UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_______________
FORM
10-Q
☑
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2013
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For
the transition period from ______ to _______
Commission
File Number 000-53737
AMERICAN
JIANYE GREENTECH HOLDINGS, LTD.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
30-0679981
|
(State
of incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
136-20
38th Ave. Unit 3G
Flushing,
NY 11354
(Address
of Principal Executive Offices)
_______________
718-395-8706
(Issuer Telephone number)
_______________
Check whether
the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements
for the past 90 days. Yes ☑ 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 ☑ No ☐
Indicate
by check mark whether the registrant is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one)
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
Smaller reporting
company ☑
|
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☑
State the
number of shares outstanding of each of the issuer’s classes of common equity, as of October 22, 2013: 33,760,148 shares
of common stock.
AMERICAN
JIANYE GREENTECH HOLDINGS, LTD.
FORM
10-Q
March
31, 2013
INDEX
PART
I-- FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Control and Procedures
|
PART
II-- OTHER INFORMATION
Item 1
|
Legal Proceedings
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Item 3.
|
Defaults Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
SIGNATURES
|
|
American
Jianye Greentech Holdings, Ltd. and Subsidiaries
March
31, 2013 and 2012
Index
to the consolidated financial statements
Contents
|
Page(s)
|
Consolidated
Balance Sheets at March 31, 2013 (Unaudited) and December
31, 2012
|
F-2
|
Consolidated
Statements of Income and Comprehensive Income for the three Months Ended March 31, 2013 and 2012 (Unaudited)
|
F-3
|
Consolidated
Statement of Stockholders’ Equity for the Year Ended December 31, 2012 and for the three Months Ended March 31,
2013
|
F-4
|
Consolidated
Statements of Cash Flows for the three months Ended March 31,2013 and 2012(Unaudited)
|
F-5
|
Notes
to the Consolidated Financial Statements
|
F-6
|
American Jianye Greentech Holdings, Ltd. and Subsidiaries
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
26,347
|
|
|
$
|
26,760
|
|
Accounts receivable
|
|
|
—
|
|
|
|
522
|
|
Inventories
|
|
|
213,796
|
|
|
|
659,745
|
|
Advance on purchases
|
|
|
—
|
|
|
|
—
|
|
Prepaid value added taxes
|
|
|
78,601
|
|
|
|
151,892
|
|
Prepaid corp. income taxes
|
|
|
9,492
|
|
|
|
9,440
|
|
Prepayments and other current assets
|
|
|
10,967
|
|
|
|
3,329
|
|
Total Current Assets
|
|
|
339,203
|
|
|
|
851,688
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
351,609
|
|
|
|
349,686
|
|
Accumulated depreciation
|
|
|
(351,135
|
)
|
|
|
(349,215
|
)
|
PROPERTY, PLANT AND EQUIPMENT, net
|
|
|
474
|
|
|
|
471
|
|
ASSETS HELD FOR SALE
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
25,095,009
|
|
|
|
24,957,771
|
|
Impairment allowance
|
|
|
(11,368,367
|
)
|
|
|
(11,306,197
|
)
|
ASSETS HELD FOR SALE ,net
|
|
|
13,726,642
|
|
|
|
13,651,574
|
|
LAND USE RIGHT
|
|
|
|
|
|
|
|
|
Land use right-deposit
|
|
|
—
|
|
|
|
—
|
|
Accumulated amortization
|
|
|
—
|
|
|
|
—
|
|
LAND USE RIGHT
|
|
|
—
|
|
|
|
—
|
|
SOFTWARE, net
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
14,066,319
|
|
|
$
|
14,503,733
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
—
|
|
Advances from related parties
|
|
|
485,355
|
|
|
|
470,223
|
|
Advances from Stockholder, Chairman and CEO
|
|
|
11,480,457
|
|
|
|
11,939,176
|
|
Taxes payable
|
|
|
8,905
|
|
|
|
8,620
|
|
Accrued expenses and other current liabilities
|
|
|
106,252
|
|
|
|
103,702
|
|
Total Current Liabilities
|
|
|
12,080,969
|
|
|
|
12,521,721
|
|
Total Liabilities
|
|
|
12,080,969
|
|
|
|
12,521,721
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Common stock: $0.001 par value, 394,500,000
shares authorized, 33,760,148 shares issued and outstanding
|
|
|
33,760
|
|
|
|
33,760
|
|
Additional paid-in capital
|
|
|
1,030,240
|
|
|
|
1,030,240
|
|
Retained earnings
|
|
|
35,257
|
|
|
|
39,489
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
885,274
|
|
|
|
878,523
|
|
Total Stockholders' Equity
|
|
|
1,984,531
|
|
|
|
1,982,012
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
14,065,500
|
|
|
$
|
14,503,733
|
|
See accompanying notes to the consolidated financial statements.
