Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL REPORT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended August 31,
2009
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ___________ to ___________.
Commission
file number 000-51755
CHINA
RUNJI CEMENT INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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98-0533824
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|
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(State
or Other Jurisdiction of Incorporation of Organization)
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(I.R.S.
Employer Identification No.)
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|
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Xian
Zhong Town, Han Shan County
Chao
Hu City, Anhui Province
People’s
Republic of China 23181
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86-565-4219871
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|
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(Address
of principal executive offices) (ZIP Code)
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(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section12 (g) of the Act: Common Stock, $0.0001 par
value
|
Yes o
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant as required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
Nooor any amendment to
this Form 10-K.
Yes x
Indicate
by check mark whether the registrant is a large 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 o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o
No x
Aggregate
market value of the voting stock of the registrant held by non-affiliates of the
registrant as of February 28, 2009 (computed by reference to the closing
price of $0.40 per share as of the last business day of the most recently
completed second fiscal quarter): $2,116,026
TABLE
OF CONTENTS
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Page(s)
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PART
I
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Item 1.
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Business
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3
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Item 1A.
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Risk
Factors
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8
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Item 1B.
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Unresolved
Staff Comments
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15
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Item 2.
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Properties
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15
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Item 3.
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Legal
Proceedings
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15
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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15
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PART
II
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Item 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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16
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Item 6.
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Selected
Financial Data
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17
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Item 7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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17
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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18
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Item 8.
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Financial
Statements and Supplementary Data
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21
- 34
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Item 9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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35
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Item 9A.
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Controls
and Procedures
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35
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Item 9A(T).
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Controls
and Procedures
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35
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Item 9B.
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Other
Information
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35
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PART
III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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36
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Item 11.
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Executive
Compensation
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38
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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39
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Item 13.
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Certain
Relationships, Related Transactions and Director
Independence
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40
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Item 14.
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Principal
Accounting Fees and Services
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40
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PART
IV
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Item 15.
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Exhibits,
Financial Statement Schedules
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41
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Signatures
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42
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- 2
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PART
I
Item
1. Business
Forward-looking
Statements
This
annual report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may", "will",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable laws, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements so as to conform these statements to actual results.
As used
in this annual report, the terms "we", "us", "our", “the Company”, and "China
Runji" mean China Runji Cement Inc. and all of our subsidiaries, unless
otherwise indicated.
All
dollar amounts refer to US dollars unless otherwise indicated.
Overview
China
Runji was incorporated as FitMedia Inc., a Delaware company, on August 30, 2004.
FitMedia was a development stage company that planned to sell prenatal yoga DVDs
through small retail stores and others and it also planned to sell its fitness
DVDs through its Internet site www.fitmedia.net. It
completed its prenatal yoga DVD for sale and began marketing it in January
2007.
In
October 2007, the management of FitMedia determined that it was in the best
interests of the stockholders of FitMedia to agree to a share exchange with
Anhui Province Runji Cement Co., Limited, a Chinese company that is engaged in
the business of distributing cement across many provinces in mainland
China. As part of the share exchange and reverse merger, FitMedia
ceased engaging in the health and fitness business.
On
October 9, 2007, FitMedia entered into a Share Exchange Agreement
(the “Exchange Agreement”) by and among FitMedia, Timothy Crottey, the President
and majority shareholder of FitMedia (“Crottey”), Shouren Zhao, a citizen and
resident of the People’s Republic of China and owner of 100% of the share
capital of Ren Ji Cement Investment Company Limited (“Zhao”); Ren Ji Cement
Investment Company., Ltd., a British Virgin Islands corporation (“Renji
Investment”) and owner of 100% of the share capital of Ren Ji Cement Company
Limited; Ren Ji Cement Company Limited, a corporation organized and existing
under the laws of the Hong Kong SAR of the People’s Republic of China (“HK
Renji”) and owner of 100% of the share capital of Anhui Province Runji Cement
Co., Ltd.; and Anhui Province Runji Cement Co., Ltd., a corporation organized
under the laws of the People’s Republic of China (“Anhui Runji”). For
purposes of the Exchange Agreement, Zhao was referred to as the “Ren
Shareholder,” and Renji Investment, HK Renji and Anhui Runji were referred to as
the “Renji Subsidiaries.” Upon closing of the share exchange
transaction (the “Share Exchange”) contemplated under the Exchange Agreement on
November 1, 2007, the Ren Shareholder transferred all of his share capital in
Renji Investment to FitMedia in exchange for an
aggregate of 55,000,000 shares of common stock of the FitMedia, thus causing the
Renji Subsidiaries to become direct and indirect wholly-owned subsidiaries of
FitMedia.
On
October 9, 2007, FitMedia entered into a Stock Purchase Agreement (the “Stock
Purchase Agreement”) by and among FitMedia, Crottey, and the Ren Shareholder,
pursuant to which the Ren Shareholder, as Purchaser, at closing on November 1,
2007, acquired 18,500,000 shares (the “Stock Purchase”) of common stock of
FitMedia from Crottey for $540,000.
In
addition, pursuant to the terms and conditions of the Exchange
Agreement:
|
§
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Demand
and piggy-back registration rights were granted to the Ren Shareholder
with respect to shares of the Company’s restricted common stock to be
acquired by him at closing in a Regulation S
offering.
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§
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On
the Closing Date, the current officers of FitMedia resigned from such
positions and the persons chosen by Anhui Runji were appointed as the
officers of FitMedia, notably Shouren Zhao, as Chairman, CEO and President
and Yichun Jiang as CFO.
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§
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On
the Closing Date, Crottey resigned from his position as a director
effective upon the expiration of the ten day notice period required by
Rule 14f-1, at which time additional persons designated by Anhui Runji
were appointed as directors of FitMedia, notably Liming Bi and Xuanjun
Yang.
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§
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On
the Closing Date, FitMedia paid and satisfied all of its “liabilities” as
such term is defined by U.S. GAAP as of the
closing.
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§
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As
of the Closing, the parties consummated the transactions contemplated by
the Stock Purchase Agreement.
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On
January 8, 2008, FitMedia changed its name to China Runji Cement Inc. and
increased its authorized common stock from 80,000,000 shares to 200,000,000
shares.
As a
result of the closing of the Share Exchange, China Runji became the owner of a
leading cement production and distribution company in mainland China through its
ownership of Anhui Runji. Using cost effective production techniques, while
building a strong brand image, Anhui Runji is a strong competitor in the central
China cement market.
Anhui
Runji is a producer and distributor of cement, primarily in An Hui Province of
central China and neighboring locations, which was founded in December
2003. Its initial capital was 60,000,000 RMB and there were two
founding shareholders who owned such capital in a ratio of 60 to
40%. Anhui Runji is located in Xianzong Town,
Hanshan County, An Hui Province, where the factory occupies an area of 418
mu, and its limestone mine comprises an area of 1,000 mu. The Anhui
Runji factory, limestone reserve and storing mine together comprise an area of
approximately 50,000 square meters.
- 3
-
Anhui
Province Runji Cement Co., Limited (www.chinarunji.com),
a private company located in Anhui Province in China, was established in
December 2003 with registered capital of 60 million RMB. The Company
started production in October 2005 and specializes in cement production and
sales. The main cement varieties produced are ordinary silicate cement P.O52.5,
P.O42.5, P.O32.5 and P.C32.5. At present, the Company has one cement production
line and one cement clinker production line. The production capacity of
each line amounts to 2,500 tons per day and one million tons per
year.
The
Company obtained its production license in 2005. Presently, the Company mainly
focuses production on Runji Brand cement P.II52.5, P.O42.5, P.O32.5 P.C32.5 as
well as cement clinker. P.II52.5 is a high grade, high strength
cement that is made for Anhui and Jiangsu Provinces and the region north of
the Changjiang River and is used in large infrastructure projects. The
cement clinker is the semi-finished ingredient of cement, which is able to be
processed into different categories of cement products.
The
Company produces cement through the advanced dry production process, an energy
efficient and environmentally friendly cement production technique, as only 60%
of the total output in the region is produced by dry process. The Company has a
rigorous quality control system and received ISO9001 quality system
certification and international accreditation in March 2006. In
addition, our Company passed the national GB/T 19001-2000 standard
authentication. The Company’s pollution control exceeds the national
standard and received “green building material” certification in
2007.
The
Company has an abundant supply of high quality raw materials. The Company has
obtained a 30 year mining right for 87 million tons of limestone reserve, which
can supply two cement clinker production lines with a daily output of 2,500
tons for 40 years.
Presently,
the Company is one of the largest cement producers and distributors in the north
Changjiang region of Anhui, with a 10% market share within a 100 mile radius of
its facility. The Company is the only producer of P.II52.5 cement (the highest
quality cement) in the north Changjiang region of Anhui and
Jiangsu Provinces, with 70% market share within a 100 miles radius of its
facility. Annual production capacity of the Company is two million tons cement
and cement clinker. The Company’s main market of cement is in Hefei (Anhui
Province), with total sales of 900,000 tons, representing 90% of our total
annual cement production and an additional 10% is sold in Chaohu and its
surrounding areas, Moreover, the Company’s main cement clinker market is in
Chaohu with total sales of 950,000 tons in the area, representing 95% of our
total annual cement clinker production, and an additional 5% is sold in
Hefei.
Organizational
Structure
Our
current organizational structure is summarized by the illustration
below:
- 4
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§
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We
plan to raise adequate capital over the next five years for expansion and
growth.
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§
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We
have invested over USD$50 million to build up one cement production line
with daily production of 2,500 tons and one cement clinker production line
with daily production of 2,500 tons. The newly invested cement clinker
production line was put into production in October
2008.
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|
§
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We
have invested USD$10 million to establish a waste heat power generator
system to convert waste heat into electricity, which was put into
production on October 25, 2009 and is expected to save about USD$4.6
million per year in electricity costs. The completion of the generator
system should significantly improve our margins and reduce reliance
on outside power sources.
|
Growth
Strategy
The
Company’s vision is to be the leading producer of cement and cement products in
An Hui Province as well as surrounding provinces and cities. Management intends
to grow the Company’s business by pursuing the following
strategies:
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§
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Grow
capacity and capabilities in line with market demand
increases
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§
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Enhance
leading-edge technology through continuous innovation, research and
study
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§
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Continue
to improve operational
efficiencies
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§
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Build
a strong market reputation to foster and capture future growth in
China
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Sales
by Product Category
The
Company distributes a number of products, including the types of cement listed
below. The sales of these types of cement for the last three years in U.S.
Dollars are as follows:
|
2007
|
2008
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2009
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||||||||||
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P.II52.5
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1,405,919 | 2,339,838 | 3,298,498 | |||||||||
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P.O42.5
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22,685,425 | 30,232,786 | 25,071,088 | |||||||||
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P.O32.5
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1,868,453 | 1,746,419 | 1,207,460 | |||||||||
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P.C32.5
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2,608,391 | 3,186,918 | 1,554,558 | |||||||||
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Cement
Clinker
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2,104,286 | 2,959,771 | 24,506,290 | |||||||||
A brief
explanation of each type of cement and its uses follows:
P.II52.5
– high strength and good adaptability. Mainly used on large projects where
superior intensity is needed, such as large span bridges and beams.
P.O42.5 –
high strength and hardens quickly. Mainly used in normal concrete projects, such
as high-rise buildings, roadways, viaducts and airplane runways.
P.O32.5 –
has low heat of hydration and good durability. Mainly used in commercial and
industrial buildings and low intensity concrete projects.
P.C32.5
–has low heat of hydration and high mineral content. Mainly used in commercial
and industrial buildings and low intensity concrete projects.
The
Market for Cement
The
World Market for Cement
Cement
production is a global industry. Estimates indicate that global cement
production is increasing approximately 3% every year. At present,
worldwide cement production is approximately 2.2 billion tons, with China
accounting for up to 44% of that total.
According
to cement sales figures, China is currently the largest producer of cement with
India and America being the second and third largest producers. Since the huge
demand for cement in America cannot be totally met by cement produced
domestically, the U.S. also imports cement from Canada, China, Thailand and
other countries. This trend is expected to continue for the next few
years.
At
present, apart from focusing on the question in the cement industry of
environmental impact and sustainable urban development, the emerging market also
been receiving much attention. People often think the emerging market consists
of the Middle East, North Africa, Asia, Latin America and eastern
Europe.
- 5
-
The
China Market for Cement
There are
5,000 cement companies in China with annual turnover of 5 million RMB or more.
Total production is 1.6 billion tons per year, of which only 470 million tons of
cement per year is made from the Modern Dry Process. National trends
of conserving energy, handling waste gas and pollution treatment, will result in
growth in the cement industry.
The rapid
increase in Chinese economic statistics will provide an increase in demand for
cement. Economic growth rates of 9% will bring at least a 10% growth
rate in the demand for cement. This is supported by previous
government pronouncements concerning an emphasis on building China’s
infrastructure during the financial crisis that began in 2008 and is still being
felt throughout the world.
China’s
fixed asset investment (“FAI”) increased 26% in 2007, and is expected to
continue growing at 20%-25% annually in the next three years according
to China’s “11th Five Year” plan (2006 – 2010). On October 28, 2009, the Chinese
central government announced that the government has invested RMB 717 billion as
of August and a total of RMB 908 billion will be invested by the year end of
2009. In November 2009, The National Development and Reform Commission (“NDRC”)
announced that Chinese domestic banks newly increased bank loans of RMB 8,670
billion in first three quarters. A large part of newly increased investments and
bank loans will be invested in transportation and infrastructural facilities
with high demand for cement.
NDRC
required the elimination of 280 million tons of old technique cement production
capacities (wet production technique) during the “11th Five Year” period.
According to analysts, a 25% - 35% cement price hike is anticipated by
2010, driven by aggressive increase in FAI and elimination of old
capacities.
In China,
the average person uses only 8 tons of cement per year, which is lower than the
consumption of 14 tons for developed countries.
Restrictions
on cement production in developed countries caused a huge export demand in
China, with increasing prices and profits in the international
market.
