American
Jianye Greentech Holdings, Ltd. (formerly Gateway Certifications, Inc.)
American
Jianye Greentech Holdings, Ltd. (the ‘Company” or “American Jianye”) was originally incorporated on August
30, 2006, under the laws of the State of Nevada as Gateway Certifications, Inc.
On
November 16, 2009, the Company amended its Articles of Incorporation, and changed its name to American Jianye Greentech Holdings,
Ltd. upon acquisition of Jianye Greentech Holdings Limited to better indentify the Company with the business conducted,
through
its wholly owned subsidiaries in China,
the manufacturing and distribution of ethanol and methanol
based alternative fuel for automobile use.
Jianye
Greentech Holdings Ltd. and Subsidiaries
Jianye
Greentech Holdings Ltd.
Jianye
Greentech Holdings Ltd (“Jianye BVI”) was incorporated on April 17, 2008 under the laws of
the
Territory of the
British Virgin Islands.
Formation
of Hong Kong Jianye Greentech Holdings Ltd.
On
May 2, 2008 Jianye BVI formed Hong Kong Jianye Greentech Holdings Limited (“Jianye Hong Kong”) under the laws of
under
the laws of the Hong Kong Special Administrative Region (“HK SAR”) of the People’s Republic of China (“PRC”)
.
Jianye
BVI and Jianye Hong Kong currently have no operations and operate as investment holding companies.
Formation
of Heilongjian New Jianye New Clean Fuel Distribution Ltd.
On
September 28, 2009, Jianye Hong Kong formed Heilongjian New Jianye New Clean Fuel Distribution Ltd. (“Heilongjian New Jianye”)
with the registered capital of $50,000. Heilongjian New Jianye engages in the manufacturing and distribution of ethanol and methanol
based alternative fuel for automobile use.
Acquisition
of Jianye Greentech Holdings Ltd. and Subsidiaries Recognized as a Reverse Acquisition
On
November 16, 2009, the Company entered into and consummated the
Agreement and Plan of Share Exchange
(the “Exchange Agreement”) with all of the shareholders (the “Shareholders”) of Jianye Greentech Holdings,
Ltd
. ("Jianye BVI"). Pursuant to the
Exchange Agreement
, (i)
the
Company and Gateway Certifications, LLC (“GCL”), a New York limited liability company formed by the former controlling
shareholders of the Company entered into an Asset Divestiture Agreement whereby the Company assigned all of the previous operating
assets of the Company to GCL in exchange for the assumption of all of the Company’s liabilities to the members of GCL, who,
as the former principal shareholders of the Company controlling 8,343,000 common shares of the Company, agreed to return and cancel
their 7,950,000 shares of Common Stock of the Company
; the Company (ii) acquired 100% of the issued and outstanding capital
of Jianye BVI for
3,548,796
common shares of the Company; (iii) effectuated a 7.89-for-1 (1:7.89)
forward stock split (“Forward Stock Split”)
post cancellation of 7,950,000 shares by then
controlling stockholder of the Company and issuance of 3,548,796 shares of its common stock to Jianye BVI stockholders
;
and (iv)
amended its Articles of Incorporation to: (iv)(a) authorize the creation of a class of 5,500,000
shares of blank check preferred stock; (iv)(b) increased the number of shares of the authorized capital stock to 400,000,000 shares
of which 394,500,000 shall be Common Stock, par value $0.001 per share and 5,500,000 shall be preferred stock, par value $0.001
per share; and (iii)(c) changed its name to American Jianye Greentech Holdings Ltd.
Total number of common shares issued
represents approximately 90.0% of the Company’s outstanding stock immediately post acquisition; Jianye BVI became a wholly
owned subsidiary of the Company; and the management team of Jianye BVI were appointed as the Officers and Directors of the Company.
As
a result of the ownership interests of the former stockholders of Jianye BVI, for financial statement reporting purposes, the
merger between the Company and
Jianye BVI
has been treated as a reverse acquisition
with
Jianye BVI deemed the accounting acquirer and the Company deemed the accounting acquiree
under the purchase method of accounting
in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction
and the net assets of
Jianye BVI
(the accounting acquirer) are carried forward to the Company
(the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process utilizes
the capital structure of the Company and the assets and liabilities of
Jianye BVI
which are
recorded at historical cost. The equity of the Company is the historical equity of
Jianye BVI
retroactively restated to reflect the number of shares issued by the Company in the transaction.
Formation
of Liaoning Jianye Greentech Fuel Ltd.
On
June 23, 2010, Jianye Hong Kong formed Liaoning Jianye Greentech Fuel Ltd. (“Liaoning Jianye”) with the registered
capital of $5million. Liaoning Jianye engages in the manufacturing and distribution of ethanol and methanol based alternative
fuel for automobile use.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”).
