Nevada
|
88-0381646
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company x
|
Page
|
||
Cautionary Note Regarding Forward-Looking Statements
|
1
|
|
Note Concerning Operating and Reporting Currencies
|
1
|
|
PART I.
|
FINANCIAL INFORMATION
|
2
|
Item 1.
|
Financial Statements.
|
2
|
Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
|
2
|
|
Consolidated Statements of Income and Comprehensive Income for the Three and Six
Months ended June 30, 2011 and 2010 (Unaudited)
|
3
|
|
Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2011 and 2010 (Unaudited)
|
4
|
|
Notes to Consolidated Financial Statements
|
5
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
24
|
Item 4.
|
Controls and Procedures.
|
31
|
PART II.
|
OTHER INFORMATION
|
32
|
Item 1A
|
Risk Factors
|
32 |
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
32
|
Item 6.
|
Exhibits.
|
33
|
·
|
Uncertainties regarding the growth or sustainability of the market for biodegradable materials.
|
·
|
The risk that we may not be able to achieve or maintain a technological advantage over any of our competitors.
|
·
|
Risks relating to protection of our intellectual property.
|
·
|
Changes in consumer preferences.
|
·
|
The risks of limited management, labor and financial resources.
|
·
|
Risk of doing business in China, including currency value fluctuations, restrictions on remitting income to the United States and risks of diplomatic tensions between China and the United States.
|
June 30,
2011
|
December 31,
2010
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current Assets:
|
||||||||
Cash and equivalents
|
$
|
18,902,002
|
$
|
12,090,345
|
||||
Restricted cash
|
417
|
4,266
|
||||||
Accounts receivable, net of allowance for bad debt of $0 and $0, respectively
|
5,394,448
|
10,097,506
|
||||||
Inventories
|
402,305
|
684,534
|
||||||
Accrued rental receivables
|
208,604
|
203,844
|
||||||
Advance to supplier
|
244,916
|
-
|
||||||
Deferred consulting expense
|
-
|
108,036
|
||||||
Other current assets
|
63,263
|
570,596
|
||||||
Total Current Assets
|
25,215,955
|
23,759,127
|
||||||
Deposits for construction
|
772,607
|
301,992
|
||||||
Property and equipment, net
|
17,303,023
|
17,372,325
|
||||||
Intangible assets, net
|
5,164,404
|
5,103,278
|
||||||
Technology and patent right, net
|
1,931,516
|
2,000,695
|
||||||
Investment
|
15,508
|
15,154
|
||||||
Deferred income taxes
|
150,644
|
147,207
|
||||||
Total Assets
|
$
|
50,553,657
|
$
|
48,699,778
|
||||
Liabilities and Stockholders' Equity
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable and accrued expenses
|
$
|
653,775
|
$
|
539,275
|
||||
Deferred revenue
|
44,668
|
14,695
|
||||||
Construction deposit
|
1,403,053
|
1,371,042
|
||||||
Due to stockholders/officers
|
213,269
|
208,404
|
||||||
Warrants liability
|
-
|
95,085
|
||||||
Taxes payable
|
115,156
|
738,647
|
||||||
Other payables for technology and patent right purchase
|
1,545,213
|
1,509,958
|
||||||
Total Current Liabilities
|
3,975,134
|
4,477,106
|
||||||
Commitments and contingencies
|
||||||||
Stockholders' Equity
|
||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized
and 0 shares issued and outstanding
|
-
|
-
|
||||||
Common stock, $0.001 par value, 100,000,000 shares authorized,
25,756,025 and 25,701,025 shares issued and outstanding at June 30, 2011
and December 31, 2010, respectively
|
25,756
|
25,701
|
||||||
Additional paid-in capital
|
25,236,486
|
25,191,392
|
||||||
Statutory reserves
|
1,845,411
|
1,699,062
|
||||||
Retained earnings
|
13,520,550
|
12,405,789
|
||||||
Accumulated other comprehensive income
|
5,950,320
|
4,900,728
|
||||||
Total Stockholders’ Equity
|
46,578,523
|
44,222,672
|
||||||
Total Liabilities and Stockholders’ Equity
|
$
|
50,553,657
|
$
|
48,699,778
|
CHINA GREEN MATERIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
|
||||||||||||||||
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net sales
|
$
|
3,041,840
|
$
|
4,493,784
|
$
|
7,544,434
|
$
|
7,283,182
|
||||||||
Cost of revenues
|
1,890,411
|
2,300,315
|
4,712,498
|
3,916,105
|
||||||||||||
Gross profit
|
1,151,429
|
2,193,469
|
2,831,936
|
3,367,077
|
||||||||||||
Operating Expenses
|
||||||||||||||||
Selling expenses
|
33,513
|
44,556
|
78,813
|
87,279
|
||||||||||||
General and administrative expenses
|
590,206
|
410,487
|
1,014,950
|
653,248
|
||||||||||||
Stock based compensation
|
21,666
|
153,262
|
58,102
|
153,262
|
||||||||||||
Total Operating Expenses
|
645,385
|
608,305
|
1,151,865
|
893,789
|
||||||||||||
Income From Operations
|
506,044
|
1,585,164
|
1,680,071
|
2,473,288
|
||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
5,564
|
1,412
|
8,339
|
2,939
|
||||||||||||
Interest expenses
|
(1,067
|
)
|
-
|
(2,219
|
)
|
-
|
||||||||||
Net rental income/(expenses)
|
(137,287
|
)
|
(28,103
|
)
|
(166,429
|
)
|
(66,030
|
)
|
||||||||
Loss on investment
|
-
|
(96,153
|
)
|
-
|
(293,251
|
)
|
||||||||||
Loss on disposal of property and equipment
|
-
|
(32
|
)
|
-
|
(125,689
|
)
|
||||||||||
Other expenses - net
|
(765
|
)
|
(17,544
|
)
|
(1,997
|
)
|
(18,220
|
)
|
||||||||
Total other income (expense)
|
(133,555
|
)
|
(140,420
|
)
|
(162,306
|
)
|
(500,251
|
)
|
||||||||
Income Before Income Taxes
|
372,489
|
1,444,744
|
1,517,765
|
1,973,037
|
||||||||||||
Provision for income taxes
|
34,785
|
181,584
|
256,656
|
274,978
|
||||||||||||
Net Income
|
337,704
|
1,263,160
|
1,261,109
|
1,698,059
|
||||||||||||
Gain from foreign currency translation adjustment
|
598,137
|
195,224
|
1,049,592
|
198,694
|
||||||||||||
Comprehensive Income
|
$
|
935,841
|
$
|
1,458,384
|
$
|
2,310,701
|
$
|
1,896,753
|
||||||||
Net Income Per Common Share
|
||||||||||||||||
basic
|
$
|
0.01
|
$
|
0.05
|
$
|
0.05
|
$
|
0.07
|
||||||||
diluted
|
$
|
0.01
|
$
|
0.05
|
$
|
0.05
|
$
|
0.07
|
||||||||
Weighted Common Shares Outstanding
|
||||||||||||||||
basic
|
25,734,074
|
24,037,098
|
25,727,275
|
23,230,924
|
||||||||||||
diluted
|
25,734,074
|
24,282,098
|
25,727,275
|
23,354,101
|