The
An Hui Province Market for Cement
Anhui is
located in the Yangtze River Delta region, where the construction industry is
the most developed and demand for cement is most concentrated. Anhui is
rich in natural resources such as limestone mineral reserves and coal reserves,
which are important in cement production. Also, the Chanjiang River is
located in Anhui Province, and its waters are very essential to the production
of cement.
At
present, the economic conditions are growing rapidly in Anhui Province,
with economic growth of 14% in 2007, surpassing the national
average. As a result, there is a strong demand for
cement. There are many large projects in the basic facilities area
and in real estate development. Both require a significant amount of
cement.
Anhui Province’s
cement production reached 44 million tons in 2006, ranked the ninth in
China. In Anhui Province, there are 170 cement businesses, with annual
output of 40 million tons. However, 85% of the cement businesses lag
behind Anhui Runji in terms of output and quality. The businesses
that use advanced techniques in cement production are in demand. By 2010, about
12 million tons of old capacity will be eliminated in Anhui, adding additional
growth potential for dry production capacity.
Huge
infrastructure spending in Anhui is boosting cement demand, e.g. Hefei
Xinqiao International Airport – 4 billion RMB; 675 hectare of area, expected
completion by 2010; major highway expansion - 3 billion RMB to expand 60
miles of highway from four lanes to six lanes, expected
completion by 2010; Anhui plans to invest 83 billion RMB in transportation and
infrastructure construction during the “11th Five Year” period (2006 -
2010).
Our
Suppliers
We rely
on third party suppliers of the raw materials to manufacture our
products. The main components of our products include electricity,
coal, coal ash, iron powder, and limestone. Our primary suppliers of
each are:
|
Raw Material
|
Suppliers
|
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Electricity
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Anhui
Electricity Hanshan Power-Supply Co., Ltd.
|
|
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Coal
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Wuhu
New Energy Commercial & Trading Co., Ltd.
|
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Coal
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JiangsuYutai
Trading Co., Ltd.
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Coal
ash
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Caohu
Huaxiang Building Material Co., Ltd.
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|
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Iron
Powder
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Anhui
Hongde Trading Co.,
Ltd
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We
believe we are not dependent on any of these suppliers and will be able to
replace them, if necessary, without material difficulties.
- 6
-
Our
competition in An Hui Province uses antiquated technology and is not competitive
with that of Anhui Runji.
Our
Competitive Advantage
Limestone
is the most basic ingredient in cement production. We have a huge limestone
reserve, which is of high grade. Our
reserves are approximately 87 million tons of limestone,
which can supply two cement production lines with daily output of 2,500 tons for
40 years. Our limestone reserve is located just 300-500 meters from the
production site, significantly reducing transportation cost. All of this is
adequate for our long term supply. In addition, the limestone contains over 53%
calcium oxide, which enables production of superior quality, such as the
high grade P.II 52.5 cement, which is superior to that of other
companies.
Anhui Province
has a very favorable climate for investment such as in the cement
industry. Local governments offer tax incentives on resource usage,
which favors industries such as cement.
We have a
favorable location that is less than 100 kilometers away from the provincial
capitals of Hefei and Nanjing. Other cities such as Wuhu, Ma’anshan,
and Chaohu are between 20 – 70 kilometers away and also provide a good
marketplace. Our close proximity to the Changjiang River affords
us low cost shipping to many locations.
Our main
competitors within the Hefei market are Anhui Chaodong Cement Stock Co., Ltd,
Anhui Chaohu Tiepeng Cement Factory and Lujiang Dajiang Cement Co.,
Ltd. Additionally, there are 10 cement grinding companies with an
annual production of 10 – 50 tons who compete with us.
We
utilize the advanced modern dry cement production process, which enables high
quality production, consumes less energy and is more environmental friendly
compared with the traditional wet production process. The production
equipment is partially imported from Germany. We also use Siemens DCS
(Distributed Computer Control System) auto control system for measuring
ingredients and controlling production flow. Our advanced cement techniques lead
to low costs and consistent high quality. Our products have a 100% passing
rate.
The
cement industry is a polluting and heavy energy-consumption industry. The old
cement production technique (wet production) consumes two times more energy,
emits two times more waste gas and sulfur dioxide and releases three times
more dust than the new cement dry production. We have installed highly efficient
dust collectors, noise reducing equipment and waste water treatment equipment
that complies with the most rigorous Chinese environmental regulations. We are
able to constrain emission at 30mg per cubic meter, much lower than the national
average of 50mg per cubic meter.
Competitive
Advantages and Strategy
Cement
The
Company believes that its product formulations, price points, lower costs,
relationships, infrastructure, proven quality, and reputation represent
substantial competitive advantages. The Company is currently able to maintain a
substantially lower cost structure than competitors based in An Hui Province and
neighboring locations of China. Furthermore, the Company believes its
competitive advantage in China is protected by significant knowledge of
government regulations, business practices, and strong relationships. We
are the only producer of PII52.5 cement (the highest quality cement) in the
north Changjiang region of Anhui and Jiangsu Provinces, with a 70% market
share within a 100 mile radius of its facility.
In
comparison to Chinese competitors, the Company believes it possesses superior
technological expertise, products, marketing knowledge, and governmental
relationships.
Intellectual
Property
Our
Company logo “Runji” was registered May 21, 2007 in Xianzong town, Hanshan
County, Anhui Province.
Customers
For the
twelve month period from September 1, 2008 through August 31, 2009, the Company
achieved revenues of $55,637,894. That revenue was in part generated from the
following representative customers:
|
Name of
Customer
|
Products
Sold
|
Sales
for the Period
by
Customer
(USD$)
|
% of Sales
for the
Period
|
||||
|
Anhui
Tianfu Concrete Co., Ltd.
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PO42.5,
PII52.5
|
5,550,439
|
9.98%
|
||||
|
Hefei
Ruirui Industrial & Trading Co., Ltd
|
PO42.5,
PII52.5
|
5,192,913
|
9.33%
|
||||
|
Hefei
Changhong Concrete Co., Ltd.
|
PO42.5,
PII52.5
|
4,706,880
|
8.46%
|
||||
|
Hefei
Tonggong Industrial & Trading Co., Ltd.
|
PO42.5,
PII52.5
|
3,951,486
|
7.10%
|
||||
|
Hefei
Shuanglong Concrete Co., Ltd.
|
PO42.5,
PII52.5
|
3,822,769
|
6.87%
|
Our major
construction project is the Heifei Binghu Century City commercial apartment
project, which will use approximately 200,000 tons of our
cement. Another important project is Anhui Economic Technological
Development Area Jingdongfang factory project, which will use 15,000 tons of our
cement.
- 7
-
Employees
Anhui
Runji has a staff of approximately 337 employees in the following ten
departments: Manufacture Control Department, Raw Material Plant,
Burning Plant, Ready Product Plant, Machine Repairing Plant, Electronic
Department, Laboratory, Financial Department, Supply and Marketing Department,
and the General Administrative Offices. Included in the
337 employees are 33 senior managers, one general manager, three deputy
general managers and one chief financial officer, and 304
workers. Anhui Runji believes it is in compliance with local
prevailing wage, contractor licensing and insurance regulations, and has good
relations with its employees.
Government
Regulations
Our
business is regulated in various ways as follows:
|
1.
|
Cement
Industry Development Policy enacted by the National Development and Reform
Commission on October 17, 2006.
|
|
2.
|
Notification
regarding rate of tax refund enacted by the Ministry of Finance, National
Development and Reform Commission, Department of Commerce, General
Administration of Customs and State Administration of Taxation on
September 14, 2006.
|
|
3.
|
National
Resource Integration Management Methodology enacted by the National
Development and Reform Commission, Ministry of Finance and
State Administration of Taxation on September 7,
2006.
|
|
4.
|
Cement
industry special legislation enacted by the National Development and
Reform Commission on October 17,
2006.
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|
5.
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Several
policy opinions for the cement industry unanimously enacted by the
National Development and Reform Commission, Ministry of Finance, Ministry
of Land and Resources, Ministry of Construction, Department of Commerce,
People's Bank of China, General Administration of Quality Supervision, and
National and State Environmental Protection Administration on April 13,
2006.
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6.
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Notification
regarding energy-saving and pollution emission comprehensive working plan
enacted by the China National Council in June 3,
2007.
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7.
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Anhui
Province Bulk Cement “Eleventh-Five” Development Plan enacted by Anhui
Provincial Government in July 9,
2007.
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8.
|
Anhui
Province Industrial Economy “Eleventh-Five” Development Plan enacted by
Anhui Provincial Government in August 13,
2007.
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9.
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Standardization
Implement Policy enacted by the National Development and Reform Commission
on January 23, 2008.
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10.
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Anhui
Province Bulk Cement and Premix Concrete Development Policy (Protocol)
published by Anhui Provincial Government in October 27, 2008 and under
asking for public comments.
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Item
1A. Risk Factors
The
Company’s future revenues will be derived from the production and distribution
of cement products and operating a cement business. There are numerous risks,
known and unknown, that may prevent the Company from achieving its goals
including, but not limited to, those described below. Additional unknown risks
may also impair the Company’s financial performance and business operations. The
Company’s business, financial condition and/or results of operations may be
materially adversely affected by the nature and impact of these risks. In such
case, the market value of the Company’s securities could be detrimentally
affected, and investors may lose part or all of their investment. Please refer
to the information contained under “Business” in this report for further details
pertaining to the Company’s business and financial condition.
- 8
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Risks
Related To Our Company
Unanticipated
problems in expanding the Company’s cement business may harm the Company’s
business and viability.
The
Company’s future cash flow depends on its ability to timely expand its cement
business. If the Company’s operations are disrupted and/or the economic
integrity of its distribution operation is threatened for unexpected reasons
(including, but not limited to, technical difficulties, poor weather conditions,
and business interruptions due to terrorism or otherwise), the Company’s
business may experience a substantial setback. Moreover, the
occurrence of significant unforeseen conditions or events may require the
Company to reexamine its business model. Any change to the Company’s business
model may adversely affect its business.
If
the Company does not obtain financing when needed, its business will
fail.
As of
August 31, 2009, the Company had cash and cash equivalents on hand in the amount
of approximately $752,952. The Company predicts that it will need approximately
$30 million to implement its business plan and meet its capital expenditure
needs over the next three years. The Company currently does not have any
arrangements for additional financing and it may not be able to obtain financing
when required. Obtaining additional financing would be subject to a number of
factors, including the market prices for the Company’s products, production
costs, availability of credit, prevailing interest rates and the market prices
for the Company’s common stock.
The
Company’s ability to operate at a profit is partially dependent on market prices
of cement. If cement prices drop too far, the Company will be unable
to maintain profitability.
The
Company’s results of operations and financial condition will be affected by the
selling prices for cement. Prices are subject to and determined by market forces
over which the Company has no control. The Company’s revenues will be heavily
dependent on the market prices for cement in many markets in China.
The
success of the Company’s business depends upon the continuing contributions of
its Chief Executive Officer and other key personnel and its ability to attract
other employees to expand the business, whereas the loss of key individuals or
the Company’s inability to attract new employees could have a negative impact on
the Company’s business.
The
Company relies heavily on the services of Mr. Shouren Zhao, the President and
Chief Executive Officer, and the services of Xiangfei Zeng, the Chief Financial
Officer, as well as several other senior management personnel. Loss of the
services of any of such individuals would adversely impact other Company’s
operations. In addition, the Company believes that its technical personnel
represent a significant asset and provide the Company with a competitive
advantage over many of the Company’s competitors. The Company believes that its
future success will depend upon its ability to retain these key employees and
its ability to attract and retain other skilled financial, engineering,
technical and managerial personnel. In addition, as a result of a failure to
retain qualified personnel the Company may be unable to meet its
responsibilities as a public reporting company under the rules and regulations
of the SEC. None of the Company’s key personnel are party to any employment
agreements. The Company does not currently maintain any “key man” life insurance
with respect to any of such individuals.
We
experienced low productivity and high production costs in the past, when we were
delayed in our production of cement, which delay caused us to experience low
profitability.
Our
recent past suggests that delays in producing cement can lead to low
productivity and high production costs, which result in low
profitability. We have plans to bring on one new clinker line by late
2009, and if we do not implement this growth with an organized and optimal
expansion plan, we could continue to experience low profitability.
We
have been forced to cease production for periods of time in order to install,
maintain and adjust equipment, which resulted in high production costs and low
profitability.
In the
past, we have had to cease production for periods of time in order to install,
maintain and adjust equipment, which resulted in high production costs and low
profitability. In the future, we will be challenged to keep our
equipment in working order so that we do not suffer a decrease in
profitability.
Future
sales of the Company’s equity securities will dilute existing
stockholders.
To fully
execute its long-term business plan, the Company may need to raise additional
equity capital in the future. Such additional equity capital, when
and if it is raised, would result in dilution to the Company’s existing
stockholders.
Subject
to its receipt of the additional capital required, the Company plans to grow
very rapidly, which will place strains on management and other
resources.
The
Company plans to grow rapidly and significantly expand its operations. This
growth will place a significant strain on management systems and resources,
particularly since the Company has approximately 319 employees. The Company
will not be able to implement its business strategy in a rapidly evolving market
without an effective planning and management processes. The Company has a short
operating history and has not implemented sophisticated managerial, operational
and financial systems and controls. The Company is required to manage
multiple relationships with various strategic partners, and other third parties.
These requirements will be strained in the event of rapid growth or in the
number of third party relationships, and the Company’s systems, procedures or
controls may not be adequate to support the Company’s operations and management
may be unable to manage growth effectively. To manage the expected growth of the
Company’s operations and personnel, the Company will be required to
significantly improve or replace existing managerial, financial and operational
systems, procedures and controls, and to expand, train and manage its growing
employee base. The Company will be required to expand its finance,
administrative and operations staff. The Company may be unable to complete in a
timely manner the improvements to its systems, procedures and controls necessary
to support future operations, management may be unable to hire, train, retain,
motivate and manage required personnel and management may be unable to
successfully identify, manage and exploit existing and potential market
opportunities.