Principles
of Consolidation
The
consolidated financial statements include all accounts of the Company and its controlled entities as of the reporting period ending
date(s) and for the reporting period(s) as follows:
Entity
|
Jurisdiction
or Place of Incorporation
|
Attributable
Interest
|
Jianye
Greentech Holdings Ltd.
|
The
Territory of the British Virgin Islands
|
100%
|
Hong
Kong Jianye Greentech Holdings Limited
|
Hong
Kong SAR
|
100%
|
Heilongjian
New Jianye New Clean Fuel Distribution Ltd.
|
PRC
|
100%
|
Liaoning
Jianye Greentech Energy Ltd.
|
PRC
|
100%
|
All
inter-company balances and transactions have been eliminated.
Reclassification
Certain
amounts
in the prior period financial statements
have been reclassified to conform to the current
period
presentation
. These reclassifications had no effect on reported earnings.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period.
The
Company’s significant estimates and assumptions include the fair value of financial instruments; allowance for doubtful
accounts; inventory valuation and obsolescence; the carrying value
, recoverability and impairment,
if any, of long-lived assets, including the values assigned to and the estimated useful lives of property, plant and equipment,
and
land use rights;
interest rate;
revenue recognized or recognizable; sales returns
and allowances; valued added tax rate,
income tax rate and related tax provision, reporting currency
of the Company, functional currency of the PRC subsidiaries, and foreign currency exchange rate
.
Those
significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached
to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management
bases its estimates on historical experience and on various assumptions that are believed to be reasonable
in
relation to the financial statements taken as a whole
under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources.
Management
regularly evaluates the key factors and assumptions used to develop the
estimates utilizing currently
available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations,
and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”)
to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value
in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level
1
|
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
Level
2
|
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
|
Level
3
|
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, advance on purchases,
prepayments and other current assets, accounts payable, customer deposits, corporate income tax payable, accrued expenses and
other current liabilities approximate their fair values because of the short maturity of these instruments.
The
Company’s Level 3 financial liabilities consist of the derivative warrant issued in July 2008 for which there is no current
market for these securities such that the determination of fair value requires significant judgment or estimation. The Company
valued the automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering provisions
using a lattice model, with the assistance of a valuation specialist, for which management understands the methodologies. These
models incorporate transaction details such as Company stock price, contractual terms, maturity, risk free rates, as well as assumptions
about future financings, volatility, and holder behavior as of the date of issuance and each balance sheet date.
Transactions
involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive,
free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the
related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such
representations can be substantiated.
It
is not, however, practical to determine the fair value of advances from significant stockholder and lease arrangement with the
significant stockholder due to their related party nature.
Fair
Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis
The
Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories
by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory
aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such
identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the
historical results of physical inventory cycle counts.
Carrying
Value, Recoverability and Impairment of Long-Lived Assets
The
Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s
long-lived assets, which include property, plant and equipment and land use rights are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated
with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair
value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter
than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated
useful lives.
The
Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant
under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant
changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired
assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv)
increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time;
and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more
frequently upon the occurrence of such events.
The
key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels, gross
margins, and operating costs of the manufacturing facilities. These forecasts are typically based on historical trends and take
into account recent developments as well as management’s plans and intentions. Any difficulty in manufacturing or sourcing
raw materials on a cost effective basis would significantly impact the projected future cash flows of the Company’s manufacturing
facilities and potentially lead to an impairment charge for long-lived assets. Other factors, such as increased competition or
a decrease in the desirability of the Company’s products, could lead to lower projected sales levels, which would adversely
impact cash flows. A significant change in cash flows in the future could result in an impairment of long lived assets.
The
impairment charges, if any, is included in operating expenses in the accompanying consolidated statements of income and comprehensive
income (loss).
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9
of the FASB Accounting Standards Codification to estimate the allowance
for doubtful accounts.
The Company performs on-going credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their
current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer
specific facts and economic conditions.
Outstanding
account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included
in general and administrative expenses, if any. Pursuant to paragraph 310-10-50-2
of
the FASB Accounting Standards Codification
account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph
310-10-50-6
of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based
on how recently payments have been received.
The
Company does not have any off-balance-sheet credit exposure to its customers.
Advance
on Purchases
Advance
on purchases primarily represent amounts paid to vendors for future delivery of products ranging from three (3) months to nine
(9) months
, all of which were fully or partially refundable depending
upon the terms and conditions of the purchase agreements
.
Inventories
The
Company values inventories, consisting of raw materials, packaging material and finished goods, at the lower of cost or
market. Cost is determined on the first-in and first-out (“FIFO”) method for
raw materials and packaging materials and the weighted average cost method for finished goods. Cost of finished goods
comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The
Company reduces inventories for the diminution of value, resulting from product obsolescence,
damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated
market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical
return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v)
product expiration dates, and (vi) component and packaging obsolescence.
The
Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation,
classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of
the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which
could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.