American Jianye Greentech
Holdings, Ltd. and Subsidiaries
|
Consolidated Statements
of Operations and Comprehensive Income
|
|
|
|
|
|
|
|
|
For
the three months Ended March 31,
2013
|
|
|
|
For
the three months Ended March 31,
2012
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
NET REVENUES
|
|
$
|
454,291
|
|
|
$
|
3,592,697
|
|
COST OF GOODS SOLD
|
|
|
449,053
|
|
|
|
3,535,249
|
|
GROSS PROFIT
|
|
|
5,238
|
|
|
|
57,448
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling and General and administrative expenses
|
|
|
9,470
|
|
|
|
45,521
|
|
Total operating expenses
|
|
|
9,470
|
|
|
|
45,521
|
|
INCOME BEFORE INCOME TAXES
|
|
|
(4,232
|
)
|
|
|
11,927
|
|
INCOME TAX PROVISION
|
|
|
—
|
|
|
|
10,534
|
|
NET INCOME (LOSS)
|
|
|
(4,232
|
)
|
|
|
1,393
|
|
OTHER COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
6,751
|
|
|
|
100,870
|
|
COMPREHENSIVE INCOME
|
|
$
|
2,519
|
|
|
$
|
102,263
|
|
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Weighted Average Common Shares Outstanding - basic and diluted
|
|
|
33,760,148
|
|
|
|
33,760,148
|
|
See accompanying notes to the consolidated financial statements.
American
Jianye Greentech Holdings,
Ltd. and Subsidiaries
|
Consolidated Statement
of Stockholders’ Equity
|
For the Three Months
Ended March 31, 2013 and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.001
Par Value
|
|
|
|
|
|
Accumulated Other Comprehensive
Income
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Retained
Earnings
|
|
Foreign
Currency Translation Gain
|
|
Total
Stockholders' Equity
|
Balance, December 31, 2011
|
|
|
33,760,148
|
|
|
$
|
33,760
|
|
|
$
|
1,030,240
|
|
|
$
|
16,454,333
|
|
|
$
|
747,773
|
|
|
$
|
18,266,106
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,414,844
|
)
|
|
|
|
|
|
|
(16,414,844
|
)
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,750
|
|
|
|
130,750
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,284,094
|
|
Balance, December 31, 2012
|
|
|
33,760,148
|
|
|
$
|
33,760
|
|
|
$
|
1,030,240
|
|
|
$
|
39,489
|
|
|
$
|
878,523
|
|
|
|
1,982,012
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,232
|
)
|
|
|
|
|
|
|
(4,232
|
)
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,751
|
|
|
|
6,751
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,519
|
|
Balance, March 31, 2013
|
|
|
33,760,148
|
|
|
$
|
33,760
|
|
|
$
|
1,030,240
|
|
|
$
|
35,257
|
|
|
$
|
885,274
|
|
|
|
1,984,531
|
|
See accompanying notes to the consolidated financial statements.
