UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2015
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 000-52899
NUTRASTAR INTERNATIONAL
INC.
(Exact Name of Registrant as Specified in Its Charter)
|
Nevada |
|
80-0264950 |
|
|
(State or other jurisdiction of |
|
(I.R.S. Empl. Ident. No.) |
|
|
incorporation or organization) |
|
|
|
4/F Yushan Plaza
51 Yushan Road
Nangang
District, Harbin 150090
Peoples Republic of China
(Address
of principal executive offices, Zip Code)
(86) 451-8228-7746
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No __
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No __
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated
filer [ ] Non-accelerated filer [ ] (Do not check if a smaller
reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes __ No [X]
The number of shares outstanding of each of the issuers
classes of common equity, as of November 13, 2015 is as follows:
|
Class of Securities |
|
Shares Outstanding |
|
|
Common stock, $0.001 par value
|
|
17,036,396 |
|
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-1
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
(AMOUNTS EXPRESSED IN US DOLLARS)
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
138,511,991 |
|
$ |
126,542,564 |
|
Accounts receivable |
|
87,518 |
|
|
93,066 |
|
Inventories |
|
1,437,108 |
|
|
635,409 |
|
Prepayments and other receivables |
|
1,004,516 |
|
|
1,489,800 |
|
Total current
assets |
|
141,041,133 |
|
|
128,760,839 |
|
OTHER ASSETS |
|
|
|
|
|
|
Intangible assets, net
|
|
236,149 |
|
|
613,315 |
|
Property, plant and equipment, net |
|
13,165,368 |
|
|
14,424,942 |
|
|
|
|
|
|
|
|
Total assets |
$ |
154,442,650 |
|
$ |
143,799,096 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Other payables and accruals |
$ |
992,339 |
|
$ |
990,290 |
|
Taxes payable |
|
2,422,181 |
|
|
2,748,583 |
|
Due to a related party |
|
530,739 |
|
|
511,054 |
|
Preferred stock
dividend payable |
|
786,063 |
|
|
690,662 |
|
Total current liabilities |
|
4,731,322 |
|
|
4,940,589 |
|
Total
liabilities |
|
4,731,322 |
|
|
4,940,589 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Preferred Stock, $0.001 par value,
1,000,000 shares authorized,
74,276 shares and
77,776 shares issued and outstanding at September 30, 2015
and December 31, 2014,
respectively; aggregate liquidation preference
amount: $2,079,728 and $ 2,177,728, plus accrued but unpaid dividend
of $786,063 and $690,662,
at September 30, 2015 and December 31, 2014, respectively |
|
1,693,950 |
|
|
1,773,772 |
|
Common stock, $0.001
par value, 190,000,000 shares
authorized, 17,079,951
shares issued and 17,036,396 shares outstanding
at September 30, 2015;16,953,541 shares issued and 16,909,986
shares outstanding at
December 31, 2014 |
|
17,080 |
|
|
16,954 |
|
|
|
|
|
|
|
|
Additional paid-in
capital |
|
21,356,499 |
|
|
21,122,372 |
|
Statutory reserves |
|
4,989,033 |
|
|
4,989,033 |
|
Treasury stock, at cost,
43,555 shares as of September 30,
2015 and December 31,2014 |
|
(78,767 |
)
|
|
(78,767 |
)
|
Retained earnings |
|
119,256,143 |
|
|
102,783,308 |
|
Accumulated other
comprehensive income |
|
2,477,390 |
|
|
8,251,835 |
|
Total stockholders' equity |
|
149,711,328 |
|
|
138,858,507 |
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity |
$ |
154,442,650 |
|
$ |
143,799,096 |
|
See accompanying notes to condensed consolidated financial
statements
F-2
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME |
(Unaudited) |
(AMOUNTS EXPRESSED IN US DOLLARS)
|
|
|
For the
Three Months |
|
|
For the
Nine Months |
|
|
|
Ended
September 30, |
|
|
Ended
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
NET REVENUE |
$ |
11,018,333
|
|
$ |
11,164,809
|
|
$ |
31,303,883
|
|
$ |
31,036,052
|
|
Cost of goods sold |
|
(2,145,416 |
) |
|
(2,172,840 |
) |
|
(6,651,057 |
) |
|
(6,754,154 |
) |
GROSS PROFIT |
|
8,872,917 |
|
|
8,991,969 |
|
|
24,652,826 |
|
|
24,281,898 |
|
Selling expenses |
|
(366,925 |
) |
|
(326,760 |
) |
|
(1,092,211 |
) |
|
(1,052,655 |
) |
General and administrative
expenses |
|
(434,205 |
)
|
|
(575,352 |
)
|
|
(1,519,937 |
)
|
|
(1,781,985 |
)
|
Income from operations |
|
8,071,787 |
|
|
8,089,857 |
|
|
22,040,678 |
|
|
21,447,258 |
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
112,392 |
|
|
102,481 |
|
|
338,621 |
|
|
291,565 |
|
Foreign exchange
differences |
|
(69,579 |
)
|
|
(7,899 |
)
|
|
(71,410 |
)
|
|
(27,627 |
)
|
Total other income |
|
42,813 |
|
|
94,582 |
|
|
267,211 |
|
|
263,938 |
|
Income before income taxes
|
|
8,114,600 |
|
|
8,184,439 |
|
|
22,307,889 |
|
|
21,711,196 |
|
Provision for income taxes |
|
(2,123,433 |
) |
|
(2,124,781 |
) |
|
(5,707,718 |
) |
|
(5,622,242 |
) |
NET INCOME |
|
5,991,167 |
|
|
6,059,658 |
|
|
16,600,171 |
|
|
16,088,954 |
|
OTHER COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments |
|
(5,924,190 |
)
|
|
9,378 |
|
|
(5,774,445 |
)
|
|
(1,061,364 |
)
|
COMPREHENSIVE INCOME |
$ |
66,977 |
|
$ |
6,069,036 |
|
$ |
10,825,726 |
|
$ |
15,027,590 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.35 |
|
$ |
0.36 |
|
$ |
0.97 |
|
$ |
0.95 |
|
Diluted |
$ |
0.34 |
|
$ |
0.34 |
|
$ |
0.94 |
|
$ |
0.91 |
|
Weighted average number of shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
17,016,831 |
|
|
16,878,627 |
|
|
16,994,345 |
|
|
16,799,048 |
|
Diluted |
|
17,759,591 |
|
|
17,702,788 |
|
|
17,744,287 |
|
|
17,684,076 |
|
See accompanying notes to condensed consolidated financial
statements
F-3
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY |
(Unaudited) |
(AMOUNTS EXPRESSED IN US DOLLARS)
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Number |
|
|
|
|
|
Number of |
|
|
|
|
|
Paid-In |
|
|
Treasury |
|
|
Statutory |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
of Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Reserves |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
77,776 |
|
$ |
1,773,772
|
|
|
16,909,986 |
|
$ |
16,954 |
|
$ |
21,122,372
|
|
$ |
(78,767 |
) |
$ |
4,989,033 |
|
$ |
102,783,308 |
|
$ |
8,251,835 |
|
$ |
138,858,507 |
|
Net income |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
16,600,171 |
|
|
- |
|
|
16,600,171 |
|
Foreign currency translation
adjustment |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(5,774,445 |
) |
|
(5,774,445 |
) |
Preferred stock converted into common stock
|
|
(3,500 |
) |
|
(79,822 |
) |
|
35,000 |
|
|
35 |
|
|
79,787 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Issuance of common stock for
preferred stock dividend |
|
- |
|
|
- |
|
|
11,410 |
|
|
11 |
|
|
31,924 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
31,935 |
|
Preferred stock dividend |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(127,336 |
) |
|
- |
|
|
(127,336 |
) |
Share-based payments to
independent directors |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
122,496 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
122,496 |
|
Issuance of restricted stock to independent
directors |
|
- |
|
|
- |
|
|
80,000 |
|
|
80 |
|
|
(80 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2015 |
|
74,276 |
|
$ |
1,693,950 |
|
|
17,036,396 |
|
$ |
17,080 |
|
$ |
21, 356,499 |
|
$ |
(78,767 |
) |
$ |
4,989,033 |
|
$ |
119,256,143 |
|
$ |
2,477,390 |
|
$ |
149,711,328 |
|
See accompanying notes to condensed consolidated financial
statements
F-4
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited) |
(AMOUNTS EXPRESSED IN US DOLLARS)
|
|
|
For the Nine Months Ended
September 30, |
|
|
|
2015 |
|
|
2014 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
Net income |
$ |
16,600,171 |
|
$ |
16,088,954 |
|
Adjustments to reconcile net
income to cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization
|
|
1,096,250 |
|
|
1,113,418 |
|
Share-based
compensation expense |
|
122,496 |
|
|
104,425 |
|
IR unregistered stock
compensation expense |
|
- |
|
|
92,371 |
|
(Increase) decrease in
assets: |
|
|
|
|
|
|
Accounts
receivable |
|
2,063 |
|
|
(39,386 |
) |
Inventories |
|
(850,984 |
)
|
|
(627,118 |
)
|
Prepayments
and other receivables |
|
441,553 |
|
|
444,593 |
|
Increase (decrease) in
liabilities: |
|
|
|
|
|
|
Other
payables and accruals |
|
36,707 |
|
|
(80,074 |
) |
Advance from related party |
|
19,685 |
|
|
237,956 |
|
Taxes
payable |
|
(228,443 |
) |
|
(441,777 |
) |
Net cash
provided by operating activities |
|
17,239,498 |
|
|
16,893,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Advance from
related party |
|
- |
|
|
29,620 |
|
Net cash provided by
financing activities |
|
- |
|
|
29,620 |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
(5,270,071 |
) |
|
(951,489 |
) |
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
11,969,427 |
|
|
15,971,493 |
|
CASH AND CASH EQUIVALENTS, at
the beginning of the period |
|
126,542,564 |
|
|
102,599,186 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS,
at the end of the period |
$ |
138,511,991 |
|
$ |
118,570,679 |
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS |
|
|
|
|
|
|
Preferred stock and dividend converted into
common stock |
$ |
111,757 |
|
$ |
958,897 |
|
Preferred stock dividend
payable |
|
127,336 |
|
|
130,920 |
|
Share-based payment to officers and directors
under equity incentive plan |
|
122,496 |
|
|
104,425 |
|
Share-based payment IR
unregistered stock compensation expense |
|
- |
|
|
92,371 |
|
SUPPLEMENTAL DISCLOSURE INFORMATION |
|
|
|
|
|
|
Income taxes paid |
$ |
5,765,269 |
|
$ |
5,839,167 |
|
See accompanying notes to condensed consolidated financial
statements
F-5
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 1 |
DESCRIPTION OF BUSINESS AND ORGANIZATION
|
Nutrastar International Inc. (Nutrastar or the Company) was
incorporated in the State of Nevada on December 22, 2002. On December 23, 2008,
the Company completed a reverse acquisition with New Zealand WAYNES New
Resources Development Co., Ltd. (New Resources). As a result of the reverse
acquisition with New Resources, the Company is no longer a shell company and
active business operations have been revived. Nutrastar together with its
subsidiaries and affiliates as described below are referred to as the
Company.
On January 11, 2010, the Company filed a Certificate of
Amendment to its Articles of Incorporation with the State of Nevada, pursuant to
which the Company changed its name to "Nutrastar International Inc."
On October 22, 2010, New Resources, a wholly-owned British
Virgin Islands subsidiary of the Company, entered into an equity transfer
agreement with the original founders of Heilongjiang Shuaiyi (the Shuaiyi
Founders), pursuant to which New Resources transferred all of its equity
interests in Heilongjiang Shuaiyi New Energy Development Co., Ltd.
(Heilongjiang Shuaiyi), a then wholly-owned Chinese subsidiary of New
Resources, to the Shuaiyi Founders (the Equity Transfer).
In connection with the Equity Transfer, the Shuaiyi Founders,
the Companys indirectly wholly-owned Chinese subsidiary incorporated on July
13, 2010, Harbin Baixin Biotech Development Co., Ltd. (Harbin Baixin) and
Heilongjiang Shuaiyi entered into the following commercial arrangements (the
Contractual Arrangement and together with the Equity Transfer, the
Restructuring), pursuant to which the Company has contractual rights to
control and operate the businesses of Heilongjiang Shuaiyi and Heilongjiang
Shuaiyi's two wholly-owned Chinese subsidiaries, Daqing Shuaiyi Biotech Co.,
Ltd. (Daqing Shuaiyi) and Harbin Shuaiyi Green & Specialty Food Trading
LLC (Harbin Shuaiyi and together with Heilongjiang Shuaiyi and Daqing Shuaiyi,
the VIEs):
Service Agreement
Pursuant to a technical
service agreement, entered into by and between Harbin Baixin and Heilongjiang
Shuaiyi, Harbin Baixin will provide certain exclusive technical services to
Heilongjiang Shuaiyi in exchange for the payment by Heilongjiang Shuaiyi of a
service fee that is calculated based on the market price in light of the
particulars of the service and the time of such service provided by Harbin
Baixin (the Service Agreement);
Option Agreement
Pursuant to an exclusive
purchase option agreement, entered into by and among Harbin Baixin, the Shuaiyi
Founders and Heilongjiang Shuaiyi, the Shuaiyi Founders granted to Harbin Baixin
an option to purchase at any time during the term of this agreement, all or part
of the equity interests in Heilongjiang Shuaiyi (the Equity Interests), at the
exercise price equal to the lowest possible price permitted by Chinese laws (the
Option Agreement);
F-6
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 1 |
DESCRIPTION OF BUSINESS AND ORGANIZATION
(CONTINUED) |
Voting Rights Agreement
Pursuant to a voting
rights proxy agreement, entered into by and among Harbin Baixin, the Shuaiyi
Founders and Heilongjiang Shuaiyi, each of the Shuaiyi Founders irrevocably
entrusted Harbin Baixin and any entities or individuals designated by Harbin
Baixin to, among others, exercise its voting rights and other rights as a
shareholder of Heilongjiang Shuaiyi (the Voting Rights Agreement); and
Pledge agreement
Pursuant to an equity pledge
agreement, entered into by and among Harbin Baixin, the Shuaiyi Founders and
Heilongjiang Shuaiyi, the Founders pledged all of the Equity Interests to Harbin
Baixin to secure the full and complete performance of the obligations and
liabilities on the part of the Shuaiyi Founders and Heilongjiang Shuaiyi under
this and above contractual arrangements (the Pledge Agreement and together
with the Service Agreement, the Option Agreement, the Voting Rights Agreement
and the Equity Transfer Agreement, the Restructuring Documents).