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash Flows From Operating Activities:
|
||||||||
Net Income
|
$
|
1,261,109
|
$
|
1,698,059
|
||||
Adjustments to reconcile net income to net cash
|
||||||||
provided by operating activities
|
||||||||
Depreciation of plant and equipment
|
828,303
|
561,870
|
||||||
Amortization of intangible assets
|
57,425
|
55,022
|
||||||
Amortization of technology and patent right
|
114,689
|
54,944
|
||||||
Stock based compensation for shares issued to director and CFO
|
45,150
|
9.931
|
||||||
Amortization of deferred consulting expenses
|
108,036
|
434,305
|
||||||
Changes in warrants fair value
|
(95,085
|
)
|
(290,974
|
)
|
||||
Changes in deferred tax
|
-
|
(85,546
|
)
|
|||||
Bad debt expenses
|
-
|
1,568
|
||||||
Loss on long-term investment
|
-
|
293,251
|
||||||
Loss on disposal of fixed assets
|
-
|
125,689
|
||||||
Changes in operating assets and liabilities
|
||||||||
Accounts receivable
|
5,144,786
|
(313,947
|
)
|
|||||
Inventories
|
295,120
|
(280,176
|
)
|
|||||
Accrued rental receivable
|
-
|
483,509
|
||||||
Other current assets
|
15,707
|
(191,109
|
)
|
|||||
Accounts payable and accrued expenses
|
103,572
|
(85,632
|
)
|
|||||
Deferred revenue
|
29,322
|
16,249
|
||||||
Taxes payable
|
(632,714
|
)
|
68,692
|
|||||
Net Cash Provided by Operating Activities
|
7,275,420
|
2,555,705
|
||||||
Cash Flows From Investing Activities:
|
||||||||
Restricted cash
|
3,908
|
(44,011
|
)
|
|||||
Deposit for construction
|
(458,758
|
)
|
(4,406,602
|
)
|
||||
Purchase of property and equipment
|
(358,313
|
)
|
(3,221,890
|
)
|
||||
Proceeds from disposal of fixed assets
|
-
|
117,214
|
||||||
Net Cash Used in Investing Activities
|
(813,163
|
)
|
(7,555,289
|
)
|
||||
Cash Flows From Financing Activities:
|
||||||||
Construction deposit
|
-
|
776,545
|
||||||
Proceeds from common stock issued
|
-
|
7,135,895
|
||||||
Net Cash Provided by Financing Activities
|
-
|
7,912,440
|
||||||
Effect of Exchange Rate Changes on Cash and Equivalents
|
349,400
|
45,398
|
||||||
Net Increase in Cash and Equivalents
|
6,811,657
|
2,958,254
|
||||||
Cash and Equivalents at Beginning of Period
|
12,090,345
|
7,321,276
|
||||||
Cash and Equivalents at End of Period
|
$
|
18,902,002
|
$
|
10,279,530
|
||||
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash paid for Interest
|
$
|
2,219
|
$
|
-
|
||||
Cash paid for Income taxes
|
$
|
572,256
|
$
|
311,895
|
Average Rate for six months ended June 30
|
||||||||
2011
|
2010
|
|||||||
Renminbi (RMB)
|
6.5394
|
6.8251
|
||||||
United States dollar ($)
|
$
|
1.00
|
1.00
|
|||||
Average Rate for three months
ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Renminbi (RMB)
|
6.4993
|
6.8241
|
||||||
United States dollar ($)
|
1.00
|
1.00
|
||||||
Exchange Rate at
|
||||||||
June 30, 2011
|
December 31, 2010
|
|||||||
Renminbi (RMB)
|
6.4716
|
6.6227
|
||||||
United States dollar ($)
|
$
|
1.00
|
1.00
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||
2011
(Unaudited)
|
2010
(Unaudited)
|
2011
(Unaudited)
|
2010
(Unaudited)
|
|||||||||||
Numerator:
|
||||||||||||||
Net income
|
$
|
337,704
|
$
|
1,263,160
|
$
|
1,261,109
|
$
|
1,698,059
|
||||||
Denominator:
|
||||||||||||||
Weighted average number of common shares outstanding
|
||||||||||||||
- Basic
|
25,734,074
|
24,037,098
|
25,727,275
|
23,230,924
|
||||||||||
- Diluted
|
25,734,074
|
24,282,098
|
25,727,275
|
23,354,101
|
||||||||||
Earning per share
|
||||||||||||||
- Basic
|
$
|
0.01
|
$
|
0.05
|
$
|
0.05
|
$
|
0.07
|
||||||
- Diluted
|
$
|
0.01
|
$
|
0.05
|
$
|
0.05
|
$
|
0.07
|
●
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
●
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
●
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
June 30,
2011
|
December 31,
2010
|
|||||
(Unaudited)
|
||||||
Accounts receivable
|
$
|
5,394,448
|
$
|
10,097,506
|
||
Less: Allowance for doubtful accounts
|
-
|
-
|
||||
Accounts receivable, net
|
$
|
5,394,448
|
$
|
10,097,506
|
June 30,
2011
|
December 31,
2010
|
|||||
(Unaudited)
|
||||||
Raw materials
|
$
|
128,329
|
$
|
572,788
|
||
Work in process
|
-
|
18,421
|
||||
Finished goods
|
258,803
|
60,711
|
||||
Packaging and other
|
15,173
|
32,614
|
||||
Total
|
$
|
402,305
|
$
|
684,534
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||
2011
(Unaudited)
|
2010
(Unaudited)
|
2011
(Unaudited)
|
2010
(Unaudited)
|
|||||||||||
Rental income
|
$
|
69,233
|
$
|
65,951
|
$
|
137,627
|
$
|
131,866
|
||||||
Less: depreciation and amortization
|
206,520
|
94,054
|
304,056
|
197,896
|
||||||||||
Total income (loss) from rental
|
$
|
(137,287
|
)
|
$
|
(28,103
|
)
|
$
|
(166,429
|
)
|
$
|
(66,030)
|
June 30,
2011
|
December 31,
2010
|
|||||||
(Unaudited)
|
||||||||
Advance to employees
|
$
|
59,014
|
$
|
514,402
|
||||
Prepaid utilities
|
-
|
38,772
|
||||||
Prepaid rent
|
4,249
|
17,422
|
||||||
Total
|
$
|
63,263
|
$
|
570,596
|
Estimated Life
|
|
Building
|
20 years
|
Equipment and machinery
|
5 to 10 years
|
Vehicles
|
5 years
|
Office equipments
|
5 years
|
Leasehold improvements
|
lower of term of lease or 5 years
|
June 30,
2011
|
December 31,
2010
|
|||||||
(Unaudited)
|
||||||||
Building
|
$
|
9,170,532
|
$
|
8,961,302
|
||||
Equipment and machinery
|
13,749,633
|
12,750,125
|
||||||
Vehicles
|
182,648
|
178,481
|
||||||
Office equipments
|
194,298
|
189,671
|
||||||
Leasehold improvements
|
183,116
|
178,938
|
||||||
23,480,227
|
22,258,517
|
|||||||
Less: Accumulated depreciation
|
6,117,204
|
5,218,383
|
||||||
Subtotal
|
$
|
17,303,023
|
$
|
17,040,134
|
||||
Construction-in-progress
|
-
|
332,191
|
||||||
Total
|
$
|
17,303,023
|
$
|
17,372,325
|
June 30,
2011
|
December 31, 2010 | |||||||
(Unaudited)
|
||||||||
Land use right
|
$
|
5,802,702
|
$
|
5,670,310
|
||||
Less: Accumulated amortization
|
638,298
|
567,032
|
||||||
Total
|
$
|
5,164,404
|
$
|
5,103,278
|
For the Year Ending December 31,
|
Amount
|
|||
2011 (from July 1 to December 31)
|
$
|
58,027
|
||
2012
|
$
|
116,054
|
||
2013
|
$
|
116,054
|
||
2014
|
$
|
116,054
|
||
2015
|
$
|
116,054
|
||
