This Annual Report contains forward-looking
statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions
or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend,"
"plan," "will," "we believe," "management believes" and similar language. The forward-looking
statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions,
including those set forth in the discussion under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in this report. Actual results may differ materially from results anticipated in these forward-looking statements.
We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.
Investors are also advised to refer
to the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and
8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
AJ Greentech Holdings Ltd. through its
wholly-owned subsidiary, Jih Chih International Ltd. a corporation organized under the laws of Taiwan, The Republic of China is
engaged in the business of marketing, manufacturing and distributing of green energy.
From November 2009 until October, 2013,
through our China subsidiaries, we were engaged in design, marketing and distributing of alcohol base clean fuel which are designed
to use less fossil fuel and have less pollution than traditional fuel.
On October 31, 2013, pursuant to agreements
with one of our former directors, we transferred the stock in our China subsidiaries to the former director in exchange for cancellation
of debt totaling $240,000. As a result of the transfer of the subsidiaries, we were no longer engaged in the China cleanfuel
business. We transferred the stock of the China subsidiaries because we felt that, it not our best interest to continue
China cleanfuel business as a result of our decreasing revenue, continued losses and inability to raise capital for our business
On October 31, 2013, Chu Li An acquired,
for nominal consideration, 8,000,000 shares of common stock from the director who acquired the subsidiaries and 12,778,399 shares
of common stock from The Chairman, who was also a director. On November 1, 2013, Chu Li An and the Company entered
into a loan agreement pursuant to which the Chu Li An agreed to lend us $100,000 initially with future loan amount up to $1,000,000,
for which we issued our 6% demand promissory note in the principal amount of $100,000. The securities were issued in
Chu Li An’s name.
On November 18, 2013, we entered into
agreement pursuant to which we issued to Chu Li An and her BVI company, our sole director and chief executive officer, 180,000,000
shares of common stock, in consideration of the cancellation of debt due to Chu Li An in the amount of $180,000.
Liquidity and Capital Resources
Our operations to date have been funded
primarily by operations, advance from our majority stockholder, CEO and Chairman and capital contributions.
At December 31, 2013 and 2012, we had
cash and cash equivalents of $140,987 and $128,662, respectively. Our cash at December 31, 2013 was increased by $12,325 from December
31, 2012.
Our current
assets at December 31, 2013 were $2,428,132, compared to $1,126,884 at December 31, 2012. This increase reflects increases in accounts
receivable of $2,187,035, inventory of $89,702, , prepaid value added taxes of $47, prepayment and other current assets of $1,561,and
partially offset by decreases in advance on purchases of $8,800.
Our current
liabilities at December 31, 2013 were $2,901,611, compared to $1,507,744 at December 31, 2012. This increase reflects an increase
in accounts payable of $1,335,276, advance from stockholder, chairman and CEO of $1,41,504 and borrowings of 1,420,732, partially
offset by decreases in tax payable of $1,952, accrued expenses and other current liabilities of $2,147 .
Our accounts
receivable, net of allowance for doubtful accounts, increased $1,249,529, mainly due to the company increased selling in Taiwan
during the year ended in December 31, 2013.
Inventories
at December 31, 2013 increased by $38,074 from December 31, 2012, which is mainly due to the company increased the selling in Taiwan,
the production raised consequently during the year ended in December 31, 2013.
Accounts payable
increased $338,098 at December 31, 2013 compared to December 31, 2012, primarily due to purchases of raw material was rising during
the year ended in December 31, 2013..
Statements
of Cash Flows
Our cash increased
$12,325 during 2013, as compared to 2012. In 2013, we used cash in the amounts of $0.85 million from our operating activities.
We obtained cash in the amount of $0.84 million in financing activities and used cash of $1 thousand from investing activities.
In 2012, we generated cash in the amount of $0.28 million in operating activities and $0.66 million in financing activities, and
we used cash in the amount of $1.2 million through investing activities.
Net Cash
Provided by (Used in) Operating Activities
In 2013, net
cash used in operating activities of $853,709 was mainly comprised of cash paid in account receivable of $1,249,529, impairment
of assets of $11,306,197, cash paid in inventories of $38,074, an increase in account payable of $338,098, an decrease in prepayments
and other current assets of $1,283, a decrease in tax payable of $1,741, an increase in advance of $55,293, and an decrease in
accrued expenses and other current liabilities of $1,123.
