Attached files
file | filename |
---|---|
EX-32.1 - Xinde Technology Co | v174314_ex32-1.htm |
EX-32.2 - Xinde Technology Co | v174314_ex32-2.htm |
EX-31.2 - Xinde Technology Co | v174314_ex31-2.htm |
EX-31.1 - Xinde Technology Co | v174314_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 31, 2009
OR
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For
the transition period from ______ to __________
COMMISSION
FILE NUMBER: 000-53672
WASATCH FOOD SERVICES,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
20-812712
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
Number
363, Sheng Li West Street, Weifang, Shandong Province,
The People’s Republic of
China
(Address
of principal executive offices)
(011)
86-536-8322068
(Registrant’s
Telephone Number, Including Area Code)
Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company 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 Exchange Act. Yes o No x
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: As of February 15, 2010, the registrant
had 60,000,000 shares of common stock, par value $0.001 per share, issued and
outstanding.
TABLE OF CONTENTS
PAGE
|
||
PART
I FINANCIAL INFORMATION
|
2
|
|
ITEM
1. FINANCIAL STATEMENTS
|
F-1-F-30
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
4-13
|
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
14
|
|
ITEM
4. CONTROLS AND PROCEDURES
|
14
|
|
PART
II OTHER INFORMATION
|
14
|
|
ITEM
1. LEGAL PROCEEDINGS
|
14
|
|
ITEM
1A. RISK FACTORS
|
15
|
|
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
15
|
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
15
|
|
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
|
15
|
|
ITEM
5. OTHER INFORMATION
|
15
|
|
ITEM
6. EXHIBITS
|
15
|
|
SIGNATURES
|
17
|
|
EXHIBIT
31.1
|
31.1
|
|
EXHIBIT
31.2
|
31.2
|
|
EXHIBIT
32.1
|
32.1
|
|
EXHIBIT
32.2
|
32.2
|
2
PART
I
FINANCIAL
INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Page
|
||
Condensed
Consolidated Balance Sheets as of December 31, 2009 (Unaudited) and June
30, 2009
|
F-1-F-2
|
|
Condensed
Consolidated Statements of Income and Comprehensive Income for the Three
and Six Months Ended December 31, 2009 and 2008
|
F-3
|
|
Condensed
Consolidated Statements of Changes in Shareholders’ Equity for the Six
Months Ended December 31, 2009 (Unaudited)
|
F-4
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended December
31, 2009 and 2008 (Unaudited)
|
F-5-F-6
|
|
Notes
to Condensed Consolidated Financial Statements for the Three and Six
Months Ended December 31, 2009 and 2008 (Unaudited)
|
F-7-F-30
|
3
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
|
June 30,
|
|||||||
2009
|
2009
|
|||||||
(Unaudited)
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 119,599 | $ | 127,576 | ||||
Accounts
receivable, net of allowance for doubtful accounts of
$204,889
and $157,642 as of December 31, 2009 and June 30, 2009,
respectively
|
37,955,012 | 37,791,206 | ||||||
Inventories
|
16,564,015 | 7,851,133 | ||||||
Notes
receivable from unrelated individuals
|
47,608 | 47,555 | ||||||
Notes
receivable from related individuals
|
555,783 | 556,630 | ||||||
Bank
acceptance notes
|
13,571,563 | 156,980 | ||||||
Prepayments
for goods
|
344,187 | 374,384 | ||||||
Prepaid
expenses and other receivables
|
32,298 | 28,101 | ||||||
Due
from employees
|
318,537 | 103,869 | ||||||
Due
from related parties
|
198,347 | 14,584 | ||||||
Deferred
taxes
|
63,444 | 52,735 | ||||||
Discontinued
operation
|
18,933 | - | ||||||
Total
Current Assets
|
69,789,326 | 47,104,753 | ||||||
LONG-TERM
ASSETS
|
||||||||
Plant
and equipment, net
|
3,090,095 | 2,740,763 | ||||||
Land
use rights, net
|
954,750 | 966,020 | ||||||
Construction
in progress
|
681,566 | 296,239 | ||||||
Deposit
for land use right
|
152,870 | 152,701 | ||||||
Deferred
taxes
|
120,377 | 122,772 | ||||||
Discontinued
operation
|
303,124 | - | ||||||
Total
Long-Term Assets
|
5,302,782 | 4,278,495 | ||||||
TOTAL
ASSETS
|
$ | 75,092,108 | $ | 51,383,248 |