- 9
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Risks
Related to the Cement Business
The
economics of the cement industry, which require deliveries within a limited
geographic radius of the plant, make deliveries outside of a localized area
difficult and unprofitable.
The
economics of the cement industry requires delivery of cement within a narrow
geographic radius of the plant for the delivered price of cement to be
affordable. Unless a company is willing to build additional plants
closer to other markets, its potential to sell to projects within those markets
and earn a profit is limited. Expansion opportunities are costly and
limited, as is growth of our business.
Price
competition in the cement market in China is intense, particularly in the
production of low standard grade cement, all of which makes it difficult for a
producer of high standard grade cement such as our Company to compete on quality
alone.
Low grade
producers of cement in China compete fiercely on price grounds
alone. We are a high quality manufacturer of a variety of cements and
we cannot always compete on price with the low quality
manufacturer. The tendency of low quality manufacturers to under
price the competition makes it difficult for us to bid and win certain
jobs.
We
are reliant on sales to the construction industry, which is the largest consumer
of our cement. The construction industry has experienced swings in
building patterns that are tied to the macroeconomic cycles in the Chinese
economy. We are at the mercy of these swings in the economy as
well.
Cement is
used in the construction industry, most notably in private and government
building projects. Such building projects depend on the state of the
economy, which in recent years has fluctuated. Our revenues fluctuate
accordingly and it is difficult to manage our business profitably under these
conditions.
We
are subject to regulation in the environmental area because of the dust that is
discharged in the production and use of cement. The National and State
Environmental Protection Administration imposes regulation and charges on cement
manufacturers, which is an expensive cost to our business.
Environmental
regulation, primarily in the area of dust creation in the manufacture of cement
imposes significant costs on our operations. We also spend
considerable funds on abatement of environmental issues and in research and
development. The regulatory authorities can be arbitrary in their
decisions and make the manufacture of cement a more costly and uncertain
business.
Risks
Related to Doing Business in the PRC
The
Company faces the risk that changes in the policies of the PRC government could
have a significant impact upon the business the Company may be able to conduct
in the PRC and the profitability of such business.
The PRC’s
economy is in a transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on the economic conditions of the PRC. The PRC government
has confirmed that economic development will follow the model of a market
economy. Under this direction, the Company believes that the PRC will continue
to strengthen its economic and trading relationships with foreign countries and
business development in the PRC will follow market forces. While the Company
believes that this trend will continue, there can be no assurance that this will
be the case. A change in policies by the PRC government could adversely
affect the Company’s interests by, among other factors: changes in laws,
regulations or the interpretation thereof, confiscatory taxation, restrictions
on currency conversion, imports or sources of supplies, or the
expropriation or nationalization of private enterprises. Although the PRC
government has been pursuing economic reform policies for more than two decades,
there is no assurance that the government will continue to pursue such policies
or that such policies may not be significantly altered, especially in the event
of a change in leadership, social or political disruption, or other
circumstances affecting the PRC's political, economic and social
life.
The
PRC laws and regulations governing the Company’s current business operations are
sometimes vague and uncertain. Any changes in such PRC laws and regulations may
have a material and adverse effect on the Company’s business.
There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing the Company’s business, or the enforcement and performance of the
Company’s arrangements with customers in the event of the imposition of
statutory liens, death, bankruptcy and criminal proceedings. The Company and any
future subsidiaries are considered foreign persons or foreign funded enterprises
under PRC laws, and as a result, the Company is required to comply with PRC laws
and regulations. These laws and regulations are sometimes vague and may be
subject to future changes, and their official interpretation and enforcement may
involve substantial uncertainty. The effectiveness of newly enacted laws,
regulations or amendments may be delayed, resulting in detrimental reliance by
foreign investors. New laws and regulations that affect existing and proposed
future businesses may also be applied retroactively. The Company cannot predict
what effect the interpretation of existing or new PRC laws or regulations
may have on the Company’s businesses.
A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect the Company’s customers, demand for the Company’s products and
the Company’s business.
All of
the Company’s operations are conducted in the PRC and all of its revenue is
generated from sales in the PRC. Although the PRC economy has grown
significantly in recent years, the Company cannot assure investors that such
growth will continue. A slowdown in overall economic growth, an economic
downturn or recession or other adverse economic developments in the PRC could
materially reduce the demand for our products and materially and adversely
affect the Company’s business.
- 10
-
Inflation
in the PRC could negatively affect our profitability and growth.
While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for the Company’s products rise at a rate that is
insufficient to compensate for the rise in the costs of supplies, it may have an
adverse effect on profitability. In order to control inflation in the past, the
PRC government has imposed controls on bank credits, limits on loans for fixed
assets and restrictions on state bank lending. Such an austere policy can lead
to a slowing of economic growth. In October 2004, the People’s Bank of China,
the PRC’s central bank, raised interest rates for the first time in nearly a
decade and indicated in a statement that the measure was prompted by
inflationary concerns in the Chinese economy. Repeated rises in interest rates
by the central bank would likely slow economic activity in China which
could, in turn, materially increase the Company’s costs and also reduce demand
for the Company’s products.
Governmental
control of currency conversion may affect the value of an investment in the
Company.
The PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC. The
Company receives all of its revenues in Renminbi, which is currently not a
freely convertible currency. Shortages in the availability of foreign currency
may restrict the Company’s ability to remit sufficient foreign currency to pay
dividends, or otherwise satisfy foreign currency dominated obligations. Under
existing PRC foreign exchange regulations, payments of current account items,
including profit distributions, interest payments and expenditures from the
transaction, can be made in foreign currencies without prior approval from the
PRC State Administration of Foreign Exchange by complying with certain
procedural requirements. However, approval from appropriate governmental
authorities is required where Renminbi is to be converted into foreign currency
and remitted out of China to pay capital expenses such as the repayment of bank
loans denominated in foreign currencies.
The PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents the Company from obtaining sufficient foreign currency to
satisfy its currency demands, the Company may not be able to pay certain of its
expenses as they come due.
The
fluctuation of the Renminbi may materially and adversely affect investments in
the Company.
The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in the PRC’s political and economic
conditions. As the Company relies principally on revenues earned in the PRC, any
significant revaluation of the Renminbi may materially and adversely affect the
Company’s cash flows, revenues and financial condition. For example, to the
extent that the Company needs to convert U.S. dollars it receives from an
offering of its securities into Renminbi for the Company’s operations,
appreciation of the Renminbi against the U.S. dollar could have a material
adverse effect on the Company’s business, financial condition and results of
operations. Conversely, if the Company decides to convert its Renminbi into U.S.
dollars for the purpose of making payments for dividends on its common stock or
for other business purposes and the U.S. dollar appreciates against the
Renminbi, the U.S. dollar equivalent of the Renminbi that the Company converts
would be reduced. In addition, the depreciation of significant U.S. dollar
denominated assets could result in a charge to the Company’s income statement
and a reduction in the value of these assets.
On July
21, 2005, the PRC government changed its decade-old policy of pegging the value
of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is
permitted to fluctuate within a narrow and managed band against a basket of
certain foreign currencies. This change in policy has resulted in an
approximately 3.2% appreciation of the Renminbi against the U.S. dollar as of
May 15, 2006. While the international reaction to the Renminbi revaluation has
generally been positive, there remains significant international pressure on the
PRC government to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the Renminbi against
the U.S. dollar.
Recent PRC State
Administration of Foreign Exchange (“SAFE”) Regulations regarding offshore
financing activities by PRC residents have undergone a number of changes that
may increase the administrative burden the Company faces. The failure by the
Company’s stockholders who are PRC residents to make any required applications
and filings pursuant to such regulations may prevent the Company from being able to
distribute profits and could expose the Company and its PRC resident
stockholders to liability under PRC law.
SAFE
issued a public notice (the “October Notice”) effective November 1, 2005, which
requires registration with SAFE by the PRC resident stockholders of any foreign
holding company of a PRC entity. Without registration, the PRC entity cannot
remit any of its profits out of the PRC as dividends or otherwise; however, it
is uncertain how the October Notice will be interpreted or implemented regarding
specific documentation requirements for a foreign holding company formed prior
to the effective date of the October Notice, such as in the Company’s case.
While the Company’s PRC counsel advised it that only the PRC resident
stockholders who receive the ownership of the foreign holding company in
exchange for ownership in the PRC operating company are subject to the October
Notice, there can be no assurance that SAFE will not require the Company’s other
PRC resident stockholders to make disclosure. In addition, the October Notice
requires that any monies remitted to PRC residents outside of the PRC be
returned within 180 days; however, there is no indication of what the penalty
will be for failure to comply or if stockholder non-compliance will be
considered to be a violation of the October Notice by the Company or otherwise
affect the Company.
In the
event that the proper procedures are not followed under the SAFE October Notice,
the Company could lose the ability to remit monies outside of the PRC and would
therefore be unable to pay dividends or make other distributions. The Company’s
PRC resident stockholders could be subject to fines, other sanctions and even
criminal liabilities under the PRC Foreign Exchange Administrative Regulations
promulgated January 29, 1996, as amended.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect the Company’s
operations.
A renewed
outbreak of SARS or another widespread public health problem such as bird flu in
the PRC, where most of the Company’s revenue is derived, could have an adverse
effect on the Company’s operations. The Company’s operations may be impacted by
a number of health-related factors, including quarantines or closures of some of
its offices that would adversely disrupt the Company’s operations. Any of the
foregoing events or other unforeseen consequences of public health problems
could adversely affect the Company’s operations.
- 11
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Because
the Company’s principal assets are located outside of the United States and all
of the Company’s directors and officers reside outside of the United States, it
may be difficult for investors to enforce their rights based on U.S. federal
securities laws against the Company and the Company’s officers and directors in
the U.S. or to enforce U.S. court judgment against the Company or them in the
PRC.
All of
the Company’s directors and officers reside outside of the United States. In
addition, Anhui Runji is located in the PRC and substantially all of its assets
are located outside of the United States; it may therefore be difficult or
impossible for investors in the United States to enforce their legal rights
based on the civil liability provisions of the U.S. federal securities laws
against the Company in the courts of either the U.S. or the PRC and, even if
civil judgments are obtained in U.S. courts, to enforce such judgments in PRC
courts. Further, it is unclear if extradition treaties now in effect between the
United States and the PRC would permit effective enforcement against the Company
or its officers and directors of criminal penalties, under the U.S. federal
securities laws or otherwise.
Risks
Relating to the Company’s Share Exchange with Anhui Runji
The
Company’s Chairman and President, Shouren Zhao, beneficially owns 51.6% of the
Company’s outstanding common stock, which gives him control over certain major
decisions on which the Company’s stockholders may vote, which may discourage an
acquisition of the Company.
As a
result of the Share Exchange, most of management of the Company do not
beneficially own any of the Company’s outstanding common stock at this point in
time, and one of the Company’s officers and directors beneficially owns 51.6% of
the Company’s outstanding shares. The interests of this director may differ from
the interests of other stockholders. As a result, this officer and director will
have the right and ability to control virtually all corporate actions requiring
stockholder approval, irrespective of how the Company’s other stockholders may
vote, including the following actions:
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Electing
or defeating the election of
directors;
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§
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Amending
or preventing amendment of the Company’s Certificate of Incorporation or
By-laws;
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§
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Effecting
or preventing a merger, sale of assets or other corporate transaction;
and
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§
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Controlling
the outcome of any other matter submitted to the stockholders for
vote.
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The
Company’s stock ownership profile may discourage a potential acquirer from
seeking to acquire shares of the Company’s common stock or otherwise attempting
to obtain control of the Company, which in turn could reduce the Company’s stock
price or prevent the Company’s stockholders from realizing a premium over the
Company’s stock price.
As
a result of the Share Exchange, Anhui Runji has become an indirect wholly-owned
subsidiary of a company that is subject to the reporting requirements of U.S.
federal securities laws, which can be expensive.
As a
result of the Share Exchange, Anhui Runji has become an indirect wholly-owned
subsidiary of a company that is a public reporting company and, accordingly, is
subject to the information and reporting requirements of the Exchange Act and
other federal securities laws, including compliance with the Sarbanes-Oxley Act.
The costs of preparing and filing annual and quarterly reports, proxy statements
and other information with the SEC (including reporting of the Share Exchange)
and furnishing audited reports to stockholders will cause the Company’s expenses
to be higher than they would be if Anhui Runji had remained privately-held and
did not consummate the Share Exchange.
In
addition, it may be time consuming, difficult and costly for the Company to
develop and implement the internal controls and reporting procedures required by
the Sarbanes-Oxley Act. The Company may need to hire additional financial
reporting, internal controls and other finance personnel in order to develop and
implement appropriate internal controls and reporting procedures. If the Company
is unable to comply with the internal controls requirements of the
Sarbanes-Oxley Act, the Company may not be able to obtain the independent
accountant certifications required by the Sarbanes-Oxley Act.
Public
company compliance may make it more difficult to attract and retain officers and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. As a
public entity, the Company expects these new rules and regulations to increase
compliance costs in 2008 and beyond and to make certain activities more time
consuming and costly. As a public entity, the Company also expects that these
new rules and regulations may make it more difficult and expensive for the
Company to obtain director and officer liability insurance in the future and it
may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for the Company to attract and retain qualified persons
to serve as directors or as executive officers.
Because
Anhui Runji became public by means of a share exchange, the Company may not be
able to attract the attention of major brokerage firms.
There may
be risks associated with Anhui Runji’s becoming public through a share exchange.
Specifically, securities analysts of major brokerage firms may not provide
coverage of the Company since there is no incentive to brokerage firms to
recommend the purchase of the company’s common stock. No assurance can be given
that brokerage firms will, in the future, want to conduct any secondary
offerings on behalf of the company.
- 12
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Risks
Relating to the Common Stock
The
Company’s stock price may be volatile.