Other significant estimates include the allocation of variable and fixed production overheads. While variable production overheads
are allocated to each unit of production on the basis of actual use of production facilities, the allocation of fixed production
overhead to the costs of conversion is based on the normal capacity of the Company’s production facilities, and recognizes
abnormal idle facility expenses as current period charges. Certain costs, including categories of indirect materials, indirect
labor and other indirect manufacturing costs which are included in the overhead pools are estimated. The management of the Company
determines its normal capacity based upon the amount of operating hours of the manufacturing machinery and equipment in a reporting
period.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs
are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method
(after
taking into account their respective estimated residual values)
over the assets estimated useful lives ranging from five
(5) years to twenty (20) years. Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is reflected in the consolidated statements of income and comprehensive income.
Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or
the estimated useful lives, whichever is shorter.
Upon becoming fully amortized, the related cost and accumulated amortization
are removed from the accounts.
Construction
in progress represents direct costs of construction or the acquisition cost of
long-lived
assets
.
Under U.S. GAAP, all costs associated with construction of long-lived assets should
be reflected as long-term as part of construction-in-progress.
Capitalization of these costs ceases
and the construction in progress is transferred to property, plant and equipment when substantially all of the activities necessary
to prepare the
long-lived assets
for their intended use are completed. No depreciation is provided
until the construction of the
long-lived assets
is complete and ready for their intended use.
Land
Use Right
Land
use right represents the cost to obtain the right to use certain parcel of land in the City of Tieling, Liaoning Province, PRC.
Land use right is carried at cost and amortized on a straight-line basis over the life of the right of fifty (50) years. Upon
becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Customer
Deposits
Customer
deposits primarily represent amounts received from customers for future delivery of products
,
all of which were fully or partially refundable depending upon the terms and conditions of the sales agreements
.
Leases
Lease
agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1
of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). When substantially all of the risks and benefits
of property ownership have been transferred to the Company, as determined by the test criteria in Paragraph 840-10-25-1, the lease
then qualifies as a capital lease. Capital lease assets are depreciated on a straight line method, over the capital lease assets
estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges
are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Rent
expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is
recognized on a straight-line basis over the duration of each lease term.
Related
Parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant
to Section 850-10-20
the related parties include a. affiliates of the Company; b. entities for which
investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option
Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the
benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d.
principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management
or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can
significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing
its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: a. the nature of the relationship(s) involved; ; b. a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used
in the preceding
period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise
apparent, the terms and manner of settlement.
Commitment
and Contingencies
The
Company follows subtopic 450-20 of
the FASB Accounting Standards
Codification to report accounting for contingencies.
Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material
adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is
no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and
results of operations or cash flows.
Revenue
Recognition
The
Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes
revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all
of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the
services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably
assured.
The
Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise.
Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse
shipping log as well as a signed acknowledgement of receipt from the customers or a signed bill of lading from the third party
trucking company and
title transfers upon shipment, based on free on board (“FOB”) warehouse
terms
; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no
separate sales rebate, discount, or volume incentive.
When the Company recognizes revenue, no provisions
are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate
collection of revenues.
The
Company markets and distributes ethanol and methanol based alternative fuel for automobile
use and follows Section 605-45-45 (formerly EITF 99-19) (“ASC Section 605-45-45”) of the FASB Accounting
Standards Codification for revenue recognition to report revenue gross as a principal for its sales since the Company (1)
acts as principal in the transaction, (2) takes title to the products (3) has risks and rewards of ownership, such as
the risk of loss for collection, delivery, or returns, and (4) does not act as an agent or broker (including performing
services, in substance, as an agent or broker) with compensation on a commission or fee basis on its sales. The management of
the Company determined that the Company should report revenue based on the gross amount billed to a customer when considering
each of the following eight (8) indicators of gross revenue reporting listed in ASC Paragraph 605-45-45-4 through
605-45-45-14 as specified (1) The entity is the primary obligor in the arrangement — The
Company signs a product sales agreement with its customer and represents in writing that the Company is responsible for
fulfillment, including the acceptability of the product(s) or service(s) ordered or purchased by the customer; (2) The entity
has general inventory risk (before customer order is placed or upon customer return); (3) The entity has latitude in
establishing price — The Company has reasonable latitude, within economic constraints, to establish the exchange price
with a customer for the product or service; (4) The entity changes the product or performs part of the service — The
Company developed a method for blending the raw materials in its manufacturing process, through its proprietary
technology, catalysts can be mixed with fuel and alcohols to become a finished product to be sold after pumping and piping;
(5) The entity has discretion in supplier selection — The Company has multiple suppliers for the products ordered by a
customer and discretion to select the supplier that will provide the product(s) or service(s) ordered by a customer; (6) The
entity is involved in the determination of product or service specifications — The Company determines the nature, type,
characteristics, or specifications of the product(s) or service(s) ordered by the customer; (7) The entity has physical loss
inventory risk of purchased inventories after customer order; and (8) The entity has credit risk — The Company is
responsible for collecting the sales price from its customer but must pay the amount owed to its supplier after the supplier
performs, regardless of whether the sales price is fully collected.