See
accompanying notes to the condensed consolidated financial
statements
F-1
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND
SHAREHOLDERS’ EQUITY
December 31,
|
June 30,
|
|||||||
2009
|
2009
|
|||||||
(Unaudited)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 5,820,441 | $ | 5,220,636 | ||||
Value
added tax payable
|
12,278,064 | 89,611 | ||||||
Other
payables
|
755,904 | 1,436,101 | ||||||
Short-term
bank loans
|
3,349,324 | 2,758,314 | ||||||
Customer
deposits
|
224,971 | 313,447 | ||||||
Notes
payable
|
924,083 | 768,796 | ||||||
Income
tax payable
|
5,117,963 | 3,424,846 | ||||||
Due
to employees
|
134,260 | 616,719 | ||||||
Due
to related parties
|
506,232 | 844,549 | ||||||
Accrued
expenses and dividend payable
|
653,621 | 364,047 | ||||||
Discontinued
operation
|
334,755 | - | ||||||
Total
Current Liabilities
|
30,099,618 | 15,837,066 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Notes
payable
|
388,870 | 132,366 | ||||||
Discontinued
operation
|
133,913 | - | ||||||
Total
Long-Term Liabilities
|
522,783 | 132,366 | ||||||
TOTAL
LIABILITIES
|
30,622,401 | 15,969,432 | ||||||
CONTINGENCIES
|
||||||||
SHAREHOLDERS’
EQUITY
|
||||||||
Common
stock, $0.001 par value; 60,000,000 shares authorized; 60,000,000 and
42,000,000 shares issued and outstanding at December 31, 2009 and June 30,
2009, respectively
|
60,000 | 42,000 | ||||||
Additional
paid-in capital
|
924,723 | 1,055,432 | ||||||
Retained
earnings (the restricted portion is $204,070 at December 31, 2009 and June
30, 2009)
|
39,357,258 | 30,216,707 | ||||||
Accumulated
other comprehensive income
|
4,127,726 | 4,099,677 | ||||||
TOTAL
SHAREHOLDERS’ EQUITY
|
44,469,707 | 35,413,816 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 75,092,108 | $ | 51,383,248 |
See
accompanying notes to the condensed consolidated financial
statements
F-2
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND
COMPREHENSIVE
INCOME
(UNAUDITED)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
2009
|
December 31,
2008
|
December 31,
2009
|
December 31,
2008
|
|||||||||||||
REVENUES, NET
|
$ | 35,750,798 | $ | 10,510,018 | $ | 73,367,699 | $ | 29,013,878 | ||||||||
COST
OF GOODS SOLD
|
(28,962,481 | ) | (9,676,825 | ) | (60,590,584 | ) | (25,800,697 | ) | ||||||||
GROSS
PROFIT
|
6,788,317 | 833,193 | 12,777,115 | 3,213,181 | ||||||||||||
Selling
and marketing
|
849,851 | 288,902 | 1,282,423 | 792,644 | ||||||||||||
General
and administrative
|
194,410 | 160,074 | 487,529 | 456,330 | ||||||||||||
INCOME
FROM OPERATIONS
|
5,744,056 | 384,217 | 11,007,163 | 1,964,207 | ||||||||||||
Interest
expense, net
|
(70,647 | ) | (80,734 | ) | (176,936 | ) | (183,511 | ) | ||||||||
Other
income (expense), net
|
4,482 | 40,953 | (784 | ) | 43,875 | |||||||||||
INCOME
BEFORE INCOME TAXES
|
5,677,891 | 344,436 | 10,829,443 | 1,824,571 | ||||||||||||
INCOME
TAXES
|
961,736 | 57,401 | 1,688,892 | 520,735 | ||||||||||||
NET
INCOME
|
4,716,155 | 287,035 | 9,140,551 | 1,303,836 | ||||||||||||
- | ||||||||||||||||
OTHER
COMPREHENSIVE INCOME
|
||||||||||||||||
Foreign
currency translation (loss) gain
|
(837 | ) | 50 | 28,049 | 81,211 | |||||||||||
OTHER
COMPREHENSIVE (LOSS) INCOME
|
(837 | ) | 50 | 28,049 | 81,211 | |||||||||||
COMPREHENSIVE
INCOME
|
$ | 4,715,318 | $ | 287,085 | $ | 9,168,600 | $ | 1,385,047 | ||||||||
WEIGHTED
AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
|
42,782,609 | 42,000,000 | 42,391,304 | 42,000,000 | ||||||||||||
NET
INCOME PER COMMON SHARE, BASIC AND DILUTED
|
$ | 0.11 | $ | 0.01 | $ | 0.22 | $ | 0.03 |
See
accompanying notes to the condensed consolidated financial
statements
F-3
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE SIX MONTHS ENDED
DECEMBER 31, 2009
(UNAUDITED)
Common Stock
|
Additional
|
Retained
|
Accumulated
Other
Comprehensive
|
|||||||||||||||||||||
Shares
|
Par Value
|
Paid-in Capital
|
Earnings
|
Income
|
Total
|
|||||||||||||||||||
BALANCE AT JUNE 30, 2009
|