The
market price of the Company’s common stock is likely to be highly volatile and
could fluctuate widely in price in response to various factors, many of which
are beyond the Company’s control, including the following:
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Additions
or departures of key personnel;
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Limited
“public float” following the Share Exchange, in the hands of a small
number of persons whose sales or lack of sales could result in positive or
negative pricing pressure on the market price for the common
stock;
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Sales
of the common stock
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§
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The
Company’s ability to execute its business
plan;
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Operating
results that fall below
expectations;
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Loss
of any strategic relationship;
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Industry
developments;
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Economic
and other external factors; and
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Period-to-period
fluctuations in the Company’s financial
results.
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In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of the Company’s common stock.
There
is currently no liquid trading market for the Company’s common stock and the
Company cannot ensure that one will ever develop or be sustained.
There is
currently no liquid trading market for the Company’s common stock. The Company
cannot predict how liquid the market for the Company’s common stock might
become. The Company’s common stock is currently approved for quotation on the
OTC Bulletin Board trading under the symbol CRJI. The Company cannot ensure that
it will be able to satisfy the initial listing standards on a higher exchange,
or that its common stock will be accepted for listing on any such exchange.
Should the Company fail to satisfy the initial listing standards of such
exchanges, or its common stock be otherwise rejected for listing and remain on
the OTC Bulletin Board or be suspended from the OTC Bulletin Board, the trading
price of the Company’s common stock could suffer, the trading market for the
Company’s common stock may be less liquid and the Company’s common stock price
may be subject to increased volatility.
The
Company’s common stock may be deemed a “penny stock”, which would make it more
difficult for investors to sell their shares.
The
Company’s common stock is subject to the “penny stock” rules adopted under
section 15(g) of the Exchange Act. The penny stock rules apply to companies
whose common stock is not listed on the NASDAQ Stock Market or other national
securities exchange and trades at less than $5.00 per share or that have
tangible net worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). These rules require, among other things,
that brokers who trade penny stock to persons other than “established customers”
complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade penny stocks because of
the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is
limited. If the Company remains subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
the Company’s securities. If the Company’s securities are subject to the penny
stock rules, investors will find it more difficult to dispose of the Company’s
securities.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
Offers
or availability for sale of a substantial number of shares of the Company’s
common stock may cause the price of the Company’s common stock to
decline.
If the
Company’s stockholders sell substantial amounts of common stock in the public
market, or upon the expiration of any statutory holding period, under Rule 144,
it could create a circumstance commonly referred to as an “overhang” and in
anticipation of which the market price of the Company’s common stock could fall.
The existence of an overhang, whether or not sales have occurred or are
occurring, also could make more difficult the Company’s ability to raise
additional financing through the sale of equity or equity-related securities in
the future at a time and price that the Company deems reasonable or appropriate.
Additional shares of common stock will be freely tradable upon the earlier of:
(i) effectiveness of the registration statement the Company is required to file;
and (ii) the date on which such shares may be sold without registration pursuant
to Rule 144 under the Securities Act.
Provisions
of the Company’s Certificate of Incorporation and Delaware law could deter a
change of control, which could discourage or delay offers to acquire the
Company.
Provisions
of the Company’s Certificate of Incorporation and Delaware law may make it more
difficult for someone to acquire control of the Company or for the Company’s
stockholders to remove existing management, and might discourage a third party
from offering to acquire the Company, even if a change in control or in
management would be beneficial to stockholders. For example, the Company’s
Certificate of Incorporation allows the Company to issue shares of preferred
stock without any vote or further action by stockholders.
- 13
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Volatility
in the Company’s common stock price may subject the Company to securities
litigation.
The
market for the Company’s common stock is characterized by significant price
volatility when compared to seasoned issuers, and the Company expects that its
share price will continue to be more volatile than a seasoned issuer for the
indefinite future. In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the
market price of its securities. The Company may, in the future, be the target of
similar litigation. Securities litigation could result in substantial costs and
liabilities and could divert management’s attention and resources.
The
elimination of monetary liability against the Company’s directors, officers and
employees under the Company’s Articles of Incorporation and
Delaware law, and the existence of indemnification rights to the
Company’s directors, officers and employees may result in substantial
expenditures by the Company and may discourage lawsuits against the Company’s
directors, officers and employees.
The
Company’s Certificate of Incorporation contains a provision that provides for
indemnification of directors and officers against any and all expenses,
including amounts paid upon judgments, counsel fees and amounts paid in
settlement by any such person in any proceeding that they are made a party to by
reason of being or having been directors or officers of the Company, except in
relation to matters as to which any such director or officer shall be adjudged
to be liable for his own negligence or misconduct in the performance of his
duties. Such indemnification shall be in addition to any other rights
to which those indemnified may be entitled under any law, by law, agreement,
vote of shareholder or otherwise. The Company may also have
contractual indemnification obligations under its employment agreements with its
executive officers. The foregoing indemnification obligations could result in
the Company incurring substantial expenditures to cover the cost of settlement
or damage awards against directors and officers, which the Company may be unable
to recoup. These provisions and resultant costs may also discourage the Company
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties and may similarly discourage the filing of derivative
litigation by the Company’s stockholders against the Company’s directors and
officers even though such actions, if successful, might otherwise benefit the
Company and its stockholders.
- 14
-
Item
1B. Unresolved Staff
Comments
None.
Item
2. Properties
Our
headquarters are located in Xianzong town, Hanshan County, Anhui Province, with
our plant and facilities occupying 51,989.87m2. Our
company holds a property ownership certificate for this parcel.
We know
of no material, active or pending legal proceedings against us, our subsidiaries
or our property, nor are we involved as a plaintiff in any material proceedings
or pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholders are an
adverse party or have a material interest adverse to us.
Item
4. Submission of
Matters to a Vote of Security Holders
None.
- 15
-
|
Market
for Company’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Market
Information
There is
a limited public market for our common shares. Our common shares are quoted for
trading on the OTC Bulletin Board under the symbol “CRJI.” The market for our
stock is highly volatile. We cannot assure you that there will be a market in
the future for our common stock. OTC Bulletin Board securities are not listed
and traded on the floor of an organized national or regional stock exchange.
Instead, OTC Bulletin Board securities transactions are conducted through a
telephone and computer network connecting dealers in stocks. OTC Bulletin Board
stocks are traditionally smaller companies that do not meet the financial and
other listing requirements of a regional or national stock
exchange.
Our
common shares became eligible for quotation on the OTC Bulletin Board on July 6,
2006, but no trades were made until November 2006.
The
following table shows the high and low prices of our common shares on the OTC
Bulletin Board. The following quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions:
|
Hi
|
Low
|
|||||||
|
Sept
1, 2007 – Nov 30, 2007
|
$
|
0.70
|
$
|
0.30
|
||||
|
Dec
1, 2007 – Feb 29, 2008
|
$
|
1.01
|
$
|
0.20
|
||||
|
Mar
1, 2008 – May 31, 2008
|
$
|
2.10
|
$
|
0.40
|
||||
|
June
1, 2008 – Aug 31, 2008
|
$
|
2.00
|
$
|
0.65
|
||||
|
Sept
1, 2008 – Nov 30, 2008
|
$
|
1.01
|
$
|
0.21
|
||||
|
Dec
1, 2008 – Feb 28, 2009
|
$
|
1.00
|
$
|
0.21
|
||||
|
Mar
1, 2009 – May 31, 2009
|
$
|
0.58
|
$
|
0.20
|
||||
|
June
1, 2009 – Aug 31, 2009
|
$
|
0.58
|
$
|
0.29
|
||||
From
September 1 to November 20, 2009, the highest and lowest prices of our common
shares on the OTC Bulletin Board were $0.55 per share and $0.25 per share. On
November 24, 2009, the closing price of our common stock on the OTC Bulletin
Board on the last day it traded before the filing of this Annual Report was
$0.30 per share.
We have
never paid any cash dividends and currently do not intend to pay any dividends
for the foreseeable future.
Holders
As of August 31,
2009, there were 129 holders of record of our common stock.
Dividends
Holders
of our common stock are entitled to dividends if declared by the Board of
Directors out of funds legally available therefore. As of August 31, 2009, no
cash dividends have been declared.
We do not
intend to issue any cash or stock dividends in the near future. We intend to
retain earnings, if any, to finance the development and expansion of our
business. Our future dividend policy will be subject to the discretion of the
Board of Directors and will be contingent upon future earnings, if any, our
financial condition, capital requirements, general business conditions and other
factors.
As of
August 31, 2009, we did not have any equity compensation plans.
We have not made any previously
unreported sales of unregistered securities from September 1, 2008 to August 31,
2009.
Recent
Purchases of Equity Securities by us and our Affiliated
Purchasers
We have not repurchased any of
our common stock and have no publicly announced repurchase plans or programs as
of August 31, 2009.
- 16
-
Not
applicable.
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements
This
report contains forward-looking statements that involve risks and uncertainties.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology
including, "could" "may", "will", "should", "expect", "plan", "anticipate",
"believe", "estimate", "predict", "potential" and the negative of these terms or
other comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested in this Annual Report.
Results of
Operations
Revenues. Consolidated
operating revenues for the twelve-month period ended August 31, 2009
was $55,637,894, compared to $40,467,123 for the same corresponding
period in year 2008, an increase of $15,170,771 or 37.5%. The increase is mainly
the result of increased sales of cement, which amounted to 785,631 tons or
74.3%.
Gross
Profit. Gross profit decreased by $5,941,696 or 61% to
$3,798,728 for the year ended August 31, 2009 from $9,740,424 for the same
corresponding period in year 2008. The significant decrease is mainly due to the
growth in unit cost of cement and decrease of the price of sales. The unit price
of cement decreased $10 per ton in 2009 compared year over year, while the cost
of sales decreased $2 per ton in the same corresponding period.
Selling
Expense. Selling expenses for the 2009 and 2008 fiscal years
were $362,989 and $182,539, respectively, an increase of $180,450. The
increase is mainly attributable to an increase in sales service fee of
$180,450.
General and Administrative
Expenses. General and administrative expenses for the 2009 fiscal
year were $1,904,219, compared to $1,624,449 for the 2008 fiscal year, an
increase of $279,770 or 17%. Among the increased General and Administrative
Expenses was the cost incurred in consulting expense.
Net Income. Net income
for the 2009 fiscal year was $3,851,152, compared to $6,962,683 for the 2008
fiscal year. The decrease is attributable to the decreased gross
profit.
Liquidity
and Capital Resources
As of
August 31, 2009 and 2008, cash and cash equivalents totaled $752,952 and
$415,031, respectively.
The net
cash provided by operations decreased by $10,454,483 to $2,772,827 for the year
ended August 31, 2009 from $13,227,310 for 2008 fiscal year. The decreased net
cash from operations was primarily due to the contribution from accounts
receivable, advance to suppliers, and tax payable amounted to $4,772,788,
$4,753,727and $1,303,062 respectively.
During
the 2009 fiscal year, the Company obtained a total of $2,669,980 from financing
activities compared to $2,574,182 for the 2008 fiscal year, an increase of
$95,798. The increase was mainly attributable to the increase in
short term bank loans.
During
the 2009 fiscal year, the Company used a total $4,947,511 in investing
activities compared to $17,136,499 for 2008, a decrease of $12,188,988. The
decrease was mainly attributable to the completion of the second cement clinker
production line in September 2008. The investing activity during the current
year is mainly for the waste-heat generator project, which was put into
production on October 25, 2009.
We have
no significant off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in our
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to our
stockholders.
Inflation
The
effect of inflation on our revenue and operating results has not been
significant.
- 17
-
Critical Accounting
Policies
Our
financial statements are impacted by the accounting policies used and the
estimates and assumptions made by management during their
preparation. A complete summary of these policies is included in Note 2 of the
notes to our financial statements. We have identified below the accounting
policies that are of particular importance in the presentation of our financial
position, results of operations and cash flows, and which require the
application of significant judgment by management.
Impairment
of Long-Lived Assets
The
Company evaluates potential impairment of long-lived assets, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires the Company to (a)
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable from its undiscounted cash flows and (b) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. The Company believes that long-lived assets in the accompanying
balance sheets are appropriately valued at August 31, 2009.
The
functional currency of the Company is the Renminbi (“RMB”), the PRC’s currency.
The Company maintains its financial statements using the functional currency.
Monetary assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at rates of
exchange prevailing at the balance sheet dates. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transaction.
Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income (loss) for the respective
periods.
For
financial reporting purposes, the financial statements of the Company, which are
prepared using the RMB, are translated into the Company’s reporting currency,
United States Dollars. Balance sheet accounts are translated using the closing
exchange rate in effect at the balance sheet date and income and expense
accounts are translated using the average exchange rate prevailing during the
reporting period. Adjustments resulting from the translation, if any, are
included in accumulated other comprehensive income (loss) in stockholder’s
equity.
Fair
Value of Financial Instruments
The
Company's financial instruments include cash equivalents, accounts receivable,
other receivables, accounts payable, accrued expenses, value-added taxes,
short-term and long-term bank loans, and loans payable to related parties. The
carrying amounts of financial instruments other than long-term obligations
approximate fair value due to their short maturities. Long-term obligations
approximate fair value based upon rates currently available for similar
instruments.
Item
7A. Quantitative and Qualitative
Disclosures about Market Risk
Credit
Risk
The
Company is exposed to credit risk from its cash in bank and fixed deposits and
bills and accounts receivable. The credit risk on cash in bank and fixed
deposits is limited because the counterparties are recognized financial
institutions. Bills and accounts receivable are subjected to credit
evaluations.
Foreign
Exchange Risk
The value
of the Renminbi against the U.S. dollar and other currencies is affected by,
among other things, changes in China’s political and economic conditions. Since
July 2005, the Renminbi has no longer been pegged to the U.S. Dollar. Although
the People’s Bank of China regularly intervenes in the foreign exchange market
to prevent significant short-term fluctuations in the exchange rate, the
Renminbi may appreciate or depreciate significantly in value against the U.S.
dollar in the medium to long term. Moreover, it is possible that in the future,
PRC authorities may lift restrictions on fluctuations in the Renminbi exchange
rate and lessen intervention in the foreign exchange market.
