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: June 30, 2016

 

or

 

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 registrant as specified in its charter)

 

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

 

Unit 312, 3rd Floor, New East Ocean Centre

9 Science Museum Road

Kowloon, Hong Kong

(Address of principal executive offices) (Zip Code)

 

+852-2482-5168

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ¨  No  x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨  No  x

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x     

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

 

The number of shares of common stock issued and outstanding as of June 30, 2016 is 23,725,000. The number of shares of common stock issued and outstanding as of January 26, 2017 is 23,725,000. 

 

 

TABLE OF CONTENTS

 

		Page
	PART I	3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
	PART II	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
SIGNATURES		28

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

GREEN DRAGON WOOD PRODUCTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2016 AND MARCH 31, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

 

		June 30, 2016				March 31, 2016
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	520			$	41,438
Restricted cash			-				266,053
Accounts receivable, net			2,887,991				2,422,541
Amount due from a director			-				69,972
Prepayments and other receivables			2,031,476				1,995,852
Total current assets			4,919,987				4,795,856
Non-current assets:
Plant and equipment, net			4,993				7,907
TOTAL ASSETS		$	4,924,980			$	4,803,763
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings		$	1,863,449			$	2,637,060
Account payable, trade			1,413,662				1,144,436
Accrued liabilities and other payables			1,269,735				746,674
Amount due to a director			166,850				-
Obligation under finance lease			13,308				13,193
Total current liabilities			4,727,004				4,541,363
Non-current liabilities:
Obligation under finance lease			2,265				5,641
TOTAL LIABILITIES			4,729,269				4,547,004
Stockholders’ equity:
Preferred stock, $0.001 par value; 50,000,000 preferred shares authorized; Series A convertible Preferred Stock, 2,000,000 shares issued and outstanding, respectively			2,000				2,000
Common stock, $0.001 par value; 23,725,000 shares issued and outstanding, respectively			23,725				23,725
Additional paid-in capital			1,236,400				1,236,400
Subscription receivable			(100,000	)			(100,000	)
Accumulated losses			(949,314	)			(888,528	)
Accumulated other comprehensive loss			(17,100	)			(16,838	)
Total stockholders’ equity			195,711				256,759
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	4,924,980			$	4,803,763

 

See accompanying notes to condensed consolidated financial statements.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2016 AND 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

		Three months ended June 30,
		2016				2015
REVENUE, NET		$	494,300			$	1,969,142
COST OF REVENUES			(425,739	)			(1,683,167	)
GROSS PROFIT			68,561				285,975
General and administrative expenses			124,296				213,752
(LOSS) INCOME FROM OPERATIONS			(55,735	)			72,223
Other (expense) income:
Foreign exchange gain (loss)			11,780				(39,951	)
Interest income			105				106
Interest expense			(47,770	)			(56,984	)
Other income			30,834				25,958
Total other expense			(5,051	)			(70,871	)
(LOSS) INCOME BEFORE INCOME TAXES			(60,786	)			1,352
Income tax expense			-				-
NET (LOSS) INCOME		$	(60,786	)		$	1,352
Other comprehensive income:
– Foreign currency translation adjustment			(262	)			949
COMPREHENSIVE (LOSS) INCOME		$	(61,048	)		$	2,301
Net (loss) income per share:
– Basic		$	(0.00	)		$	0.00
– Diluted		$	(0.00	)		$	0.00
Weighted average common shares outstanding:
– Basic			23,725,000				23,725,000
– Diluted			23,725,000				23,725,000

 

See accompanying notes to condensed consolidated financial statements.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30, 2016 AND 2015