American
Jianye Greentech Holdings, Ltd. and Subsidiaries
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months
|
|
|
For
the three months
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
March
31, 2013
|
|
|
March
31, 2012
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,232)
|
|
|
$
|
1,393
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
—
|
|
|
|
131
|
|
|
Impairment
of assets
|
|
|
—
|
|
|
|
—
|
|
|
Gain
on foreign currency exchange rate change on investment
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
—
|
|
|
|
—
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
525
|
|
|
|
3,011,857
|
|
|
|
Inventories
|
|
|
449,574
|
|
|
|
711,377
|
|
|
|
Advance
on purchases
|
|
|
—
|
|
|
|
18,565
|
|
|
|
Stock
subscription receivables
|
|
|
—
|
|
|
|
—
|
|
|
|
Prepaid
value added taxes
|
|
|
74,128
|
|
|
|
127,287
|
|
|
|
Prepaid
corp income taxes
|
|
|
—
|
|
|
|
10,518
|
|
|
|
Prepayments
and other current assets
|
|
|
(7,619)
|
|
|
|
140,087
|
|
|
|
Accounts
payable
|
|
|
—
|
|
|
|
(2,158,858)
|
|
|
|
Unearned
revenue
|
|
|
819
|
|
|
|
1,502,518
|
|
|
|
Taxes
payable
|
|
|
237
|
|
|
|
38,766
|
|
|
|
Accrued
expenses and other current liabilities
|
|
|
2,200
|
|
|
|
480
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
515,632
|
|
|
|
3,404,121
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Advances
from (repayment made to) related parties
|
|
|
12,546
|
|
|
|
38,639
|
|
|
Advances
from stockholder, Chairman and CEO
|
|
|
(528,700)
|
|
|
|
(3,425,126)
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
(516,154)
|
|
|
|
(3,386,487)
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
109
|
|
|
|
(9,916)
|
|
NET
CHANGE IN CASH
|
|
|
(413)
|
|
|
|
7,718
|
|
Cash
at beginning of the period
|
|
|
26,760
|
|
|
|
18,266
|
|
Cash
at end of period
|
|
$
|
26,347
|
|
|
$
|
25,984
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOWS INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Income
tax paid
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying notes to the consolidated financial statements.
American
Jianye Greentech Holdings, Ltd. and Subsidiaries
March
31, 2013 and 2012
Notes
to the Consolidated Financial Statements
(Unaudited)
Note
1 – Organization and Operations
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, t
he
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 - Unaudited Interim Financial Information
The
accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and
with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article
8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting
of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim
periods presented. Interim results are not necessarily indicative of the results for the full year. These
unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of
the Company for the year ended December 31, 2012 and notes there to contained in the Company’s Annual Report on Form 10-K
filed with the SEC on September31, 2013..
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, 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
Inventory
Valuation
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.
Inventory
Obsolescence and Markdowns
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 consumption tax (“Consumption Tax”) and value added
taxes (“VAT”). The Company is subject to (i) Consumption Tax and (ii) VAT which are levied on all of the Company’s
products at the rate of 2% and 17%, respectively, 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 Renminbi, 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 share options 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(f)(2)(i) 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.
Pursuant
to paragraph 718-50-S99-1,
it may be appropriate to use the
simplified method
, if (i)
A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected
term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the
terms of its share option grants or the types of employees that receive share option grants such that its historical exercise
data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have
significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis
upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and
similar instruments
as the
company does not have sufficient historical exercise data to
provide a reasonable basis upon which to estimate expected term
.
|
·
|
Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
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 life of the share options 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 share options and similar instruments.
|
Pursuant
to ASC paragraph 505-50-25-7, if fully vested, non for feitable 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 interim period endedMarch 31, 2013 or 2012.
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:
|
March
31,2013
|
|
December
31, 2012
|
|
|
March 31,2012
|
|
December
31, 2011
|
|
Balance
sheets
|
|
6.2741
|
|
|
6.3086
|
|
|
|
6.3185
|
|
|
|
6.3585
|
|
Statements
of income and comprehensive income (loss)
|
|
6.2814
|
|
|
6.3116
|
|
|
|
6.3089
|
|
|
|
6.4640
|
|
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
for the
interim
period ended March 31,2013 or 2012
.