As a result of the Restructuring, the Company transferred all
of its indirect equity interests in Heilongjiang Shuaiyi back to the Shuaiyi
Founders, among whom, Ms. Lianyun Han became a majority shareholder of
Heilongjiang Shuaiyi by owning a 68.3% equity interest in Heilongjiang Shuaiyi.
At the same time, through the above contractual agreement, the Company maintains
substantial control over the VIEs daily operations and financial affairs,
election of their senior executives and all matters requiring shareholder
approval. As the primary beneficiary of the VIEs, the Company is entitled to
consolidate the financial results of the VIEs in its own condensed consolidated
financial statements under Financial Accounting Standards Board Accounting
Standard Codification (ASC) Topic 810 and related subtopics related to the
consolidation of variable interest entities (collectively, ASC Topic 810).
F-7
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 1 |
DESCRIPTION OF BUSINESS AND ORGANIZATION
(CONTINUED) |
As of September 30, 2015, details of the subsidiaries and
affiliates of the Company are as follows:
|
|
Domicile and |
|
|
|
Percentage |
|
|
|
|
date of |
|
|
|
of effective |
|
|
Names |
|
incorporation |
|
Paid-up capital |
|
ownership |
|
Principal activities |
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Zealand WAYNES New
Resources Development Co., Ltd. (New Resources) |
|
British Virgin
Islands, March 13, 2008 |
|
$50,000 |
|
100% |
|
Holding company
of the other subsidiaries |
|
|
|
|
|
|
|
|
|
Oriental Global Holdings
Limited (Oriental Global) |
|
Hong Kong, May
28, 2010 |
|
HK$1 |
|
100% |
|
Holding company
of Harbin Baixin |
|
|
|
|
|
|
|
|
|
Harbin Baixin Biotech
Development Co., Ltd. (Harbin Baixin) |
|
Peoples Republic
of China (PRC), July 13, 2010 |
|
$3,000,000 |
|
100% |
|
Cordyceps
Militaris (aka Chinese Golden Grass) cultivation technology research and
development, services and Cordyceps Militaris products wholesale |
|
|
|
|
|
|
|
|
|
VIEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heilongjiang Shuaiyi New
Energy Development Co., Ltd. (Heilongjiang Shuaiyi) |
|
PRC, July 11,
2006 |
|
RMB60,000,000 |
|
100% |
|
Principally
engaged in investment and property holding |
|
|
|
|
|
|
|
|
|
Daqing Shuaiyi Biotech Co.
Ltd. (Daqing Shuaiyi) |
|
PRC, August 8,
2005 |
|
RMB50,000,000 |
|
100% |
|
Growing and sales
of Cordyceps Militaris, which is widely used for Chinese medicine, and
functional health beverages |
|
|
|
|
|
|
|
|
|
Harbin Shuaiyi Green and
Specialty Food Trading LLC (Harbin Shuaiyi) |
|
PRC, May 18, 2001
|
|
RMB1,500,000 |
|
100% |
|
Sales of organic
and specialty food products |
F-8
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICES |
Basis of preparation
These condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S.
GAAP).
The interim condensed consolidated financial information as of
September 30, 2015 and for the nine and three month periods ended September 30,
2015 and 2014 have been prepared without audit, pursuant to the rules and
regulations of the SEC. Certain information and footnote disclosures, which are
normally included in consolidated financial statements prepared in accordance
with U.S. GAAP have not been included. The interim condensed consolidated
financial information should be read in conjunction with the Financial
Statements and the notes thereto, included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2014, previously filed with the
SEC on March 30, 2015.
In the opinion of management, all adjustments (which include
all significant normal and recurring adjustments) necessary to present a fair
statement of the Companys interim condensed consolidated financial position as
of September 30, 2015, its interim condensed consolidated results of operations
and cash flows for the nine and three month periods ended September 30, 2015 and
2014, as applicable, have been made. The interim results of operations are not
necessarily indicative of the operating results for the full fiscal year or any
future periods.
Principle of consolidation
The accompanying
condensed consolidated financial statements include the financial statements of
Nutrastar and its wholly owned subsidiaries, New Resources, Oriental Global and
Harbin Baixin, and its VIEs Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin
Shuaiyi. All significant inter-company balances or transactions have been
eliminated on consolidation.
The Company has evaluated the relationship with Heilongjiang
Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi and based on the result of the
evaluation, believes that these entities are variable interest entities and that
it is the primary beneficiary of these entities. Consequently, the Company has
included the results of operations of these variable interest entities in the
condensed consolidated financial statements. The Companys relationships with
Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi are governed by a series
of contractual arrangements. Under PRC laws, Heilongjiang Shuaiyi, Daqing
Shuaiyi and Harbin Shuaiyi are independent legal persons and none of them is
exposed to liabilities incurred by the other parties.
The accounts of Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin
Shuaiyi are consolidated in the accompanying financial statements pursuant to
the Financial Accounting Standards Board Accounting Standard Codification (ASC)
Topic 810 and related subtopics related to the consolidation of variable
interest entities. The Company does not have any non-controlling interests in
net income and accordingly, did not subtract any net income in calculating the
net income attributable to the Company. Because of the contractual arrangements,
the Company had a pecuniary interest in the VIEs that require consolidation of
the Companys and the VIEs financial statements.
Use of estimates
The preparation of these
condensed consolidated financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
related disclosure of contingent assets and liabilities at the date of these
condensed consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Accordingly, actual results may differ from
these estimates under different assumptions or conditions. Significant estimates
for the periods ended September 30, 2015 and 2014 include the useful lives of
property and equipment and intangible assets, assumptions used in assessing
impairment for long-term assets and the fair values of share-based payments.
Cash and cash equivalents
Cash and cash
equivalents consist of all cash balances and highly liquid investments with an
original maturity of three months or less. Because of the short maturity of
these investments, the carrying amounts approximate their fair value.
F-9
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUED) |
Accounts receivable
Accounts receivable is
stated at cost, net of an allowance for doubtful accounts. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the failure
of customers to make required payments. The Company reviews the accounts
receivable on a periodic basis and provides allowances where there is doubt as
to the collectability of individual balances. In evaluating the collectability
of individual receivable balances, the Company considers many factors, including
the age of the balance, the customers payment history, its current
credit-worthiness and current economic trends.
Inventories
Inventories are stated at the
lower of cost, determined on a weighted average basis, or market. Costs of
inventories include purchase and related costs incurred in bringing the products
to their present location and condition. Market value is determined by reference
to selling prices after the balance sheet date or to managements estimates
based on prevailing market conditions. Management will write down the
inventories to market value if it is below cost. Management also regularly
evaluates the composition of its inventories to identify slow-moving and
obsolete inventories to determine if a valuation allowance is required.
Derivative financial instruments
The
Company evaluates all its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives. For
derivative instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then revalued at each
reporting date, with changes in the fair value reported in the consolidated
statements of income. For stock-based derivative financial instruments, the
Company uses Monte-Carlo simulation methods to value the derivative instruments
at inception and on subsequent valuation dates.
Property, plant and equipment
Property, plant
and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Gains or losses on disposals are reflected as gain or
loss in the year of disposal. The cost of improvements that extend the life of
property, plant and equipment are capitalized. These capitalized costs may
include structural improvements, equipment and fixtures. All ordinary repair and
maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
|
|
Useful Life |
|
|
|
(In years) |
|
Buildings |
|
20-40
|
|
Machinery and motor vehicles |
|
5-10 |
|
Office equipment |
|
5 |
|
Intangible assets
The Companys intangible
assets include a ten-year exclusive right to use a proprietary process and
computer software. The Companys amortization policy on intangible assets is as
follows:
|
|
Useful Life |
|
|
|
(In years) |
|
Exclusive right |
|
10 |
|
Computer software |
|
4 |
|
The Company accounts for its intangible assets pursuant to FASB
ASC Subtopic 350-30, General Intangibles Other Than Goodwill. Under ASC
350-30-35, intangibles with definite lives continue to be amortized on a
straight-line basis over the lesser of their estimated useful lives or
contractual terms. Under FASB ASU No.2012-02 Intangible-Goodwill and Other
(Topic 350), the Company assesses qualitative factors to determine whether it is
necessary to perform a quantitative impairment test. The Company would not be
required to calculate the fair value of an indefinite-lived intangible asset
unless the Company determines, based on a qualitative assessment, that it is not
more likely than not, the indefinite-lived intangible asset is impaired. If the
qualitative assessment fails, intangibles with indefinite lives are further
evaluated quantitatively for impairment by comparing the assets estimated fair
value with its carrying value, based on cash flow methodology.
F-10
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUED) |
Impairment of long-lived assets
The Company
reviews and evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. An impairment is considered to exist if the total estimated future
cash flows on an undiscounted basis are less than the carrying amount of the
assets, including goodwill, if any. An impairment loss is measured and recorded
based on discounted estimated future cash flows. In estimating future cash
flows, assets are grouped at the lowest level for which there is identifiable
cash flows that are largely independent of future cash flows from other asset
groups.
Revenue recognition
Revenue is recognized when
the following four revenue criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the selling price is fixed or
determinable, and collectability is reasonably assured.
Sales revenue is recognized net of value added and sales
related taxes, sales discounts and returns at the time when the merchandise is
delivered to the customer. Based on historical experience, management estimates
that sales returns are immaterial and has not recorded an allowance for
estimated sales returns.
Share-based payments
The Company accounts for
share-based compensation awards to employees in accordance with FASB ASC Topic
718, Compensation Stock Compensation, which requires that share-based
payment transactions with employees be measured based on the grant-date fair
value of the equity instrument issued and recognized as compensation expense
over the requisite service period.
The Company accounts for share-based compensation awards to
non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic
505-50, Equity-Based Payments to Non-employees. Under FASB ASC Topic 718 and
FASB ASC Subtopic 505-50, stock compensation granted to non-employees has been
determined as the fair value of the consideration received or the fair value of
equity instrument issued, whichever is more reliably measured and is recognized
as expenses as the goods or services are received.
Income taxes
The Company is subject to income
taxes in the United States and other foreign jurisdictions where it operates.
The Company accounts for income taxes in accordance with FASB ASC Topic 740,
Income Taxes. FASB ASC Topic 740 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future
deductibility is uncertain.
The Companys income tax returns are subject to examination by
the Internal Revenue Service (IRS) and other tax authorities in the locations
where it operates. The Company assesses potentially unfavorable outcomes of such
examinations based on the criteria of FASB ASC 740-10-25-5 through 740-10-25-7
and 740-10-25-13 (formerly FASB Interpretation No. 48 (FIN 48) Accounting for
Uncertainty in Income Taxes). The interpretation prescribes a
more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken (or expected to be taken) in a tax return.
This Interpretation also provides guidance on derecognition of income tax assets
and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures.
F-11
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUED) |
Research and development costs
Research and
development costs are expensed as incurred, and are charged to general and
administrative expenses. Research and development costs were $118,809 and
$119,383 for the nine months ended September 30, 2015 and 2014, respectively.
Advertising costs
The Company expenses all
advertising costs as incurred. Advertising costs charged to selling expenses
were nil for the nine months ended September 30, 2015 and 2014.
Shipping and handling costs
Substantially all
costs of shipping and handling of products to customers are included in selling
expense. Shipping and handling costs for the nine months ended September 30,
2015 and 2014 were insignificant.
Comprehensive income
FASB ASC Topic 220,
Comprehensive Income, establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial
statements. Accumulated other comprehensive income includes foreign currency
translation adjustments.
Foreign currency
The Company uses the United
States dollar (US Dollar or US$ or $) for financial reporting purposes.
The PRC subsidiaries and VIEs within the Company maintain their books and
records in their functional currency, Chinese Renminbi (RMB), being the lawful
currency in the PRC. Assets and liabilities of the PRC subsidiaries and VIEs are
translated from RMB into US Dollars using the applicable exchange rates
prevailing at the balance sheet date. Items on the statements of income and cash
flows are translated at average exchange rates during the reporting period.
Equity accounts are translated at historical rates. Adjustments resulting from
the translation of the Companys financial statements are recorded as
accumulated other comprehensive income.
The exchange rates used to translate amounts in RMB into US
Dollars for the purposes of preparing the condensed consolidated financial
statements are based on the rates as published on the website of Peoples Bank
of China and are as follows:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Balance sheet items, except
for equity accounts |
|
US$1=RMB6.3613
|
|
|
US$1=RMB6.1190
|
|
|
|
Three months
ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Items in the statements of
income |
|
US$1=RMB6.2576
|
|
|
US$1=RMB6.1568
|
|
|
|
Nine months
ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Items in the statements of
income and cash flows |
|
US$1=RMB6.1738
|
|
|
US$1=RMB6.1450
|
|
No representation is made that the RMB amounts could have been,
or could be, converted into US Dollars at the above rates. The value of RMB
against US dollars and other currencies may fluctuate and is affected by, among
other things, changes in Chinas political and economic conditions. Any
significant revaluation of RMB may materially affect the Companys financial
condition in terms of US Dollar reporting.
F-12
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUED) |
Segment reporting
The Company follows FASB ASC
Topic 280, Segment Reporting, which requires that companies disclose segment
data based on how management makes decisions about allocating resources to
segments and evaluating their performance.
The Company believes that during the three and nine months
ended September 30, 2015 and 2014, it operated in three business segments
growing and sales of Cordyceps Militaris, which is widely used for Chinese
medicine, manufacturing and sale of functional health beverages featuring the
Cordyceps Militaris as a core ingredient, and sales of organic and specialty
products. The manufacturing and sale of Cordyceps Militaris functional health
beverages was launched in the fourth quarter of 2010.
Throughout the three and nine months ended September 30, 2015
and 2014, all of the Companys operations were carried out in one geographical
segment - China.
Earnings per share
The Company reports
earnings per share in accordance with the provisions of FASB ASC Topic 260,
"Earnings per Share". FASB ASC Topic 260 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution (using the treasury
stock method) that could occur if securities or other contracts to issue common
stock were exercised and converted into common stock.
Commitments and contingencies
The Company
follows FASB ASC Subtopic 450-20, Loss Contingencies in determining its
accruals and disclosures with respect to loss contingencies. Accordingly,
estimated losses from loss contingencies are accrued by a charge to income when
information available prior to issuance of the financial statements indicates
that it is probable that a liability could be incurred and the amount of the
loss can be reasonably estimated. Legal expenses associated with the contingency
are expensed as incurred. If a loss contingency is not probable or reasonably
estimable, disclosure of the loss contingency is made in the financial
statements when it is at least reasonably possible that a material loss could be
incurred.