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

		Three months ended June 30,
		2016				2015
Cash flows from operating activities:
Net (loss) income		$	(60,786	)		$	1,352
Adjustments to reconcile net income to net cash generated from operating activities
Depreciation and amortization			2,909				4,597
Stock-based compensation			-				41,553
Change in operating assets and liabilities:
Accounts receivable			(465,450	)			515,839
Prepayments, deposits and other receivables			(35,624	)			183,383
Accounts payable, trade			269,226				76,174
Accrued liabilities and other payables			523,061				45,852
Net cash generated from operating activities			233,336				868,750
Cash flows from investing activities:
Purchase of plant and equipment			-				(1,374	)
Net cash used in investing activities			-				(1,374	)
Cash flows from financing activities:
Repayment of short-term borrowings			(773,611	)			(855,980	)
Change in restricted cash			266,053				762
Repayment of finance lease			(3,261	)			(3,119	)
Advance from (repayment to) a director			236,822				(98,898	)
Net cash used in financing activities			(273,997	)			(957,235	)
Effect on exchange rate change on cash and cash equivalents			(257	)			940
NET CHANGE IN CASH AND CASH EQUIVALENTS			(40,918	)			(88,919	)
BEGINNING OF PERIOD			41,438				101,506
END OF PERIOD		$	520			$	12,587
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for tax		$	-			$	-
Cash paid for interest		$	47,770			$	56,984

 

See accompanying notes to condensed consolidated financial statements.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

		Preferred stock								Common stock								Additional paid-in				Subscription				Accumulated other comprehensive				Retained				Total stockholders’
		Shares				Amount				Shares				Amount				capital				receivable				(loss) gain				earnings				equity
Balance as of April 1, 2016			2,000,000			$	2,000				23,725,000			$	23,725			$	1,236,400			$	(100,000	)		$	(16,838	)		$	(888,528	)		$	256,759
Net loss for the period			-				-				-				-				-				-				-				(60,786	)			(60,786	)
Foreign currency translation adjustment			-				-				-				-				-				-				(262	)			-				(262	)
Balance as of June 30, 2016			2,000,000			$	2,000				23,725,000			$	23,725			$	1,236,400				(100,000	)			(17,100	)			(949,314	)			195,711

 

See accompanying notes to condensed consolidated financial statements.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

NOTE–1           BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both generally accepted accounting principles 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, 2016 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 June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2017 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, 2016.

 

NOTE–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.

 

Description of subsidiaries

 

Company Name		Place of incorporation and kind of  legal entity		Principal activities and place of operation		Particulars of issued/ registered share capital		Effective interest held
Green Dragon Industrial Inc. (“GDI”)		British Virgin Islands (“BVI”), May 30, 2007		37,500 issued shares of common of US$1 each		Investment holding			100	%
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”.

 

NOTE–3           SUMMARY OF SIGNIFICANT ACCOUNTING 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 consolidation

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

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.

 

·

Accounts receivable

 

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.

 

·

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
Leasehold improvement		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 June 30, 2016 and 2015 was $2,909 and $4,597, respectively.

 

·

Impairment of long-lived assets

 

In accordance with Accounting Standards Codification ("ASC") Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ”, the Company reviews its long-lived assets, including plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that useful lives are no longer appropriate. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge as of June 30, 2016 and 2015.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

·

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.

 

·

Comprehensive income

 

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

 

·

Income taxes

 

The provision for income taxes is determined in accordance with ASC Topic 740, “Income Taxes ” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

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

 

For the three months ended June 30, 2016 and 2015, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2016, 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 (loss) income per share

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

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 year. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common share that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

 

·

Foreign currencies translation

 

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

 

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

 

Translation of amounts from HK$ into US$1 has been made at the following exchange rates for the three months ended June 30, 2016 and 2015:

 

		June 30,
		2016				2015
Period-end HK$: US$1 exchange rate			7.7586				7.7519
Period average HK$: US$1 exchange rate			7.7605				7.7517

 

·

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 months ended June 30, 2016, 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 short-term 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.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

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.

 

NOTE–4           ACCOUNTS RECEIVABLE, NET

 

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 months ended June 30, 2016 and 2015, no allowance for doubtful accounts was charged to operations.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

		June 30, 2016				March 31, 2016
		(Unaudited)				(Audited)
Accounts receivable, cost		$	4,890,706			$	4,425,256
Less: allowance for doubtful accounts			(2,002,715	)			(2,002,715	)
Accounts receivable, net		$	2,887,991			$	2,422,541

 

NOTE–5           PREPAYMENT, DEPOSITS AND OTHER RECEIVABLES

 

Prepayments, deposits and other receivables consisted of:

 

		June 30, 2016				March 31, 2016
		(Unaudited)				(Audited)
Purchase deposits to vendors		$	1,870,239			$	1,779,405
Rental and utilities			34,800				34,819
Other receivables			126,437				181,628
		$	2,031,476			$	1,995,852

 

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.