Net
sales of products represent the invoiced value of goods, net of value added taxes (“VAT”). The Company is subject
to VAT which is levied on all of the Company’s products at the rate of 17% on the invoiced value of sales. Sales or Output
VAT is borne by customers in addition to the invoiced value of sales and Purchase or Input VAT is borne by the Company in addition
to the invoiced value of purchases to the extent not refunded for export sales.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with
paragraph
605-45-45-19 of the FASB Accounting Standards Codification
. While amounts charged to customers for
shipping products are included in revenues, the related costs are classified in cost of
goods sold as incurred.
Foreign
Currency Transactions
The
Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”)
for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency
transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency or Chinese
Yuan or Reminbi, the Company’s Chinese operating subsidiaries' functional currency. Foreign currency transactions may produce
receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange
rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected
amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional
currency cash flows is a foreign currency transaction gain or loss
that generally shall be included in determining net
income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction
date
or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency
transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions
to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and
to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments.
Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency
transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue,
expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording
entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification;
and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or
reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.
E
quity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The
Company
accounts for
equity instruments issued to
parties other than
employees for acquiring goods or services
under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification
(“Sub-topic 505-50”)
.
Pursuant
to
Section 505-50-30,
all transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the
performance is complete or the date on which it is probable that performance will occur.
The
fair value of option or warrant award is estimated on the date of grant using a Black-Scholes option-pricing valuation model.
The ranges of assumptions for inputs are as follows:
·
|
Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2 of the FASB Accounting Standards Codification
the expected term of share options and similar instruments represents the period of time the options and similar instruments
are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected
exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate
holder’s expected exercise behavior. The contractual term of share options or similar instruments is used as expected
term of share options or similar instruments for the Company if it is a newly formed corporation.
|
·
|
Expected
volatility of the entity’s shares and the method used to estimate it. An entity that uses a method that employs different
volatilities during the contractual term shall disclose the range of expected volatilities used and the weighted-average expected
volatility. A thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is
not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index
that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using
that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life
of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of
weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility
calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid
and asked quotes and lack of consistent trading in the market.
|
·
|
Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual
term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend
yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods
within the expected contractual life of the option and similar instruments.
|
·
|
Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the
contractual life of the option and similar instruments.
|
P
ursuant
to ASC paragraph 505-50-25-7, if fully vested, nonforfeitable equity instruments are issued at the date the grantor and grantee
enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments),
then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement
date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement
is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized
as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to
ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return
for fully vested, nonforfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement
for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such
an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof)
of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in
which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides
guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9,
an entity may grant fully vested, nonforfeitable equity
instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for
earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be
recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash
rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount
shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.
Pursuant
to paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable
equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received
(that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement
date and no entry should be recorded.
Income
Tax Provision
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes
it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements
of Income and Comprehensive Income in the period that includes the enactment date.
The
Company adopted
section 740-10-25 of the FASB Accounting Standards
Codification (“Section 740-10-25”)
.
Section 740-10-25
addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under
Section 740-10-25
, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such
a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized
upon ultimate settlement.
Section 740-10-25
also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability
of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in
these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual
taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Uncertain
Tax Positions
The
Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to
the provisions of
Section 740-10-25
for
the year ended December 31, 2012 or 2011.
Foreign
Currency Translation
The
Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign
currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the
local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional
currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record
(if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations
of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the
currency of the
primary economic environment in which the entity operates; normally, that is the currency
of the environment, or local currency, in which an entity primarily generates and expends cash.
The
functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of
all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts
a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional
currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered. If a
subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation
of that subsidiary’s financial statements is included in accumulated other comprehensive income.
However, if the functional
currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements
from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive
income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded
into the consolidated statements of income and comprehensive income (loss). If the Company determines that there has been a change
in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change
would be included within the statement of income and comprehensive income (loss).
Based
on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiaries’ local
currencies to be their respective functional currencies.
The
financial records of the Company's Chinese operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”),
which is the functional currency. Assets and liabilities are translated from the local currency into the reporting currency, U.S.
dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange
rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in
the consolidated financial statements. Foreign currency
translation gain (loss) resulting from the process of translating
the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in
the consolidated statement of stockholders’ equity.
RMB
is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s
Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted
for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China adopted a
managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. The exchange
rate of the US dollar against the RMB was adjusted from approximately RMB 8.28 per U.S. dollar to approximately RMB 8.11 per U.S.
dollar on July 21, 2005. Since then, the PBOC administers and regulates the exchange rate of the U.S. dollar against the RMB taking
into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.
Unless
otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation
(www.oanda.com) contained in its consolidated financial statements. Management believes that the difference between RMB vs. U.S.
dollar exchange rate quoted by the PBOC and RMB vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial. Translations
do not imply that the RMB amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.
Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates for the respective periods:
|
|
December 31, 2012
|
|
December 31, 2011
|
Balance sheet
|
|
|
6.3086
|
|
|
|
6.3585
|
|
Statement of income and comprehensive income (loss)
|
|
|
6.3116
|
|
|
|
6.4640
|
|
Net
gains and losses resulting from foreign exchange transactions, if any, are included in the Company’s Consolidated Statements
of Operations and Comprehensive Income (Loss).