Thereafter
|
$
|
4,642,161
|
||
Total
|
$
|
5,164,404
|
June 30,
2011 |
December 31,
2010 |
|||||||
(Unaudited)
|
||||||||
Technology and patent right
|
$ | 2,317,819 | $ | 2,264,937 | ||||
Less: Accumulated amortization
|
386,303 | 264,242 | ||||||
Total
|
$ | 1,931,516 | $ | 2,000,695 |
For the Year Ending December 31,
|
Amount
|
|||
2011 (from July 1 to December 31)
|
$
|
115,891
|
||
2012
|
$
|
231,782
|
||
2013
|
$
|
231,782
|
||
2014
|
$
|
231,782
|
||
2015
|
$
|
231,782
|
||
Thereafter
|
$
|
888,497
|
||
Total
|
1,931,516
|
June 30,
2011
|
December 31,
2010 |
|||||||
(Unaudited)
|
||||||||
Accounts payable
|
$ | 25,120 | $ | 53,651 | ||||
Other payables
|
1,361 | 6,265 | ||||||
Salary payables
|
353,636 | 180,152 | ||||||
Accrued expenses
|
273,658 | 299,207 | ||||||
Total
|
$ | 653,775 | $ | 539,275 |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||
2011
(Unaudited)
|
2010
(Unaudited)
|
2011
(Unaudited)
|
2010
(Unaudited)
|
|||||||||||
Current taxes:
|
||||||||||||||
Current income taxes in the PRC
|
$
|
34,785
|
$
|
266,513
|
$
|
256,656
|
$
|
360,524
|
||||||
Deferred income taxes benefits
|
(84,929)
|
(85,546)
|
||||||||||||
Total provision for income taxes
|
$
|
34,785
|
$
|
181,584
|
$
|
256,656
|
$
|
274,978
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||
2011
(Unaudited)
|
2010
(Unaudited)
|
2011
(Unaudited)
|
2010
(Unaudited)
|
|||||||||||
PRC statutory tax rate
|
25%
|
25%
|
25%
|
25%
|
||||||||||
Accounting income before tax
|
$
|
372,489
|
$
|
1,444,744
|
$
|
1,517,765
|
$
|
1,973,037
|
||||||
Computed expected income tax expenses
|
93,122
|
361,186
|
379,441
|
493,259
|
||||||||||
Loss from subsidiaries
|
(22,366)
|
-
|
58,038
|
-
|
||||||||||
Less: tax exemption
|
35,971
|
179,602
|
180,823
|
218,281
|
||||||||||
Income tax expenses
|
$
|
34,785
|
$
|
181,584
|
$
|
256,656
|
$
|
274,978
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(Unaudited)
|
|
|||||||
Value-added taxes
|
$
|
63,448
|
$
|
377,066
|
||||
Income taxes payable
|
49,543
|
360,043
|
||||||
Individual income taxes withholdings
|
2,165
|
1,538
|
||||||
Total
|
$
|
115,156
|
$
|
738,647
|
Stock Warrants
|
Shares
|
Weighted-
Average
Exercise Price
|
Weighted-Average Remaining
Contractual Term (Months)
|
Aggregate
Intrinsic
Value
|
||||||||||||
Outstanding at January 1, 2011
|
370,000
|
$
|
0.90
|
3
|
-
|
|||||||||||
Granted
|
-
|
-
|
-
|
-
|
||||||||||||
Exercised or converted
|
-
|
-
|
-
|
-
|
||||||||||||
Forfeited or expired
|
(350,000)
|
0.90
|
3
|
-
|
||||||||||||
Outstanding at June 30, 2011
|
20,000
|
$
|
0.90
|
1
|
$
|
-
|
||||||||||
Exercisable at June 30, 2011
|
20,000
|
$
|
0.90
|
1
|
$
|
-
|
Shares
|
Weighted-
Average Grant-
Date Fair Value
|
|||||||
Balance at January 1, 2011
|
12,500
|
$
|
2.34
|
|||||
Granted
|
30,000
|
1.06
|
||||||
Vested
|
(27,500
|
)
|
1.64
|
|||||
Cancelled or Forfeited
|
-
|
-
|
||||||
Balance at June 30, 2011
|
15,000
|
$
|
1.06
|
June 30,
2011
|
December 31,
2010
|
|||||
(Unaudited)
|
||||||
Statutory reserve fund
|
$
|
1,601,234
|
$
|
1,454,885
|
||
Statutory common welfare fund reserve
|
244,177
|
244,177
|
||||
Total
|
$
|
1,845,411
|
$
|
1,699,062
|
June 30,
2011
|
December 31,
2010
|
|||||
(Unaudited)
|
||||||
Due to stockholders/officers:
|
||||||
Mr. Zhonghao Su
|
$ | 213,269 | $ | 208,404 |
Six months ended June 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Largest customers
|
Amount of sales
|
% of total sales
|
Amount of sales
|
% of total sales
|
||||||||||||
Customer A
|
$ | 1,598,559 | 21.2 | % | $ | 2,099,507 | 28.8 | % | ||||||||
Customer B
|
$ | 1,590,007 | 21.1 | % | $ | 1,763,851 | 24.2 | % | ||||||||
Customer C
|
$ | 1,345,000 | 17.8 | % | $ | 1,298,625 | 17.8 | % |
Three months ended June 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Largest customers
|
Amount of sales
|
% of total sales
|
Amount of sales
|
% of total sales
|
||||||||||||
Customer A
|
$ | 563,224 | 18.5 | % | $ | 1,217,460 | 27.1 | % | ||||||||
Customer B
|
$ | 652,100 | 21.4 | % | $ | 941,313 | 20.9 | % | ||||||||
Customer C
|
$ | 553,885 | 18.2 | % | $ | 894,242 | 19.9 | % |
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
(Unaudited)
|
||||||||||||||||
Largest customers
|
Accounts
receivable
|
% of total accounts receivable balance
|
Accounts
receivable
|
% of total accounts receivable balance
|
||||||||||||
Customer A
|
$ | 1,870,480 | 34.7 | % | $ | 3,492,095 | 34.6 | % | ||||||||
Customer B
|
$ | 1,839,576 | 34.1 | % | $ | 3,367,962 | 33.4 | % | ||||||||
Customer C
|
$ | 1,559,429 | 28.9 | % | $ | 3,110,514 | 30.8 | % |
Six months ended June 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Largest suppliers
|
Amount of purchase
|
% of total purchases
|
Amount of purchase
|
% of total purchases
|
||||||||||||
Supplier A
|
$ | 1,823,807 | 48.5 | % | $ | 1,622,130 | 48.3 | % | ||||||||
Supplier B
|
$ | 1,640,779 | 43.6 | % | $ | 1,605,837 | 47.9 | % |
Three months ended June 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Largest suppliers
|
Amount of purchase
|
% of total purchases
|
Amount of purchase
|
% of total purchases
|
||||||||||||
Supplier A
|
$ | 469,597 | 49.2 | % | $ | 1,038,585 | 46.1 | % | ||||||||
Supplier B
|
$ | 367,601 | 38.5 | % | $ | 1,241,103 | 55.1 | % |
●
|
“China Green,” “the Company,” “we,” “us,” and “our” refer to China Green Material Technologies, Inc., and where applicable its direct and indirect wholly owned subsidiaries, and, in the context of describing our operations and business, and consolidated financial information;
|
●
|
“China,” “Chinese” and “PRC” refer to the People’s Republic of China and do not include Taiwan and special administrative regions of Hong Kong and Macao;
|
●
|
“SEC” refers to the United States Securities and Exchange Commission;
|
●
|
“Securities Act” refers to the Securities Act of 1933, as amended;
|
●
|
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
|
●
|
“RMB” refers to Renminbi, the legal currency of China; and
|
●
|
“U.S. Dollar,” “$” and “US$” refer to the legal currency of the United States.