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
In February
2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income.” This ASU does not change the current requirements for reporting net income or other comprehensive
income in financial statements. However, this guidance requires an entity to provide information about the amounts reclassified
out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face
of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive
income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified
to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified
in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide
additional detail about those amounts. For public entities, the guidance is effective prospectively for reporting periods beginning
after December 15, 2012. For nonpublic entities, the guidance is effective prospectively for reporting periods beginning after
December 15, 2013. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial position and results of operations.
In July
2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets
for Impairment.” This ASU simplifies how entities test indefinite-lived intangible assets for impairment, which improves
consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment
of qualitative factors to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets
is less than their carrying value. For assets in which this assessment concludes it is more likely than not that the fair value
is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing
as outlined in the previously issued standards. The guidance 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 standard is not
expected to have a material impact on the Company’s consolidated financial position and 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 March 31, 2013and December 31, 2012 consisted of the following:
|
|
March 31, 2013
|
|
December 31, 2012
|
Accounts receivable
|
|
$
|
(-
|
)
|
|
$
|
522
|
|
Allowance for doubtful accounts
|
|
|
(-
|
)
|
|
|
(-
|
)
|
|
|
$
|
(-
|
)
|
|
$
|
522
|
|
|
|
|
|
|
|
|
|
|
Note
4 – Inventories
Inventories
at March 31, 2013 and December 31, 2012 consisted of the following:
|
|
March 31, 2013
|
|
December 31, 2012
|
Raw materials
|
|
$
|
213,796
|
|
|
$
|
659,745
|
|
|
|
$
|
213,796
|
|
|
$
|
659,745
|
|
|
|
|
|
|
|
|
|
|
Slow-Moving
or Obsolescence Markdowns
The
Company did not record any inventory obsolescence adjustments for the interim period ended March 31, 2013 or 2012.
Lower
of Cost or Market Adjustments
There
was no lower of cost or market adjustments for the interim period ended March 31, 2013 or 2012.
Note
5 – Property, Plant and Equipment
Property,
plant and equipment, stated at cost, less accumulated depreciation at March 31, 2013 and December 31, 2012 consisted of the following:
|
Estimated
Useful Life (Years)
|
March
31,2013
|
|
|
December
31, 2012
|
|
Building(i)(ii)
|
20
|
$
|
349,761
|
|
|
$
|
348,029
|
|
Office
equipment
|
5
|
|
1,666
|
|
|
|
1,657
|
|
|
|
|
351,609
|
|
|
|
349,686
|
|
Less
accumulated depreciation (iii)
|
|
|
(351,135
|
)
|
|
|
(349,215
|
)
|
|
|
$
|
474
|
|
|
$
|
471
|
|
|
|
|
|
|
|
|
|
|
|
(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 interim period ended March 31, 2013 and 2012,
, the Company did
not capitalize any interest to fixed assets.
(iii)
Depreciation and Amortization Expense
Depreciation
and amortization expense for the
interim period ended March 31, 2013 and 2012
was $0 and $131,
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 March 31, 2013 and December 31, 2012, consisted of the following:
|
|
March
31,2013
|
|
|
December
31, 2012
|
|
|
|
|
|
|
|
|
|
|
Liaoning
Jianye
|
|
|
-
|
|
|
|
-
|
|
Land
use right and land use right deposit
|
|
$
|
-
|
|
|
$
|
|
|
Accumulated
amortization (i)
|
|
|
(-
|
)
|
|
|
(-
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
(i)
Amortization Expense
The
Company did not record any amortization expense for the
interim period ended March 31, 2013 or 2012.
Note
7 – Held for sale assets
Liaoning
Jianye
|
|
|
March 31, 2013
|
|
December 31, 2012
|
Property
|
$
|
19,161,046
|
$
|
15,851,398
|
Land use right
|
|
5,933,963
|
|
5,998,920
|
Sub-total
|
|
25,095,009
|
|
24,957,771
|
Less impairments of assets held for sale
|
|
(11,368,367)
|
|
(11,306,197)
|
Assets held for sale, Net
|
$
|
13,726,642
|
$
|
13,651,574
|
The
company decide to sale the assets group consist of the land use right and property and reclassify it to held for sale assets.
|
(ii)
|
Impairment
of
assets
held
for
sale
|
Impairment
loss for the
interim period ended March 31, 2013 and 2012
was $0 and $0, respectively.