F-13
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUED) |
Recent accounting pronouncements
The Financial Accounting Standards Board ("FASB") has issued
Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with
Customers. This ASU supersedes the revenue recognition requirements in
Accounting Standards Codification 605 - Revenue Recognition and most
industry-specific guidance throughout the Codification. The standard requires
that an entity recognizes revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. This ASU
is effective on January 1, 2017 and should be applied retrospectively to each
prior reporting period presented or retrospectively with the cumulative effect
of initially applying the ASU recognized at the date of initial application. In
August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date. The amendment in this ASU
defers the effective date of ASU No. 2014-09 for all entities for one year.
Public business entities, certain not-for-profit entities, and certain employee
benefit plans should apply the guidance in ASU 2014-09 to annual reporting
periods beginning after December 15, 2017, including interim reporting periods within
that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 31, 2016, including interim reporting
periods with that reporting period. The Company is in the process of evaluating
the impact of adoption of this guidance on the consolidated financial
statements.
In June 2014, the FASB issued ASU 2014-12, "Compensation -
Stock Compensation (Topic 718)" which provides explicit guidance on the
treatment of awards with performance targets that could be achieved after the
requisite service period. The amendments in ASU 2014-12 are effective for annual
periods and interim periods within those annual periods beginning after December
15, 2015. The Company does not expect that the adoption will have a material
impact on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of
Financial Statements Going Concern. This standard requires management to
evaluate for each annual and interim reporting period whether it is probable
that the reporting entity will not be able to meet its obligations as they
become due within one year after the date that the financial statements are
issued. If the entity is in such a position, the standard provides for certain
disclosures depending on whether or not the entity will be able to successfully
mitigate its going concern status. This guideline is effective for annual
periods ending after December 15, 2016 and interim periods within annual periods
beginning after December 15, 2016. Early application is permitted. The Company
does not expect that the adoption will have a material impact on its
consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02 "Consolidation
(Topic 810): Amendments to the Consolidation Analysis." ASU 2015-02 changes the
analysis that a reporting entity must perform to determine whether it should
consolidate certain types of legal entities. It is effective for annual
reporting periods, and interim periods within those years, beginning after
December 15, 2015. Early adoption is permitted, including adoption in an interim
period. The Company is currently in the process of evaluating the impact of the
adoption of ASU 2015-02 on its consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory, which
requires an entity to measure inventory within the scope at the lower of cost
and net realizable value. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The effective date for the standard is
for fiscal years beginning after December 15, 2016. Early adoption is permitted.
The Company does not anticipate that this adoption will have a significant
impact on its consolidated financial position, results of operations, or cash
flows.
In September 2015, the FASB issued ASU No. 2015-16, Business
Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments. To simplify the accounting for adjustments made to provisional
amounts recognized in a business combination, the amendments eliminate the
requirement to retrospectively account for those adjustments. For public
business entities, the amendments are effective for fiscal years beginning after
December 15, 2015, including interim periods within those fiscal years. For all
other entities, the amendments in this update are effective for fiscal years
beginning after December 15, 2016, and interim periods within fiscal years
beginning after December 15, 2017. The amendments should be applied
prospectively to adjustments to provisional amounts that occur after the
effective date with earlier application permitted for financial statements that
have not been issued. The Company does not anticipate that this adoption will
have a significant impact on its consolidated financial position, results of
operations, or cash flows.
F-14
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
(CONTINUED) |
Recent accounting pronouncements (continued)
Other accounting standards that have been issued or proposed by the FASB
or other standards-setting bodies that do not require adoption until a future
date are not expected to have a material impact on the Companys consolidated
financial statements upon adoption.
NOTE 3 |
FAIR VALUE MEASUREMENTS AND FINANCIAL
INSTRUMENTS |
The Company values its financial instruments as required by
FASB ASC 320-12-65 (formerly SFAS No. 107, Disclosures about Fair Value of
Financial Instruments). The estimated fair value amounts have been determined
by the Company, using available market information or other appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop estimates of fair value. Consequently, the
estimates are not necessarily indicative of the amounts that could be realized
or would be paid in a current market exchange.
ASC Topic 820, Fair Value Measurement and Disclosures, defines
fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. This topic also establishes a fair value
hierarchy which requires classification based on observable and unobservable
inputs when measuring fair value. The fair value hierarchy distinguishes between
assumptions based on market data (observable inputs) and an entitys own
assumptions (unobservable inputs). The hierarchy consists of three levels:
|
Level one |
Quoted market prices in active markets for
identical assets or liabilities; |
|
Level two |
Inputs other than level one inputs that are
either directly or indirectly observable; and |
|
Level three |
Unobservable inputs developed using estimates and
assumptions, which are developed by the reporting entity and reflect those
assumptions that a market participant would use. |
Determining which category an asset or liability falls within
the hierarchy requires significant judgment. The Company evaluates its hierarchy
disclosures each quarter. The carrying values of cash and cash equivalents,
trade and other receivables and payables approximate their fair values due to
the short maturities of these instruments.
For stock-based derivative financial instruments, the Company
uses Monte-Carlo simulation methods to value the derivative instruments at
inception and on subsequent valuation dates.
There was no asset or liability measured at fair value on a
non-recurring basis as of September 30, 2015 and December 31, 2014.
NOTE 4 |
ACCOUNTS RECEIVABLE, NET
|
Accounts receivable consisted of the following:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Accounts receivable |
$ |
87,518 |
|
$ |
93,066 |
|
Less: Allowance for doubtful debts |
|
- |
|
|
- |
|
Accounts receivable,
net |
$ |
87,518 |
|
$ |
93,066 |
|
No allowance was deemed necessary as of September 30, 2015 and
December 31, 2014.
F-15
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
Inventories by major categories are summarized as follows:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Raw materials |
$ |
315,685
|
|
$ |
169,025
|
|
Work in progress |
|
500,524 |
|
|
432,322 |
|
Finished goods |
|
620,899 |
|
|
34,062 |
|
|
|
|
|
|
|
|
Total |
$ |
1,437,108 |
|
$ |
635,409 |
|
NOTE 6 |
PREPAYMENTS AND OTHER RECEIVABLES
|
Prepayments and other receivables consisted of the
following:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Prepayments for raw material
purchasing |
$ |
992,074
|
|
$ |
1,470,434
|
|
Other receivables, net of $nil allowance |
|
12,442 |
|
|
19,366 |
|
|
$ |
1,004,516 |
|
$ |
1,489,800 |
|
NOTE 7 |
INTANGIBLE ASSETS, NET
|
Intangible assets, net consisted of the following:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Computer software, cost |
$ |
1,562 |
|
$ |
1,623 |
|
Exclusive right to use a secret process, cost
|
|
4,717,910 |
|
|
4,904,731 |
|
Less: Accumulated
amortization |
|
(4,483,323 |
) |
|
(4,293,039 |
) |
|
|
|
|
|
|
|
|
$ |
236,149 |
|
$ |
613,315 |
|
In April 2006, the Company purchased from a third party a
ten-year exclusive right to use a secret process and method in the cultivation
and growing of Cordyceps Militaris, which is widely used for traditional Chinese
medicine, for a cash consideration of RMB30,000,000, payable over five years.
The exclusive right is amortized over its term of ten years using the
straight-line method.
Amortization expense was $364,551 and $366,259 for the nine
months ended September 30, 2015 and 2014, respectively, and $119,737 and
$121,832 for the three months ended September 30, 2015 and 2014 respectively.
The estimated expense of the intangible assets over the remainder of fiscal 2015
and the fiscal 2016 will be:
Remainder of fiscal 2015 |
$ |
117,935
|
|
Fiscal 2016 |
|
118,214 |
|
|
|
|
|
|
$ |
236,149 |
|
F-16
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Unaudited) |
NOTE 8 |
PROPERTY, PLANT AND EQUIPMENT, NET
|
Property, plant and equipment, net consisted of the
following:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Cost: |
|
|
|
|
|
|
Buildings |
$ |
18,961,335 |
|
$ |
19,712,166 |
|
Office equipment
|
|
27,999 |
|
|
29,108 |
|
Machinery |
|
132,087 |
|
|
137,317 |
|
Motor vehicles
|
|
114,289 |
|
|
118,815 |
|
Total cost |
|
19,235,710 |
|
|
19,997,406 |
|
Less: Accumulated
depreciation |
|
(6,070,342 |
)
|
|
(5,572,464 |
)
|
Net book value |
$ |
13,165,368 |
|
$ |
14,424,942 |
|
Depreciation expense for the nine months ended September 30,
2015 and 2014 was $731,699 and $747,159, respectively, and $239,275 and $248,534
for the three months ended September 30, 2015 and 2014, respectively.
NOTE 9 |
OTHER PAYABLES, ACCRUALS AND TAXES PAYABLE
|
Other payables and accruals consisted of the following:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Accrued staff costs |
$ |
888,404
|
|
$ |
943,700
|
|
Other payables |
|
103,935 |
|
|
46,590 |
|
|
$ |
992,339 |
|
$ |
990,290 |
|
Accrued staff costs mainly represent salary payables, fringe
and social benefit accruals. According to the prevailing laws and regulations of
the PRC, all eligible employees of the Companys subsidiaries and VIEs are
entitled to staff welfare benefits including medical care, welfare subsidies,
unemployment insurance and pension benefits through a PRC government-mandated
multi-employer defined contribution plan (social insurance). The Companys
subsidiaries and VIEs are required to: i) accrue the social insurance based on
certain percentages of the qualified employees salaries; and ii) make
contributions to the plans for the amounts accrued. For the past periods, the
Companys subsidiaries and VIEs recorded the accrual amount but the actual
social insurance plan was not established to receive the contribution. The
recorded accruals for the social insurance reflected an estimate of the probable
liability incurred based on the information available at the date of each
financial statement.
Taxes payable consisted of the following:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Value added tax |
$ |
303,866
|
|
$ |
423,818
|
|
Income tax |
|
2,040,508 |
|
|
2,207,274 |
|
Others |
|
77,807 |
|
|
117,491 |
|
|
$ |
2,422,181 |
|
$ |
2,748,583 |
|
F-17
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 10 |
STOCKHOLDERS EQUITY
|
Preferred Stock
The Board of the Company is authorized, without further action
by the shareholders, to issue, from time to time, up to 1,000,000 shares of
preferred stock in one or more classes or series. Similarly, the Board is
authorized to fix or alter the designations, powers, preferences and the number
of shares which constitute each such class or series of preferred stock. Such
designations, powers or preferences may include, without limitation, dividend
rights (and whether dividends are cumulative), conversion rights, if any, voting
rights (including the number of votes, if any, per share), redemption rights
(including sinking fund provisions, if any), and liquidation preferences of any
unissued shares or wholly unissued series of preferred stock.
On May 27, 2010, the Company created, from the authorized but
unissued shares of its preferred stock, a series of preferred stock consisting
of 300,000 shares and has designated this series of preferred stock as the
Series A Preferred Stock of which the Company issued 197,706 shares upon the
closings of the private placement in 2010.
The Company has evaluated the terms of the Series A Preferred
Stock and determined that the Series A Preferred Stock, without embodying an
obligation for the Company to repurchase or to settle by transferring assets, is
not a liability in accordance with the guidance provided in ASC Topic 480,
Distinguishing Liabilities from Equity.
Also, the Series A Preferred Stock has no redemption clause at
all, it is not a mezzanine equity (out of permanent equity) in accordance with
the requirement of ASC 480-10-S99.
The Series A Preferred Stock is not subject to redemption
(except on liquidation) and the holders of the Series A Preferred Stock are
entitled to vote together with common stock holders on an as-converted basis.
The Series A Preferred Stock, excluding the embedded conversion option, are
considered to be an equity instrument and accordingly, the embedded conversion
option has not been separated and accounted for as a derivative instrument
liability.
Movements of Series A Preferred Stock for the nine months ended
September 30, 2015 and 2014 are as below:
|
|
|
|
|
|
Private Placement on |
|
|
|
|
|
|
|
Number of Shares |
|
|
June 7, 2010 |
|
|
June 28, 2010 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
77,776 |
|
$ |
1,521,171
|
|
$ |
252,601
|
|
$ |
1,773,772
|
|
|
Preferred stock converted into common stock
|
|
(3,500 |
) |
|
(79,822 |
) |
|
- |
|
|
(79,822 |
) |
|
Balance at September 30, 2015
|
|
74,276 |
|
$ |
1,441,349 |
|
$ |
252,601 |
|
$ |
1,693,950 |
|
|
|
|
|
|
|
Private Placement on |
|
|
|
|
|
|
|
Number of Shares |
|
|
June 7, 2010 |
|
|
June 28, 2010 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
110,066 |
|
$ |
2,030,706
|
|
$ |
479,477
|
|
$ |
2,510,183
|
|
|
Preferred stock converted into common stock
|
|
(32,290 |
) |
|
(509,535 |
) |
|
(226,876 |
) |
|
(736,411 |
) |
|
Balance at September 30, 2014
|
|
77,776 |
|
$ |
1,521,171 |
|
$ |
252,601 |
|
$ |
1,773,772 |
|
During the nine months ended September 30, 2015 and 2014, 3,500
shares and 32,290 shares of Series A Preferred Stock were converted into 35,000
shares and 322,900 shares of common stock, at a 1 for 10 ratio. In addition,
during the nine months ended September 30, 2015 and 2014, 11,410 shares and
79,480 shares of common stock were issued to the investors as settlement of
stock dividends of $31,935 and $222,486, respectively.
F-18
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 11 |
STATUTORY RESERVES |
In accordance with the PRC Companies Law, the Companys PRC
subsidiaries and VIEs are required to transfer 10% of their profits after tax,
as determined in accordance with accounting standards and regulations of the
PRC, to the statutory surplus reserve. However, the Companys PRC subsidiaries
and VIEs are not required to transfer any profit after tax to the statutory
surplus reserve after the accumulated statutory surplus reserves reached 50% of
registered capital of the Companys PRC subsidiaries and VIEs. The statutory
surplus reserve is non-distributable.
NOTE 12 |
SHARE-BASED COMPENSATION
|
The Company was authorized to issue an aggregate of 2,500,000
shares of its common stock under the 2009 Equity Incentive Plan (Plan) as
equity awards of incentive stock options, non-statutory stock options,
restricted stock, and other equity incentives to employees, officers, directors
and consultants. The Plan expires in 2019 and as of September 30, 2015, there
were 507,500 shares of common stock available for grant pursuant to the Plan.