42,000,000 | $ | 42,000 | 1,055,432 | $ | 30,216,707 | $ | 4,099,677 | $ | 35,413,816 | ||||||||||||||
Recapitalization
|
18,000,000 | 18,000 | (130,709 | ) | - | - | (112,709 | ) | ||||||||||||||||
Foreign
currency translation gain
|
- | - | - | - | 28,049 | 28,049 | ||||||||||||||||||
Net
income
|
- | - | - | 9,140,551 | - | 9,140,551 | ||||||||||||||||||
BALANCE AT DECEMBER 31,
2009
|
60,000,000 | $ | 60,000 | $ | 924,723 | $ | 39,357,258 | $ | 4,127,726 | $ | 44,469,707 |
See
accompanying notes to the condensed consolidated financial
statements
F-4
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 2009 AND 2008
(UNAUDITED)
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 9,140,551 | $ | 1,303,836 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
124,616 | 128,234 | ||||||
Provision
for doubtful accounts
|
121,955 | 13,475 | ||||||
Deferred
taxes
|
(8,314 | ) | (18,004 | ) | ||||
Gain
on disposal of fixed assets
|
- | (5,970 | ) | |||||
Loss
on settlement of accounts receivable and accounts payable for fixed
assets
|
61,633 | - | ||||||
Changes
in operating assets and liabilities, net of effects of
acquisition:
|
||||||||
(Increase)
Decrease In:
|
||||||||
Accounts
receivable
|
(809,078 | ) | (3,872,250 | ) | ||||
Inventories
|
(8,353,060 | ) | 823,107 | |||||
Prepayments
for goods
|
30,197 | 212,478 | ||||||
Prepaid
expenses and other receivables
|
(2,862 | ) | 131,121 | |||||
Due
from employees
|
(214,668 | ) | 22,336 | |||||
Due
from related parties
|
(183,762 | ) | 231,943 | |||||
Increase
(Decrease) In:
|
||||||||
Accounts
payable
|
636,349 | (3,174,655 | ) | |||||
Value
added tax payable
|
12,188,453 | 91,517 | ||||||
Other
payables
|
(680,197 | ) | 21,575 | |||||
Taxes
payable
|
1,693,117 | 536,162 | ||||||
Customer
deposits
|
(88,477 | ) | (1,183,346 | ) | ||||
Due
to employees
|
(482,459 | ) | 45,747 | |||||
Due
to related parties
|
(338,316 | ) | 126,627 | |||||
Accrued
expenses and dividend payable
|
289,574 | 117,875 | ||||||
Net
cash provided by (used in) operating activities
|
13,125,252 | (4,448,192 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of plant and equipment
|
(96,197 | ) | (62,831 | ) | ||||
Purchases
of construction in progress
|
(682,561 | ) | (40,621 | ) | ||||
Proceeds
from disposal of fixed assets
|
- | 34,415 | ||||||
Reverse
merger, net of cash acquired
|
1,109 | - | ||||||
Repayment
of notes receivable
|
51,499,380 | 29,358,052 | ||||||
Issuance
of notes receivable
|
(64,904,916 | ) | (23,671,695 | ) | ||||
Net
cash (used in) provided by investing activities
|
(14,183,185 | ) | 5,617,320 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from short-term loans
|
2,923,558 | 582,835 | ||||||
Repayments
of short-term loans
|
(2,335,923 | ) | (789,742 | ) | ||||
Repayments
of notes payable
|
(1,018,846 | ) | (318,522 | ) | ||||
Proceeds
from notes payable
|
1,527,559 | - | ||||||
Repayments
of long-term debt
|
(101,597 | ) | - | |||||
Dividend
paid
|
- | (913,026 | ) | |||||
Net
cash provided by (used in) financing activities
|
$ | 994,751 | $ | (1,438,455 | ) |
See
accompanying notes to the condensed consolidated financial
statements
F-5
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
2009
|
2008
|
|||||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
$ | (63,182 | ) | (269,327 | ) | |||
Effect
of exchange rate changes on cash
|
55,205 | 145,931 | ||||||
Cash
and cash equivalents at beginning of period
|
127,576 | 164,435 | ||||||
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
$ | 119,599 | 41,039 | |||||
SUPPLEMENTARY
CASH FLOW INFORMATION
|
||||||||
2009
|
2008
|
|||||||
Income
taxes paid
|
$ | 9,712 | $ | 2,777 | ||||
Interest
paid
|
$ | 194,876 | $ | 212,555 |
SUPPLEMENTAL
NON-CASH DISCLOSURES:
1. During
the six months ended December 31, 2009, accounts receivable with a carrying
amount of $523,317 was settled by a fixed asset with a fair value of $95,016 and
inventories with a fair value of $359,822, resulting in a loss of
$68,479.