|
●
|
Trash bags and shopping bags. We believe our starch-based material would be an alternative to conventional plastic polymers such as high density polyethylene “HDPE” and low density polyethylene “LDPE” which widely used to produce trash bags and shopping bags. Use of our material in these products will help reduce the use of non-biodegradable plastic polymers and landfill impact attributable to the disposal of petroleum and petroleum-based plastics.
|
●
|
Packaging materials. We are evaluating the use of our starch-based material as an alternative to plastic polymer such as low density polyethylene (“LDPE”) which is widely used for various packaging products. We have produced and used this starch-based material as packaging material for our products sold to a customer in Italy.
|
●
|
Net Sales – Net Sales were $3.0 million for the second quarter of 2011, a decrease of 32.3% from the comparable quarter of 2010, due to tonnage sale decrease by 34.9% offset with average selling price increase by 4.0%.
|
●
|
Gross Margin – Gross margin was 37.9% for the second quarter of 2011, as compared to 48.8% for the comparable quarter of 2010, due to increase in overall production costs by 26.2% mainly caused by increase in raw materials prices, depreciation charges for plant and equipment, amortization costs for technology and patent right, utilities and packaging costs. Our increased average selling price during second quarter of 2011 reduce the impact of the increase in production costs so that the costs of goods sold percentage increased by 21.3% from 51.2% in the three months ended June 30, 2010 to 62.1% in the three months ended June 30, 2011.
|
●
|
Income from operations – Income from operations was $0.5 million for the second quarter of 2011, a decrease of 68.1% from $1.6 million of the comparable quarter of 2010.
|
●
|
Net Income – Net income was $0.3 million for the second quarter of 2011, a decrease of 73.3% from the comparable quarter of 2010.
|
Three Months Ended June 30,
|
||||||||||
2011
|
2010
|
|||||||||
$
|
% of Sales
|
$
|
% of Sales
|
|||||||
Net Sales
|
3,041,840
|
100.0%
|
4,493,784
|
100.0%
|
||||||
Cost of sales
|
1,890,411
|
62.1%
|
2,300,315
|
51.2%
|
||||||
Gross Profit
|
1,151,429
|
37.9%
|
2,193,469
|
48.8%
|
||||||
Operating Expenses
|
645,385
|
21.2%
|
608,305
|
13.5%
|
||||||
Income from Operations
|
506,044
|
16.6%
|
1,585,164
|
35.3%
|
||||||
Other Income (Expenses), net
|
(133,555
|
) |
(4.4%
|
)
|
(140,420
|
)
|
(3.1%
|
)
|
||
Income tax expense
|
34,785
|
1.1%
|
181,584
|
4.0%
|
||||||
Net Income
|
337,704
|
11.1%
|
1,263,160
|
28.1%
|
Six Months Ended June 30,
|
||||||||||
2011
|
2010
|
|||||||||
$
|
% of Sales
|
$
|
% of Sales
|
|||||||
Net Sales
|
7,544,434
|
100.0%
|
7,283,182
|
100.0%
|
||||||
Cost of sales
|
4,712,498
|
62.5%
|
3,916,105
|
53.8%
|
||||||
Gross Profit
|
2,831,936
|
37.5%
|
3,367,077
|
46.2%
|
||||||
Operating Expenses
|
1,151,865
|
15.3%
|
893,789
|
12.3%
|
||||||
Income from Operations
|
1,680,071
|
22.3%
|
2,473,288
|
34.0%
|
||||||
Other Income (Expenses), net
|
(162,306)
|
(2.2%
|
)
|
(500,251
|
)
|
(6.9%)
|
|
|||
Income tax expense
|
256,656
|
3.4%
|
274,978
|
3.8%
|
||||||
Net Income
|
1,261,109
|
16.7%
|
1,698,059
|
23.3%
|
Six Months ended June 30, 2011
|
Six Months ended
June 30, 2010
|
||||||||
(Unaudited)
|
(Unaudited)
|
||||||||
Cash provided by (used in):
|
|||||||||
Operating Activities
|
$
|
7,275,420
|
|
$
|
2,555,705
|
||||
Investing Activities
|
(813,163
|
)
|
|
(7,555,289
|
)
|
||||
Financing Activities
|
-
|
7,912,440
|
Exhibit
Number
|
Description of Exhibit
|
3.1 |
Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on April 12. 2010).
|
3.2 |
Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 12, 2010).
|
31.1* |
Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002.
|
31.2* |
Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002.
|
32.1* |
Certification of Chief Executive Officer under Section 906 of Sarbanes-Oxley Act of 2002.
|
32.2* |
Certification of Chief Financial Officer under Section 906 of Sarbanes-Oxley Act of 2002.
|
101.INS*
|
XBRL Instance
|
101.SCH*
|
XBRL Schema
|
101.CAL*
|
XBRL Calculation
|
101.DEF*
|
XBRL Definition
|
101.LAB*
|
XBRL Label
|
101.PRE*
|
XBRL Presentation
|
CHINA GREEN MATERIAL TECHNOLOGIES, INC.
|
|||
Date: August 12, 2011
|
|||
By:
|
/s/ Zhonghao Su
|
||
Name:
Title:
|
Zhonghao Su
Chief Executive Officer
(principal executive officer)
|
||
By:
|
/s/ Yan Seong Low
|
||
Name:
Title:
|
Yan Seong Low
Chief Financial Officer
(principal accounting and financial officer)
|
||
1.