In 2012, net
cash obtained in operating activities of $280,231 was mainly comprised of cash used in account receivable of $779,135, cash used
in inventories of $51,628, a increase in account payable of $994,540, an decrease in prepayments and other current assets of $4,776,
a decrease in tax payable of $430, an increase in advance of $86,211, and a decrease in accrued expenses and other current liabilities
of $808.
Cash
Used in Investing Activities
In 2013, cash
outflow from investing activities of $1147 was due to made towards property and equipment.
In 2012, cash
used in investing activities of $1,156,504 was due to payment made towards PPE.
Cash
Provided by Financing Activities
In 2013, cash
generation in financing activities of $837,732 consisted of issuance of common stock of $152,000, new borrowings of $1,003,340,
and long term debt repayment of $317,608.
In 2012, cash
provided in financing activities of $662,346 consisted of issuance of common stock of $172,000, increase in long term debt of $412,800,
borrowing of $206,400, long term debt repayment of $115,415, dividends payment of $7,532, and other payment of $5,907.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition or results of operations.
Critical Accounting Policies and Estimates
This discussion and analysis of our
financial condition and results of operations are based on our financial statements that have been prepared under accounting principle
generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the 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. Actual results could differ from those estimates.
A summary of significant accounting
policies is included in Note 2 to the consolidated financial statements included in this Annual Report. Of these policies, we believe
that the following items are the most critical in preparing our financial statements.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable are recorded at
the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting
Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its
customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined
by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off
experience, customer specific facts and economic conditions.
Outstanding account balances are reviewed
individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses,
if any. Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification 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 Company
has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or
delinquent based on how recently payments have been received.
Inventories
The Company values inventories, consisting
of raw materials, packaging material and finished goods, at the lower of cost or market. Cost is determined on the first-in and
first-out (“FIFO”) method for raw materials and packaging materials and the weighted average cost method for finished
goods. Cost of finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production
overhead. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues
affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized
in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future
demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and
packaging obsolescence.
The Company evaluates its current level
of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the
income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification
to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements
if future economic conditions, customer demand or competition differ from expectations. Other significant estimates include the
allocation of variable and fixed production overheads. While variable production overheads are allocated to each unit of production
on the basis of actual use of production facilities, the allocation of fixed production overhead to the costs of conversion is
based on the normal capacity of the Company’s production facilities, and recognizes abnormal idle facility expenses as current
period charges. Certain costs, including categories of indirect materials, indirect labor and other indirect manufacturing costs
which are included in the overhead pools are estimated. The management of the Company determines its normal capacity based upon
the amount of operating hours of the manufacturing machinery and equipment in a reporting period.
Revenue Recognition
The Company applies paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable
and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii)
the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
The Company derives its revenues from
sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement
is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed acknowledgement
of receipt from the customers or a signed bill of lading from the third party trucking company and
title
transfers upon shipment, based on free on board (“FOB”) warehouse terms
; the sales price to the customer is
fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive.
When the Company recognizes revenue, no provisions are made for returns because, historically, there
have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.