 

NOTE–6           AMOUNT DUE TO A DIRECTOR

 

As of June 30, 2016, 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. Imputed interest is not significant.

 

NOTE–7           SHORT-TERM BORROWINGS

 

Short-term borrowings consist of:

 

		June 30, 2016				March 31, 2016
		(Unaudited)				(Audited)
Payable to financial institutions in Hong Kong:
Revolving line of credits
DBS Bank (Hong Kong) Limited		$	515,392			$	881,815
Industrial and Commercial Bank of China (Asia) Limited			546,731				635,703
Shanghai Commercial Bank Limited			-				447,739
			1,062,123				1,965,257
Short-term bank borrowing
Shanghai Commercial Bank Limited			129,880				-
Payable to third parties (under supplier agreement)
Tai Wah Timber Factory Limited			671,446				671,803
		$	1,863,449			$	2,637,060

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

The DBS Bank (Hong Kong) Limited (“DBS”) provides a credit facility for borrowings up to HK$14,000,000 (approximately $1,804,000) 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$6,400,000 (approximately $825,000), 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. Since June 2016, the Company terminated the credit facility with Shanghai Commercial Bank Limited and released the restricted cash deposit accordingly.

 

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.

 

On June 30, 2016, the Company had aggregate secured banking facilities of $2,629,344 in which $1,567,221 is unused.

 

NOTE–8           INCOME TAXES

 

For the three months ended June 30, 2016 and 2015, the local (United States) and foreign components of (loss) income before income taxes were comprised of the following:

 

		Three months ended June 30,
		2016				2015
Tax Jurisdictions from:
-Local		$	-			$	-
-Foreign			(60,786	)			1,352
(Loss) income before income taxes		$	(60,786	)		$	1,352

 

Provision for income taxes consisted of the following:

 

		Three months ended June 30,
		2016				2015
Current:
-     Local		$	-			$	-
-     Foreign			-				-
Deferred:
-     Local			-				-
-     Foreign			-				-
Income tax expenses		$	-			$	-

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

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 three months ended June 30, 2016 and 2015, 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 three months ended June 30, 2016 and 2015, GDI incurred no operation in the BVI.

 

Hong Kong

 

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

 

The reconciliation of income tax rate to the effective income tax rate based on income (loss) before income taxes from foreign operation for the three months ended June 30, 2016 and 2015 are as follows:

 

		Three months ended June 30,
		2016				2015
(Loss) income before income taxes		$	(60,786	)		$	1,352
Statutory income tax rate			16.5	%			16.5	%
Income tax at Hong Kong statutory income tax rate			(10,030	)			223
Tax loss (utilized) not recognized as deferred tax assets			10,030				(223	)
Income tax expenses		$	-			$	-

 

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 June 30, 2016 and March 31, 2016, therefore no deferred tax assets or liabilities have been recognized.

 

NOTE–9           STOCKHOLDERS’ EQUITY

 

a.           Preferred Stock - Series A Convertible Preferred Stock

 

As of June 30, 2016, the Company had a total of 2,000,000 shares of its preferred stock issued and outstanding.

 

b.           Common Stock

 

As of June 30, 2016, the Company had a total of 23,725,000 shares of its common stock issued and outstanding, respectively.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

NOTE–10           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:

 

		Three months ended June 30,
		2016				2015
Revenue, net:
-     The PRC (including Hong Kong)		$	179,825			$	1,220,062
-     Middle East			1,440				40,447
-     India			294,830				439,586
-     Europe			-				24,650
-     Other			18,205				244,397
Total		$	494,300			$	1,969,142

 

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

 

NOTE–11           CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a)          Major customer

 

For the three months ended June 30, 2016 and 2015, the customer who accounts for 10% or more of the Company's revenues and its outstanding accounts receivable at period-end date, are presented as follows:

 

		Three months ended June 30, 2016								June 30, 2016
		Revenue				Percentage of revenue				Accounts receivable, net
Customer A		$	77,662				16	%		$	78,073
Customer B (Vendor A)			179,825				36	%			1,848,564
Customer C			114,388				23	%			155,689
Total		$	371,875				75	%		$	2,082,326