|
I have reviewed this quarterly report on Form 10-Q of China Green Material Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Zhonghao Su
|
||
Zhonghao Su
|
||
Chief Executive Officer
|
||
(principal executive officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of China Green Material Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Yan Seong Low
|
||
Chief Financial Officer
|
||
(principal financial and accounting officer)
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Zhonghao Su
|
||
Chief Executive Officer
|
||
(principal executive officer)
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Yan Seong Low
|
||
Yan Seong Low
|
||
Chief Financial Officer
|
||
(principal financial and accounting officer)
|
Balance Sheets (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Stockholders' Equity | Â | Â |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized shares | 20,000,000 | 20,000,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, authorized shares | 100,000,000 | 100,000,000 |
Common stock, issued shares | 25,756,025 | 25,701,025 |
Common Stock shares outstanding | 25,756,025 | 25,701,025 |
Consolidated Statements of Income and Comprehensive Income (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Net sales | $ 3,041,840 | $ 4,493,784 | $ 7,544,434 | $ 7,283,182 |
Cost of revenues | 1,890,411 | 2,300,315 | 4,712,498 | 3,916,105 |
Gross Profit | 1,151,429 | 2,193,469 | 2,831,936 | 3,367,077 |
Operating Expenses | Â | Â | Â | Â |
Selling expenses | 33,513 | 44,556 | 78,813 | 87,279 |
General and administrative expenses | 590,206 | 410,487 | 1,014,950 | 653,248 |
Stock based compensation | 21,666 | 153,262 | 58,102 | 153,262 |
Total Operating Expenses | 645,385 | 608,305 | 1,151,865 | 893,789 |
Income From Operations | 506,044 | 1,585,164 | 1,680,071 | 2,473,288 |
Other Income (Expenses) | Â | Â | Â | Â |
Interest income | 5,564 | 1,412 | 8,339 | 2,939 |
Interest expenses | (1,067) | 0 | (2,219) | 0 |
Net rental (expense)/income | (137,287) | (28,103) | (166,429) | (66,030) |
Loss on investments | 0 | (96,153) | 0 | (293,251) |
Loss on disposal of property and equipment | 0 | (32) | 0 | (125,689) |
Other income (expense) | (765) | (17,544) | (1,997) | (18,220) |
Total Other Expenses, Net | (133,555) | (140,420) | (162,306) | (500,251) |
Income Before Income Taxes | 372,489 | 1,444,744 | 1,517,765 | 1,973,037 |
Provision for Income Taxes | 34,785 | 181,584 | 256,656 | 274,978 |
Net Income | 337,704 | 1,263,160 | 1,261,109 | 1,698,059 |
Gain from foreign currency translation adjustment | 598,137 | 195,224 | 1,049,592 | 198,694 |
Comprehensive Income | $ 935,841 | $ 1,458,384 | $ 2,310,701 | $ 1,896,753 |
Net Income Per Common Share- Basic | $ 0.01 | $ 0.05 | $ 0.05 | $ 0.07 |
Net Income Per Common Share - Diluted | $ 0.01 | $ 0.05 | $ 0.05 | $ 0.07 |
Weighted Average Common Shares Outstanding - Basic | 25,734,074 | 24,037,098 | 25,727,275 | 23,230,924 |
Weighted Average Common Shares Outstanding - Diluted | 25,734,074 | 24,282,098 | 25,727,275 | 23,354,101 |
Related Party Balances and Transactions
|
6 Months Ended | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||
Related Party Balances and Transactions |
18 Related Party Balances and Transactions
a. Stockholders transactions
In 2009, the Company purchased technology and patent rights from individuals, including two related parties, Mr. Zhonghao Su, Chief Executive Officer of the Company, and Mr. Yingjie Qiao, technical director of the Company. Pursuant to the sales agreement, Mr. Zhonghao Su agreed to contribute his interest in the technologies without any consideration. The total purchase price is RMB15 million ($2,317,819), the Company has already paid RMB5 million ($772,606) to Mr. Yingjie Qiao and a unrelated third party. The remaining RMB10 million ($1,545,213) was recorded as other payables. (See note 9)
b. Stockholders balances (see note 13)
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Document and Entity Information (USD $)
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Jun. 30, 2011
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Aug. 12, 2011
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Entity Registrant Name | China Green Material Technologies, Inc. | Â |
Entity Central Index Key | 0001082384 | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | false | Â |
Current Fiscal Year End Date | --12-31 | Â |
Is Entity a Well-known Seasoned Issuer? | No | Â |
Is Entity a Voluntary Filer? | No | Â |
Is Entity's Reporting Status Current? | Yes | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Public Float | Â | $ 35,772,982 |
Entity Common Stock, Shares Outstanding | Â | 25,756,025 |
Document Fiscal Period Focus | Q2 | Â |
Document Fiscal Year Focus | 2011 | Â |
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Property and Equipment, Net
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Property and Equipment, Net |
7. Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives listed below:
Repairs and maintenance expenditures which do not extend the useful lives of the related assets are expended as incurred, whereas significant renewals and betterments are capitalized. The Company did not incur or capitalize any significant repairs and maintenance expenditures in the three and six months ended June 30, 2011 and 2010, respectively. In the six months ended June 30, 2010, the Company disposed of equipment and machinery of $242,903 which the Company determined will not be used in future operations. A loss on such disposition of $125,689 is included within other expenses.
As of June 30, 2011 and December 31, 2010, property and equipment consisted of the following:
For the three months ended June 30, 2011 and 2010, depreciation was $383,538 and $276,445, respectively, and for the six months ended June 30, 2011 and 2010, depreciation was $828,303 and $561,870, respectively. |
Subsequent Event
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Jun. 30, 2011
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Subsequent Event |
20. Subsequent Event
20,000 warrants to purchase shares of common stock at an exercise price of $0.90 per share expired on July 12, 2011, without being exercised by the warrants holder pursuant to the warrants' terms.
On July 12, 2011, the Company and Mr. Yan Seong Low entered into a revision employment agreement. Pursuant to the terms of the revision employment agreement, Mr. Low was granted a shares award on July 12, 2011 of 576,000 shares of restricted common stock of the Company at price of $0.3367 per share, which was the closing price per share of the Companys common stock as reported on the OTC Bulletin Board on such date. The shares award which will vest at a rate of 24,000 shares per month over the next 24 months. The revision employment agreement will expire in two years; except that employment shall be continue thereafter on an at-will basis. The Company may terminate Mr. Lows employment during the initial two years term, but all unvested shares will vest upon such termination. The compensation expenses will be recorded based on the market value on the grant date which is $0.3367 per share and amortized over the service period with $8,081 for each month over the next 24 months.
On July 13, 2011 Mr. Dongxiang Wang, Mr. Johnson Shun-Pong Lau and Mr. Lianjun Luo resigned from their positions as members of the Registrants Board of Directors. A total of 12,500 shares of common stock that had been issued to them but had not vested were not cancelled as of the date of resignation. The Board of Directors decided to give all unvested shares as vested upon their resignation in recognition of their past services in the Company. |
Construction Deposit
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Jun. 30, 2011
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Construction Deposit |
12. Construction Deposit
Construction deposit is funds deposited by a contractor to secure satisfactory completion of construction at the Companys new facility. The deposit is non-interest bearing and will be refunded by the Company upon its final acceptance at the construction, which is expected to occur within the next twelve months. |
Inventories
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Inventories |
3. Inventories
Inventories at June 30, 2011 and December 31, 2010 consisted of the following:
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Technology and patent right, net
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Technology and patent right, net |
9. Technology and patent right, net
On September 17, 2009, to acquire technology for use in the manufacture of the Companys starch-based material, the Company entered into an agreement to purchase two technologies from four individuals including two related parties, Mr. Zhonghao Su, Chief Executive Officer of the Company, and Mr. Yingjie Qiao, technical director of the Company. Pursuant to the sales agreement, Mr. Zhonghao Su agreed to contribute his interest in the technologies without any consideration. The total amount payable for these two technologies was RMB15 million which was the fair value of the technology and patent right ($2,317,819), of which the Company paid RMB5 million ($772,606). The remaining RMB10 million ($1,545,213), which was recorded as other payables, will be paid by the Company upon receipt of the patent rights certificates for these two technologies and transfer of the ownership of these patent rights to the Company.