Stock options granted to management
On July 16, 2010, the Company entered into a stock option
agreement with Mr. Robert Tick (Mr. Tick), the Chief Financial Officer of the
Company, under the Companys 2009 Equity Incentive Plan.(the Plan). Pursuant
to the terms of the stock option agreement, Mr. Tick was granted options to
purchase an aggregate of 150,000 shares of common stock of the Company,
consisting of, an option to purchase 75,000 shares that would vest in 2011 with
an exercise price of $5.00 per share, and an option to purchase 75,000 shares
that would vest in 2012 with an exercise price of $7.00 per share. Each of these
options expires three years after their respective vesting dates. The
Compensation Committee of the Board approved the repricing of the options on
January 24, 2011 to an exercise price of $3.50 per share which was higher than
the closing price of the Companys common stock on the OTC Bulletin Board on the
date of repricing and the vesting schedules of the outstanding options granted
were changed to a semi-annual basis.
According to the stock option agreement, in the event Mr.
Ticks employment with the Company is terminated for any reason except for death
or disability, he may exercise these options only to the extent that these
options would have been exercisable on the termination date and no later than
three months after the termination date. If his employment is terminated due to
his death or disability, these options may be exercised only to the extent that
these options would have been exercisable by Mr. Tick on the termination date
and must be exercised by Mr. Tick no later than twelve months after the
termination date. If the employment is terminated for Cause as defined in the
stock option Agreement, these options will terminate immediately. In no event
will these options be exercised later than December 31, 2015. As of September
30, 2015, a total of 112,500 options granted on July 16, 2010, of which 75,000
options vested on or before December 31, 2011 and 37,500 options vested on June
30, 2012, had expired, respectively. The remaining 37,500 options will be
expired on December 31, 2015.
On August 8, 2013, the Company entered into another stock
option agreement with Mr. Tick, under the Plan. Pursuant to the terms of the
stock option agreement, Mr. Tick was granted an option to purchase an aggregate
of 75,000 shares of common stock of the Company. The stock option agreement
consisted an option for Mr. Tick to purchase at an exercise price of $0.83 per
share of 37,500 shares that vested on November 15, 2013, and an option to
purchase 37,500 shares that vested on April 15, 2014. Each of these options
expires three years after their respective vesting dates.
F-19
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 12 |
SHARE-BASED COMPENSATION (CONTINUED)
|
Stock options granted to management (continued)
In accordance with the guidance provided in ASC Topic 718,
Stock Compensation, the compensation costs associated with these options are
recognized, based on the grant-date fair values of these options, over the
requisite service period, or vesting period. Also in accordance with ASC Topic
718, incremental compensation cost is measured as the excess, if any, of the
fair value of the modified award over the fair value of the original award
immediately before its terms are modified. The fair value of the option award
was estimated on the date of grant using the Black-Scholes option valuation
model. The valuation was based on the assumptions noted in the following table.
Expected volatility |
73% |
Expected dividend |
0% |
Expected terms (in year) |
1 |
Risk-free rate |
0.12% |
A summary of options issued and outstanding at September 30,
2015 and the movements since January 1, 2014 to September 30, 2015 are as
follows:
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
Number of |
|
|
Average |
|
|
Aggregate |
|
|
Weighted- Average
|
|
|
|
Underlying |
|
|
Exercise Price
|
|
|
Intrinsic |
|
|
Contractual Life
|
|
|
|
Shares |
|
|
Per Share |
|
|
Value (1) |
|
|
Remaining in Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1,
2014 |
|
225,000 |
|
$ |
2.61 |
|
$ |
96,750 |
|
|
1.86 |
|
Granted |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Exercised |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Expired |
|
(75,000 |
) |
$ |
3.50 |
|
|
- |
|
|
- |
|
Forfeited |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Outstanding at December 31, 2014 |
|
150,000 |
|
$ |
2.17 |
|
$ |
57,000 |
|
|
1.41 |
|
Granted |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Exercised |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Expired |
|
(37,500 |
)
|
|
3.50 |
|
|
- |
|
|
- |
|
Forfeited |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Outstanding at September 30,
2015 |
|
112,500 |
|
$ |
1.72 |
|
$ |
- |
|
|
0.98 |
|
Exercisable at September 30, 2015 |
|
112,500 |
|
$ |
1.72 |
|
$ |
- |
|
|
0.98 |
|
(1) |
The aggregate intrinsic value in the table above
represents the total pre-tax intrinsic value that would have been realized
by the option holders had all option holders exercised their options on
September 30, 2015. The intrinsic value of a stock option is the excess of
the Companys closing stock price on September 30, 2015 per share over the
exercise price per share, multiplied by the number of shares subject to
the option. The aggregate intrinsic value was nil as of September 30, 2015
as the Companys closing stock price on September 30, 2015 was $0.55 per
share, which was below the exercise price $0.83 per
share. |
The Company recognized compensation expense of nil and nil for
the three months ended September 30, 2015 and 2014, and nil and $7,371 for the
nine months ended September 30, 2015 and 2014 respectively, in relation to the
options granted to Mr. Tick.
F-20
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 12 |
SHARE-BASED COMPENSATION (CONTINUED)
|
Restricted shares granted to management (continued)
On August 8, 2013, the Company entered into a restricted shares
grant agreement (the "Third Restricted Shares Grant Agreement") under the
Companys Plan with Mr. Tick. Pursuant to the terms of the Third Restricted
Shares Grant Agreement, the Company granted to Mr. Tick 75,000 restricted shares
(the Restricted Shares) of the Companys common stock. If Mr. Ticks service
with the Company ceases for any reason other than Mr. Ticks (a) death, (b)
disability, (c) retirement, or (d) termination by the Company without cause, any
unvested restricted shares will be automatically forfeited to the Company. The
Third Restricted Shares vested under the following schedule: 37,500 shares vest
on November 15, 2013 and 37,500 shares vest on April 15, 2014.
The Company recognizes compensation cost for an award with only
service conditions that has a graded vesting schedule on a straight-line basis
over the requisite service period for the entire award, provided that the
compensation cost recognized at any date must at least equal the portion of the
grant-date value of the award that is vested at that date. No compensation cost
is recognized for instruments that are forfeited by the Company because a
service condition or a performance condition is not satisfied.
Based on the estimated grant-date fair value of the Companys
common stock of $0.83 on August 8, 2013, the Company recognized compensation
expense of nil and nil for the three months ended September 30, 2015 and 2014
and nil and $25,896 for the nine months ended September 30, 2015 and 2014,
respectively, for the restricted shares granted to Mr. Tick.
Restricted shares granted to independent directors
On August 15, 2014, the Company entered into separate
restricted shares grant agreements with the Companys independent directors Mr.
Henry Ngan, Ms. Virginia Pan, Mr. Jianbing Zhong and Mr. Richard E. Fearon, Jr.
Pursuant to the agreements, the Company granted, under the Companys 2009 Equity
Incentive Plan, 40,000 restricted shares to each person, as compensation for the
services to be provided by them as independent directors.
The restricted shares granted to independent directors will
vest in equal installments on a semi-annual basis over a two-year period. If the
independent directors service with the Company ceases for any reason other than
the independent directors (a) death, (b) disability, (c) retirement, or (d)
termination by the Company without cause, any unvested restricted shares will be
automatically forfeited to the Company. The Company recognizes compensation cost
for an award with only service conditions that has a graded vesting schedule on
a straight-line basis over the requisite service period for the entire award,
provided that the compensation cost recognized at any date must at least equal
the portion of the grant-date value of the award that is vested at that date. No
compensation cost is recognized for instruments that are forfeited by the
Company because a service condition or a performance condition is not satisfied.
On February 15, 2015, 10,000 restricted shares to each independent director were
vested respectively, the Company issued a total of 80,000 restricted shares to
the four independent directors accordingly.
The estimated grant-date fair values of the Companys common
stock was $2.05 on August 15, 2014. The Company then recognized compensation
expense of $41,280 and $37,962 for the three months ended September 30, 2015 and
2014, and $122,496 and $71,158 for the nine months ended September 30, 2015 and
2014, respectively, for the restricted shares granted to independent directors.
F-21
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 12 |
SHARE-BASED COMPENSATION (CONTINUED)
|
Unregistered shares granted to consultant
On August 3, 2013, the Company entered into an investor
relations agreement (the Agreement) under the Companys Plans with a
consultant. Pursuant to the terms of the Agreement, the Company would grant a
total of 25,000 unregistered shares to the Companys investor relations
consultant for consulting services provided by the consultant during the period
August 2013 to June 2014. The Company issued 15,000 shares on September 16, 2013
(vesting date) and issued another 10,000 unregistered shares on January 1, 2014.
For the 15,000 shares issued on September 16, 2013, the fair value of the
Companys common stock was $1.05. For the 10,000 shares issued on January 1,
2014, the fair value of the Companys common stock was $2.58. The Company
recognized compensation expense of nil and $23,476 for the three and nine months
ended September 30, 2014, respectively. Pursuant to the terms of the Agreement,
if during any three-month period, the Average Closing Price is $2.00 per share
or greater, the Company shall issue 12,500 (twelve thousand five hundred)
Incentive Shares to the consultant. During the first three-month period of 2014,
the Average Closing Price is $2.84 per share. The Company then issued 12,500
shares to the consultant on April 2, 2014. The Company recognized total
compensation expense of nil and $29,625 for the three and nine months ended
September 30, 2014, based on the fair values of the Companys common stock of
US$2.37 on April 2, 2014 for the 12,500 shares issued. No compensation expense
recorded in 2015 as the consulting period ended in September 2014.
On August 15, 2014, the Company and American Capital Ventures
(the Consultant) entered into certain Investor Relations Agreement (the 2014
Agreement). The Company retained the Consulting Services provided by the
Consultant from August 15, 2014 to June 30, 2015. Pursuant to the terms of the
2014 Agreement, the Company has agreed to issue up to 60,000 shares of
unregistered common stock to the consultant and its designee, among which 20,000
shares were earned and vested as of August 18, 2014. During the service period,
the consultant is entitled to receive additional 15,000 unregistered shares of
common stock if the average closing price of the common stock as reported on the
Over-the Counter Bulletin Board or any other market on which the common stock is
listed or quoted for trading on the date in question (the Average Closing
Price) is at or above $3.00 but lower than $4.00. The consultant is entitled to
receive further 25,000 unregistered shares of common stock if the Average
Closing Price is $4.00 per share or greater and the company qualifies, files and
is approved for a NASDAQ uplisting. The Company recognized total compensation
expense of $39,000 for the three and nine months ended September 30, 2014, based
on the fair values of the Companys common stock of US$1.95 on September 22,
2014 for the 20,000 shares issue.
The Companys VIEs and subsidiaries incorporated in the PRC are
subject to PRC enterprise income tax (EIT). Before January 1, 2008, the PRC
EIT rate was generally 33%. In March 2007, the PRC government enacted a new PRC
Enterprise Income Tax Law, or the New EIT Law, and promulgated related
regulations, Implementation Regulations for the PRC Enterprise Income Tax Law.
The New EIT Law and Implementation Regulations became effective on January 1,
2008. The New EIT Law, among other things, imposes a unified income tax rate of
25% for both domestic and foreign invested enterprises registered in the
PRC.
The New EIT Law provides a grandfathering on tax holidays which
were granted under the then effective tax laws and regulations. Therefore, one
of the Company's VIEs, Daqing Shuaiyi, being engaged in growing and sales of
organic and specialty food products, continued to be entitled to a preferential
tax treatment: an EIT holiday for the two years ended December 31, 2006 and 2007
and a 50% reduction on the EIT rate for the three years ended December 31, 2008,
2009 and 2010.
Daqing Shuaiyi, Harbin Shuayi and Heilongjiang Shuaiyi are
subject to an EIT rate of 25%. No provision for PRC taxes was made for
Heilongjiang Shuaiyi which had no taxable income in the PRC.
F-22
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 13 |
INCOME TAXES (CONTINUED)
|
Harbin Baixin has been subject to an EIT rate of 25% since its
incorporation. No provision for PRC taxes was made as Harbin Baixin had no
taxable income in the PRC.
No provision for other overseas taxes is made as none of
Nutrastar, New Resources and Oriental Global has any taxable income in the U.S.,
British Virgin Islands or Hong Kong, respectively.
The Companys income tax expense consisted of:
|
|
For the
Three Months |
|
|
For the
Nine Months |
|
|
|
Ended
September 30, |
|
|
Ended
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax PRC |
$ |
2,123,433
|
|
$ |
2,124,781
|
|
$ |
5,707,718
|
|
$ |
5,622,242
|
|
Deferred |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,123,433 |
|
$ |
2,124,781 |
|
$ |
5,707,718 |
|
$ |
5,622,242 |
|
A reconciliation of the provision for income taxes determined
at the U.S. federal corporate income tax rate to the Companys effective income
tax rate is as follows:
|
|
For the
Three Months |
|
|
For the
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income |
$ |
8,114,600 |
|
$ |
8,184,439 |
|
$ |
22,307,889 |
|
$ |
21,711,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal corporate income
tax rate |
|
34% |
|
|
34% |
|
|
34% |
|
|
34% |
|
Income tax computed at U.S. federal corporate
income tax rate |
|
2,758,964 |
|
|
2,782,709 |
|
|
7,584,682 |
|
|
7,381,806 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
66,106 |
|
|
67,729 |
|
|
227,380 |
|
|
250,093 |
|
Rate
differential for PRC earnings |
|
(739,748 |
)
|
|
(750,521 |
)
|
|
(2,052,190 |
)
|
|
(2,005,836 |
)
|
Non-deductible expenses and
non-reportable income |
|
38,111 |
|
|
24,864 |
|
|
(52,154 |
) |
|
(3,821 |
) |
Effective tax expense |
$ |
2,123,433 |
|
$ |
2,124,781 |
|
$ |
5,707,718 |
|
$ |
5,622,242 |
|
The Company had deferred tax assets as follows:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
Net operating losses carried
forward |
$ |
2,350,014
|
|
$ |
2,122,634
|
|
Less: Valuation allowance |
|
(2,350,014 |
) |
|
(2,122,634 |
) |
Net deferred tax assets |
$ |
- |
|
$ |
- |
|
F-23
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 13 |
INCOME TAXES (CONTINUED)
|
As of September 30, 2015 and December 31, 2014, Nutrastar had
$6,566,377 and $6,072,219, respectively, of net operating loss carry forwards
available to reduce future taxable income which will expire in various years
through 2030. The Companys PRC subsidiary and VIE entity, Harloin Baixin
and Heilongjiang Shuaiyi, had $4,998 and $449,808 net
operating loss carry forwards as of September 30, 2015 respectively, available to offset
future taxable income which will be expire in various years through 2020.