Because
all of our earnings and cash assets are denominated in Renminbi, but our
reporting currency is the U.S. dollar, fluctuations in the exchange rate between
the U.S. dollar and the Renminbi will affect our balance sheet and our earnings
per share in U.S. dollars. In addition, appreciation or depreciation in the
value of the Renminbi relative to the U.S. dollar would affect our financial
results reported in U.S. dollar terms without giving effect to any underlying
change in our business or results of operations. Fluctuations in the exchange
rate will also affect the relative value of any dividend we issue in the future
that will be exchanged into U.S. dollars and earnings from, and the value of,
any U.S. dollar-denominated investments we make in the future.
Most of
the transactions of the Company are settled in Renminbi and U.S. dollars. In the
opinion of the directors, the Company is not exposed to significant foreign
currency risk.
- 18
-
Inflation
Inflationary
factors, such as increases in the cost of raw materials and overhead costs,
could impair our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our
ability to maintain current levels of gross margin and selling, general and
administrative expenses as a percentage of sales revenue if the selling prices
of our products do not increase with these increased costs.
Company’s
Operations are All in China
All of
our operations are conducted in China and are subject to various political,
economic, and other risks and uncertainties inherent in conducting business in
China. Among other risks, the Company’s operations are subject to the risks of
restrictions on transfer of funds; quotas; domestic tariffs; changing taxation
policies; foreign exchange restrictions; and political conditions and
governmental regulations. Additional information regarding such risks can be
found under the heading “Risk Factors” located in Item 1A on page 8 of this
Form 10-K.
- 19
-
Item
8. Financial
Statements and Supplementary Data
CHINA
RUNJI CEMENT INC.
TABLE
OF CONTENTS
TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED AUGUST 31, 2009
|
Page(s)
|
|
|
Report
of Independent Registered Public Accounting Firm
|
21
|
|
Consolidated
Balance Sheets as of August 31, 2009 and 2008
|
22
|
|
Consolidated
Statements of Operations and Comprehensive Income for the Years Ended
August 31, 2009 and 2008
|
23
|
|
Consolidated
Statements of Cash Flows for the Years Ended August 31, 2009 and
2008
|
24
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the Years Ended August
31, 2009 and 2008
|
25
|
|
Notes
to the Consolidated Financial Statements
|
26 - 34
|
- 20
-
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The
Board of Directors and stockholders
China
Runji Cement Inc.
Xian
Zhong Town, Han Shan County
Chao Hu
City, People’s Republic of China
We have
audited the accompanying consolidated balance sheets of China Runji Cement
Inc. (“Runji”) as of August 31, 2009 and 2008 and the related
consolidated statements of operations and comprehensive income, cash flows and
changes in stockholders’ equity for the years then ended. These financial
statements are the responsibility of Runji’s management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. Runji is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of Runji’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Runji Cement Inc. as of
August 31, 2009 and 2008 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/
Malone & Bailey, PC
www.malone-bailey.com
Houston,
Texas
November
25, 2009
- 21
-
China
Runji Cement Inc.
Consolidated
Balance Sheets
As
of August 31, 2009 and 2008
|
August
31,
2009
|
August
31,
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$
|
752,952
|
$
|
415,031
|
||||
|
Accounts
receivable, net (Note 3)
|
7,758,060
|
3,099,956
|
||||||
|
Accounts
receivable from related party (Note 3)
|
120,615
|
-
|
||||||
|
Advances
to suppliers (Note 5)
|
6,323,149
|
1,569,603
|
||||||
|
Due
from related parties
|
-
|
53,516
|
||||||
|
Short
Term Deferred Assets (Note 7)
|
102,298
|
-
|
||||||
|
Inventory
(Note 4)
|
2,015,140
|
3,275,570
|
||||||
|
Prepaid
expenses and other receivables
|
1,110,522
|
1,530,022
|
||||||
|
Total
Current Assets
|
18,182,736
|
9,943,698
|
||||||
|
Advance
for Construction In Progress projects (Note 5)
|
2,743,828
|
2,202,764
|
||||||
|
Property,
plant and equipment, net (Note 6)
|
51,766,946
|
51,499,895
|
||||||
|
Intangible
Assets & Deferred Charges (Note 7)
|
4,416,306
|
4,615,689
|
||||||
|
Total
Assets
|
$
|
77,109,816
|
$
|
68,262,046
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
Payable and accrued liabilities (Note 8)
|
$
|
19,477,476
|
$
|
15,629,106
|
||||
|
Short-term
loans (Note 9)
|
13,301,615
|
438,570
|
||||||
|
Long-term
loan-current portion (Note 11)
|
733,143
|
-
|
||||||
|
Due
to Related Parties (S/T, Note 10)
|
16,816,524
|
27,805,125
|
||||||
|
Taxes
payable and other
|
739,405
|
2,374,042
|
||||||
|
Total
Current Liabilities
|
51,068,163
|
46,246,843
|
||||||
|
Long-Term
loan- non-current portion
|
235,174
|
-
|
||||||
|
Total
Liabilities
|
51,303,337
|
46,246,843
|
||||||
|
Commitments
and Contingencies (Note 12)
|
-
|
-
|
||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred
Stock: 20,000,000 shares authorized, $0.0001 par value, No
shares issued and outstanding
|
-
|
-
|
||||||
|
Common
Stock: 200,000,000 shares authorized, $0.0001 par value,
78,832,064
shares issued and outstanding
|
7,883
|
7,883
|
||||||
|
Additional
paid in capital
|
12,327,962
|
12,327,962
|
||||||
|
Accumulated
other comprehensive income
|
2,535,914
|
2,595,790
|
||||||
|
Retained
earnings
|
10,934,720
|
7,083,568
|
||||||
|
Total
Stockholders' Equity
|
25,806,479
|
22,015,203
|
||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
77,109,816
|
$
|
68,262,046
|
||||
- 22
-
China
Runji Cement Inc.
Consolidated
Statements of Operations and Comprehensive Income
For
the years ended August 31, 2009 and 2008
|
August
31,
2009
|
August
31,
2008
|
|||||||
|
Revenue
|
$
|
55,637,894
|
$
|
40,467,123
|
||||
|
Cost
of goods sold
|
51,839,166
|
30,726,699
|
||||||
|
Gross
Profit (Loss)
|
3,798,728
|
9,740,424
|
||||||
|
Operating
Costs and Expenses:
|
||||||||
|
Selling expenses
|
362,989
|
182,539
|
||||||
|
G&A expenses:
|
1,904,219
|
1,624,449
|
||||||
|
Depreciation of property, plant and equipment
|
151,675
|
105,669
|
||||||
|
Total
operating costs and expenses
|
2,418,883
|
1,912,657
|
||||||
|
Income
From Operations
|
1,379,845
|
7,827,767
|
||||||
|
Interest
income (Expense)
|
(418,283)
|
(48,595)
|
||||||
|
Government
subsidies/grants and other income (expenses)
|
3,277,866
|
1,400,015
|
||||||
|
Income
Before Income Taxes
|
4,239,428
|
9,179,187
|
||||||
|
Income
taxes expense (benefit) (Note 13)
|
388,276
|
2,216,504
|
||||||
|
Net
Income
|
$
|
3,851,152
|
$
|
6,962,683
|
||||
|
Other
Comprehensive Income (Loss)
|
||||||||
|
Foreign
currency translation adjustment
|
(59,876)
|
1,804,176
|
||||||
|
Comprehensive
Income
|
$
|
3,791,276
|
$
|
8,766,859
|
||||
|
Earnings
Per Share - Basic and Diluted
|
$
|
0.05
|
$
|
0.09
|
||||
|
Weighted
Average Shares Outstanding - Basic and Diluted
|
78,832,064
|
77,940,952
|
||||||
See
accompanying notes to the Consolidated Financial Statements.
- 23
-
China
Runji Cement Inc.
Consolidated
Statements of Cash Flows
For
the years ended August 31, 2009 and 2008
|
August
31,
2009
|
August
31,
2008
|
|||||||
|
Operating
activities
|
||||||||
|
Net
income
|
$
|
3,851,152
|
$
|
6,962,683
|
||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
|
Amortization
|
273,412
|
210,283
|
||||||
|
Depreciation
expense
|
4,228,169
|
2,704,513
|
||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable, net
|
(4,772,788
|
)
|
1,161,067
|
|||||
|
Advances
to suppliers
|
(4,753,727
|
) |
-
|
|||||
|
Prepaid
expenses and other receivables
|
472,002
|
(668,322
|
)
|
|||||
|
Inventory
|
1,260,054
|
(1,338,284
|
)
|
|||||
|
Accounts
payable and accrued liabilities
|
3,517,615
|
3,634,950
|
||||||
|
Tax
payable
|
(1,303,062
|
)
|
560,420
|
|||||
|
Net
cash provided by operating activities
|
2,772,827
|
13,227,310
|
||||||
|
Investing
activities
|
||||||||
|
Changes
in due from related parties
|
53,510
|
35,884
|
||||||
|
Cash
paid for intangible assets and deferred expenses
|
-
|
(1,658,672
|
)
|
|||||
|
Cash
paid for property, plant and equipment additions
|
(5,001,021
|
)
|
(15,513,711
|
)
|
||||
|
Net
cash used in investing activities
|
(4,947,511
|
)
|
(17,136,499
|
)
|
||||
|
Financing
activities
|
||||||||
|
Short
term loan proceeds
|
13,301,616
|
-
|
||||||
|
Short
term loan (repayment)
|
(438,520
|
) |
(1,258,290
|
)
|
||||
|
Debt
issue cost
|
(176,857
|
)
|
||||||
|
Capital
contribution
|
-
|
(10,960
|
) | |||||
|
Proceeds
(repayments) of due to related parties
|
(10,984,576
|
)
|
3,843,432
|
|||||
|
Proceeds
from sale-leaseback financing
|
1,491,186
|
-
|
||||||
|
Principle
payment of the sale-leaseback financing
|
(522,869
|
) |
-
|
|||||
|
Net
cash provided by financing activities
|
2,669,980
|
2,574,182
|
||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(157,375
|
)
|
349,559
|
|||||
|
Increase
(decrease) in cash and cash equivalents
|
337,921
|
(985,448
|
)
|
|||||
|
Cash
and cash equivalents, beginning of year
|
415,031
|
1,400,479
|
||||||
|
Cash
and cash equivalents, end of year
|
$
|
752,952
|
$
|
415,031
|
||||
|
Supplemental
Disclosures
|
||||||||
|
Interest
Paid
|
$
|
317,708
|
$
|
56,735
|
||||
|
Income
taxes paid
|
$
|
1,445,088
|
$
|
2,216,504
|
||||
| Non-Cash Investing Activity: | ||||||||
| Accounting payable related to fixed assets purchased | $ | - | $ | 3,194,814 | ||||
| Construction in progress transferred to fixed assets | $ | 8,110,113 | $ | - | ||||
See
accompanying notes to the Consolidated Financial Statements.
- 24
-
China
Runji Cement Inc.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For
the years ended August 31, 2009 and 2008
|
Common
Stock
|
|
Accumulated
Other
|
|
|||||||||||||||||||||
|
Shares
|
Par
(0.0001)
|
Additional
Paid
In Capital
|
Comprehensive
Income
|
Retained
Earnings
|
Total
|
|||||||||||||||||||
|
Balances,
August 31, 2007
|
73,500,000 | $ | 7,350 | $ | 12,339,455 | $ | 791,614 | $ | 120,885 | $ | 13,259,304 | |||||||||||||
|
Common shares issued to minority
owners
under
reverse merger
|
5,332,064 | 533 | (533 | ) | - | - | - | |||||||||||||||||
|
Special distribution paid back
|
- | - | (12,242 | ) | - | - | (12,242 | ) | ||||||||||||||||
|
Distribution from shareholder
|
- | - | 1,282 | - | - | 1,282 | ||||||||||||||||||
|
Currency translation
|
- | - | - | 1,804,176 | - | 1,804,176 | ||||||||||||||||||
|
Net income
|
- | - | - | - | 6,962,683 | 6,962,683 | ||||||||||||||||||
|
Balances,
August 31, 2008
|
78,832,064 | $ | 7,883 | $ | 12,327,962 | $ | 2,595,790 | $ | 7,083,568 | $ | 22,015,203 | |||||||||||||
|
Currency translation
|
- | - | - | (59,876 | ) | - | (59,876 | ) | ||||||||||||||||
|
Net income
|
- | - | - | - | 3,851,152 | 3,851,152 | ||||||||||||||||||
|
Balances,
August 31, 2009
|
78,832,064 | $ | 7,883 | $ | 12,327,962 | $ | 2,535,914 | $ | 10,934,720 | $ | 25,806,479 | |||||||||||||
The
accompanying notes are an integral part of these financial
statements.
- 25
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
The
Company was incorporated as FitMedia Inc., a Delaware corporation, on August 30,
2004.
On
November 1, 2007, the Company closed a reverse merger with Anhui Province Runji
Cement Co., Limited (“Anhui Runji”). Anhui Runji is the accounting acquirer
and the transaction is accounted for as a recapitalization. The historical
financial statements of Anhui Runji survived the merger and are presented
herein.
Anhui
Runji, a producer and distributor of cement located in Anhui Province in
China, was established in December 2003 with registered capital of RMB 60
million yuan. Anhui Runji started production in October 2005 and specializes in
cement production and sales. The main cement varieties produced are ordinary
silicate cement PO52.5, PO42.5, PO32.5 and PC32.5. Following the commencement of
the second cement clinker production line in October 2008, Anhui Runji currently
has one production line of cement and one of cement clinker; each is
designed to produce 2,500 tons per day.
Anhui
Runji obtained its production license in 2005. Presently, Anhui Runji mainly
focuses production on Runji Brand PII52.5, PO42.5, PO32.5 and PC32.5
cements. PII52.5 is a high grade, high strength cement that is made in
Anhui and Jiangsu Provinces and the region of north of the
Changjiang River and is used in large infrastructural projects. Anhui Runji
has a rigorous quality control system and received ISO9001 quality system
certification and international accreditation in March 2006. In addition Anhui
Runji passed the national GB/T 19001-2000 standard authentication.