On December 17, 2009, the Company entered into a supplemental agreement with three owners of these technologies, Mr. Yingjie Qiao, Mr, Zhonghao Su, and Mrs. Dongyan Tang, to amend the agreement for the purchase price of the technologies. Pursuant to the supplemental agreement, the Company would only acquire one technology for the total purchase price of RMB15 million ($2,317,819) payable to Mr. Yingjie Qiao and Mrs. Dongyen Tang, of which the Company has already paid RMB5 million ($776,606). The remaining RMB10 million ($1,545,213), which was recorded as other payables, will be paid by the Company when it receives the patent right certificate for the technology and the ownership of patent right has been completely transferred to the Company. The Company began using this technology for manufacturing in late 2009, and amortizes it over its estimated useful life of 10 years.
Pursuant to the supplemental agreement, the Company also obtained the right to use the other technology which was the subject of the original agreement and which the Company currently applies in its dry-powder blending process to produce its starch-based material. The supplemental agreement provides the Company with a royalty-free right to use this other technology as long as it is owned by the current owners, a right of first refusal on any proposed transfers of the technology by the current owners and an option to purchase the technology for RMB15 million ($2,317,819). This technology is the subject of a patent application filed with, and presently under review by, the PRC State Intellectual Property Office.
The technology and patent right at cost less amortization consisted of the following as of June 30, 2011 and December 31, 2010:
For the three months ended June 30, 2011 and 2010, depreciation was $57,694 and $27,944, respectively, and for the six months ended June 30, 2011 and 2010, amortization expense for technology and patent right was $114,689 and $54,944, respectively.
The amortization expense from June 30, 2011 for the next five years is expected to be as follows:
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Income and Other Taxes
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Income and Other Taxes |
14. Income and Other Taxes
a. Corporation Income Taxes (CIT)
The Company will file a federal consolidated income tax return with its US subsidiary and state franchise tax individually with the State of Nevada. The Companys PRC subsidiaries file income tax returns under the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws.
In accordance with the relevant tax laws and regulations of the PRC, CHFY is entitled to full exemption from CIT for the first two years and a 50% reduction in CIT for the next three years, commencing from the first profitable year after offsetting all tax losses carried forward from the previous five years. As 2007 was the Companys first profitable year, CHFY was entitled to a full exemption from CIT for the years 2007 and 2008. Commencing from January 2009, CHFY had begun to be charged CIT at a 15% rate
In accordance with the relevant PRC tax laws and regulations, the Companys PRC subsidiary, Zhonghao Bio, is subject to CIT at 25%.
The deferred income tax assets result from impairment of investment and are deductible when the actual loss on investment is incurred.
The components of the provisions for income taxes were as follows for the three months and six months ended June 30, 2011 and 2010:
The following is a reconciliation of tax computed by applying the statutory income tax rate to PRC operations to income tax expenses for the three months and six months ended June 30, 2011 and 2010 respectively:
b. Value Added Tax (VAT)
The Companys PRC subsidiary, CHFY, is subject to VAT of 17% on merchandises sales in the PRC. Since the CHFY is located in Heilongjiang province and classified as a Hi-Tech Manufacturing Company, the China National Tax Authority had authorized CHFY to offset the VAT tax paid for purchasing equipment and machineries with the regular VAT tax collected from sales products of CHFY. This authorization began in December 2007.
The Companys PRC subsidiary, Zhonghao Bio, is classified as a small-scale tax payer which is subject to VAT of 3% on merchandises. Zhonghao Bio has commenced its production in March 2011 and its sales on May 2011.
c. Taxes Payable
As of June 30, 2011 and December 31, 2010, taxes payable consisted of the following:
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Investment
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Jun. 30, 2011
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Investment |
10. Investment
The Company, through CHFY, indirectly owns a 16% equity interest in Harbin Longjun Trade Co., Ltd. (Longjun), a corporation organized in Heilongjiang Province of the PRC on June 1, 2006. The Company accounts for this investment using the cost method. As of June 30, 2011 and December 31, 2010, the investment amounts at net were approximately $15,508 and $15,154. The company recorded $96,153 and $293,251 of impairment loss on this investment during the three months and six months ended June 30, 2010, respectively, which is the difference between the book value and the estimated fair value of the investment. |
Intangible Assets, net
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Intangible Assets, net |
8. Intangible Assets, net
Intangible assets represent a land use right. All land in China is owned by the State or collectives. Individuals and companies are permitted to acquire land use rights for general or specific purposes. In the case when land is used for industrial purposes, the land use rights are granted for a period of 50 years. The rights may be renewed at the expiration of the initial and any subsequent terms according to the relevant Chinese laws. Granted land use rights are transferable and may be used as security for borrowings and other obligations.
The Company acquired the land use right at September 9, 2005. The intangible assets associated with this land use right were contributed by unrelated parties in exchange for shares of the Companys common stock. The Company has the right to use the land for 50 years and amortizes the right on a straight-line basis for 50 years.
The intangible assets at cost less amortization consisted of the following as of June 30, 2011 and December 31, 2010:
For the three months ended June 30, 2011 and 2010, depreciation was $28,887 and $27,470, respectively and for the six months ended June 30, 2011 and 2010, amortization expenses were $57,425 and $55,022, respectively.
The amortization expense from June 30, 2011 for the next five years is expected to be as follows:
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General and Summary of Significant Accounting Policies
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GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principal Activities
China Green Material Technologies, Inc. is a Nevada corporation incorporated in December 1997 under the name Mount Merlot Estates, Inc. At the time we acquired our current business in February 2007, our corporate name was Ubrandit.com. On January 14, 2008, we changed our name to China Green Material Technologies, Inc. References in these Notes to the Company refer to China Green Material Technologies, Inc. and where applicable its direct and indirect wholly owned subsidiaries. On April 21, 2011 and since then, the Companys shares have been quoted on the Over-the-Counter Bulletin Board (the Bulletin Board) operated by the Financial Industry Regulatory Authority under the symbol CAGM.OB. From February 25, 2011 to April 20, 2011, the Companys shares were quoted on the OTCQB market operated by Pink OTC Markets Inc. under the symbol CAGM.PK. Prior to such time, the Companys shares were traded on the Bulletin Board under the symbol CAGM.OB, whereas before its name change in January 2008 the Companys shares were quoted on the Bulletin Board under the symbol UBDT.OB
On February 9, 2007, the Company acquired all of the outstanding capital stock of Advanced Green Materials, Inc. (AGM), a Nevada corporation, by merging a wholly owned subsidiary of the Company into AGM. Through AGM, the Company indirectly owns all of the outstanding capital stock of ChangFangYuan Hi-tech Environment-Friendly Industrial Co., Ltd. (CHFY), a corporation organized under the laws of the People Republic of China (China or the PRC). AGM has substantially no operations and substantially no assets other than the shares of CHFY. Through CHFY, the Company operates the business described in this annual report on Form 10-K and in the financial statements included herein. The Companys acquisition of AMG and CHFY is sometimes herein referred to as the 2007 Business Combination. Immediately before the 2007 Business Combination, the Company had no material assets and no material operations and therefore it was considered a shell company (as defined by Rule 12b-2 of the Securities Exchange Act of 1934). As consideration for the acquisition of AGM and CHFY, the Company issued to the former owners of AGM shares of the Companys Series A Convertible Preferred Stock that were convertible into approximately 98% of the Companys outstanding common shares, on an after-converted basis.