Management believes it is more-likely-than-not that the Company will not realize
these potential tax benefits as the Companys U.S. operations will not generate
any operating profits in the foreseeable future. Therefore, the Company recorded
a full valuation allowance on its deferred tax assets.
As of September 30, 2015 and December 31, 2014, the Company has
no material unrecognized tax benefits which would favorably affect the effective
income tax rate in future periods and does not believe that there will be any
significant increases or decreases of unrecognized tax benefits within the next
twelve months. No interest or penalties relating to income tax matters have been
imposed on the Company during the nine months ended September 30, 2015 and 2014,
and no provision for interest and penalties was deemed necessary as of September
30, 2015 and December 31, 2014.
According to the PRC Tax Administration and Collection Law, the
statute of limitations is three years if the underpayment of taxes is due to
computational errors made by the taxpayer or its withholding agent. The statute
of limitations extends to five years under special circumstances, which are not
clearly defined. In the case of a related party transaction, the statute of
limitation is ten years. There is no statute of limitation in the case of tax
evasion.
NOTE 14 |
EARNINGS PER SHARE |
The following table is a reconciliation of the net income and
the weighted average shares used in the computation of basic and diluted
earnings per share for the two periods presented:
|
|
For the
Three Months |
|
|
For the
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Income available to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
- Net income |
$ |
5,991,167 |
|
$ |
6,059,658 |
|
$ |
16,600,171 |
|
$ |
16,088,954 |
|
Less: Preferred stock
dividend |
|
(43,285 |
) |
|
(42,671 |
) |
|
(127,336 |
) |
|
(130,920 |
) |
Income available to common stockholders
(Basic) |
$ |
5,947,882 |
|
$ |
6,016,987 |
|
$ |
16,472,835 |
|
$ |
15,958,034 |
|
Add: Preferred stock dividend
|
|
43,285 |
|
|
42,671 |
|
|
127,336 |
|
|
130,920 |
|
Income available to common shareholders
(Diluted) |
|
5,991,167 |
|
|
6,059,658 |
|
|
16,600,171 |
|
|
16,088,954 |
|
Weighted average number of
shares: |
|
|
|
|
|
|
|
|
|
|
|
|
- Basic |
|
17,016,831 |
|
|
16,878,627 |
|
|
16,994,345 |
|
|
16,799,048 |
|
- Effect of dilutive
preferred stock |
|
742,760 |
|
|
777,760 |
|
|
747,375 |
|
|
815,901 |
|
- Effect of dilutive restricted stock units
|
|
- |
|
|
1,485 |
|
|
- |
|
|
20,586 |
|
- Effect of dilutive options
|
|
- |
|
|
44,916 |
|
|
2,567 |
|
|
48,541 |
|
- Diluted |
|
17,759,591 |
|
|
17,702,788 |
|
|
17,744,287 |
|
|
17,684,076 |
|
Net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
- Basic |
$ |
0.35 |
|
$ |
0.36 |
|
$ |
0.97 |
|
$ |
0.95 |
|
- Diluted |
$ |
0.34 |
|
$ |
0.34 |
|
$ |
0.94 |
|
$ |
0.91 |
|
F-24
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 14 |
EARNINGS PER SHARE (CONTINUED)
|
Diluted earnings per share is calculated by adjusting the
weighted average number of common shares outstanding to assume the issuance of
all dilutive potential common shares upon conversion.
The diluted earnings per share calculation for the three and
nine months ended September 30, 2015 did not include management options and
restricted shares to purchase up to 37,500 shares and 80,000 shares of common
stock, respectively, because their effect was anti-dilutive.
NOTE 15 |
RELATED PARTY TRANSACTIONS
|
Other than disclosed elsewhere in these financial statements,
the Company also had the following related party balances and transactions:-
(a) |
Due to related parties |
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
Due to Ms. Lianyun Han,
Chairperson, CEO and President |
$ |
530,739 |
|
$ |
511,054 |
|
The amount due to Ms. Han was
non-interest bearing, unsecured and without a fixed repayment date. The balance
was mainly for the payment of US$ denominated expenses.
(b) |
Lease of land |
|
|
|
For the nine months ended September 30, 2015 and 2014,
the Company paid rental expense of $43,915 and $44,067, respectively, for
the land leased from Heilongjiang Shuaiyi Technology Development Co., Ltd.
(Shuaiyi Technology). Shuaiyi Technology and the Company are under
common control and management. |
|
|
|
For the three months ended September 30, 2015 and 2014,
the Company paid rental expense of $14,350 and $14,623 for the land leased
from Shuaiyi Technology, respectively. |
|
|
(c) |
Acquisition of corporate headquarter
premises |
|
|
|
On April 15, 2011, Heilongjiang Shuaiyi entered into an
asset transfer agreement (the Transfer Agreement) with Ms. Han. Pursuant
to the Transfer Agreement, Heilongjiang Shuiayi acquired an office
building located at 54-1 Ganshui Road, Xiangfang District, Harbin, with a
construction area of 1854.1 square meters, from Ms. Han at a cash
consideration of RMB12.75 million (approximately $1.95 million including
other incidental costs),which was fully paid in April 2011. The purchase
price was determined based on a real property valuation report issued by
an independent appraisal firm, Harbin Guoxin Real Estate Appraisal and
Consulting Co., Limited on November 11, 2010 and reflected approximately
equal valuation which Ms. Han originally paid when she acquired such
property for the Company. Management believes that based on the property
valuation report issued by the independent appraisal firm, the terms of
the purchase transaction and the consideration that the Company paid in
connection with this transaction were comparable to the terms available
and the amounts that would be paid in an arms-length
transaction. |
|
|
|
It is the current intention of the Company to move the
Company headquarters to this office building in the foreseeable
future. |
F-25
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 16 |
CONCENTRATION RISK
|
a) |
Concentration of credit
risk |
As of September 30, 2015 and December 31, 2014, approximately
99.5% and 99.9%, respectively, of the Companys cash including cash on hand and
deposits in accounts are maintained with one financial institution within the
PRC. To protect the interest of depositors, the PRC recently introduced deposits
insurance which provides maximum compensation of RMB500,000 per depositor if a
bank becomes insolvent or bankrupt. However, the Company has not experienced any
losses in this financial institution and monitors the soundness and the credit
ratings of this financial institution on a periodic basis, thus believes it is
currently not exposed to any material risks on its bank deposits in bank
accounts with this financial institution. For the nine months ended September
30, 2015 and 2014, all of the Companys sales arose in the PRC. In addition, all
accounts receivable as of September 30, 2015 and December 31, 2014 arose in the
PRC.
The following individual customer accounted for 10% or more of
the Groups revenues for the three and nine months ended September 30, 2015 and
2014:
|
|
For the
Three Months |
|
|
For the
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Lai En Century Co. Ltd |
|
25.8% |
|
|
24.8% |
|
|
27.3% |
|
|
26.8% |
|
Individual customer accounts receivable that represented 10% or
more of total accounts receivable as of September 30, 2015 and December 31, 2014
were as follows:
|
|
Percentage of accounts receivable as
of |
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Great Northern Wilderness
Grain and Oil Warehouse Market |
|
58.0% |
|
|
55.4% |
|
Gongda Property Management Co. Ltd. |
|
12.9% |
|
|
- |
|
Dalian Exalts Trade Co., Ltd.
|
|
16.5% |
|
|
15.5% |
|
Shenyang Wellhope Group |
|
12.6% |
|
|
11.8% |
|
Shandong Province, Linyi City
Hong Yun Commodity |
|
- |
|
|
17.3% |
|
For the nine months ended September 30, 2015 and 2014, all of
the Companys purchases arose in the PRC. In addition, all accounts payable as
of September 30, 2015 and December 31, 2014 also arose in the PRC.
The following suppliers accounted for 10% or more of the
Companys procurement for the three and nine months ended September 30, 2015 and
2014:
|
|
For the Three
Months |
|
|
For the Nine
Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Harbin Zijiang Packing Co.,
Ltd |
|
21.0% |
|
|
- |
|
|
25.3% |
|
|
- |
|
Zhangjiagang NongNong Drinking and Food Ltd
Co.Ltd |
|
38.7% |
|
|
39.6% |
|
|
29.6% |
|
|
29.8% |
|
Harbin Reservation During The
Oil Co., Ltd. |
|
17.9% |
|
|
17.7% |
|
|
20.2% |
|
|
19.7% |
|
Heliongjiang Xianteng Agricultural Materials
Trading Co., Ltd. |
|
- |
|
|
18.9% |
|
|
- |
|
|
23.2% |
|
No individual supplier accounted for 10% or more of total
accounts payable as of September 30, 2015 and 2014.
(b) |
Concentration of operating
risk |
Substantially all of the Companys operations and assets are
conducted in and located inside China. The Companys operations and assets are
subject to various political, economic, and other risks and uncertainties
inherent in China. Among other risks, the Companys operations and assets are
subject to the risks of restrictions on transfer of funds; export duties,
quotas, and embargoes; domestic and international customs and tariffs; changing
taxation policies; foreign exchange restrictions; and political conditions and
governmental regulations.
F-26
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 16 |
CONCENTRATION RISK (CONTINUED)
|
(c) |
Market rate risk exchange rate
risk |
On August 11, 2015, the Peoples Bank of China (PBOC) reduced
the RMBs reference rate by 1.9 percent, sparking the sharpest fall in the RMB
currency since the dollar peg ended a decade ago. The move by the PBOC comes
amid growing signs of a deepening slowdown in the mainland economy. The PBOC
indicated that the reference rate move was a onetime adjustment, it will keep
the currency stable at a reasonable level and it will strengthen the market's
role in the fixing of the rate and promote the convergence of the onshore and
offshore rates.
NOTE 17 |
COMMITMENTS AND CONTINGENCIES
|
The Company has entered into tenancy agreements for the leases
of an exhibition hall and land with a third party and a related company, Shuaiyi
Technology (see 15(b)), respectively, for the purposes of the operation of its
VIEs. The Companys commitments for minimum lease payments under these operating
leases for the next five years and thereafter as of September 30, 2015 are as
follows:
|
|
Related Parties |
|
|
Non-related Parties |
|
|
Total |
|
Remainder of fiscal year
ending December 31, 2015 |
|
14,207 |
|
|
4,347 |
|
|
18,554 |
|
Fiscal year ending December 31, 2016 |
|
56,828 |
|
|
- |
|
|
56,828 |
|
Fiscal year ending December
31, 2017 |
|
56,828 |
|
|
- |
|
|
56,828 |
|
Fiscal year ending December 31, 2018 |
|
56,828 |
|
|
- |
|
|
56,828 |
|
Fiscal year ending December
31, 2019 |
|
56,828 |
|
|
- |
|
|
56,828 |
|
Thereafter |
|
664,527 |
|
|
- |
|
|
664,527 |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
906,046 |
|
$ |
4,347 |
|
$ |
910,393 |
|
During the nine months ended September 30, 2015 and 2014,
rental expenses under operating leases amounted to $69,634 and $74,775,
respectively.
During the three months ended September 30, 2015 and 2014,
rental expenses under operating leases amounted to $21,346 and $25,212,
respectively.
According to the prevailing laws and regulations of the PRC,
the Companys subsidiaries and VIEs in the PRC are required to contribute to
medical, retirement and unemployment insurance programs for its employees. We
have recorded accruals for the probable estimated liability for approximately
the past two years. However, in the past we did not provide for contributions
for our temporary employees. If the PRC regulatory authorities take the view
that we were required to make contributions to the social insurance and housing
accumulation funds for our temporary employees, our failure to make previous
payments may be in violation of applicable PRC labor laws and PRC governmental
authorities may impose penalties on us for failure to comply. In addition, in
the event that any current or former employee files a complaint with the PRC
government, we may be subject to making up the contributions to the social
insurance and housing accumulation funds as well as paying administrative fines.
As the Company does not currently believe that it is probable that these
additional contributions and fines would be material and, furthermore, cannot be
reasonably estimated, no additional provision has been made in this regard.
F-27
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 17 |
COMMITMENTS AND CONTINGENCIES
(CONTINUED) |
(c) |
Indemnification agreement |
On October 5, 2010, the Company entered into an indemnification
agreement with each of its newly elected independent directors, Mr. Henry Ngan,
Ms. Virginia Pan and Mr. Jianbing Zhong, pursuant to which the Company agreed
to indemnify the independent directors against expenses, judgments, fines,
penalties or other amounts actually and reasonably incurred by the Independent
directors in connection with any proceeding if the independent directors acted
in good faith and in the best interests of the Company.
Also on October 5, 2010, the Company entered into an
indemnification agreement with Mr. Tick pursuant to which the Company agreed to
indemnify Mr. Tick against expenses, judgments, fines, penalties or other
amounts actually and reasonably incurred by Mr. Tick in connection with any
proceeding if Mr. Tick acted in good faith and in the best interests of the
Company.
On January 24, 2011, the Company entered into an
indemnification agreement with Mr. Joshua Kurtzig, its newly elected independent
director, pursuant to which the Company agreed to indemnify Mr. Kurtzig against
expenses, judgments, fines, penalties or other amounts actually and reasonably
incurred by the independent director in connection with any proceeding if the
independent director acted in good faith and in the best interests of the
Company. Mr. Kurtzig resigned from the Companys Board effective November 26,
2012.
On November 26, 2012, the Company entered into an
indemnification agreement with Mr. Richard E. Fearon, Jr., its newly elected
independent director, pursuant to which the Company agreed to indemnify Mr.
Fearon, Jr. against expenses, judgments, fines, penalties or other amounts
actually and reasonably incurred by the independent director in connection with
any proceeding if the independent director acted in good faith and in the best
interests of the Company.
NOTE 18 |
SEGMENT INFORMATION |
The Company operates in three business segments identified by
product, Cordyceps Militaris, beverages and organic and specialty food
products. The Cordyceps Militaris segment consists of the growing and sales of
Cordyceps Militaris, which business is conducted through Daqing Shuaiyi. The
beverages segment consists of the manufacturing of functional health beverages
featuring the Cordyceps Militaris as a core ingredient, which business is also
conducted through Daqing Shuaiyi and was launched in the fourth quarter of 2010.
The organic and specialty food products segment consists of the sales of rice,
flour, silage corn and other agricultural products which business is mainly
conducted through Harbin Shuaiyi.