Comprehensive
Income (Loss)
The
Company has applied
section 220-10-45 of the FASB Accounting Standards
Codification
. This statement establishes rules for the reporting of comprehensive income and its components.
Comprehensive income (loss), for the Company, consists of net income (loss), change in unrealized loss of marketable securities
and foreign currency translation adjustments and is presented in the Company’s Consolidated Statements of Operations and
Comprehensive Income (Loss) and Stockholders’ Equity.
Net
Income (Loss) per Common Share
Net
income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.
Basic
net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and potentially outstanding shares of common stock during the period
to
reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options
and warrants
.
There
were no potentially dilutive shares outstanding
at the reporting
date for the year ended December 31, 2012 or 2011.
Cash
Flows Reporting
The
Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash
receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions
of each category, and uses the
indirect or reconciliation method (“Indirect method”) as
defined by
paragraph 230-10-45-25 of the FASB Accounting Standards Codification
to report net
cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing
the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash
receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.
The Company reports the reporting currency equivalent of foreign currency cash flows, using the current
exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported
as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides
information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to
paragraph
830-230-45-1 of the FASB Accounting Standards Codification
.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU
2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when
they are widely distributed to users, such as through filing them on EDGAR.
Recently
Issued Accounting Pronouncements
FASB
Accounting Standards Update No. 2011-05
In
June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 “
Comprehensive Income” (“ASU
2011-05”),
which
was the result of a joint project with the IASB and amends the guidance
in ASC 220,
Comprehensive Income,
by eliminating the option to present components of other comprehensive income (OCI) in
the statement of stockholders’ equity. Instead, the new guidance now gives entities the option to present all non-owner
changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive
statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two
separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net
income on the face of the statement of comprehensive income.
The
amendments in this Update should be applied retrospectively and are effective for public entity for fiscal years, and interim
periods within those years, beginning after December 15, 2011.
FASB
Accounting Standards Update No. 2011-08
In
September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “
Intangibles—Goodwill and Other:
Testing Goodwill for Impairment” (“ASU 2011-08”).
This Update is to simplify how public and nonpublic entities
test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it
is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an
entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than
not that its fair value is less than its carrying amount.
The
guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.
FASB
Accounting Standards Update No. 2011-10
In
December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-10
“Property, Plant and Equipment: Derecognition
of in Substance Real Estate-a Scope Clarification” (“ASU 2011-09”).
This Update is to resolve the diversity
in practice as to how financial statements have been reflecting circumstances when parent company reporting entities cease to
have controlling financial interests in subsidiaries that are in substance real estate, where the situation arises as a result
of default on nonrecourse debt of the subsidiaries.
The
amended guidance is effective for annual reporting periods ending after June 15, 2012
for public
entities. Early adoption is permitted.
FASB
Accounting Standards Update No. 2011-11
In
December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11
“Balance Sheet: Disclosures about Offsetting
Assets and Liabilities” (“ASU 2011-11”).
This Update requires an entity to disclose information about offsetting
and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial
position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements
on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.
The
amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those
annual periods.
FASB
Accounting Standards Update No. 2012-12
On
July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible
Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events
or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity
concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required.
However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible
asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual
and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption
of this pronouncement will not have a material impact on its financial statements.
In
October, 2012, the FASB issued ASU No. 2012-04, “Technical Corrections and Improvements” (“ASU 2012-04”).
The amendments cover a wide range of topics in the FASB ASC. The amendments are incorporated into two sections:
a. Technical corrections
and improvements, and b. Conforming amendments related to fair value measurements.
|
a.
|
The
amendments in the technical corrections and improvements section are categorized as follows:
|
|
•
|
Source
literature amendments. These amendments are considered necessary due to differences between source literature and the FASB
ASC. The amendments primarily carry forward legacy document guidance and/or subsequent amendments into the FASB ASC. Often,
either writing style or phrasing in the legacy documents did not directly relate to the FASB ASC format and style so that
the meaning of certain guidance might have been unintentionally altered.
|
|
•
|
Guidance
clarification and reference corrections. These amendments include updated wording or corrected references, or a combination
of both.
|
|
•
|
Relocated
guidance. These amendments primarily move authoritative literature guidance from one location to another location that is
deemed more appropriate within the FASB ASC.
|
|
b.
|
On
the fair value measurements issue, the guidance in ASU 2012-04 identifies when the use of the term “fair value”
should be linked to the definition of fair value included in FASB ASC 820, entitled Fair Value Measurement. Most of the amendments
are of a nonsubstantive nature. Many of the amendments relate to conforming wording to be consistent with the terminology
in FASB ASC 820 for example, references to market value and current market value have been changed to appropriately refer
to fair value so that the literature is consistent throughout.
|
In
October 2012, the FASB issued ASU No. 2012-06, “Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition
Date as a Result of a Government-Assisted Acquisition of a Financial Institution” (“ASU 2012-06”). This amendment
requires that indemnification assets recognized in accordance with Subtopic 805-20, Business Combinations—Identifiable Assets
and Liabilities, and Any Noncontrolling Interest, as a result of a government-assisted acquisition of a financial institution
involving an indemnification agreement should be subsequently measured on the same basis as the asset subject to indemnification.