The Company markets and distributes
ethanol and methanol based alternative fuel for automobile use and follows Section 605-45-45 (formerly EITF 99-19) (“ASC
Section 605-45-45”) of the FASB Accounting Standards Codification for revenue recognition to report revenue gross as a principal
for its sales since the Company (1) acts as principal in the transaction, (2) takes title to the products, (3) has risks and rewards
of ownership, such as the risk of loss for collection, delivery, or returns, and (4) does not act as an agent or broker (including
performing services, in substance, as an agent or broker) with compensation on a commission or fee basis on its sales. The management
of the Company determined that the Company should report revenue based on the gross amount billed to a customer when considering
each of the following eight (8) indicators of gross revenue reporting listed in ASC Paragraph 605-45-45-4 through 605-45-45-14
as specified (1) The entity is the primary obligor in the arrangement — The Company signs a product sales agreement with
its customer and represents in writing that the Company is responsible for fulfillment, including the acceptability of the product(s)
or service(s) ordered or purchased by the customer; (2) The entity has general inventory risk (before customer order is placed
or upon customer return); (3) The entity has latitude in establishing price — The Company has reasonable latitude, within
economic constraints, to establish the exchange price with a customer for the product or service; (4) The entity changes the product
or performs part of the service — The Company developed a method for blending the raw materials in its manufacturing process,
through its proprietary technology, catalysts can be mixed with fuel and alcohols to become a finished product to be sold after
pumping and piping; (5) The entity has discretion in supplier selection — The Company has multiple suppliers for the products
ordered by a customer and discretion to select the supplier that will provide the product(s) or service(s) ordered by a customer;
(6) The entity is involved in the determination of product or service specifications — The Company determines the nature,
type, characteristics, or specifications of the product(s) or service(s) ordered by the customer; (7) The entity has physical loss
inventory risk of purchased inventories after customer order; and (8) The entity has credit risk — The Company is responsible
for collecting the sales price from its customer but must pay the amount owed to its supplier after the supplier performs, regardless
of whether the sales price is fully collected.
Net sales of products represent
the invoiced value of goods, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on all
of the Company’s products at the rate of 17% on the invoiced value of sales. Sales or Output VAT is borne by customers in
addition to the invoiced value of sales and Purchase or Input VAT is borne by the Company in addition to the invoiced value of
purchases to the extent not refunded for export sales.
Foreign Currency Translation
The Company follows Section 830-10-45
of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the
financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars. Section
830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including
of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction
gains and losses. the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of
that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates;
normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.
The functional currency of each foreign
subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances
affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and
the nature of the subsidiary’s operations must also be considered. If a subsidiary’s functional currency is deemed
to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements
is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then
any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency
would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign
subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and
comprehensive income (loss). If the Company determines that there has been a change in the functional currency of a subsidiary
to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of
income and comprehensive income (loss).
Based on an assessment of the factors
discussed above, the management of the Company determined the relevant subsidiaries’ local currencies to be their respective
functional currencies.
The financial records of the Company's
Chinese operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional
currency. Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange
rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period
to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial
statements. Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements
into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’
equity.
RMB is not a fully convertible currency.
All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”)
or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions
are the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China adopted a managed floating exchange rate regime based
on market demand and supply with reference to a basket of currencies. The exchange rate of the US dollar against the RMB was adjusted
from approximately RMB 8.28 per U.S. dollar to approximately RMB 8.11 per U.S. dollar on July 21, 2005. Since then, the PBOC administers
and regulates the exchange rate of the U.S. dollar against the RMB taking into account demand and supply of RMB, as well as domestic
and foreign economic and financial conditions.
Equity Instruments Issued to Parties
Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”).
Pursuant to Section 505-50-30, all transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance
is complete or the date on which it is probable that performance will occur.
The fair value of option or warrant
award is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs
are as follows:
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Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2 of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. The contractual term of share options or similar instruments is used as expected term of share options or similar instruments for the Company if it is a newly formed corporation.
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Expected volatility of the entity’s shares and the method used to estimate it. An entity that uses a method that employs different volatilities during the contractual term shall disclose the range of expected volatilities used and the weighted-average expected volatility. A thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
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Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected contractual life of the option and similar instruments.
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Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option and similar instruments.
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Pursuant to ASC paragraph 505-50-25-7,
if fully vested, nonforfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods
or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination
of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor
shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding
cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements
of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may
conclude that an asset (other than a note or a receivable) has been received in return for fully vested, nonforfeitable equity
instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity
by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the
balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other
than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date
for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and
505-50-25-9, an entity may grant fully vested, nonforfeitable equity instruments that are exercisable by the grantee only after
a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance
conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity
had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments.
A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise
expires unexercised.
Pursuant to paragraph 505-50-30-S99-1,
if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity
instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should
be recorded.
Most Recent accounting pronouncements
Refer to note 2 in the accompanying
consolidated financial statements.
Impact of Most Recent Accounting Pronouncements
There were no recent accounting pronouncements that have
had a material effect on the Company’s financial position or results of operations.