 

		Three months ended June 30, 2015								June 30, 2015
		Revenue				Percentage of revenue				Accounts receivable, net
Customer B (Vendor A)		$	563,781				28	%			3,132,593

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

(b)          Major vendor

 

For the three months ended June 30, 2016 and 2015, the vendor who accounts for 10% or more of the Company's purchases and its outstanding accounts payable at period-end date, are presented as follows:

 

		Three months ended June 30, 2016								June 30, 2016
		Purchase				Percentage of purchase				Accounts payable
Vendor A (Customer B)		$	210,304				51	%		$	-
Vendor G			183,337				44	%			415,966
Total		$	393,641				95	%			415,966

 

		Three months ended June 30, 2015								June 30, 2015
		Purchase				Percentage of purchase				Accounts payable
Vendor A (Customer B)		$	428,065				27	%		$	-
Vendor B			320,529				20	%			51,946
Total		$	748,594				47	%		$	51,946

 

(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 short-term 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 June 30, 2016, all of borrowings were at variable rates. The interest rates and terms of repayment of the borrowings are disclosed in Note 7.

 

(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.

 

NOTE–12           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 2017. Total rent expenses for the three months ended June 30, 2016 and 2015 was $49,470 and $34,885, respectively.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

As of June 30, 2016, the Company has future minimum rental payments of $43,336 under various non-cancelable operating leases in the next twelve months.

 

(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.

 

On June 30, 2015, the High Court of the Hong Kong Special Administrative Region dismissed the claim of Mr. Yip and CCGL and allowed Mr. Lee and GDWPCL’s counterclaim by granting an award of $350,000 with interest and legal costs.

 

(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 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.

 

On January 26, 2016, Plaintiff and Ka L. Lee entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) to resolve certain disputes between the parties which are the subject of the Indiana Case. Pursuant to the Settlement Agreement, Plaintiff agreed to authorize its counsel to file a stipulation dismissing the Complaint and Judgment with Prejudice and both parties agreed to mutually release and discharge each other of and from any and all actions, claims and demands whatsoever arising out of or in any way related to the Complaint and Judgment

 

As of June 30, 2016, in the opinion of Company’s management, the resolution of this matter will not have a material effect on the Company’s financial statements in the foreseeable future.

 

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.

 

 

GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

(c)          Contractual commitment

 

The Company is committed to a series of 20 foreign exchange contracts with DBS bank to hedge the fluctuation between USD and RMB for a term of period from September 2015 to April 2017, monthly expiry. As of June 30, 2016, 10 contracts were fully executed and the remaining 10 contracts are outstanding. The Company expects no material contingent loss from these committed contracts in the next twelve months.

 

NOTE–13           SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.

 

 

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.

 

OVERVIEW

 

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

 

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

 

 

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

 

GDI was incorporated as a limited liability company in the British Virgin Islands (“BVI”) on May 30, 2007, for the purpose of holding 100% equity interest in GDWPCL. On May 30, 2007, GDI entered into an exchange agreement with the equity owners of GDWPCL, whereby GDI transferred 37,500 shares of its common stock to the shareholders of GDWPCL in exchange for 5,000,000 ordinary shares of GDWPCL. Upon the completion of the share exchange, GDWPCL became a wholly-owned subsidiary of GDI.

 

The following diagram sets forth the current corporate structure of Green Dragon:

 

 

 

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

 

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

 

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

 

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 June 30, 2016 and 2015

 

The following table summarizes the results of our operations during the three months ended June 30, 2016 and 2015, and provides information regarding the dollar and percentage increase or (decrease) from the three months ended June 30, 2016 to the three months ended June 30, 2015.