2. During
the six months ended December 31, 2009, accounts payable with a carrying amount
of $36,544 was settled by a fixed asset with a net book value of $29,698,
resulting in a gain of $6,846.
3. During
the six months ended December 31, 2009 and 2008, $297,775 and $60,034 were
transferred from construction in progress to plant and equipment,
respectively.
See
accompanying notes to the condensed consolidated financial
statements
F-6
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 1 –
ORGANIZATION AND PRINCIPAL ACTIVITIES
Wasatch
Food Services, Inc., (“Wasatch” or the “Company”) was incorporated under the
laws of the State of Nevada on December 20, 2006 to engage as a franchisee of
certain restaurants in the State of Idaho through its wholly owned subsidiary,
Wasatch Food Services of Idaho, Inc. ("Bajio").
Wasatch
has been unsuccessful in developing Bajio into a profitable business. On
December 28, 2009, Wasatch entered into a stock purchase agreement to sell one
hundred percent (100%) of the capital stock of Bajio in consideration of a
payment of $1,000 in addition to the assumption by Bajio of certain liabilities
of Wasatch as more fully set forth in the purchase agreement.
In
accordance with ASC 360-10 (formerly SFAS 144, “Accounting for the Impairment or
Disposal of Long−Lived Assets,”) the assets and liabilities of the Bajio as of
December 31, 2009 are removed from the detail line items to the “discontinued
operation” of the Company’s financial statements.
Jolly
Promise Limited (“JPL”) was incorporated under the laws of the British Virgin
Islands (“BVI”) on July 2, 2008 and is a wholly-owned subsidiary of Welldone
Pacific Limited. (“WPL”), a BVI registered company.
On August
6, 2009, JPL entered into a share exchange agreement with the shareholder of
Hong Kong Sindhi Fuel Injection Co., Ltd. (“HKSIND”), a company incorporated in
Hong Kong. Pursuant to the share exchange agreement, JPL acquired all of the
issued and outstanding common stock of HKSIND. As a result of the share
exchange, HKSIND became a wholly-owned subsidiary of JPL.
On
October 24, 2009, HKSIND established a new company, Weifang Huajie Fuel
Injection System Co., Ltd. (“Huajie”), as the sole shareholder under the laws of
PRC.
Weifang
Xinde Fuel Injection System Co., Ltd. (“Xinde”) is an investment holding
company. The principal activities of Xinde and its subsidiaries are the design,
development, manufacture, and commercialization of fuel injection pumps,
injectors, multi-cylinder diesel engines and small generator units for the
People’s Republic of China (the “PRC”) and overseas markets.
On
November 13, 2009, all the shareholders of Xinde entered into a share exchange
agreement with Huajie to transfer all the shares of Xinde to Huajie for $116,418
in cash. Huajie is a new company established under the laws of the PRC solely by
HKSIND, a company incorporated in Hong Kong, on October 24, 2009. As a result of
the share exchange, Xinde became a wholly-owned subsidiary of Huajie. Huajie and
Xinde only act as holding companies with no operations or expenses, and
therefore, the business of Huajie will continue to be that of Xinde’s
wholly-owned subsidiaries, Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
("Hengyuan"), Weifang Jinma Diesel Engine Co., Ltd. (“Jinma”) and Weifang Huaxin
Diesel Engine Co., Ltd. (“Huaxin”).