For public and nonpublic entities, the amendments in this Update are effective for fiscal years, and interim periods within those
years, beginning on or after December 15, 2012. Management does not expect the adoption of this standard has a significant effect
on the Company’s consolidated financial position or results of operations.
As
of December 31, 2012, there are no other recently issued accounting standards not yet adopted that would have a material effect
on the Company’s consolidated financial statements.
In
January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”
(“ASU 2013-01”). The Update clarifies that ordinary trade receivables and receivables are not in the scope of Accounting
Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update
2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities
lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification®
or subject to a master netting arrangement or similar agreement. The amendments in this Update are effective for fiscal years,
and interim periods within those years, beginning on or after January 1, 2013. Management does not expect the adoption of this
standard has a significant effect on the Company’s consolidated financial position or results of operations.
For
public entities, the amendments that are subject to the transition guidance is effective for fiscal periods beginning after December
15, 2012. Management does not expect the adoption of this standard has a significant effect on the Company’s consolidated
financial position or results of operations.
Other
Recently Issued, but Not Yet Effective Accounting Pronouncements
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
Note
3 – Accounts Receivable
Accounts
receivable at December 31, 2012 and 2011 consisted of the following:
|
|
December 31, 2012
|
|
December 31, 2011
|
Accounts receivable
|
|
$
|
522
|
|
|
$
|
2,992,910
|
|
Allowance for doubtful accounts
|
|
|
(-
|
)
|
|
|
(-
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
522
|
|
|
$
|
2,992,910
|
|
Note
4 – Inventories
Inventories
at December 31, 2012 and 2011 consisted of the following:
|
|
December 31, 2012
|
|
December 31, 2011
|
Raw materials
|
|
$
|
659,745
|
|
|
$
|
1,396,836
|
|
|
$
|
659,745
|
|
|
$
|
1,396,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slow-Moving
or Obsolescence Markdowns
The
Company did not record any inventory obsolescence adjustments for the year ended December 31, 2012 and 2011.
Lower
of Cost or Market Adjustments
There
was no lower of cost or market adjustments for the year ended December 31, 2012 or 2011.
Note
5 – Property, Plant and Equipment
Property,
plant and equipment, stated at cost, less accumulated depreciation at December 31, 2012 and 2011 consisted of the following:
|
Estimated
Useful Life (Years)
|
|
December
31, 2012
|
|
December
31, 2011
|
|
Building(i)(ii)
|
20
|
|
$
|
348,029
|
|
$
|
24,430,232
|
|
Office
equipment
|
5
|
|
|
1,657
|
|
|
1,643
|
|
|
|
|
|
349,686
|
|
|
24,431,875
|
|
Less
accumulated depreciation (iii)
|
|
|
|
(349,215)
|
|
|
(836
|
)
|
|
|
|
$
|
471
|
|
$
|
24,431,039
|
|
|
|
|
|
|
|
|
|
|
|
(i)
Fixed assest
Heilongjiang
Jian New Clean Fuel Marking LTD Tieling Branch planned to expend RMB155,339,629 to construct an ethanol and methanol manufacturing
facility as of December 31, 2012.The parts of construction was completed in Dec.2011. The construction plan was modified and planned
to narrow construction scale. The company decided to disposal the facility and reclassified it to held for sale assets.
(ii)
Capitalized Interest
For
the year ended December 31, 2012 and 2011, the Company did not capitalize any interest to fixed assets.
(iii)
Depreciation and Amortization Expense
Depreciation
and amortization expense for the years ended December 31, 2012 and 2011 was $348,379and $501, respectively.
Note
6 – Land Use Right and Land Use Right Deposit
Liaoning
Jianye
On
September 2, 2010, the Company entered into an agreement with the Chinese government, whereby the Company made a deposit of RMB11,000,000
in aggregate towards the acquisition of the right to use 80,404.50 square meter of land for RMB60,303,400. On April 13, 2011,
the Company paid an additional RMB49,303,400 to acquire the land use right and is in the process of obtaining the related certificate
of the land use right expiring September 9, 2060. The purchase price and related acquisition costs shall be amortized over the
term of the right of approximately fifty (50) years when the land is ready for its intended use.
The
certification of land use right was received in August, 2012. The company decide to sale the land use right with the facility
and reclassify to the held for sale assets.
Land
use right, stated at cost, less accumulated amortization at December 31, 2012 and 2011, consisted of the following:
|
|
December
31, 2012
|
|
|
December
31, 2011
|
|
|
|
|
|
|
|
|
|
|
Liaoning
Jianye
|
|
|
|
|
|
|
|
|
Land
use right and land use right deposit
|
|
$
|
-
|
|
|
$
|
9,483,903
|
|
Accumulated
amortization (i)
|
|
|
(-
|
)
|
|
|
(-
|
)
|
|
|
$
|
|
|
|
$
|
9,483,903
|
|
|
|
|
|
|
|
|
(i)
Amortization Expense
The
Company did not record any amortization expense for the year ended December 31, 2012 or 2011.