Note
8 – Related Party Transactions
Related
parties
Related
parties with whom the Company had transactions are:
Related
Parties
|
|
Relationship
|
Haipeng
Wang
|
|
Chairman,
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 interim period ended March 31, 2013or 2012, Heilongjiang New Jianye did not purchase any fuel from Zhao Dong Jianye Fuel Co.,
Ltd.
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 $0.001 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 March 31, 2013 and 2012 and credit concentrations at March 31, 2013 and December 31,
2012 are as follows:
|
Net
Sales
for
the Interim Period Ended
|
|
|
Accounts
receivable
At
|
|
Customer
|
March
31, 2013
|
|
|
March
31, 2012
|
|
|
March
31, 2013
|
|
|
December
31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
100
|
%
|
|
|
-
|
%
|
|
|
|
%
|
|
|
-
|
%
|
B
.
|
|
|
%
|
|
|
91.2
|
%
|
|
|
|
%
|
|
|
-
|
%
|
C
|
|
|
%
|
|
|
8.8
|
%
|
|
|
-
|
%
|
|
|
|
%
|
D
|
|
|
%
|
|
|
|
%
|
|
|
-
|
%
|
|
|
|
%
|
E
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
-
|
%
|
F
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
-
|
%
|
G
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
28.2
|
%
|
H
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
31.3
|
%
|
I
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
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 plans to convert the main business scope.
Vendor
Concentrations
Vendor
purchase concentrations for the interim period ended March 31, 2013 and 2012 and accounts payable concentration at March 31, 2013
and December 31, 2012 are as follows:
|
Net
Purchase
for
the Interim Period Ended
|
|
|
Accounts
Payable
at
|
|
|
March
31, 2013
|
|
|
March
31, 2012
|
|
|
March
31, 2013
|
|
|
December
31,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor
A
|
|
-
|
%
|
|
|
13.9
|
%
|
|
|
-
|
%
|
|
|
|
%
|
Vendor
B
|
|
|
%
|
|
|
43.5
|
%
|
|
|
|
%
|
|
|
|
%
|
Vendor
C
|
|
|
%
|
|
|
40.8
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
-
|
%
|
|
|
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 March 31, 2013, 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 interim period ended March 31, 2013or 2012
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 March 31, 2013, the Company had no
Statutory Surplus Reserve and the Statutory Common Welfare
Fund established and segregated in retained earnings.
Note
12 – Subsequent Events
The
Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were
issued. The Management of the Company determined that there were no reportable subsequent events to be disclosed.
Item
2. Management's Discussion and Analysis Of Financial Condition And Plan Of Operation.
This
Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. These include statements
about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate,"
"expect," "intend," "plan," "will," "we believe," "management believes"
and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain
risks, uncertainties and assumptions, including those set forth in the discussion under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in this report. Actual results may differ materially from results anticipated
in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume
no obligation to update them.
Investors
are also advised to refer to the information in our previous filings with the Securities and Exchange Commission (SEC), especially
on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ
from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider
any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Results
of Operations
Jianye
Greentech Holdings Ltd (“Jianye BVI”) was incorporated on April 17, 2008 under the laws of British Virgin Islands.
Jianye BVI is a holding company that owns 100% of Hong Kong Jianye Greentech Holdings Limited (“Jianye Hong Kong”),
a corporation incorporated on May 2, 2008 under the laws of Hong Kong. Jianye BVI and Jianye Hong Kong currently have no operations
and operate as investment holding companies. On September 28, 2009, Jianye Hong Kong established Heilongjiang New Jianye New Clean
Fuel Ltd. (“Jianye China”), a wholly owned subsidiary in China, with registered capital of US$50,000. As a result,
Jianye BVI owns 100% of the equity of Jianye China through Jianye Hong Kong. Jianye China’s primary business is to distribute
and manufacture ethanol and methanol as alternative fuel for automobile use.