Presently,
Anhui Runji’s main market is in Hefei city and Pukou area of Nanjing. To
reflect its business and business plan, the Company changed its name from
“FitMedia Inc.” to “China Runji Cement Inc.”
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Ren Ji Cement Investment Co., Ltd (a
BVI corporation), Ren Ji Cement Company Limited (a Hong Kong corporation) and
Anhui Province Runji Cement Co., Ltd. (a PRC corporation), and have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”).
All
significant inter-company balances and transactions have been eliminated in
consolidation.
Use
of Estimates
In
preparing these financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance sheets
and revenues and expenses during the year reported. Actual results may differ
from these estimates.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the 2009
presentation.
New
Accounting Pronouncement
In June
2009, the FASB issued Update No. 2009-01, Generally Accepted Accounting
Principles (ASU 2009-01). ASU 2009-01 establishes “The FASB Accounting Standards
Codification,” or Codification, which became the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. On the
effective date, the Codification superseded all then-existing non-SEC accounting
and reporting standards. All other non grandfathered non-SEC accounting
literature not included in the Codification will become non authoritative. ASU
2009-01 is effective for interim and annual periods ending after September 15,
2009. The Company will adopt the provisions of ASU 2009-01 for the period ended
November 30, 2009. There will be no impact on the Company’s consolidated
operating results, financial position or cash flows.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165) to
establish general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. SFAS No. 165 is effective for interim and annual
reporting periods ending after June 15, 2009. The Company adopted the provisions
of SFAS No. 165 for the period ended August 31, 2009. There was no impact on the
Company’s consolidated operating results, financial position or cash
flows.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand, demand deposits with banks and liquid
investments with an original maturity of three months or less. Cash deposits
with banks are held in financial institutions in China, which has no federally
insured deposit protection. Accordingly, the Company has a concentration of
credit risk related to these uninsured deposits.
- 26
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Accounts
Receivable
Accounts
receivable are carried at original invoice amount less an estimate made for
doubtful accounts based on a review of all outstanding amounts on a monthly
basis. Management judgment and estimates are made in connection with
establishing the allowance for doubtful accounts. Specifically, the Company
analyzes the aging of accounts receivable balances, historical bad debts,
customer concentrations, customer credit-worthiness, current economic trends and
changes in our customer payment terms. Significant changes in customer
concentration or payment terms, deterioration of customer credit-worthiness or
weakening in economic trends could have a significant impact on the
collectability of receivables and the Company’s operating results. The allowance
of doubtful account is accrued based on the AR identified
uncollectible. There are no doubtful accounts at August 31, 2009 and
2008.
Inventories
Inventories,
which are primarily comprised of raw materials, packaging materials,
semi-finished goods, and finished goods, are stated at the lower of cost or
market, using the moving average (“MA”) method. Cost being determined on the
basis of a moving average. The Company evaluates the need for reserves
associated with obsolete, slow-moving and non-salable inventory by reviewing net
realizable values on a periodic basis.
Property
and Equipment
Property
and equipment are recorded at cost and depreciated using the straight-line
method, with an estimated 5% salvage value of original cost, over the estimated
useful lives of the assets as follows:
|
Building
|
20
years
|
|
manufacturing
machinery & equipment
|
8
years
|
|
electronic
equipment & automobiles
|
5
years
|
|
office
equipment
|
5
years
|
Expenditures
for repairs and maintenance, which do not improve or extend the expected useful
lives of the assets, are expensed as incurred while major replacements and
improvements are capitalized.
When
property or equipment is retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, with any resulting gains or losses
being included in net income or loss in the year of disposition.
Construction
in Progress
Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to property and equipment when substantially all the
activities necessary to prepare the assets for their intended use are
completed.
Impairment
of Long-Lived Assets
The
Company evaluates potential impairment of long-lived assets, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires the Company to (a)
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable from its undiscounted cash flows and (b) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. The Company believes that long-lived assets in the accompanying
balance sheets are appropriately valued at August 31, 2009.
Intangible
Assets
The
Company’s intangible assets are stated at cost less accumulated amortization and
are mainly comprised of limestone and sandstone mining rights. Mining rights are
related to mines the Company occupies in Anhui Province, PRC and are being
amortized on a straight-line basis over a period of 30 years.
Government
Subsidies
A
government subsidy is recognized only when there is reasonable assurance that
the enterprise will comply with any conditions attached to the grant and the
grant will be received. The Company is entitled to receive treasury
subsidy of local government in accordance with the “Regulations of facilitating
investment in industrial enterprises” (Article 17 of Han Order [2002]) which is
promulgated on Oct 28, 2002 by the Communist Party Commission of Han Shan
County, Anhui Province and Han Shan County Government of Anhui Province.
According to this regulation, the first 3 years of tax payable by the Company
after it commenced production to the local government will be returned to the
Company. The Company received $3,249,975 and $1,300,652
government subsidies during 2009 and 2008 respectively.
- 27
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Revenue
Recognition
The
Company recognizes revenue when the significant risks and rewards of ownership
have been transferred pursuant to PRC law, including such factors as when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable, sales and value-added tax laws have been
complied with, and collectability is reasonably assured. The Company generally
recognizes revenue when its products are shipped.
Comprehensive
Income
The
Company has adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and displaying
comprehensive income, its components, and accumulated balances in a full-set of
general-purpose financial statements. Accumulated other comprehensive income
represents the accumulated balance of foreign currency translation
adjustments.
Concentration
of Credit Risk
Financial
instruments which potentially expose the Company to concentrations of credit
risk, consist of cash and accounts receivable as of August 31, 2009 and 2008.
The Company performs ongoing evaluations of its cash position and credit
evaluations to ensure collections and minimize losses.
A portion
of the Company’s cash at August 31, 2009 and 2008 is maintained at various
financial institutions in the PRC which do not provide insurance for amounts on
deposit. The Company has not experienced any losses in such accounts and
believes it is not exposed to significant credit risk in this area.
For the
years ended August 31, 2009 and 2008, the Company’s sales were mainly made to
customers located in the PRC. In addition, total accounts receivables as of
August 31, 2009 and 2008 also arose from customers located in the
PRC.
A
significant percentage of the Company’s business is generated from a small
number of customers. The Company has not experienced any losses in such accounts
and believes it is not exposed to significant credit risk in this
area.
The
Company operates principally in the PRC and grants credit to its customers in
this geographic region. Although the PRC is economically stable, it is always
possible that unanticipated events in foreign countries could disrupt the
Company’s operations.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future
deductibility is uncertain.
Foreign
Currency Translation
The
functional currency of the Company is the Renminbi (“RMB”), the PRC’s currency.
The Company maintains its financial statements using the functional currency.
Monetary assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at rates of
exchange prevailing at the balance sheet dates. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transaction.
Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income (loss) for the respective
periods.
The
financial statements of the Company are translated into United States dollars in
accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52,
“Foreign Currency Translation”, using year-end rates of exchange for assets and
liabilities, and average rates of exchange for the period for revenues, costs,
and expenses and historical rates for the equity. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive
income.
- 28
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Related
Parties
A party
is considered to
be related to the Company if the party directly or indirectly or through one or
more intermediaries, controls, is controlled by, or is under common control with
the Company. Related parties also include principal owners of the Company, its
management, members of the immediate families of principal owners of the Company
and its management and 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. A party which can
significantly influence the management or operating policies of the transacting
parties or if it has 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 is also a related party.
Earnings
Per Share
Basic net
loss per common share is computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. Diluted net loss per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents. In periods when losses are reported, the weighted-average number of
common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive.
Fair
Value of Financial Instruments
The
Company's financial instruments include cash equivalents, accounts receivable,
other receivables, accounts payable, accrued expenses, value-added taxes,
short-term and long-term bank loans, and loans payable to related parties. The
carrying amounts of financial instruments other than long-term obligations
approximate fair value due to their short maturities. Long-term obligations
approximate fair value based upon rates currently available for similar
instruments.
NOTE
3 – ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE
|
Year Ended
31-Aug-09
|
Year Ended
31-Aug-08
|
|||||||
|
Notes
Receivable
|
$ | 199,148 | $ | 868,593 | ||||
|
Accounts
Receivable –Trade
|
$ | 7,558,912 | $ | 2,231,363 | ||||
|
Accounts
Receivable from related party
|
120,615 | - | ||||||
|
Allowance
for Doubtful Accounts
|
- | - | ||||||
| $ | 7,878,675 | $ | 3,099,956 | |||||
The
related party sales were $120,615 and zero for the year ended August 31, 2009
and 2008. The related party is an entity controlled by the President and CEO of
the Company. The accounts receivable amount of $2,923,464 is used as a
securitization for the ICBC Hanshan bank loan (Note 9) at August 31,
2009.
NOTE
4 – INVENTORY
Inventory
consists of the following:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Raw
Materials
|
$ | 702,529 | $ | 1,539,946 | ||||
|
Packaging
Materials
|
25,138 | 51,682 | ||||||
|
Semi-Finished
Goods
|
292,376 | 340,678 | ||||||
|
Finished
Goods
|
871,976 | 962,227 | ||||||
|
Supplies
|
123,121 | 381,037 | ||||||
| $ | 2,015,140 | $ | 3,275,570 | |||||
- 29
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE
5 – ADVANCES TO SUPPLIERS
Advances
to suppliers consist of the following:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
| Advances to suppliers | $ | 6,323,149 | $ | 1,569,603 | ||||
| Advance for Construction In Progress projects | 2,743,828 | 2,202,764 | ||||||
|
Advances
|
$ | 9,066,977 | $ | 3,772,367 | ||||
Advances
to suppliers represents amounts prepaid for raw materials. Advances for
construction in progress projects represents amounts prepaid for
Construction in Progress. The advances are applied against amounts due to the
supplier as the materials are received.
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Building
– Cost
|
$ | 28,423,400 | $ | 22,270,871 | ||||
|
Building
- Accumulated Depr
|
(3,407,631 | ) | (2,103,678 | ) | ||||
|
Building
– Net
|
25,015,769 | 20,167,193 | ||||||
|
Equipment
& Machinery – Cost
|
31,245,848 | 18,712,633 | ||||||
|
Equipment
& Machinery - Accumulated Depr
|
(8,464,956 | ) | (5,607,997 | ) | ||||
|
Equipment
& Machinery – Net
|
22,780,892 | 13,104,636 | ||||||
|
Automobiles
– Cost
|
292,828 | 292,862 | ||||||
|
Automobiles
– Accumulated Depr
|
(151,579 | ) | (95,953 | ) | ||||
|
Automobiles
– Net
|
141,249 | 196,909 | ||||||
|
Other
Equipment – Cost
|
30,964 | 56,880 | ||||||
|
Other
Equipment - Accumulated Depr
|
(16,648 | ) | (11,208 | ) | ||||
|
Other
Equipment – Net
|
14,316 | 45,672 | ||||||
|
Computer
Equipment – Cost
|
32,841 | 24,982 | ||||||
|
Computer
Equipment - Accumulated Depr
|
(11,960 | ) | (6,669 | ) | ||||
|
Computer
Equipment – Net
|
20,881 | 18,313 | ||||||
|
Total
Fixed Assets - Net
|
$ | 47,973,107 | $ | 33,532,723 | ||||
|
Construction
in progress
|
3,793,839 | 17,967,172 | ||||||
| $ | 51,766,946 | $ | 51,499,895 | |||||
- 30
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE
7 – INTANGIBLE ASSETS & DEFERRED CHARGES
Intangibles
and deferred charges include the following:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Mineral
exploration right-Shihuishi
|
$ | 3,428,391 | $ | 2,682,863 | ||||
|
Mineral
exploration right-Shayan
|
224,399 | 1,124,440 | ||||||
|
Land
acquisition compensation (Compensating fee for mine and
forest)
|
535,359 | 599,671 | ||||||
|
Planting
fee in working place
|
47,953 | 72,980 | ||||||
|
Compensating
fee for stone materials in Baxiong Village
|
16,444 | 18,420 | ||||||
|
Compensating
fee for limekiln and drought land in Baxiong Village
|
14,301 | 16,018 | ||||||
|
Compensating
fee for sandstone land in Qiaomai Village
|
90,433 | 101,297 | ||||||
|
Debt
issue cost
|
59,026 | - | ||||||
| $ | 4,416,306 | $ | 4,615,689 | |||||
| Short term deferred asset | ||||||||
| Guarantee fee related to loan | $ | 102,298 | $ | - | ||||
NOTE
8 – PAYABLES AND ACCRUED LIABILITIES
Payables
and accrued liabilities consist of the following:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Accounts
payable
|
$ | 12,424,023 | $ | 8,580,607 | ||||
|
Other
Payables
|
6,952,818 | 7,039,091 | ||||||
|
Accrued
liabilities
|
100,635 |
9,408
|
||||||
|
Payables
and accrued liabilities
|
$ | 19,477,476 | $ | 15,629,106 | ||||
NOTE
9 – BANK LOANS
Short
term loans consist of:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Xian
Zong Credit Bank
|
$ | 438,519 | $ | 438,570 | ||||
|
PuFa
Bank WenHu business branch
|
4,239,022 | - | ||||||
|
ICBC
Hanshan
|
2,923,464 | - | ||||||
|
Huishang
Bank Sales Department
|
5,262,235 | - | ||||||
|
Runfeng
company
|
438,375 | - | ||||||
| $ | 13,301,615 | $ | 438,570 | |||||
- 31
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE 9 – BANK
LOANS (CONT.)