Note
7 – Held for sale assets
Liaoning
Jianye
|
|
December
31, 2012
|
|
|
December
31, 2011
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
15,851,398
|
|
$
|
-
|
Land
use right
|
|
|
5,998,920
|
|
|
-
|
Sub-total
|
|
|
24,957,771
|
|
|
-
|
Less
impairments of assets held for sale
|
|
|
(-11,306,197)
|
|
|
-
|
Assets
held for sale, Net
|
|
$
|
13,651,574
|
|
|
$
|
|
|
The
company decide to sale the assets group consist of the land use right and property and reclassified it to held for sale assets.
|
(ii)
|
Impairment
of
assets
held
for
sale
|
According
to negotiate with the purchaser and assessment by the purchaser, the assets group had an impairment loss $11,306,197.
Note
8 – Related Party Transactions
Related
parties
Related
parties with whom the Company had transactions are:
Related
Parties
|
|
Relationship
|
Haipeng
Wang
|
|
Chairman,
President of the Company
|
Harbin
Dayang Trading Co., Ltd. (“Dayang”)
|
|
An
entity owned by the Chairman (15%) and his farther (70%)
|
Heilongjiang
Jianye Real Estates Co., Ltd.
|
|
An
entity owned by the Chairman (1.14%) and Dayang (97.72%)
|
Heilongjiang
Jianye Fuel Co., Ltd.
|
|
An
entity owned by the Chairman and Heilongjiang Jianye Real Estates Co., Ltd. (97.83% in aggregate)
|
Heilongjiang
Jianye Property Management Co., Ltd.
|
|
An
entity owned and controlled by the Chairman (8.33%) and his farther (25%)
|
Zhaodong
Jianye Fuel Co., Ltd.
|
|
An
entity owned by the farther of the Chairman (100%)
|
Advances
from
Related Parties
From
time to time, the Chairman, CEO and significant stockholder of the Company and related parties advance funds to the Company for
working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.
Transactions
with Zhao Dong Jianye Fuel Co., Ltd.
Purchases
from
Zhao Dong Jianye Fuel Co., Ltd.
For
the year ended December 31, 2012 , Heilongjiang New Jianye did not purchase any fuel
from Zhao Dong Jianye Fuel
Co., Ltd.. For the year ended December 31, 2011 , Heilongjiang New Jianye did not purchase any fuel.
Operating Lease of
Property, Plant and Equipment and Facilities
with Zhao Dong Jianye Fuel Co., Ltd.
On
December 1, 2011, Heilongjiang New Jianye entered into a non-cancellable operating lease for
certain
property, plant, equipment and facilities expiring one (1) year from date of signing.
Heilongjiang
New Jianye
is required to pay RMB100,000 per month over the term of the lease.
Note
9 – Stockholders’ Equity
Shares
Authorized
Upon
formation
the aggregate number of shares which the Corporation shall have authority to issue is fifty
million (50,000,000) shares, all of which are designated as “Common Stock” with a par value of $.001 per share.
On
November 16, 2009, the Company
amended its Articles of Incorporation to: (a) authorize the creation
of a class of 5,500,000 shares of blank check preferred stock; (b) increased the number of shares of the authorized capital stock
to 400,000,000 shares of which 394,500,000 shall be Common Stock, par value $0.001 per share and 5,500,000 shall be preferred
stock, par value $0.001 per share
.
Common
Stock
Immediately
prior to the consummation of the Exchange Agreement giving retroactive effect of share cancellation in connection with the Exchange
Agreement on November 16, 2009, the Company had 3,100,770 common shares issued and outstanding.
The
Company issued 28 million shares of its common stock to Jianye BVI stockholders upon consummation of the Exchange Agreement on
November 16, 2009.
Issuance
of Common Stock
In
April, 2010, 299,378 of the cancelled shares were restored and reported as issued and fully paid common stock.
In
the second quarter of 2010 the Company issued 10,000 shares for financial consulting services, valued at $1.00 per share or $10,000
on the date of issuance.
On
October 1, 2010, the Company sold 100,000 shares of its common stock at $0.40 per share for $40,000 in cash.
On
December 14, 2010, the Company sold 1,000,000 shares of its common stock at $0.70 per share for $350,000 in cash and $350,000
in stock subscription receivable, 200,000 shares of common stock at $0.50 per share for $100,000 in stock subscription receivable
and 600,000 shares of common stock at $0.15 per share for $60,000 in stock subscription receivable, all of the stock subscription
receivables were reported as
an asset on the consolidated balance
sheet
at December 31, 2010 as the proceeds have been received in the first quarter of 2011 prior to
the issuance of the financial statements.