Heilongjian
New Jianye Clean Fuel Ltd. (“Jianye China”) commenced operations in September 2009. Jianye China’s primary business
is to distribute and manufacture ethanol and methanol as alternative fuel for automobile use.
For
the Three months ended March 31, 2013, w
e derived our revenues of $454,291 from the sales of methanol-based
and ethanol based fuels to our customers, comparing to $3,592,697 for the Three months ended March 31, 2013. The Company experienced
major drop in revenues due to the corporate restructuring .
Our
gross profit margin during the Three months ended March 31, 2013 was 1%, compared to 2% for the same period in 2012. This figure
represents our regular gross profit margin as a marketing company and distributor. The price increase in the raw materials contributed
to the increase in cost of goods sold and thus the decrease of the gross margin in 2013 in comparison with that of 2012.
Selling,
general and administrative expenses for the Three months ended March 31, 2013 were $9,470 or 2% of net sales, compared to $ 45,521or
1% for the same period of the last fiscal year. Selling, general and administrative expenses consist primarily of payroll, local
taxes, investor relation expenses and professional fees.
Due
to the factors discussed above, income from operations for the three months ended March 31, 2013 was $-4,232, and net loss after
income taxes for the same period was $4,232, compared to $11,927 and $1,939 respectively for the same period in 2012.
Our
business operates primarily in Chinese Renminbi (“RMB”), but we report our results in our SEC filings in U.S. Dollars.
The conversion of our accounts from RMB to Dollars results in translation adjustments. While our net income is added
to the retained earnings on our balance sheet; the translation adjustments are added to a line item on our balance sheet labeled
“accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and
Chinese currencies than of the success of our business. During the Three months ended March 31, 2013, the effect of converting
our financial results to Dollars was to add $6,751 to our accumulated other comprehensive income.
Liquidity
and Capital Resources
Overview
As
of March 31, 2013 we had working capital deficiency of $-11,741,766, a decrease of $71,733 over net working capital deficiency
of $-11,670,033 at December 31, 2012.
We
finances our daily operations mainly by cash flows generated from our business operations and advance from our major shareholders.
Major capital expenditures in the year of 2011 were primarily financed by cash flows generated from business operations and advance
from our Chairman and CEO.
Cash
Our
cash as of March 31, 2013 was $26,347, an decrease of $413 from $26,760 as of December 31, 2012. The decrease
in the interim period ended March 31, 2013 was primarily attributable to a number of factors, including the following:
-
Net cash provided
by operating activities
Net
cash provided by operating activities was $515,632 for the three months ended March 31, 2013, representing an decrease of $288,489
or 85% from $3,404,121 for the comparable period in 2012. The net loss for the three months ended March 31, 2013 in
the amount of $4,232 represented a decrease of $5,625 or 404% from $1,391 for the comparable period in 2012. The net
increase of operating cash flow is a result of accounts receivable decrease in the amount of $525, inventory increase in the amount
of $449,574, prepaid valued added and income tax and other prepayment increase in the amount of $74,128, unearned revenue in the
amount of $819, tax payable increase in the amount of $237,accrued liabilities increase of $2,200 and a decrease in prepayment
and other current assets
of $7,619.
-
Net cash used in investing
activities
The
Company did not incurred any cash expenditures for investing activities during the three months ended
March
31, 2013
.
-
Net cash
used in financing activities
Net
cash used in financing activities was $516,154 for the three months ended March 31, 2013, as compared to $3,386,487 for the comparable
period in 2012. During the three months ended March 31, 2013, the company paid back $528,700 of advances from Stockholder,
Chairman and CEO and received advances from related parties in the amount of $12,546
.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition or results of operations.
Critical
Accounting Policies and Estimates
The
Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States,
which require us 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 periods. Management makes these estimates using the best information available at the time the estimates are made.
However, actual results could differ materially from those estimates. The most critical accounting policies are listed below:
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.
Foreign
Currency Translation
The
Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign
currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the
local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional
currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record
(if necessary), and characterizes transaction gains and losses. the assets, liabilities, and operations of a foreign entity shall
be measured using the functional currency of that entity.