The
details for the Company’s bank loan are as follows:
|
Borrowing
bank
|
Amount
|
Starting
date
|
Maturity
date
|
Interest
rate (monthly)
|
||||||
|
* Xianzhong
Credit Bank
|
$ | 438,519 | 2008-12-27 | 2009-12-23 |
0.8835%
|
|||||
|
** PuFa
Bank WenHu business branch
|
4,239,022 | 2009-4-30 | 2010-4-30 |
0.4425%
|
|
|||||
|
*** ICBC
Hanshan
|
2,923,464 | 2009-6-26 | 2010-6-26 |
0.4425%
|
|
|||||
|
****
Huishang Bank Sales Department
|
5,262,235 | 2009-6-22 | 2010-6-22 |
0.4425%
|
||||||
|
Runfeng
company
|
438,375 | 2008-11-21 | 2009-11-20 |
0.9240%
|
||||||
* The
loan from the Xianzhong Credit Bank was pledged in collateral of machine
equipment in value of RMB 10,150,000.
** The
loan from the Wenhu branch of PuFa Bank was pledged in collateral of the
Company’s building and land user right.
*** The
loan from the Hanshan branch of ICBC Bank is securitized by an accounts
receivable balance of $2,923,464 (Note 3) at August 31, 2009.
**** The
loan from the sales department of Huishang Bank was guaranteed by Anhui Province
Credit Guarantee (Group) Co., Ltd.
NOTE
10 – DUE TO RELATED PARTIES (S/T)
(a) Names
and relationship of related parties
|
Existing relationships with the
Company
|
|
|
Nanjin
Hongren
|
A
company controlled by shareholder
|
|
Nanjin
Runji
|
A
company controlled by shareholder
|
|
Zhao,
Shouren
|
Shareholder
& president & CEO of the Company
|
|
Yang,
Xuanjun
|
Shareholder
of the Company
|
(b) Due
to Other Related Parties (S/T) consists of the following:
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Due
to related party – Nanjin Hongren
|
$ | 8,279,088 | 19,117,328 | |||||
|
Due
to related party – Nanjin Runji
|
7,135,035 | 7,135,856 | ||||||
|
Due
to related party – Zhao, Shouren
|
611,899 | 488,606 | ||||||
|
Due
to related party – Yang, Xuanjun
|
788,052 | 1,060,056 | ||||||
|
Miscellaneous
|
2,450 | 3,279 | ||||||
| $ | 16,816,524 | 27,805,125 | ||||||
As of
August 31, 2009 and 2008, the outstanding debt owed to Shouren Zhao totaled
$611,899 and $488,606, respectively, to the Company on a short-term basis in
order to finance its operations. The terms of the loan are
non-interest bearing and have no fixed terms of repayment, therefore, deemed
payable on demand. The loans from related parties are to meet the Company’s need
in operation.
As of
August 31, 2009 and 2008, the outstanding debt owed to Xuanjun Yang, a director,
totaled $788,052 and $1,060,056, respectively, to the Company on a short-term
basis in order to finance its operations. The terms of the loan are
non-interest bearing and have no fixed terms of repayment, therefore, deemed
payable on demand. The loans from related parties are to meet the Company’s need
in operation.
As of
August 31, 2009 and 2008, the outstanding debt owed to Nanjin Hongren, a related
company, owned by Zhao and Yang, loaned $8,279,088 and $19,117,328,
respectively, to the Company on a short-term basis in order to finance its
operations. The terms of the loans are non-interest bearing and have
no fixed terms of repayment, therefore, deemed payable on demand. The loans from
related parties are to meet the Company’s need in operation.
As of
August 31, 2009 and 2008, the outstanding debt owed to Nanjin Runji, a related
company, owned by Zhao and Yang, loaned $7,135,035 and $7,135,856, respectively,
to the Company on a short-term basis in order to finance its
operations. The terms of the loans are non-interest bearing and have
no fixed terms of repayment, therefore, deemed payable on demand. The loans from
related parties are to meet the Company’s need in operation.
The above
amounts due to related parties represent loans payable are short-term loans that
are unsecured and non-interest bearing, and the loans usage will depends on the
Company’s business operations.
- 32
-
CHINA
RUNJI CEMENT INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE
11 – LONG-TERM LOAN
The
details for the Company’s long-term loan are as follows:
|
Year
Ended
31-Aug-09
|
Year
Ended
Aug-31-08
|
|||||||
|
Long-term
loan – Anhui Yuanzhong (current portion)
|
$
|
733,143
|
$
|
-
|
||||
|
Long-term
loan – Anhui Yuanzhong (Non-current portion)
|
235,174
|
-
|
||||||
|
$
|
968,317
|
$
|
-
|
|||||
NOTE
12 – COMMITMENTS AND CONTINGECIES
Social
insurance for employees
According
to the prevailing laws and regulations of the PRC, the Company is required to
cover its employees with medical, retirement and unemployment insurance
programs. Management believes that due to the transient nature of its employees,
the Company does not need to provide all employees with such social insurances,
and has paid the social insurances for the Company’s employees who have
completed three months’ continuous employment with the Company.
In the
event that any current or former employee files a complaint with the PRC
government, the Company may be subject to making up the social insurances as
well as administrative fines. As the Company believes that these fines would not
be material, no provision has been made in this regard.
Tax
Issues
The tax
authority of the PRC Government conducts periodic and ad hoc tax filing reviews
on business enterprises operating in the PRC after those enterprises had
completed their relevant tax filings, hence the Company’s tax filings may not be
finalized. It is therefore uncertain as to whether the PRC tax authority may
take different views about the Company’s tax filings which may lead to
additional tax liabilities.
NOTE
13 – INCOME TAXES
The
Company’s Enterprise Income Tax (“EIT”) rate of 25%,
|
Year
Ended
31-Aug-09
|
Year
Ended
31-Aug-08
|
|||||||
|
Income
before income taxes
|
$ | 4,239,428 | $ | 9,179,187 | ||||
|
Permanent
differences:
|
||||||||
|
Government
subsidy
|
(3,249,975 | ) | (1,300,652 | ) | ||||
|
Misc.
non-deductable expenses
|
563,651 | 987,481 | ||||||
|
Income
Taxes (at 25% tax rate)
|
$ | 388,276 | $ | 2,216,504 | ||||
There are
no significant temporary differences between book and tax income. The tax
authority of the PRC Government conducts periodic and ad hoc tax filing reviews
on business enterprises
operating
in the PRC after those enterprises had completed their relevant tax filings,
hence the Company’s tax filings may not be finalized. It is therefore uncertain
as to whether the PRC tax authority may take different views about the Company’s
tax filings which may lead to additional tax liabilities.
The
Company has no United States corporate income tax liability as of August 31,
2009 and 2008.
- 33
-
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
NOTE
14 – SEGMENT INFORMATION
The
Company operates in major one industry segment – research, development,
manufacture, marketing and sales of cement products. Substantially
all of the Company’s identifiable assets and operations at Aug 31, 2009 and Aug
31, 2008 were located in the PRC.
NOTE
15 - OPERATING RISK
Country
risk
The
Company has significant investments in the PRC. The operating results of the
Company may be adversely affected by changes in the political and social
conditions in the PRC and by changes in Chinese government policies with respect
to laws and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things. There
can be no assurance; however, those changes in political and other conditions
will not result in any adverse impact.
Source of
Supply
The
Company purchases components for its products from a number of suppliers.
However, on occasion, a customer’s specifications may require us to purchase
components from a specific supplier. The Company does not have any long term
contracts with any of its suppliers, and the Company believes that alternative
suppliers are available. Although the Company has not been subject to shortages
for any of its components, since it does not have long-term contracts, the
Company may be subject to cutbacks and price increases which it may not be able
to pass on to its customers in the event that the demand for components
generally exceeds the capacity of its suppliers.
NOTE
16 – IMPORTANT ASSETS’ MORTGAGE & GUARANTEE ISSUES
|
(a)
|
The
Company reached an asset mortgage agreement with Nanjing Runji Building
Materials Industrial Ltd., Co. on April 30, 2008. Nanjing Runji Building
Materials Industrial Ltd., Co. acquired a short term bank loan of
USD$1,461,881 with an interest rate of 7.47% per annum in Nanjing
Daxinggong Branch of Bank of Construction in China commencing on April 30,
2008 and expiring on April 29, 2009. The bank loan was mortgaged by assets
of Anhui Province Runji Cement Ltd., Co., and the mortgage period is from
April 30, 2008 to April 29, 2009. Runji provided the mortgage to Nanjing
Runji Building Materials Industrial Ltd., Co., including the principal of
USD$1,461,881, interest (including compound interest and default
interest), penalties, claims, and other payments that the debtor should
pay to the mortgage. The mortgage asset list below was decided by Runji’s
management when it provided the mortgage to Nanjing Runji Building
Materials Industrial Ltd., Co.
|
Mortgage
Asset List
|
Mortgage
Asset Name
|
Ownership
Certificate No.
|
Location
|
Area
or Quantity
|
Mortgage
Asset Value (USD$)
|
Whether
mortgaged for other debts
|
Notes
|
||||||
|
Land
Usage Right
|
Han
State (2005) No. 083
|
Xianzhong
Town,
Hanshan
County,
Anhui
Province
|
64,051.6
Square Meters
|
1,526,263
|
No
|
Total
original area: 278,691 Square Meters
|
||||||
|
House
|
Real
Estate Property Zi Guan No. 06001650
|
Runji
Cement Factory Area
|
8,690.21
Square Meters
|
1,034,296
|
No
|
|||||||
|
House
|
Real
Estate Property Right Zi Guan No. 06001652
|
Runji
Cement Factory Area
|
3,258.63
Square Meters
|
387,837
|
No
|
|||||||
|
Total
|
2,948,396
|
|
(b)
|
The
Company reached a credit guaranty agreement with Nanjing Runji Building
Materials Industrial Ltd., Co. on March 31, 2008. Nanjing Runji Building
Materials Industrial Ltd., Co. thus received a one-year short term bank
loan of USD$2,923,763 with an interest rate of 7.47% per annum from
Daxinggong Branch of Bank of Construction in China commencing on March 31,
2008 and expiring on March 30, 2009. Runji Cement provided credit guaranty
to Nanjing Runji Building Materials Industrial Ltd., Co. The guaranty
period is from March 31, 2008 until the maturity of the bank loan two
years thereafter. The credit guaranty includes the principal of
USD$2,923,763, interest (including compound interest and default
interest), penalties, claims, and other payments that the debtor should
pay to the mortgage.
|
NOTE
17 – SUBSEQUENT
EVENTS
The
Company has evaluated subsequent events through November 25, 2009, which is the
date the financial statements were issued, and has concluded that no such events
or transactions took place which would require disclosure herein.
- 34
-
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
None.
Item
9A. Controls
and Procedures
Not
Applicable.
Evaluation of Disclosure
Controls and Procedures
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer, Mr. Shouren Zhao
(“CEO”) and Chief Financial Officer, Ms. Xiangfei Zeng (“CFO”), of the
effectiveness of the Company’s disclosure controls and procedures (as defined
under Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the
period covered by this report. Based upon that evaluation, the Company’s CEO and
CFO concluded that the Company’s disclosure controls and procedures were
effective to provide reasonable assurance that information required to be
disclosed by the Company in the reports that the Company files or submits under
the Exchange Act, is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules, regulations and forms, and that such
information is accumulated and communicated to the Company’s management,
including the Company’s CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.
Management Report on
Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
(i) effectiveness and efficiency of operations, (ii) reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and (iii) compliance
with applicable laws and regulations.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, 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.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of August 31, 2009 In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organization of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on that assessment, Management has concluded that
the Company’s internal control over financial reporting was effective as of
August 31, 2009.
This
annual 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 management's report in this annual report.
Changes in Internal
Controls
During
the year ended August 31, 2009 there were no changes in our internal control
over financial reporting that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item
9B.
Other Information
- 35
-
Item
10. Directors,
Executive Officers and Corporate
Governance
The
following table sets forth the name, age, and position of our executive officers
and directors of as of August 31, 2009.
|
Name
|
Age
|
Position
|
||
|
Shouren
Zhao
|
52
|
Chairman,
Chief Executive Officer and President
|
||
|
Xiangfei
Zeng
|
39
|
Chief
Financial Officer
|
||
|
Xuanjun
Yang
|
52
|
Director
|
||
|
Liming
Bi
|
42
|
Director
|
The
directors will serve as directors until our next annual shareholder meeting or
until a successor is elected who accepts the position. Officers hold their
positions at the will of the Board of Directors, absent any employment
agreement. There are no arrangements, agreements or understandings between
non-management shareholders and management under which non-management
shareholders may directly or indirectly participate in or influence the
management of our affairs.
Biographies
Shouren Zhao, Chairman, Chief Executive Officer and
President – 52
Mr. Zhao
has extensive experience in construction management. He established Tongshi
Dajiangnan Cement Factory in Hainan in 1992 with an annual production of 200
thousand tons. From 1997-2002, he established, capitalized and managed Shanghai
Jiangxin Co., Ltd, Zhejiang Hengtong Textile Co., Ltd, Jiangxi Hengtong Real
Estate Co., Ltd. In 2003, he established a joint venture known as
Nanjing Hongren Real Estate Co., Ltd. Also in 2003, he established the joint
venture known as Anhui Runji. Mr. Zhao received an award as
Hainan Province’s “Entrepreneur of the Year,” as Shaoxing’s “Model
Worker.”
Xiangfei
Zeng, Chief Financial Officer – 39
Ms.
Xiangfei Zeng has over 15 years' experience in corporate finance, financial
control and accounting management. Before joining the Company, Ms. Zeng was the
financial controller of China World Trade Corporation (CWTD.OB) beginning in
November 2004. From 2002 to 2004, Ms. Zeng was the CFO of Fenet Software Co.,
Ltd. From 1999 to 2002, she was the financial analysis manager in the China
center of Zhuhai Oplink Communication Inc. (NASDAQ: OPLK). From 1993
to 1999, she was the accountant and financial manager in Shenzhen Techo Telecom
Co., Ltd. (Shenzhen Stock Exchange: 000555). Ms. Zeng is a China certified
senior accountant and familiar with both China GAAP and US GAAP. She acquired a
Bachelor's Degree in Economics at Sun Yat-Sen University in 1993.