 

 

		Three Months Ended
		June 30,								Increase/				Increase/
		2016				2015				(Decrease)				(Decrease)
Revenue, net		$	494,300			$	1,969,142			$	(1,474,842	)			(75	)%
Cost of Revenue			(425,739	)			(1,683,167	)			(1,257,428	)			(75	)%
Gross Profit			68,561				285,975				(217,414	)			(76	)%
General and Administrative Expenses			124,296				213,752				(89,456	)			(42	)%
Total Operating Expenses			124,296				213,752				(89,456	)			(42	)%
Income / (Loss) from Operations			(55,735	)			72,223				(127,958	)			(177	)%
Other Income / (Expense)			(5,051	)			(70,871	)			(65,820	)			(93	)%
Income / (Loss)  before Income Tax			(60,786	)			1,352				(62,138	)			(460	)%
Income Tax Expense			-				-
Net  Income / (Loss)		$	(60,786	)		$	1,352			$	(62,138	)			(460	)%

 

Revenue

 

Revenue for the three months ended June 30, 2016 was $494,300, a decrease of $1,474,842 or 75% from $1,969,142 for the comparable period in 2015. The decrease in revenue is primarily attributed to the cooling measures implemented in the People’s Republic of China to fix China’s overheated real estate market. This slowing of the real estate market has resulted in less demand for our products as most of our clients are in the interior decorating and furniture business. Additionally, our traditional markets in Europe and the Middle East have also suffered a dramatic drop as their economies continue to flounder as a result of political instability, a refugee crisis and a weak market for oil  .

 

Cost of revenue and gross profit

 

Cost of revenue for the three months ended June 30, 2016 was $425,739, a decrease of $1,257,428 or 75% from $1,683,167 for the comparable period in 2015. The decrease was primarily attributable to and in tandem with a decrease in sales.

 

Gross profit for the three months ended June 30, 2016 was $68,561, a decrease of $217,414 or 76% from $285,975 for the comparable period in 2015. The decrease was primarily attributable to decrease in sales.

 

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 June 30, 2016 was $124,296, a decrease of $89,456 or 42% from $213,752 for the comparable period in 2015. The decrease was primarily attributable to a gain on the exchange difference in the EURO.

 

Other Income/(Expense)

 

Other expenses (after netting off other income) for the three months ended June 30, 2016 were $5,051, a decrease of $65,820 or 93% from other expense of $70,871 for the comparable period in 2015. The decrease in other expenses was due to decrease in sales.

 

Income / (Loss) before income tax

 

Loss before income tax for the three months ended June 30, 2016 was $60,786, an increase in losses of $62,138 or 46 times compared to income of $1,352 for the comparable year in 2015. The increase was due to the decrease in gross profit and decrease in other income.

 

Net loss

 

Net loss for the three months ended June 30, 2016 was $60,786, an increase in loss of $62,138 or 46 times from income of $1,352 for the comparable period in 2015. The increase was due to the decrease in gross profit and decrease in other income.

 

 

Liquidity and Capital Resources

 

Cash and Cash Equivalents

 

Our cash and cash equivalents as at the beginning of the three months ended June 30, 2016 were $41,438 and decreased to $520 at the end of the period, a decrease of $40,918. The decrease was primarily attributable to the repayment of our short-term borrowings.

 

Net cash provided by operating activities

 

Net cash provided by operating activities for the three months ended June 30, 2016 was $233,336, a decrease of $635,414 or 73% from net cash provided by operating activities of $868,750 for the comparable period in 2015. This decrease was primarily attributable to there being cash outflows $465,450 for accounts receivable for this period when compared to a net cash inflows of $515,839 of receivable in 2015.

 

Net cash used in investing activities

 

Net cash used in investing activities was $0 and $1,374 for the three months ended June 30, 2016 and 2015, respectively. The decrease of $1,374 in net cash used in investing activities was mainly attributable to no purchase of office equipment.

 

Net cash used in financing activities

 

Net cash used in financing activities for the three months ended June 30, 2016 was $273,997 a decrease of $683,238 or 71%, from net cash used by financing activities of $957,235 for the comparable period in 2015.  The decrease in cash used in financing activities was primarily attributable to an increase advance from a 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 related products over10 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 June 30, 2016 and March 31, 2016, there was no accounts receivable balance transferred from Customer A to Party B. As of June 30, 2016 and March 31, 2016, the aging analysis of Party B is as follow:

 

		As of
		June 30, 2016				March 31, 2016
0-90 days		$	978,289			$	798,842
91-180 days			-				125,570
181-270 days			125,504				-
271-360 days			-				-
Over 360 days			2,744,771				2,956,685
			3,848,567				3,881,097
Less: allowance for doubtful accounts			(2,000,000	)			(2,000,000	)
Total		$	1,848,564			$	1,881,097

 

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 $192,983 and $254,493 on June 30, 2016 and March 31, 2016, 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 June 30, 2016, but from time to time, we may identify new business opportunities to improve the profitability and working capital from operations.