The
functional currency of the Company is Chinese Yuan Renminbi (“RMB”).The current exchange rates used by the Company
as of March 31, 2013 and December 31, 2012 to translate the Chinese RMB to the U.S. Dollars are 6.2741:1 and 6.3086:1, respectively.
Revenues and expenses are translated using the prevailing average exchange rates at 6.2814:1, and 6.3089:1 for the three months
ended March 31, 2013 and 2012, respectively. Translation adjustments are included in other comprehens
ive
income (loss).
Impact
of Accounting Pronouncements
There
were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results
of operations.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Not
required for smaller reporting companies.
Item
4. Controls and Procedures.
Disclosure
Controls and Procedures
Regulations
under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure
controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's
management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.
We
conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures as of March 31, 2013. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that as of March 31, 2013, our disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses described below.
In
light of the material weaknesses described below, we performed additional analysis to ensure our financial statements were prepared
in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in
this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods
presented.
A
material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing
Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement
of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material
weaknesses which have caused management to conclude that, as of March 31, 2013, our disclosure controls and procedures were not
effective at the reasonable assurance level:
1. We
do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls
over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ending
March 31, 2013. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures
on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented
a material weakness.
2. We
do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and
nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the
extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by
separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To
address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial
statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows
for the periods presented.
Management's
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by,
or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s
board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted
in the United States of America and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of the assets of the issuer;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the issuer; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s
assets that could have a material effect on the financial statements
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control
over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore,
it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As
of the end of our most recent quarter, management assessed the effectiveness of our internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting
such assessments. Based on that evaluation, they concluded that, as of March 31, 2013, such internal control over financial reporting
was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial
reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The
matters involving internal control over financial reporting that our management considered to be material weaknesses under the
standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a
majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective
oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of
duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions
and the custody of assets. The aforementioned material weaknesses were identified by our Chief Financial Officer in connection
with the review of our financial statements as of March 31, 2013.
Management
believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on our financial results. However,
management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board
of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures,
which could result in a material misstatement in our financial statements in future periods.
This
quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting
firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.
Management's
Remediation Initiatives
In
an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated,
or plan to initiate, the following series of measures:
We
intend to our personnel resources and technical accounting expertise within the accounting function. First, we intend to create
a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of
transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we intend to create a senior position
to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness
of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or
more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning
audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures
such as reviewing and approving estimates and assumptions made by management when funds are available to us. We anticipate the
costs of implementing these remediation initiatives will be approximately $37,500 to $50,000 a year in increased salaries, legal
and accounting expenses.
Management
believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee,
will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
PART
II — OTHER INFORMATION
Item
1. Legal Proceedings.
To the best
knowledge of the officers and directors, the Company was not a party to any legal proceeding or litigation as of March 31, 2013.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures
Not applicable.
Item
5. Other Information.
None.
Item
6. Exhibits.
Exhibit
|
|
Description
of Exhibit
|
31.1
|
|
Chief
Executive Officer Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Chief
Financial Officer Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
|
Chief
Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley
Act of 2002
|
32.2
|
|
Chief
Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley
Act of 2002
|
101
|
|
The
following materials from American Jianye Greentech Holdings, Ltd.’s Quarterly Report on Form 10-Q for the period ended
March 31, 2013 are formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheet;
(ii) the Condensed Consolidated Statement of Operations;, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv)
Notes to Condensed Consolidated Financial Statements. This Exhibit 101 is deemed not filed for purposes of Sections 11 or
12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability
under these sections
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
AMERICAN JIANYE GREENTECH HOLDINGS LTD.
|
|
|
Date: October 25, 2013
|
By:
|
/s/ Chu Li An
|
|
|
Chu Li An
CEO
|
|
|
(Principal Executive Officer)
|
|
|
Date: October 25, 2013
|
By:
|
/s/ Chu Li An
|
|
|
Chu Li An
Chief Financial Officer
|
|
|
(Principal Accounting Officer)
|
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