Xuanjun
Yang, Director – 52
Mr. Yang
has a degree in engineering. From 1973 – 1980, he performed
construction work for Zhejiang Zhuji Wuxie Handicraft Industry Community. From
1980-1993, he was a team leader on a major construction project. From
1997 – 2003, he was a shareholder of Jiangxi Hengtong Real Estate Company and
Nanjing Jinbo Real Estate company. From 2003 to date, he has been a
shareholder of Nanjing Hongren Real Estate company and Anhui Runji.
Liming
Bi, Director – 42
Mr. Bi is
a university graduate. He has been working at our company for many years in
production technology, facility management and quality control. In 2003, Mr. Bi
acted as Construction Deputy Commander in Chief and Production Deputy General
Manager, responsible for technology R&D. He has significant experience in
cement making and business management.
Meetings
of Our Board of Directors
Anhui
Runji’s Board of Directors held no meetings during the year ended August
31, 2009.
Director
Independence
Our
securities are quoted on the OTC Bulletin Board, which does not have any
director independence requirements. Once we engage further directors
and officers, we will develop a definition of independence and scrutinize our
Board of Directors with regard to this definition.
- 36
-
Audit
Committee
The
functions of the Audit Committee are currently carried out by our Board of
Directors. Our Board of Directors has determined that we do not have a financial
expert on our Board of Directors carrying out the duties of the Audit Committee.
The Board of Directors has determined that the cost of hiring a financial expert
to act as a director of the Company and to be a member of the Audit Committee or
otherwise perform Audit Committee functions outweighs the benefits of having a
financial expert on the Audit Committee.
Significant
Employees
Other
than the directors and officer described above, we do not expect any other
individuals to make a significant contribution to our business.
Family
Relationships
There are
no family relationships among our officers or directors. However, Ting Zhao,
Executive Director of Anhui Runji is the son of Shouren Zhao, Chairman, CEO and
President of China Runji.
No
Legal Proceedings
None of
our directors, executive officers, promoters or control persons has been
involved in any of the following events during the past five years:
|
Ÿ
|
any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
|
|
Ÿ
|
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
|
Ÿ
|
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
Ÿ
|
being
found by a court of competent jurisdiction (in a civil action), the SEC or
the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
|
Section
16(a) of the Exchange Act requires a company’s directors and officers, and
persons who own more than ten-percent (10%) of the company’s common stock, to
file with the Securities and Exchange Commission reports of ownership on Form 3
and reports of change in ownership on Forms 4 and 5 if the company has a class
of securities registered under Section 12 of the Exchange
Act. Inasmuch as we had a class of securities registered under
Section 12 of the Exchange Act during the year ended August 31, 2009, our
officers, directors or 10% shareholders were required to file ownership
reports. We are current in our Section 16(a) beneficial ownership
reporting.
Code
of Ethics
We have
not yet adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions because we have not yet
finalized the content of such a code.
- 37
-
The
following table sets forth, as of August 31, 2009, the compensation paid to our
Chairman, Chief Executive Officer and President and our Chief Financial Officer
during the last three completed fiscal years. No other officers or directors
received annual compensation in excess of $100,000 during the last three
complete fiscal years.
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan Compensation
|
Nonqualified
Deferred Compensation
|
All
Other
Compensation
|
Total
|
|||||||||||
|
Shouren
Zhao
|
2009
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
0
|
||||||||||
|
2008
|
5,033
|
-
|
-
|
-
|
-
|
-
|
-
|
5,033
|
|||||||||||
|
2007
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
0
|
|||||||||||
|
Xiangfei
Zeng
|
2009
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
0
|
||||||||||
|
2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
0
|
|||||||||||
|
2007
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
0
|
We made
no grants of stock options or stock appreciation rights since our inception to
August 31, 2009.
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers. We have no material bonus or
profit sharing plans pursuant to which cash or non-cash compensation is or may
be paid to our directors or executive officers, except that stock options may be
granted at the discretion of the Board of Directors or a committee
thereof.
Compensation
Committee
We
currently do not have a compensation committee of the Board of Directors. The
Board of Directors as a whole determines executive compensation.
Compensation of
Directors
We did
not pay our directors any compensation for services rendered as a director in
the year ended August 31, 2009.
We have
no standard arrangement pursuant to which our directors are compensated for
their services in their capacity as directors. The Board of Directors may award
special remuneration to any director undertaking any special services on behalf
of our company other than services ordinarily required of a director. No
director received and/or accrued any compensation for his services as a
director, including committee participation and/or special
assignments.
Change of
Control
As of
August 31, 2009, we had no pension plans or compensatory plans or other
arrangements that provide compensation on the event of termination of employment
or change in control of the Company.
- 38
-
|
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder
Matters
|
The
following table sets forth certain information concerning the number of shares
of our common stock owned beneficially as of August 31,
2009 by:
(i) each of our directors, (ii) each of our named executive officers and (iii)
owners of 5% or more of our common shares. There was no other person or group
known by us to beneficially own more than 5% of our outstanding shares of common
stock. Unless otherwise indicated, the shareholders listed below possess sole
voting and investment power with respect to the shares they own. All persons
named have sole voting and investment power with respect to the shares, except
as otherwise noted. The number of shares described below includes shares which
the beneficial owner described has the right to acquire within 60 days of the
date of this Annual Report on Form 10-K.
|
Named
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
(%)
of
Class(1)
|
||
|
5%
Owners
|
||||
|
Cai Ying Jiang
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
27,872,000
|
(2)
|
35.4%
|
|
|
Wei Chu Meng
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
40,700,000
|
(3)
|
51.6%
|
|
|
Jing Yang
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
6,072,000
|
7.7%
|
||
|
Qiong Yang
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
6,000,000
|
7.6%
|
||
|
Min Yan Zhao
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
7,000,000
|
8.8%
|
||
|
Ting Zhao
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
7,700,000
|
9.8%
|
||
|
Executive
Officers
|
||||
|
Shouren Zhao
Chairman, CEO and President
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
40,700,000
|
(4)
|
51.6%
|
|
|
Directors
|
||||
|
Shouren Zhao
Chairman, CEO and President
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
40,700,000
|
(4)
|
51.6%
|
|
|
Xuanjun Yang, director
Xian Zhong Town, Han Shan County
Chao Hu City, Anhui Province
People’s Republic of China
|
27,872,000
|
(5)
|
35.4%
|
|
|
Officers
and Directors as a Group (2 individuals)
|
68,572,000
|
87.0%
|
|
(1)
|
There
are 78,832,064 shares of common stock issued and outstanding as of August
31, 2009.
|
|
(2)
|
Cai
Ying Jiang is the wife of Xuanjun Yang and owns 6,800,000 shares of common
stock. In addition, she beneficially owns her husband’s
9,000,000 shares of common stock, her daughter Jing Yang’s 6,072,000
shares and her daughter Qiong Yang’s 6,000,000
shares.
|
|
(3)
|
Wei
Chu Meng is the wife of Shouren Zhao and owns 7,500,000 shares of common
stock. In addition, she beneficially owns her husband’s
18,500,000 shares of common stock, her daughter Min Yan Zhao’s 7,000,000
shares and her son Ting Zhao’s 7,700,000
shares.
|
|
(4)
|
Shouren
Zhao is the Chairman and CEO of China Runji and owns 18,500,000 shares of
common stock. In addition, he beneficially owns his wife Wei
Chu Meng’s 7,500,000 shares of common stock, his daughter Min Yan Zhao’s
7,000,000 shares and his son Ting Zhao’s 7,700,000
shares.
|
|
(5)
|
Xuanjun
Yang is a director of China Runji and owns 9,000,000 shares of common
stock. In addition, he beneficially owns his wife Cai Ying
Jiang’s 6,800,000 share of common stock, his daughter Jing Yang’s
6,072,000 shares and his daughter Qiong Yang’s 6,000,000
shares.
|
- 39
-
There
were no material relationships, related transactions or other matters that bear
on director independence during the preceding three years except as hereinafter
set forth.
The
Company, Shouren Zhao, Timothy Crottey and the Ren Subsidiaries consummated the
Share Exchange on November 1, 2007, and the Company, Shouren Zhao and Timothy
Crottey consummated the Share Purchase also on November 1,
2007. Pursuant to the Share Exchange, Shouren Zhao acquired
55,000,000 shares of common stock from the Company under an exemption from
registration afforded by Regulation S of the Securities Act of 1933, as amended,
in exchange for 100% of the share capital of Ren Ji Cement Investment Co.,
Ltd. Pursuant to the Share Purchase, Shouren Zhao acquired 18,500,000
shares owned by Timothy Crottey in a private sale for $540,000. As a
result of the two transactions, Shouren Zhao acquired 73,500,000 of the
78,832,064 issued and outstanding shares of common stock of the Company,
representing 93.2% of the issued and outstanding shares. No
other directors or officers of the Company acquired any shares of common stock
in these transactions. Shouren Zhao was also appointed the Chairman,
Chief Executive Officer and President of the Company.
On
January 23, 2008, Shouren Zhao transferred 55,000,000 shares of common stock to
twenty-one investors in a Regulation S distribution at a purchase price of $.50
per share, including a director, his wife and their two
children. Shares were also transferred to members of Zhao’s family at
no consideration. The beneficial ownership table set forth in Item 12
of this Annual Report, provides information on the individuals who became
beneficial owners as a result of these transfers. Their Schedule
13D’s are a matter of record.
As of
August 31, 2009, Shouren Zhao loaned $611,899 to the Company on a short-term
basis in order to finance its operations. The terms of the loan are
non-interest bearing and have no fixed terms of repayment, therefore, deemed
payable on demand. The loans from related parties are to meet the Company’s need
in operation.
As of
August 31, 2009, Xuanjun Yang, a director, loaned $788,052 to the Company on a
short-term basis in order to finance its operations. The terms of the
loan are non-interest bearing and have no fixed terms of repayment, therefore,
deemed payable on demand. The loans from related parties are to meet the
Company’s need in operation.
As of
August 31, 2009, Nanjin Hongren and Nanjin Runji, related companies owned by
Zhao and Yang, loaned $8,279,088 and $7,135,035, repectively, to the Company on
a short-term basis in order to finance its operations. The terms of
the loans are non-interest bearing and have no fixed terms of repayment,
therefore, deemed payable on demand. The loans from related parties are to meet
the Company’s need in operation.
Except as
set forth above, we have not entered into any transactions with our officers,
directors, persons nominated for these positions, beneficial owners of 5% or
more of our common stock, or family members of these persons wherein the amount
involved in the transaction or a series of similar transactions exceeded the
lesser of $120,000 or 1% of the average of our total assets for the last three
fiscal years.
Audit
and Non-Audit Fees
The
following table represents fees for the professional audit services and fees
billed for other services rendered by our auditors for the audit of our annual
financial statements for the years ended August 31, 2009 and August 31, 2008 and
any other fees billed for other services rendered by our auditors during these
periods.
Malone
& Bailey, PC
|
Period from September 1, 2008 to August 31, 2009
|
||||
|
Audit fees
|
$ | 92,000 | ||
|
Audit-related fees
|
0 | |||
|
Tax fees
|
0 | |||
|
All other fees
|
$ | 92,000 | ||
|
Total
|
||||
|
Period from September 1, 2007 to August 31, 2008
|
||||
|
Audit fees
|
$ | 76,000 | ||
|
Audit-related fees
|
0 | |||
|
Tax fees
|
0 | |||
|
All other fees
|
0 | |||
|
Total
|
$ | 76,000 | ||
Since our
inception, our Board of Directors, performing the duties of the Audit Committee,
reviews all audit and non-audit related fees at least annually. The Board of
Directors as the Audit Committee pre-approved all audit related services in the
year ended August 31, 2009.
- 40
-
Item
15. Exhibits
and Financial Statement Schedules
(a)
(1) Financial Statements
See
“Table of Contents to Consolidated Financial Statements” set forth on page
20.
(a)
(2) Financial Statement Schedules
None. The
financial statement schedules are omitted because they are inapplicable or the
requested information is shown in our financial statements or related notes
thereto.
Exhibits
|
Exhibit
Number
|
Exhibit
Description
|
|
|
3.1
|
Articles
of Incorporation of the Company (1)
|
|
|
3.2
|
Bylaws
of the Company (1)
|
|
|
10.1
|
Share
Exchange Agreement between, among others, Fitmedia, Shouren Zhao and
Timothy Crottey (2)
|
|
|
10.2
|
Stock
Purchase Agreement between Fitmedia, Shouren Zhao and Timothy Crottey
(2)
|
|
|
21.1
|
List
of Subsidiaries
|
|
|
Ren
Ji Cement Investment Co., Ltd., incorporated in British Virgin
Islands
|
||
|
Ren
Ji Cement Company, Ltd. incorporated in Hong Kong
|
||
|
Anhui
Province Runji Cement Co., Ltd. incorporated in China
|
||
|
31.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
|
(1)
|
Incorporated
by reference from Exhibit 3 to FitMedia’s Registration Statement on Form
SB-2, filed with the Commission on May 13, 2005
|
|
(2)
|
Included
as exhibits on our Form 8-K filed with the Commission on November 7,
2007.
|
- 41
-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the Company has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
CHINA
RUNJI CEMENT INC.
|
||
|
Date: November
25, 2009
|
By:
|
/s/
Shouren Zhao
|
|
Shouren
Zhao,
|
||
|
Chairman,
Chief Executive Officer and President
(principal
executive officer)
|
||
Pursuant
to the requirements of the Exchange Act, this Report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
|
Date
|
||
|
/s/
Shouren Zhao
|
November
25, 2009
|
|
|
Shouren
Zhao,
Chairman,
Chief Executive Officer and President
(principal
executive officer)
|
||
| /s/ Xiangfei Zeng |
November
25, 2009
|
|
| Xiangfei Zeng | ||
| Chief Financial Officer | ||
| (principal financial officer and accounting officer) | ||
| /s/ Xuanjun Yang |
November 25,
2009
|
|
|
Xuanjun
Yang
Director
|
||
| /s/ Liming Bi |
November
25, 2009
|
|
|
Liming
Bi
Director
|
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