 

Capital Resources

 

As of June 30, 2016, the Company has a revolving line of credit with DBS Bank (Hong Kong) Limited with an outstanding balance of $515,392, a revolving line of credit with Industrial and Commercial Bank of China (Asia) Limited with an outstanding balance of $546,731, a short term bank borrowing with Shanghai Commercial Bank with an outstanding balance of $129,880, and a trade financing payable to Tai Wah Timber Factory Limited in an aggregate of $874,484. We will require additional fund if we were to expand our business.

 

The DBS Bank (Hong Kong) Limited (“DBS”) provides a credit facility for borrowings up to HK$14,000,000 (approximately $1,806,000) 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$6,400,000 (approximately $825,000), 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 $838,500), 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. Since June 2016, the Company terminated the credit facility with Shanghai Commercial Bank Limited in June 2016 and released the restricted cash deposit accordingly.

 

 

On June 30, 2016, the Company had aggregate secured banking facilities of $2,629,344 in which $1,567,221 is unused.

 

Financing Arrangement

 

The financing arrangement with Tai Wah Timber Factory Limited provides for borrowings with interest rate at 12% per annum, and the interest is required to pay monthly.

 

As of June, 2016 and March 31, 2016, the outstanding balance was $671,446 and $671,803, respectively.

 

While the capital resources of the Company are stable from a cash perspective, the credit of the Company for debt financing if necessary is extremely strong due to our strong banking relations and the credit facilities provided for our veneer products. From time to time we do have a need to exercise our credit options on a short term basis due to the nature of our business as importers/exporters. The Company has established lines of credit with banks and management maintains very strong relations with these banks. Management believes that its current lines of credit are more than sufficient to cover any short and long term liquidity needs. Our historical financial liquidity needs have been shown to be more than adequately covered by our credit facilities.  We believe that the strength of our management team to maintain strict internal control of its cash flow and liquidity that the current credit facilities are adequate for our needs.

 

Our accounts receivable balance as of June 30, 2016 is $2,887,991. Our accounts receivable are not considered by management to be high due to the nature of payment for our products.  Our clients are required to provide credit facilities for their product by a Letter of Credit or other negotiable method of payment for the amount owed.  We draw from the Letter of Credit prior to delivery only in the event that it is needed to maintain sufficient cash flow to cover our operations.  We pay the cost of drawing on any Letter of Credit.  Because our cash flow is typically sufficient to cover our operations we do not carry accounts receivable unless prior arrangements have been made.  It is company policy to recognize revenue when the product is shipped to our customers.

  

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

 

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 June 30, 2016 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 their 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 it 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 fiscal quarter ended June 30, 2016 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.

 

On June 30, 2015, the High Court of the Hong Kong Special Administrative Region dismissed the claim of Mr. Yip and CCGL and allowed Mr. Lee and GDWPCL’s counterclaim with an award of US$350,000 with interest and legal costs.

 

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 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.  

 

On January 26, 2016, Plaintiff and Ka L. Lee entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) to resolve certain disputes between the parties which are the subject of the Indiana Case. Pursuant to the Settlement Agreement, Plaintiff agreed to authorize its counsel to file a stipulation dismissing the Complaint and Judgment with Prejudice and both parties agreed to mutually release and discharge each other of and from any and all actions, claims and demands whatsoever arising out of or in any way related to the Complaint and Judgment.

 

As of June 30, 2016, in the opinion of Company’s management, the resolution of this matter will not have a material effect on the Company’s financial statements in the foreseeable future.

 

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		Certificate of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1		Certificate of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
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

 

 

SIGNATURES

 

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:  January 27, 2017	/s/Kwok Leung Lee
	Kwok Leung Lee
	President
	(principal executive officer, principal financial officer, and principal accounting officer)