During the three and nine months ended September 30, 2015 and
2014, all of the Companys operations were carried out in one geographical
segment - China.
F-28
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 18 |
SEGMENT INFORMATION (CONTINUED)
|
The Companys segment revenue and results for the nine months
ended September 30, 2015 and 2014 are as follows:
|
|
Nine Months Ended September 30,
2015 |
|
|
|
|
|
|
|
|
|
Organic and |
|
|
|
|
|
|
|
|
|
Cordyceps |
|
|
|
|
|
Specialty Food |
|
|
Corporate |
|
|
|
|
|
|
Militaris |
|
|
Beverages |
|
|
Products |
|
|
Unallocated |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue from external
customers |
$ |
26,925,508 |
|
$ |
2,637,917 |
|
$ |
1,740,458 |
|
$ |
- |
|
$ |
31,303,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income before income
taxes |
$ |
21,682,656 |
|
$ |
1,173,147 |
|
$ |
183,773 |
|
$ |
(731,687 |
) |
$ |
22,307,889 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,307,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
$ |
151,200,411 |
|
$ |
50,504 |
|
$ |
1,652,384 |
|
$ |
1,539,351 |
|
$ |
154,442,650 |
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,442,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$ |
1,013,752 |
|
|
4,151 |
|
|
1,394 |
|
|
76,953 |
|
|
1,096,250 |
|
Expenditures for
segment assets |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
Nine Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
Organic and |
|
|
|
|
|
|
|
|
|
Cordyceps |
|
|
|
|
|
Specialty Food |
|
|
Corporate |
|
|
|
|
|
|
Militaris |
|
|
Beverages |
|
|
Products |
|
|
Unallocated |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue from external
customers |
$ |
26,507,662 |
|
$ |
2,827,151 |
|
$ |
1,701,239 |
|
$ |
- |
|
$ |
31,036,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income before income
taxes |
$ |
20,922,323 |
|
$ |
1,416,397 |
|
$ |
170,710 |
|
$ |
(798,234 |
) |
$ |
21,711,196 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,711,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
$ |
132,691,382 |
|
$ |
61,937 |
|
$ |
1,480,294 |
|
$ |
1,915,981 |
|
$ |
136,149,594 |
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136,149,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$ |
1,030,070 |
|
|
4,170 |
|
|
1,390 |
|
|
77,788 |
|
|
1,113,418 |
|
Expenditure for
segment assets |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
F-29
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS |
(Unaudited) |
NOTE 18 |
SEGMENT INFORMATION (CONTINUED)
|
The Companys segment revenue and results for the three months
ended September 30, 2015 and 2014 are as follows:
|
|
Three Months Ended September 30, 2015 |
|
|
|
|
|
|
|
|
|
Organic and |
|
|
|
|
|
|
|
|
|
Cordyceps |
|
|
|
|
|
Specialty Food |
|
|
Corporate |
|
|
|
|
|
|
Militaris |
|
|
Beverages |
|
|
Products |
|
|
Unallocated |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue from external customers |
$ |
9,637,943 |
|
$ |
808,515 |
|
$ |
571,875 |
|
$ |
- |
|
$ |
11,018,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income before income taxes |
$ |
7,971,387 |
|
$ |
306,561 |
|
$ |
59,811 |
|
$ |
(223,159 |
) |
$ |
8,114,600 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,114,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
$ |
151,200,411 |
|
$ |
50,504 |
|
$ |
1,652,384 |
|
$ |
1,539,351 |
|
$ |
154,442,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,442,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$ |
331,917 |
|
$ |
1,364 |
|
$ |
- |
|
$ |
25,731 |
|
$ |
359,012 |
|
Expenditure for segment assets |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
Three Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
Organic and |
|
|
|
|
|
|
|
|
|
Cordyceps |
|
|
|
|
|
Specialty Food |
|
|
Corporate |
|
|
|
|
|
|
Militaris |
|
|
Beverages |
|
|
Products |
|
|
Unallocated |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
external customers |
$ |
9,755,483 |
|
$ |
842,081 |
|
$ |
567,245 |
|
$ |
- |
|
$ |
11,164,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes |
$ |
7,757,021 |
|
$ |
590,498 |
|
$ |
54,939 |
|
$ |
(218,019 |
) |
$ |
8,184,439 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,184,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
$ |
132,691,382 |
|
$ |
61,937 |
|
$ |
1,480,294 |
|
$ |
1,915,981 |
|
$ |
136,149,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136,149,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$ |
342,641 |
|
$ |
1,387 |
|
$ |
- |
|
$ |
26,338 |
|
$ |
370,366 |
|
Expenditure for segment assets
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
F-30
NOTE 19 |
SUBSEQUENT EVENTS |
In accordance with authoritative guidance, we have evaluated
any events or transactions occurring after September 30, 2015, the consolidated
balance sheet date, through the date of filing of this report and note that
there have been no such events or transactions that would require recognition or
disclosure in the condensed consolidated financial statements as of and for
period ended September 30, 2015, except as disclosed below.
On November 16, 2015, the Company entered into the Note and
Common Stock Purchase Agreement (the Note and SPA) with (i) Accretive Capital
Partners, LLC (Accretive), which currently owns approximately 11.86% of the
Companys common stock; (ii) Mr. Richard Fearon Jr., managing director of
Accretive and independent Board member of the Company; and (iii) Robert Tick,
the Companys Chief Financial Officer and a Board member.
Pursuant to the Note and SPA, the Company borrowed from
Accretive, Mr. Fearon and Mr. Tick (collectively the Investors), the aggregate
sum of $180,000 (the Loan Amount), a portion of the Loan Amount was paid by
the Investors in cash at the closing and the remaining portion was paid through
the release by Mr. Fearon and Mr. Tick of certain payment obligations of the
Company. In connection with procurement of the Loan Amount, the Company issued
to the Investors: (a) the promissory notes in the aggregate principal amount of
$180,000 and (b) 673,853 shares in the aggregate of the Companys common stock.
The promissory notes bear interests at 1% per month, compounded monthly and
maturity not later than March 16, 2016.
F-31
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Special Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the following
Managements Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements that are based on the beliefs
of our management, and involve risks and uncertainties, as well as assumptions,
that, if they ever materialize or proved incorrect, could cause actual results
to differ materially from those expressed or implied by such forward-looking
statements. The words believe, expect, anticipate, project, targets,
optimistic, intend, aim, will or similar expressions are intended to
identify forward-looking statements. All statements, other than statements of
historical fact, are statements that could be deemed forward-looking statements,
including statements regarding new and existing products, technologies and
opportunities; statements regarding market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; and any statements of belief or
intention. As such, they are subject to risks and uncertainties that could cause
our results to differ materially from those expressed or implied by such forward
looking statements. Such risks and uncertainties include any of the factors and
risks mentioned in the Risk Factors sections of our Annual Report on Form 10-K
for the year ended December 31, 2014 and subsequent SEC filings, and any
statements of assumptions underlying any of the foregoing. All forward-looking
statements included in this report are based on information available to us on
the date of this report. We assume no obligation and do not intend to update
these forward-looking statements, except as required by law.
Certain Terms
Except as otherwise indicated by the context, references in
this report to:
|
|
BVI refers to the British Virgin Islands;
|
|
|
China, and PRC refer to the Peoples
Republic of China; |
|
|
Exchange Act refers to the Securities
Exchange Act of 1934, as amended. |
|
|
Nutrastar, we, us, our company and our refer to
Nutrastar International Inc., a Nevada corporation, its subsidiaries, and,
in the context of describing our operations and business and consolidated
financial information, include our VIE Entities; |
|
|
Renminbi and RMB refer to the legal
currency of China; |
|
|
SEC refers to the United States Securities
and Exchange Commission; |
|
|
Securities Act refers to the Securities Act
of 1933, as amended; |
|
|
U.S. dollars, dollars and $ refer to the
legal currency of the United States; and |
|
|
VIE Entities means our consolidated variable interest
entities, including Heilongjiang Shuaiyi New Energy Development Co., Ltd.
and its subsidiaries as depicted in our organizational chart included in
our Annual Report on Form 10-K for the year ended December 31, 2014.
|
Overview of Our Business
We are a leading China based producer and supplier of premium
branded consumer products including commercially cultivated Cordyceps Militaris,
organic and specialty food products and functional health beverages.
Our primary product is Cordyceps Militaris, which is a species
of parasitic fungus that is typically found in north-eastern China. It is a
precious ingredient in traditional Chinese medicine, as Cordyceps Militaris is
widely believed in China to offer high medical and health benefits by nourishing
the yin, boosting the yang, and invigorating the meridians of the
lungs and kidneys. According to Georges Halpern's Healing Mushrooms, certain
research has shown that Cordyceps Militaris may boost the immune system, and can
be used as a supplement for combating certain effects of fatigue and aging, the
occurrences of certain tumors, and combating arteriosclerosis and certain
gastrointestinal disorders, as well as reducing blood pressure. In addition,
Cordyceps Militaris has significantly high economic values and according to
Halpern, wild Cordyceps Militaris can cost as much as $10,000 per kilogram. Due
to the extremely sensitive growing conditions of Cordyceps Militaris, it is very
difficult to grow the plant in a man-made environment. After several years of
laboratory tests, we developed a technology to commercially grow and produce
Cordyceps Militaris in 2006. Through our VIE entity, Daqing Shuaiyi, we
generated 87.5% and 87.4% of our revenues from Cordyceps Militaris for the third quarter of
2015 and 2014, respectively. We plan to continue to focus on Cordyceps Militaris
related based consumer products, which is our fastest growing product line with
the greatest market demand and a significantly higher profit margin.
1
We also sell organic and specialty food products through our
VIE entity, Harbin Shuaiyi, which was formed in 2001. After years of
development, we believe that we have become one of the largest wholesale
distributor of organic and specialty food in Heilongjiang Province, China. We
plan to increase our focus in organic and specialty food products business,
including efforts to become a producer and increase our distribution
capabilities.
We introduced the Cordyceps Militaris based functional health
beverages in the fourth quarter of 2010. The non-carbonized beverage products
were developed internally and contain the Cordyceps Militaris as a key
ingredient. The products are currently being marketed through distributors to
consumers in select cities in Jiangsu and Anhui Province through various
distribution channels. We produce and distribute our functional health beverages
through our VIE entity, Daqing Shuaiyi.
Recent Development
On November 16, 2015, the Company entered into the Note and
Common Stock Purchase Agreement (the Note and SPA) with (i) Accretive Capital
Partners, LLC (Accretive), which currently owns approximately 11.86% of the
Companys common stock; (ii) Mr. Richard Fearon Jr., managing director of
Accretive and independent Board member of the Company; and (iii) Robert Tick,
the Companys Chief Financial Officer and a Board member.
Pursuant to the Note and SPA, the Company borrowed from
Accretive, Mr. Fearon and Mr. Tick (collectively the Investors), the aggregate
sum of $180,000 (the Loan Amount), a portion of the Loan Amount was paid by
the Investors in cash at the closing and the remaining portion was paid through
the release by Mr. Fearon and Mr. Tick of certain payment obligations of the
Company. In connection with procurement of the Loan Amount, the Company issued
to the Investors: (a) the promissory notes in the aggregate principal amount of
$180,000 and (b) 673,853 shares in the aggregate of the Companys common stock.
The promissory notes bear interests at 1% per month, compounded monthly and
maturity not later than March 16, 2016. See the current report on Form 8-K filed by
the Company on November 20, 2015 for more information.
Third Quarter Financial Performance Highlights
The following are some financial highlights for the third
quarter of 2015:
|
|
Net Revenue: Our net revenue was approximately $11.02
million for the third quarter of 2015, a decrease of 1.3% from $11.16
million of the same quarter of last year. |
|
|
Gross Margin: Gross margin was 80.5% for the
third quarter of 2015, as compared to 80.5% for the same period in 2014.
|
|
|
Operating Profit: Operating profit was approximately
$8.07 million for the third quarter of 2015, a decrease of 0.2% from $8.09
million for the same period last year. |
|
|
Net Income: Net income was approximately $5.99 million
for the third quarter of 2015, a decrease of 1.1% from $6.06 million for
the same period of last year. |
|
|
Basic and fully diluted earnings per share were
$0.35 and $0.34 for the three months ended September 30, 2015. |
2
RESULTS OF OPERATIONS
Three Months Ended September 30, 2015 Compared to Three
Months Ended September 30, 2014
The following table sets forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of our
revenue.
|
|
Three
Months Ended |
|
|
Three
Months Ended |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
|
|
|
|
|
As a |
|
|
|
|
|
As a |
|
|
|
|
|
|
percentage of |
|
|
|
|
|
percentage of |
|
|
|
In Thousands |
|
|
revenues |
|
|
In Thousands |
|
|
revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
$ |
11,018 |
|
|
100 % |
|
$ |
11,165 |
|
|
100 % |
|
Cost of goods sold |
|
(2,145 |
) |
|
(19.5) % |
|
|
(2,173 |
) |
|
(19.5) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
8,873 |
|
|
80.5 % |
|
|
8,992 |
|
|
80.5 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
(367 |
) |
|
(3.3) % |
|
|
(327 |
) |
|
(2.9) % |
|
General and administrative
expenses |
|
(434 |
)
|
|
(3.9) % |
|
|
(575 |
)
|
|
(5.1) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
8,072 |
|
|
73.3 % |
|
|
8,090 |
|
|
72.5 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
112 |
|
|
1.0 % |
|
|
103 |
|
|
0.9 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange differences |
|
(70 |
) |
|
(0.6) % |
|
|
(8 |
) |
|
(0.1) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
income |
|
42 |
|
|
0.4 % |
|
|
96 |
|
|
0.8 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax |
|
8,114 |
|
|
73.7 % |
|
|
8,185 |
|
|
73.3 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax |
|
(2,123 |
) |
|
(19.3) % |
|
|
(2,125 |
) |
|
(19.0) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
5,991 |
|
|
54.4 % |
|
$ |
6,060 |
|
|
54.3 % |
|
Net Revenue. Our revenues are generated from the sale of
our Cordyceps Militaris products, functional health beverages and organic and
specialty food products. Net revenue decreased approximately $0.15 million, or
1.3%, to approximately $11.02 million for the three months ended September 30,
2015, from approximately $11.16 million for the same period in 2014. This slight
decrease was mainly attributable to the decrease in the sale of Cordyceps Militaris, by
approximately $0.12 million and a decrease in the sale of our beverage products by
approximately $0.03 million compared with the same period in 2014. The Company
is currently operating at the optimal capacity level, thus the quantity sold for our
products remains fairly stable. However, since all of our sales are denominated
in RMB, the foreign exchange rates fluctuation of approximately 1.6% for the
three months ended September 30, 2015 from the same period in 2014 caused a
slight decrease in the total revenue.