In
the third quarter of 2011 the Company issued 50,000 shares of its common stock for financial consulting services, valued at $0.28
per share or $14,000 on the date of issuance.
On
December 14, 2010, the Company entered into a stock subscription agreement with an investor whereby the Company agreed to sell
600,000 shares of its common stock at $0.15 per share for $90,000. In the third quarter of 2011 the Company received the $90,000
proceeds and issued 600,000 shares of its common stock pursuant to the stock subscription agreement.
Note
10– Concentrations and Credit Risk
Customers
and Credit Concentrations
Customer
concentrations for the interim period ended September, 2012 and 2011 and credit concentrations at December 31, 2012 and December
31, 2011 are as follows:
|
Net
Sales
for
the Interim Period Ended
|
|
|
Accounts
receivable
At
|
|
Customer
|
December
31, 2012
|
|
|
December
31,2011
|
|
|
December
31, 2012
|
|
|
December
31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
-
|
%
|
|
|
-
|
%
|
|
|
28.2
|
%
|
|
|
-
|
%
|
B
.
|
|
|
%
|
|
|
-
|
%
|
|
|
31.3
|
%
|
|
|
-
|
%
|
C
|
|
58.0
|
%
|
|
|
3
|
%
|
|
|
-
|
%
|
|
|
28.3
|
%
|
D
|
|
42.0
|
%
|
|
|
|
%
|
|
|
-
|
%
|
|
|
71.7
|
%
|
E
|
|
|
%
|
|
|
|
%
|
|
|
40.5
|
%
|
|
|
-
|
%
|
F
|
|
|
%
|
|
|
31.9
|
%
|
|
|
|
%
|
|
|
-
|
%
|
G
|
|
|
%
|
|
|
19.2
|
%
|
|
|
|
%
|
|
|
-
|
%
|
H
|
|
|
%
|
|
|
22.2
|
%
|
|
|
|
%
|
|
|
-
|
%
|
I
|
|
|
%
|
|
|
20.8
|
%
|
|
|
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
94.1
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
A
reduction in sales from or loss of such customers would have a material adverse effect on the Company’s results of operations
and financial condition. The significant slow down of net sales due to the company reduced selling in China, also plans to build
new factory and sell the products in US.
Vendor
Concentrations
Vendor
purchase concentrations for the interim period ended December 31, 2012 and 2011 and accounts payable concentration at December
31, 2012 and December 31, 2011 are as follows:
|
Net
Purchase
for
the Interim Period Ended
|
|
|
Accounts
Payable
at
|
|
|
December
31,2012
|
|
December
31,2011
|
|
|
December
31,2012
|
|
|
December
31,2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
%
|
|
3.22
|
%
|
|
|
100.0
|
%
|
|
|
10.5
|
%
|
B
|
|
8.8
|
%
|
|
81.42
|
%
|
|
|
|
%
|
|
|
7.4
|
%
|
C
|
|
33.9
|
%
|
|
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
D
|
|
-
|
%
|
|
12.43
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
E
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
F
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
G
(Significant Business Party)
|
|
55.1
|
%
|
|
|
|
|
|
-
|
%
|
|
|
82.1
|
%
|
H
|
|
|
|
|
2.79
|
%
|
|
|
|
|
|
|
|
|
I
|
|
|
%
|
|
0.14
|
%
|
|
|
-
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
Business Party
The
Company purchases the raw material and sells finished products from a significant business party (“Significant Business
Party”).
A
reduction in sales from or loss of the Significant Business Party would have
a material adverse effect on
the Company’s results of operations and financial condition.
Credit
Risk
Financial
instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash
equivalents.
As
of December 31, 2012, substantially all of the Company’s cash and cash equivalents were held by major financial institutions
located in the PRC, none of which are insured. However, the Company has not experienced losses on these accounts and management
believes that the Company is not exposed to significant risks on such accounts.
Foreign
Currency Risk
The
Company is exposed to fluctuations in foreign currencies for transactions denominated in currencies other than RMB, the functional
currency due to the fact the majority of the Company’s purchasing activities are transacted in foreign currencies.
The
Company had no foreign currency hedges in place for the year ended December 31, 2012or 2011
to reduce such exposure.
Note
11 - Foreign Operations
Operations
Substantially
all of the Company’s operations are carried out and all of its assets are located in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the political, economic and legal environments in
the PRC. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations,
monetary policies, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.
Dividends
and Reserves
Under
the laws of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the
following: (i) cumulative prior years’ losses, if any; (ii) allocations to the “Statutory Surplus Reserve” of
at least 10% of net income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50%
of the Company’s registered capital; (iii) allocations of 5-10% of income after tax, as determined under PRC accounting
rules and regulations, to the Company’s “Statutory Common Welfare Fund”, which is established for the purpose
of providing employee facilities and other collective benefits to employees in PRC; and (iv) allocations to any discretionary
surplus reserve, if approved by stockholders.
As
of December 31, 2012, the Company had no Statutory Surplus Reserve and the Statutory Common Welfare
Fund established and segregated in retained earnings.