less): Transfer of accounts receivable from Customer A to Party B
   
(951,161
)
   
951,161
 
Accounts receivable, net
 
$
983,912
   
$
3,840,607
 
 
   
As of September 30, 2014 and March 31, 2014, the aging analysis of Party B is as follow:
 
   
As of
 
   
September 30,
2014
   
March 31,
2014
 
0-90 days
 
$
815,835
   
$
1,290,439
 
91-180 days
   
1,051,998
     
1,435,544
 
181-270 days
   
880,137
     
628,301
 
271-360 days
   
435,788
     
486,323
 
Over 360 days
   
-
     
-
 
Total
 
$
3,183,758
   
$
3,840,607
 
 
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 $2,093,634 and $2,140,324 at September 30, 2014 and March 31, 2014, respectively.
 
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 September 30, 2014, but from time to time, we may identify new business opportunities to improve the profitability and working capital from operations.
 
Capital Resources

On February 4, 2013, the Company entered into a credit facility and financing agreement with the DBS Bank (Hong Kong) Limited (“DBS”) provides for borrowings up to HK$14,000,000 (approximately $1,803,000) for up to 120 days generally with interest at (i) 1% per annum below Prime Rate for Hong Kong Dollar bills and (ii) Standard Bills Rate quoted by DBS from time to time for foreign currency bills on the outstanding amount from drawdown until repayment in full as conclusively calculated by DBS.
 
The credit facility with the Industrial and Commercial Bank of China (Asia) Limited (“ICBC”) provides for borrowings up to HK$8,000,000 (approximately $1,030,000), which bears interest at a rate of 2% per annum below the ICBC’s Hong Kong Dollar Best Lending Rate and are guaranteed by the Hong Kong Mortgage Corporation Limited (“HKMC”), and Ms. Mei Ling Law and Mr. Kwok Leung Lee, directors of the Company.

The credit facility with Shanghai Commercial Bank Limited provides for borrowings up to HK$ 6,500,000 (approximately $837,000), 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.
 
The credit facility with ICICI Bank at September 30, 2014 was the used credit amount of HK$0 (approximately $0), and it is change from time to time.
 

For the six months ended September 30, 2014, the Company entered into a $4.0 million letter of credit facility with ICICI Bank, on a back-to-back basis against receipt of original letters of credit from a bank upon acceptance. The Company shall, at all times, maintain a cash margin equivalent to 5% of the amount of the facility utilized with the Bank in the form of a fixed deposit. The facility is secured by assignment of receivable under the letter of credit opened in favor of the Customer from time to time to the bank. Availability under this credit facility is reduced by outstanding letters of credit. As of September 30, 2014, there were no borrowings under this letter of credit facility and the company had not issued letters of credit under this letter of credit facility.

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 and an interest of 12% per annum, payable monthly. Additional interest is charged on any overdue balance.

At September 30, 2014, the Company had aggregate secured banking facilities of $3,670,174 in which $442,790 is unused.
 
Financing Arrangement

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 and an interest of 12% per annum, payable monthly. Additional interest is charged on any overdue balance.
 
As of September 30, 2014 and March 31 2014, the outstanding balance was $841,646 and $850,812, 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.

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.
 
 
ITEM 3.              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4 .             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 (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon their evaluation, our management (including our Chief Executive Officer) concluded that our disclosure controls and procedures were not effective as of September 30, 2014 based on the material weaknesses defined below.
 
 
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 condensed consolidated 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 condensed consolidated financial statements.  The Company is committed to establishing procedures and utilizing experienced individuals with professional supervision to properly segregate duties, prepare and approve the condensed 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 condensed consolidated 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.
 
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 this fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.
 
 
PART II – OTHER INFORMATION

ITEM 1.              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 trial occurred in October 2013 and the parties are waiting for the judgment of the court.

At September 30, 2014, in the opinion of Company management, the resolution of this matter will not have a material effect on the Company’s financial statements in the foreseeable future.

On March 17, 2014, Paul Stamper (“Plaintiff”) filed a complaint (the “Complaint”) against, among other parties, GDWPCL, in the Hendricks Superior Court located in Hendricks County in the State of Indiana, Case No. 32D05-1403-MI-70, seeking, among other things, enforcement of a judgment entered into against all defendants on December 8, 2011 in Wabash County Circuit Court, Case No. 85C01-1112-MI-1013, in the aggregate principal amount of $42,697.14 plus interest and costs  (the “Judgment”).   The Company, its officers and directors deny the material allegations of the Complaint since the Company does not conduct business in the State of Indiana and intend to vigorously defend itself in this action.  
 
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.

ITEM 1A.           RISK FACTORS.

Not Applicable.

ITEM 2.              UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
None.

ITEM 3.              DEFAULTS UPON SENIOR SECURITIES.
 
None.

ITEM 4.              MINE SAFETY DISCLOSURES.
 
None.

ITEM 5.              OTHER INFORMATION.
 
None.
 

ITEM 6.              EXHIBITS.

EXHIBIT NO.
 
DESCRIPTION
     
31.1
 
     
32.1
 
     
101.INS
 
XBRL Instance Document
     
101.SCH
 
XBRL Taxonomy Extension Schema Document
     
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
GREEN DRAGON WOOD PRODUCTS, INC.
   
   
Dated:  November 14, 2014
/s/Kwok Leung Lee
 
 
Kwok Leung Lee
 
President
 
(principal executive officer, principal financial officer, and principal accounting officer)

 
 
 
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