On January 14, 2008, concurrent with our name change, the Company effected a 1-for-150 reverse split of its common stock. In connection with the split, the Company issued additional shares to certain shareholders so that, after the split, no shareholder owned fewer than 100 shares. The following month, on February 29, 2008, the holders of all outstanding shares of Series A Convertible Preferred Stock converted their preferred shares into 18,150,000 shares of the Companys common stock, and all shares of Series A Convertible Preferred Stock were cancelled.
CHFY was incorporated in the Heilongjiang Province of China on May 12, 1999. It was known as Harbin TianHao Technology Co., Ltd., and changed its name to Harbin ChangFangYuan Hi-Tech Industrial Co., Ltd. on September 28, 2004, and further changed its name to Harbin ChangFangYuan Hi-Tech Environment-Friendly Industry Co., Ltd. on September 1, 2006. AGM acquired all of the outstanding capital stock of CHFY on August 18, 2006.
Prior to May 2006, CHFY engaged only in product development and the establishment of manufacturing facilities and marketing relationships. CHFYs business realized its first revenue in May 2006.
On June 25, 2010, AGM completed the incorporation of a wholly owned subsidiary, Heilongjiang Zhonghao Starch-Based Biodegradable Materials Co., Ltd. (Zhonghao Bio) with registered capital of $2.8 million in the Heilongjiang Province of China. Through Zhonghao Bio, the Company owns our new 5,921 square-meter corporate head office and manufacturing facility located in the Harbin Economic and Technological Development Zone, which commenced manufacturing, development, marketing and production of biodegradable packaging materials in the first quarter of 2011.
Basis of Presentation
The accompanying interim unaudited consolidated financial statements (Interim Financial Statements) of the Company and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all the information and notes required by US GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the Companys Annual Report on Form 10-K for year ended December 31, 2010. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Companys financial position, results of operations and cash flows for the periods presented. The results of operations and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
Principles of Consolidation
The accompanying Interim Financial Statements present the financial position, results of operations and cash flows of the Company and all entities in which the Company has a controlling voting interest. These consolidated financial statements include the financial statements of China Green Material Technologies, Inc. and its wholly owned subsidiaries AGM, CHFY, and Zhonghao Bio. All significant intercompany transactions and balances are eliminated in consolidation.
The accompanying Interim Financial Statements are prepared in accordance with US GAAP. This basis of accounting differs from that used in the statutory accounts of some of the Companys subsidiaries, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises with foreign investment in the PRC (PRC GAAP). Necessary adjustments were made to the subsidiaries statutory accounts to conform to US GAAP to be included in these Interim Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimate of useful lives of property and equipment, intangible asset and technology and patent right, the deferred tax valuation allowance and the fair value of stock warrants and stock awards. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could materially differ from those estimates.
Cash and Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents.
Restricted Cash
Commencing from 2008, in accordance with the relevant Harbin local tax regulations, the Company is subjected to labor union fees at 2% of total payroll. The general union of city government will return 40% of the paid labor union fees back to the Company, and requires that the returned amount should be deposited into a special bank account that is restricted to be used only for employees welfare purpose by the labor union department of the Company. As of June 30, 2011 and December 31, 2010, the amounts of cash - restricted were $417 and $4,266, respectively.
Accounts Receivable
Accounts receivable are recognized and carried at original invoice amount less allowance for doubtful accounts based on a review of all outstanding amounts at period end. Management determines the allowance for doubtful accounts by using historical experience applied to an aging account with specific identification on case by case and the estimated losses are based on a review of the current status of the existing receivables. The Company provides an allowance for doubtful accounts equal to the estimated losses that will be incurred in the collection of all receivables. There was no allowance for doubtful accounts as of June 30, 2011 and December 31, 2010. Trade receivables are written off when deemed uncollectible.
Inventories
The Company value inventories, consisting of finished goods, work in progress, raw materials, and packaging material and other items, at the lower of cost or market. Cost is determined on the weighted average cost method. Cost of raw materials is determined on a first-in, first-out basis (FIFO). Finished goods are determined on a weighted average basis and are comprised of direct materials, direct labor, and an appropriate proportion of overhead.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the useful lives of the assets. Upon sale or retirement of plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Companys Consolidated Statements of Income and Comprehensive Income.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its other long-lived assets, including amortizing intangible assets, if circumstances indicate impairment may have occurred pursuant to ASC 360. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the Companys Consolidated Statements of Income.
Intangible Assets
At June 30, 2011 and December 31, 2010, intangible assets consist of a land use right. With the adoption of ASC 350 (Intangibles-Goodwill and Other), intangible assets with a definite life are amortized on a straight-line basis. The land use right is being amortized over its estimated life of 50 years. Our interests in the patent rights and related technology acquired by us in 2009 are accounted for on the balance sheets as Technology and patent right, net.
Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss to be recorded is calculated by the excess of the assets carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered. Revenue includes sales of products. Products revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers, net of allowance for estimated returns, when both title and risk of loss transfer to the customer, provided that no significant obligations remain. Deferred revenue represents the undelivered portion of invoiced value of goods sold to customers. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.
Sales revenue represents the invoiced value of goods, net of value-added tax ("VAT"). All of the Companys products sold in the PRC are subject to VAT of 17% of gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing finished product. The Company recorded VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.
Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.
Rental income recognition
Rental income from operating leases related to our unused factory facilities with 21,132 square meters of floor space is recognized on a straight-line basis over the lease period. The Company recognized $69,233 and $65,951 of gross rental income for the three months ended June 30, 2011 and 2010, respectively, and recognized $137,627 (equivalent to RMB0.90 million) and $131,866 (equivalent to RMB 0.90 million) gross rental income for the six months ended June 30, 2011 and 2010, respectively.
Advertising Costs
Advertising costs, except for costs associated with direct-response advertising, are charged to operations when incurred. Advertising expenses were $4,588 and $8,363 for three months ended June 30, 2011 and 2010, respectively and were $4,588 and $25,355 for the six months ended June 30, 2011 and 2010, respectively.
Employee Welfare Benefit
The Company has established an employee welfare plan in accordance with Chinese law and regulations. The Companys China subsidiary recorded all employee welfare benefit expense as incurred. The total expense for the above were $2,447 and $2,330 for the three months ended June 30, 2011 and 2010, respectively, and were $7,630 and $4,309 for the six months ended June 30, 2011 and 2010, respectively.