3
Business Segment Information
Our business operations can be categorized into three segments
based on the type of products we produce and sell, specifically (i) Cordyceps
Militaris, (ii) functional health beverages and (iii) organic and specialty food
products. The following table illustrates the revenue from each of these three
segments as well as the change of percentage for the periods indicated:
Net Revenue by Product Segments
(all amounts, other
than percentages, in thousands of U.S. dollars)
|
|
Three Months Ended September
30, |
|
|
Percent |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
Components of Net
Revenue |
|
|
|
|
|
|
|
|
|
Cordyceps Militaris |
$ |
9,638 |
|
$ |
9,756 |
|
|
(1.2% |
) |
Functional Health Beverages
|
|
808 |
|
|
842 |
|
|
(4.0% |
) |
Organic and Specialty Food Products |
|
572 |
|
|
567 |
|
|
0.9% |
|
Total revenues |
$ |
11,018 |
|
$ |
11,165 |
|
|
(1.3% |
)
|
We expect that majority of our revenue for 2015 will continue
to be generated from our Cordyceps Militaris related products. In addition, we
expect to see an increase in the percentage of revenue coming from the powder
solution and beverage products in the future if we are successful in expanding
our distribution channel of such products. We also expect to increase our
business development activities relating to our product lines on a going forward
basis and anticipate that sales and marketing related costs associated with
branding, marketing and advertising will increase as a percentage of
revenue.
Additional information regarding our products can be found at
Note 18, Segment Information in our unaudited condensed consolidated financial
statements contained under Part I, Item I FINANCIAL STATEMENTS above.
Cost of Goods Sold. Our cost of goods sold is primarily
comprised of the costs of our raw materials, labor and overhead. Our cost of
goods sold decreased by $0.02 million, or 1.3%, to approximately $2.15 million
for the three months ended September 30, 2015 from approximately $2.17 million
during the same period in 2014. As a percentage of net revenue, the cost of
goods sold was 19.5% for the three months ended September 30, 2015, which was
comparable with the same period in 2014. The decrease in cost of goods sold in
dollar terms was mainly attributable to the economies of scale due to full
production capacity utilization.
Gross Profit. Our gross profit decreased by
approximately $0.12 million, or 1.3%, to approximately $8.87 million for the
three months ended September 30, 2015 from approximately $8.99 million during
the same period in 2014. Gross profit as a percentage of net revenue, or gross
margin, was 80.5% for the three months ended September 30, 2015, which was
comparable with the same period in 2014. The slight decrease in gross profit in
dollar terms was mainly due to the slight decrease in revenue.
Selling Expenses. Our selling expenses include sales
commissions, cost of advertising and promotional materials, salaries and fringe
benefits of sales personnel, and other sales related costs. Selling expenses
increased by approximately $0.04 million, or 12.2%, to approximately $0.37
million for the three months ended September 30, 2015 from approximately $0.33
million during the same period in 2014. As a percentage of net revenue, selling
expenses increased to 3.3% for the three months ended September 30, 2015 from
2.9% for the same period in 2014. The slight increase in selling expenses in
dollar terms and as a percentage of net revenue for the three months ended
September 30, 2015 was mainly attributable to the slight increase in sales
personnel fringe benefits expenses, relating to our selling
activities in this quarter.
4
General and Administrative Expense. General and
administrative expenses include the costs associated with staff and support
personnel who manage our business activities, depreciation charges for fixed
assets, and professional fees paid to third parties. General and administrative
expenses decreased by approximately $0.15 million, or 24.5%, to approximately
$0.43 million for the three months ended September 30, 2015 from approximately
$0.58 million for the same period in 2014. As a percentage of net revenue,
general and administrative expenses were 3.9% for the three months ended
September 30, 2015 as compared to 5.1% for the same period of 2014. The decrease
of general and administrative expenses in dollar terms and as a percentage of
net revenue was mainly attributable to the decrease in administrative personnel
fringe benefits and a decrease in share based payment expense.
Income Before Income Tax. Income before income tax
decreased by approximately $0.08 million, or 0.9%, to approximately $8.11
million during the three months ended September 30, 2015 from approximately
$8.19 million during the same period in 2014. As a percentage of net revenue,
income before income tax increased to 73.7% during the three months ended
September 30, 2015 from 73.3% during the same period in 2014. The decrease of
income before income tax in dollar terms was mainly attributable to the slight
decrease in gross profit of $0.12 million. The increase of income before income
tax as a percentage of net revenue is mainly attributable to the slightly lower
net revenue as the denominator.
Income Taxes. Nutrastar International Inc. is subject to
United States federal income tax at a tax rate of 34%. No provision for income
taxes in the United States has been made as Nutrastar International Inc. had no
U.S. source income taxable in the United States for the three months ended
September 30, 2015 and 2014. New Resources was incorporated in the BVI and under
the current laws of the BVI, is not subject to income taxes. Oriental Global was
formed in Hong Kong and under the current laws of Hong Kong, is not subject to
income taxes. Our PRC subsidiary and the VIEs are subject to national and local
income taxes within China at the applicable tax rate on the taxable income as
reported in their PRC statutory financial statements in accordance with relevant
income tax laws. China promulgated a new Enterprise Income Tax Law, or the New
EIT Law, and its implementing regulations, both of which became effective on
January 1, 2008.
Each of VIE entities has been subject to an income tax rate of
25% since 2011.
Income tax decreased by approximately $2,000 to approximately
$2.12 million for the three months ended September 30, 2015 compared with the
same period in 2014. The slight decrease in income tax expense for the three
months ended September 30, 2015 is because of the slight decrease in net revenue
and taxable income described above.
Net Income. Net income decreased by approximately $0.07
million, or 1.1% to approximately $5.99 million for the three months ended
September 30, 2015 from approximately $6.06 million for the same period of 2014,
as a result of the factors described above.
5
Nine Months Ended September 30, 2015 Compared to Nine
Months Ended September 30, 2014
The following table sets forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of our
revenue.
|
|
Nine Months
Ended |
|
|
Nine Months
Ended |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
|
|
|
|
|
As a |
|
|
|
|
|
As a |
|
|
|
|
|
|
percentage of |
|
|
|
|
|
percentage of |
|
|
|
In Thousands |
|
|
revenues |
|
|
In Thousands |
|
|
revenues |
|
Net revenue |
$ |
31,304 |
|
|
100 % |
|
$ |
31,036 |
|
|
100 % |
|
Cost of goods sold |
|
(6,651 |
) |
|
(21.2) % |
|
|
(6,754 |
) |
|
(21.8) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
24,653 |
|
|
78.8 % |
|
|
24,282 |
|
|
78.2 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
(1,092 |
) |
|
(3.5) % |
|
|
(1,053 |
) |
|
(3.4) % |
|
General and administrative
expenses |
|
(1,520 |
) |
|
(4.9) % |
|
|
(1,782 |
) |
|
(5.7) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
22,041 |
|
|
70.4 % |
|
|
21,447 |
|
|
69.1 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
339 |
|
|
1.1 % |
|
|
292 |
|
|
0.9 % |
|
Foreign exchange differences |
|
(72 |
) |
|
(0.2) % |
|
|
(28 |
) |
|
(0.1) % |
|
Total other
income |
|
267 |
|
|
0.9 % |
|
|
264 |
|
|
0.9 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax |
|
22,308 |
|
|
71.3 % |
|
|
21,711 |
|
|
70.0 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax |
|
(5,708 |
) |
|
(18.2) % |
|
|
(5,622 |
) |
|
(18.1) % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
16,600 |
|
|
53.1 % |
|
$ |
16,089 |
|
|
51.8 % |
|
Net Revenue. Net revenue increased approximately $0.26
million, or 0.9%, to approximately $31.30 million for the nine months ended
September 30, 2015, from approximately $31.04 million for the same period in
2014. This increase was mainly attributable to the increase in quantity sold of
our core product, Cordyceps Militaris by $0.42 million, offset by a slight
decrease in revenue from our beverage products by $0.19 million. The increase in
quantity sold of Cordyceps Militaris products was mainly driven by the continued
increase in market demand for our core product.
Business Segment Information
Our business operations can be categorized into three segments
based on the type of products we produce and sell, specifically (i) Cordyceps
Militaris, (ii) functional health beverages and (iii) organic and specialty food
products. The following table illustrates the revenue from each of these three
segments as well as the change of percentage for the periods indicated:
Net Revenue by Product Segments
(all amounts, other
than percentages, in thousands of U.S. dollars)
|
|
Nine Months Ended September 30,
|
|
|
Percent |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
Components of Net
Revenue |
|
|
|
|
|
|
|
|
|
Cordyceps Militaris |
$ |
26,926 |
|
$ |
26,508 |
|
|
1.6% |
|
Functional Health Beverages
|
|
2,638 |
|
|
2,827 |
|
|
(6.7)% |
|
Organic and Specialty Food Products |
|
1,740 |
|
|
1,701 |
|
|
2.3% |
|
Total revenues |
$ |
31,304 |
|
$ |
31,036 |
|
|
0.9% |
|
6
Cost of Goods Sold. Our cost of goods sold decreased by
$0.10 million, or 1.5%, to approximately $6.65 million for the nine months ended
September 30, 2015 from approximately $6.75 million during the same period in
2014. As a percentage of net revenue, the cost of goods sold decreased
approximately 0.6% to 21.2% for the nine months ended September 30, 2015 from
21.8% during the same period in 2014. The decrease in cost of goods sold in
dollar terms and as a percentage of net revenue was mainly attributable to the
economies of scale due to our full capacity utilization.
Gross Profit. Our gross profit increased by
approximately $0.37 million, or 1.5%, to approximately $24.65 million for the
nine months ended September 30, 2015 from approximately $24.28 million during
the same period in 2014. Gross profit as a percentage of net revenue, or gross
margin, was 78.8% for the nine months ended September 30, 2015, an increase of
0.6% from 78.2% during the same period in 2014. Such increase in dollar terms
and as a percentage of net revenue was mainly due to the increase in the sales
of our core Cordyceps Militaris products in the product mix which have a higher
gross margin as compared to our beverages and organic and specialty foods.
Selling Expenses. Selling expenses increased by
approximately $0.04 million, or 3.7%, to approximately $1.09 million for the
nine months ended September 30, 2015 compared with approximately $1.05 million
during the same period in 2014. As a percentage of net revenue, selling expenses
decreased to 3.5% for the nine months ended September 30, 2015 from 3.4% for the
same period in 2014. The small percentage decrease was mainly due to the slight
increase in net revenue.
General and Administrative Expense. General and
administrative expenses decreased by approximately $0.26 million, or 14.7%, to
approximately $1.52 million for the nine months ended September 30, 2015 from
approximately $1.78 million for the same period in 2014. The decrease in dollar
terms was mainly attributable to a decrease in payments for third party
professional services. As a percentage of net revenue, general and
administrative expenses were 4.9% for the nine months ended September 30, 2015
as compared to 5.7% for the same period of 2014. The percentage decrease was
mainly was mainly due to the decrease in administrative personnel fringe
benefits and a decrease in share based payment expense.
Income Before Income Tax. Income before income tax
increased by approximately $0.60 million, or 2.7%, to approximately $22.31
million during the nine months ended September 30, 2015 from approximately
$21.71 million during the same period in 2014. As a percentage of net revenue,
income before income tax increased by 1.3% to 71.3% during the nine months ended
September 30, 2015 from 70.0% during the same period in 2014. The increase of
income before income tax in dollar terms and as a percentage of net revenue is
mainly attributable to the increase in gross profit of $0.49 million combined
with a decrease in general and administrative expenses of $0.26 million for the
nine months ended September 30, 2015 as compared to the same period in 2014.
Income Taxes. Income tax increased by approximately
$0.09 million to approximately $5.71 million for the nine months ended September
30, 2015 from approximately $5.62 million for the same period in 2014. Income
tax expense for the nine months ended September 30, 2015 increased because of
the increase in net revenue and taxable income.
Net Income. Net income increased by approximately $0.51
million, or 3.2% to approximately $16.60 million for the nine months ended
September 30, 2015 from approximately $16.09 million for the same period of
2014, as a result of the factors described above.
7
Liquidity and Capital Resources
General
As of September 30, 2015, we had cash and cash equivalents of
approximately $138.51 million. The following table provides detailed information
about our net cash flow for all financial statement periods presented in this
report.
Cash Flow
(All amounts in thousands of U.S.
dollars)
|
|
Nine Months Ended September 30,
|
|
|
|
2015 |
|
|
2014 |
|
Net cash provided by
operating activities |
$ |
17,239 |
|
$ |
16,893 |
|
Net cash provided by investing activities |
|
- |
|
|
- |
|
Net cash provided by
financing activities |
|
- |
|
|
30 |
|
Foreign currency translation adjustment |
|
(5,270 |
) |
|
(952 |
) |
Net cash flow |
$ |
11,969 |
|
$ |
15,971 |
|
Operating Activities
Net cash provided by operating activities was approximately
$17.24 million for the nine month period ended September 30, 2015, which is an
increase of approximately $0.35 million from approximately $16.89 million for
the same period of 2014. The change in the cash provided by operating
activities was mainly attributable to:
|
|
$0.51 million increase in net income for the
nine months ended September 30, 2015 compared to the same period in 2014;
|
|
|
|
|
|
An increase in inventory purchases for the nine months
ended September 30, 2015 compared to the same period in 2014 caused our
operating cash balances to reduce by approximately $0.22 million; |
|
|
|
|
|
$0.21 million increase in operating cash flows
from payment of income tax in advance but not required in the current
period; offset by |
|
|
|
|
|
An increase in utilization of prepaid expenses for the
nine months period ended September 30, 2015 compared to the same period
last year caused our operating cash balances to increase by approximately $0.04
million; |
|
|
|
|
|
A decrease in advance from related parties caused our
operating cash balances to decrease by approximately $0.22 million, reflecting
repayment of advance from related parties for payments of US$ denominated
expenses in the prior period; |
Investing Activities
Our primary uses of cash for investing activities are payments
for the acquisition of property, plant and equipment.
For the nine-month period ended September 30, 2015 and
nine-month period ended September 30, 2014, there was no net cash used in or
provided by investing activities. After we completed the Cordyceps Militaris
capacity expansion and scaled back the expansion plan relating to the organic
and specialty food segment of the business, we did not incur expenses for the
acquisition of property, plant or equipment during these periods.