Research and development costs
Research and development costs are charged to operations when incurred and are included in operating expenses. The amounts expensed for the three months ended June 30, 2011 and 2010 were $4,792 and $29, respectively and for the six months ended June 30, 2011 and 2010 were $10,970 and $74 respectively.
Income Taxes
The Companys PRC subsidiary files income tax returns under the Income Tax law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws.
The Company follows the method of accounting for income taxes prescribed by ASC 740 Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowance are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (FIN 48), codified in FASB ASC Topic 740, on January 1, 2007. As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48, and the Company recognized no material adjustments to liabilities or stockholders equity. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Companys financial statements. At June 30, 2011 (unaudited) and December 31, 2010, the Company did not take any uncertain positions that would necessitate recording of tax related liability.
Comprehensive Income
ASC 220, Reporting Comprehensive Income, established standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. ASC 220 defines comprehensive income to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is presented with the same prominence as other financial statements. The Companys only current component of comprehensive income is the foreign currency translation adjustment.
Foreign Currency Translation
The Company financial statements are presented in the U.S. dollar ($), which is the Companys reporting currency, while its functional currency is the Renminbi (RMB), the national currency of the PRC and the primary currency of the economic environment in which the operations of CHFY and Zhonghao Bio are conducted. Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income.
The Company translates the assets and liabilities into $ using the rate of exchange prevailing at the balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period, and equity is translated at the historical exchange rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Adjustments resulting from the translation from RMB into $ are recorded in stockholders equity as part of accumulated other comprehensive income. The exchange rates used for financial statements are as follows:
Basic and Diluted Net Income Per Share
The Company accounts for net income per common share in accordance with ASC 260, Earnings per Share (EPS). ASC 260 requires the disclosure of the potential dilution effect of exercising or converting securities or other contracts involving the issuance of common stock. Basic net income per share is determined based on the weighted average number of common shares outstanding for the period. Diluted net income per share is determined based on the assumption that all dilutive convertible shares and stock options were converted or exercised into common stock.
The Company accounts for net income per common share in accordance with ASC 260, Earnings per Share (EPS). ASC 260 requires the disclosure of the potential dilution effect of exercising or converting securities or other contracts involving the issuance of common stock. Basic net income per share is determined based on the weighted average number of common shares outstanding. Diluted net income per share is determined based on the assumption that all dilutive convertible shares and stock options were converted or exercised.
As of June 30, 2011, the Company had 15,000 non-vested shares awards and 20,000 outstanding warrants that could potentially dilute basic income per share in the future, but which were excluded in the computation of diluted earnings per share in the periods presented, as their effect would have been anti-dilutive since the grant price of these restricted shares and the exercise price of these option were higher than the average market price during period presented.
Concentration of Credit Risk
The Companys financial instruments consist primarily of cash and equivalents, which are invested in non-interest bearing bank deposit accounts, money market accounts and accounts receivable. The Company considers the book value of these instruments to be indicative of their respective fair value. The Company places its temporary cash investments with high credit quality institutions to limit its risk exposure. Most of the Companys sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in their respective areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
Fair Value of Financial Instruments
For certain of the Companys financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, other receivables, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
As of June 30, 2011 and 2010, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value, other than the warrants liabilities discussed in Note 15.
Segment Reporting
ASC 280, Disclosure about Segments of an Enterprise and Related Information, requires disclosure of reportable segments used by management for making operating decisions and assessing performance. Reportable segments are categorized by products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. ASC 280 has no effect on the Companys financial statements as substantially all of the Companys operations and managements are conducted as a single operating segment.
Share-Based Payments
The Company adopted ASC 718, Compensation-Stock Compensation (ASC No. 718). ASC No. 718 amends existing accounting pronouncements for share-based payment transactions in which an enterprise receives employee and certain non-employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. ASC No.718 generally requires such transactions to be accounted for using a fair-value-based method
Recent Accounting Pronouncements
Since the filing of 2010 Form 10-K, the Financial Accounting Standards Board (FASB) issued ASU No. 2011-01 through No. 2011-03. These ASUs entail technical corrections to existing guidance or affect guidance related to specialized industries or entities and therefore have minimal, if any, impact on the Company. |
Accrued Rental Receivable and Rental Income (Loss)
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Accrued Rental Receivable and Rental Income (Loss) |
4. Accrued Rental Receivable and Rental Income (Loss)
As of June 30, 2011 and December 31, 2010, Accrued rental receivable consisted of accrued rental income for leasing out unused factory space.
The Company leases out certain unused building with land use right, and equipment and machinery under operating leases agreements, and the lease terms had been extended to December 31, 2011. Its annual rental is RMB 1,800,000 or $ 278,138 per year. The rental revenue and cost for the six months ended June 30, 2011 and 2010 consisted of the following:
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Other current assets
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Other current assets |
5. Other current assets
As of June 30, 2011 and December 31, 2010, other current assets consisted of the following:
The advance to employee is for business trips and marketing. |
Due to Stockholders/Officers
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6 Months Ended |
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Jun. 30, 2011
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Due to Stockholders/Officers |
13. Due to Stockholders/Officers
Since 2005, certain of our principal stockholder have advanced necessary working capital to the Company to support its research, development and operations. These amounts are unsecured, non-interest bearing and have no set repayment date. During the year 2009, the Company repaid a significant amount of these loans to one of its stockholder. As a result, the net amounts due to the stockholders/officers were $213,269 and $208,404 as of June 30, 2011 and December 31, 2010, respectively. All the amount due to officer above are payable to Mr. Zhonghao Su, Chief Executive Officer of the Company. |
Deposits for construction
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6 Months Ended |
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Jun. 30, 2011
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Deposits for construction |
6. Deposits for construction
As of June 30, 2011 and December 31, 2010, deposits to supplier for construction mainly consisted of a renovation deposit of RMB5,000,000 or $772,607 and RMB2,000,000 or $301,992, respectively, for total contract value of RMB5,200,000 or $803,511 subject to value of variation orders which will be agreed upon by both parties for the Companys new administrative offices adjoining the new manufacturing facilities. |
Statutory Reserves
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Statutory Reserves |
16. Statutory Reserves
The Companys subsidiaries in the PRC is required to maintain certain statutory reserves by appropriating from the profit after taxation in accordance with the relevant laws and regulations in the PRC and articles of association of the subsidiary before declaration or payment of dividends. The reserves form part of the equity of the Company. The statutory reserve fund can be used to increase the registered capital and eliminate future losses of the subsidiary, but it cannot be distributed to shareholders except in the event of a solvent liquidation of the subsidiaries.
The appropriation to the statutory surplus reserve and statutory common welfare fund reserve represent 10 percent and 5 percent of the profits after taxation, respectively. In accordance with the laws and regulations in the PRC, the appropriations to statutory reserve cease when the balances of the reserve reach 50 percent of the registered capital of the subsidiary. Commencing from year 2006, the appropriation to statutory common welfare fund reserve is not required. Thus, the Company had ceased the reservation of statutory common welfare fund from January 2009.
The statutory reserves consisted of the following as of June 30, 2011 and December 31, 2010:
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