8
Financing Activities
For the nine months ended September 30, 2015, there was no net
cash used in or provided by financing activities, while our net cash provided by
financing activities for the nine months ended September 30, 2014 was
approximately $30,000. The decrease of the cash provided by financing activities
was mainly attributable to the decrease in advance from a related party in the
current period.
We believe that our cash on hand and cash flow from operations
will meet our expected capital expenditure and working capital requirements for
the next 12 months. However, we may in the future require additional cash
resources due to changed business conditions, implementation of our strategy to
expand our production capacity, sales, marketing and branding activities or
other investments or acquisitions we may decide to pursue. If our own financial
resources are insufficient to satisfy our capital requirements, we may seek to
sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity securities could result in dilution to
our stockholders. The incurrence of indebtedness would result in increased debt
service obligations and could require us to agree to operating and financial
covenants that would restrict our operations. Financing may not be available in
amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us, or at all, could limit our ability to
expand our business operations and could harm our overall business prospects.
Effects of Inflation
Inflation and changing prices have not had a material effect on
our business and we do not expect that inflation or changing prices will
materially affect our business in the foreseeable future. However, our
management will closely monitor the price change and continually maintain
effective cost control in operations.
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, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital expenditures or capital resources that is
material to an investor in our securities.
Seasonality
The production and sale of our primary product, Cordyceps
Militaris, have not been historically subject to material seasonal variations.
However since all of our sales are in China, the timing of the various Chinese
holidays such as Lunar Chinese New Year, May and October holidays may have some
impact to our operating results and operating cash flows.
Critical Accounting Policies
Managements discussion and analysis of its financial condition
and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. Our financial statements reflect the selection
and application of accounting policies, which require management to make
significant estimates and judgments. See Note 2 to our condensed consolidated
financial statements, Summary of Significant Accounting Policies. Management
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions. We
believe that the following reflect the more critical accounting policies that
currently affect our financial condition and results of operations.
9
Principle of consolidation
The accompanying
consolidated financial statements include the financial statements of Nutrastar
and its wholly owned subsidiaries, New Resources, Oriental Global and Harbin
Baixin, and its VIEs Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi.
All significant inter-company balances or transactions have been eliminated on
consolidation.
The Company has evaluated the relationship with Heilongjiang
Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi and based on the result of the
evaluation, believes that these entities are variable interest entities and that
it is the primary beneficiary of these entities. Consequently, the Company has
included the results of operations of these variable interest entities in the
consolidated financial statements. The Companys relationships with Heilongjiang
Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi are governed by a series of
contractual arrangements. Under PRC laws, Heilongjiang Shuaiyi, Daqing Shuaiyi
and Harbin Shuaiyi are independent legal persons and none of them is exposed to
liabilities incurred by the other parties.
The accounts of Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin
Shuaiyi are consolidated in the accompanying financial statements pursuant to
the Financial Accounting Standards Board Accounting Standard Codification (ASC)
Topic 810 and related subtopics related to the consolidation of variable
interest entities. The Company does not have any non-controlling interests in
net income and accordingly, did not subtract any net income in calculating the
net income attributable to the Company. Because of the contractual arrangements,
the Company had a pecuniary interest in the VIEs that require consolidation of
the Companys and the VIEs financial statements.
Use of estimates
The preparation of these
consolidated financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the related
disclosure of contingent assets and liabilities at the date of these
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Accordingly, actual results may differ from
these estimates under different assumptions or conditions. Significant estimates
for the periods ended September 30, 2015 and 2014 include the useful lives of
property and equipment and intangible assets, assumptions used in assessing
impairment for long-term assets and the fair values of share-based payments.
Cash and cash equivalents
Cash and cash
equivalents consist of all cash balances and highly liquid investments with an
original maturity of three months or less. Because of the short maturity of
these investments, the carrying amounts approximate their fair value.
Inventories
Inventories are stated at the
lower of cost, determined on a weighted average basis, or market. Costs of
inventories include purchase and related costs incurred in bringing the products
to their present location and condition. Market value is determined by reference
to selling prices after the balance sheet date or to managements estimates
based on prevailing market conditions. Management will write down the
inventories to market value if it is below cost. Management also regularly
evaluates the composition of its inventories to identify slow-moving and
obsolete inventories to determine if a valuation allowance is required.
Property, plant and equipment
Property, plant
and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Gains or losses on disposals are reflected as gain or
loss in the year of disposal. The cost of improvements that extend the life of
property, plant and equipment are capitalized. These capitalized costs may
include structural improvements, equipment and fixtures. All ordinary repair and
maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
|
|
Useful Life |
|
|
|
(In years) |
|
Buildings |
|
20-40 |
|
Machinery and motor vehicles |
|
5-10 |
|
Office equipment |
|
5 |
|
10
Intangible assets
The Companys intangible
assets include a ten-year exclusive right to use a proprietary process and
computer software. The Companys amortization policy on intangible assets is as
follows:
|
Useful Life |
|
(In years) |
Exclusive right |
10 |
Computer software |
4 |
The Company accounts for its intangible assets pursuant to FASB
ASC Subtopic 350-30, General Intangibles Other Than Goodwill. Under ASC
350-30-35, intangibles with definite lives continue to be amortized on a
straight-line basis over the lesser of their estimated useful lives or
contractual terms. Under FASB ASU No.2012-02 Intangible-Goodwill and Other
(Topic 350), the Company assesses qualitative factors to determine whether it is
necessary to perform a quantitative impairment test. The Company would not be
required to calculate the fair value of an indefinite-lived intangible asset
unless the Company determines, based on a qualitative assessment, that it is not
more likely than not, the indefinite-lived intangible asset is impaired. If the
qualitative assessment fails, intangibles with indefinite lives are further
evaluated quantitatively for impairment by comparing the assets estimated fair
value with its carrying value, based on cash flow methodology.
Revenue recognition
Revenue is recognized when
the following four revenue criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the selling price is fixed or
determinable, and collectability is reasonably assured.
Sales revenue is recognized net of value added and sales
related taxes, sales discounts and returns at the time when the merchandise is
delivered to the customer. Based on historical experience, management estimates
that sales returns are immaterial and has not recorded an allowance for
estimated sales returns.
Share-based payments
The Company accounts for
share-based compensation awards to employees in accordance with FASB ASC Topic
718, Compensation Stock Compensation, which requires that share-based
payment transactions with employees be measured based on the grant-date fair
value of the equity instrument issued and recognized as compensation expense
over the requisite service period.
The Company accounts for share-based compensation awards to
non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic
505-50, Equity-Based Payments to Non-employees. Under FASB ASC Topic 718 and
FASB ASC Subtopic 505-50, stock compensation granted to non-employees has been
determined as the fair value of the consideration received or the fair value of
equity instrument issued, whichever is more reliably measured and is recognized
as expenses as the goods or services are received.
Income taxes
The Company is subject to income
taxes in the United States and other foreign jurisdictions where it operates.
The Company accounts for income taxes in accordance with FASB ASC Topic 740,
Income Taxes. FASB ASC Topic 740 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future
deductibility is uncertain.
The Companys income tax returns are subject to examination by
the Internal Revenue Service (IRS) and other tax authorities in the locations
where it operates. The Company assesses potentially unfavorable outcomes of such
examinations based on the criteria of FASB ASC 740-10-25-5 through 740-10-25-7
and 740-10-25-13 (formerly FASB Interpretation No. 48 (FIN 48) Accounting for
Uncertainty in Income Taxes). The interpretation prescribes a
more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken (or expected to be taken) in a tax return.
This Interpretation also provides guidance on derecognition of income tax assets
and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures.
11
Foreign currency
The Company uses the United
States dollar (US Dollar or US$ or $) for financial reporting purposes.
The PRC subsidiaries and VIEs within the Company maintain their books and
records in their functional currency, Chinese Renminbi (RMB), being the lawful
currency in the PRC. Assets and liabilities of the PRC subsidiaries and VIEs are
translated from RMB into US Dollars using the applicable exchange rates
prevailing at the balance sheet date. Items on the statements of income and cash
flows are translated at average exchange rates during the reporting period.
Equity accounts are translated at historical rates. Adjustments resulting from
the translation of the Companys financial statements are recorded as
accumulated other comprehensive income.
The exchange rates used to translate amounts in RMB into US
Dollars for the purposes of preparing the consolidated financial statements are
based on the rates as published on the website of Peoples Bank of China and are
as follows:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Balance sheet items, except
for equity accounts |
|
US$1=RMB6.3613
|
|
|
US$1=RMB6.1190
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Items in the statements of
income and cash flows |
|
US$1=RMB6.2576
|
|
|
US$1=RMB6.1568
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Items in the statements of
income and cash flows |
|
US$1=RMB6.1738
|
|
|
US$1=RMB6.1450
|
|
No representation is made that the RMB amounts could have been,
or could be, converted into US Dollars at the above rates. The value of RMB
against US dollars and other currencies may fluctuate and is affected by, among
other things, changes in Chinas political and economic conditions. Any
significant revaluation of RMB may materially affect the Companys financial
condition in terms of US Dollar reporting.
Segment reporting
The Company follows FASB ASC
Topic 280, Segment Reporting, which requires that companies disclose segment
data based on how management makes decisions about allocating resources to
segments and evaluating their performance.
The Company believes that during the three and nine months
ended September 30, 2015 and 2014, it operated in three business segments
growing and sales of Cordyceps Militaris, which is widely used for Chinese
medicine, manufacturing and sale of functional health beverages featuring the
Cordyceps Militaris as a core ingredient, and sales of organic and specialty
products.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our chief executive
officer and chief financial officer, Ms. Lianyun Han and Mr. Robert Tick,
respectively, evaluated the effectiveness of our disclosure controls and
procedures. The term disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports, such as this report, that it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, Ms. Lianyun Han and Mr. Robert Tick concluded that as
of September 30, 2015, our disclosure controls and procedures were effective at
the reasonable assurance level.
Changes in Internal Control Over Financial
Reporting.
During the fiscal quarter ended September 30, 2015, there were
no changes in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. We are
currently not aware of any legal proceedings or claims that would require
disclosure under Item 103 of Regulation S-K. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
ITEM 1A. RISK FACTORS
Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 contains a detailed discussion of risk factors that could
materially adversely affect our business, our operating results, or our
financial condition. There are no material changes from the risk factors
previously disclosed in Item 1A Risk Factors of our Annual Report on Form 10-K
for the year ended December 31, 2014. However, the following is a new risk factor relevant to us since our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Market rate risk – exchange rate risk
On August 11, 2015, the People’s Bank of China (“PBOC”) reduced the RMB’s reference rate by 1.9 percent, sparking the sharpest fall in the RMB currency since the dollar peg ended a decade ago. The move by the PBOC comes amid growing signs of a deepening slowdown in the mainland economy. The PBOC indicated that the reference rate move was a one-time adjustment, it will keep the currency stable at a reasonable level and it will strengthen the market's role in the fixing of the rate and promote the convergence of the onshore and offshore rates.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
We have not sold any unregistered equity securities during the
fiscal quarter ended September 30, 2015 that were not previously disclosed in a
current report on Form 8-K that was filed during that period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
EXHIBITS. |
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31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
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32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
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101 |
The following financial information from The Nutrastar
International Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015, formatted in XBRL (eXtensible Business Reporting
Language): (i) Condensed Consolidated Balance Sheets at September 30, 2015
and December 31, 2014, (ii) Condensed Consolidated Statements of Income
and Comprehensive Income for the three months and nine months ended
September 30, 2015 and 2014, (iii) Condensed Consolidated Statements of
Stockholders Equity, (iv) Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2015 and 2014, and (iv) the Notes
to Condensed Consolidated Financial Statements.
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14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATED: November 25, 2015
NUTRASTAR INTERNATIONAL INC. |
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By: /s/ Lianyun Han |
-------------------------------------- |
Lianyun Han |
Chief Executive Officer |
(Principal
Executive Officer) |
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By: /s/ Robert Tick |
--------------------------------------
|
Robert Tick |
Chief Financial Officer |
(Principal
Financial Officer) |
EXHIBIT INDEX
Exhibit |
|
Number |
Description |
|
|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
|
32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
|
101 |
The following financial information from The Nutrastar
International Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015, formatted in XBRL (eXtensible Business Reporting
Language): (i) Condensed Consolidated Balance Sheets at September 30, 2015
and December 31, 2014, (ii) Condensed Consolidated Statements of Income
and Comprehensive Income for the three months and nine months ended
September 30, 2015 and 2014, (iii) Condensed Consolidated Statements of
Stockholders Equity, (iv) Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2015 and 2014, and (iv) the Notes
to Condensed Consolidated Financial Statements.
|
Exhibit 31.1
CERTIFICATIONS
I, Lianyun Han, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of
Nutrastar International Inc.; |
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|
|
|
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 registrants 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 registrants
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 registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee
of the registrants 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 registrants 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
registrants internal control over financial
reporting. |
Date: November 25, 2015
/s/ Lianyun Han
Lianyun Han
Chief Executive
Officer
Exhibit 31.2
CERTIFICATIONS
I, Robert Tick, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of
Nutrastar International 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 registrants 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 registrants
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 registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee
of the registrants 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 registrants 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
registrants internal control over financial
reporting. |
Date: November 25, 2015
/s/ Robert Tick
|
Robert Tick |
Chief Financial Officer
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Lianyun Han, Chief Executive Officer of
NUTRASTAR INTERNATIONAL INC. (the Company), DOES HEREBY CERTIFY that:
1. The Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2015 (the Report), fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation of the
Company.
IN WITNESS WHEREOF, each of the
undersigned has executed this statement this 25th day of November 2015.
/s/ Lianyun Han
|
Lianyun Han |
Chief Executive Officer |
(Principal Executive Officer) |
A signed original of this written statement required by Section
906 has been provided to Nutrastar International Inc. and will be retained by
Nutrastar International Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
The forgoing certification is being furnished to the Securities
and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and is not to be incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert Tick, Chief Financial Officer of
NUTRASTAR INTERNATIONAL INC. (the Company), DOES HEREBY CERTIFY that:
1. The Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2015 (the Report), fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation of the
Company.
IN WITNESS WHEREOF, each of the
undersigned has executed this statement this 25th day of November 2015.
/s/ Robert Tick
|
Robert Tick |
Chief Financial Officer |
(Principal Financial Officer) |
A signed original of this written statement required by Section
906 has been provided to Nutrastar International Inc. and will be retained by
Nutrastar International Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
The forgoing certification is being furnished to the Securities
and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and is not to be incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.