F-7
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
On
December 28, 2009, Wasatch Food Services Inc. (“Wasatch”) executed a share
exchange agreement by and between Wasatch, Jolly Promise Ltd. (“JPL”) and
Welldone Pacific Limited., a British Virgin Islands Company which owns 100% of
JPL (the “JPL’s shareholder”). Under the share exchange
agreement, Wasatch issued 42,000,000 shares of its common stock,
representing 70% of the Wasatch’s issued and outstanding common stock after
giving effect to the cancellation of 13,038,692 shares on December 28,
2009, to JPL’s shareholder in exchange for 100% of the common stock of JPL.
Prior to the transaction, Wasatch had a total of 18,000,000 shares of common
stock issued and outstanding. After the closing of the transaction,
Wasatch had a total of 60,000,000 shares of common stock issued and
outstanding, with JPL’s shareholder owning 70% of the total issued and
outstanding shares of Wasatch’s common stock, and the balance held by those who
held shares of Wasatch’s common stock prior to the closing of the exchange. This
share exchange transaction resulted in JPL’s shareholder obtaining a majority
voting interest in Wasatch.
After the
share exchange, JPL and its wholly-owned subsidiaries became a wholly-owned
subsidiary of Wasatch, and Xinde became the principal operating subsidiary. The
exchange transaction was accounted for as a reverse acquisition in accordance
with ASC 805-10 (formerly Statement of Financial Accounting Standards (“SFAS”)
No. 141 "Business Combinations". The acquisition is accounted for as the
recapitalization of Xinde. Accordingly, the condensed consolidated statements of
income include the results of operations of Xinde and its subsidiaries from July
1, 2009 and 2008, and the results of operations of Wasatch from the acquisition
date through December 31, 2009.
Details
of Wasatch and its subsidiaries (the “Company”) as of December 31, 2009 are as
follows:
Name
|
Place and Date
of
Establishment/
Incorporation
|
Relationships
|
Principal Activities
|
|||
Jolly
Promise Ltd. (“JPL”)
|
British
Virgin Island
July
2, 2008
|
Wholly-owned
subsidiary of Wasatch
|
Investment
holding company
|
|||
H.K.
Sindhi Fuel Injection Co., Ltd (“HKSIND”)
|
Hong
Kong, PRC,
June
7, 2004
|
Wholly-owned
subsidiary of JPL
|
Investment
holding company
|
|||
Weifang
Huajie Fuel Injection Co., Ltd. (“Huajie”)
|
Shandong,
PRC
October.
24 2009
|
Wholly-owned
subsidiary of HKSIND
|
Investment
holding
company
|
F-8
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Name
|
Place and Date
of
Establishment/
Incorporation
|
Relationship
|
Principal Activities
|
|||
Weifang
Xinde Fuel Injection
System Co., Ltd.
(“Xinde”)
|
Shandong,
PRC
October
29, 2007
|
Wholly-owned
subsidiary of Huajie
|
Investment
holding company
|
|||
Weifang
Hengyuan Oil Pump & Oil Fitting Co., Ltd.
("Hengyuan")
|
Shandong,
PRC,
December
21, 2001
|
Wholly-owned
subsidiary of Xinde
|
Design,
development, manufacture, and commercializing of fuel injection pump,
diesel fuel injection systems and injectors
|
|||
Weifang
Jinma Diesel Engine Co., Ltd. (“Jinma”)
|
Shandong,
PRC
September
19, 2003
|
Wholly-owned
subsidiary of Xinde
|
Manufacture
and sale of multi-cylinder diesel engine and small generating
units
|
|||
Weifang
Huaxin Diesel Engine Co., Ltd. (“Huaxin”)
|
Shandong,
PRC
October
20, 2003
|
Wholly-owned
subsidiary of Xinde
|
Manufacture
and sale of multi-cylinder diesel engine and small generating
units
|
Inter-company
accounts and transactions have been eliminated in consolidation.
NOTE 2 – BASIS OF
PRESENTATION
The
Company’s unaudited condensed consolidated financial statements and for the
three and six months ended December 31, 2009 and 2008 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the requirements for reporting on Rule 8-03 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
However,
such information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for the fair
presentation of the consolidated financial position and the consolidated results
of operations. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full year. The condensed consolidated
balance sheet information as of June 30, 2009 was derived from the audited
consolidated financial statements included in Form 8-K. These interim condensed
consolidated financial statements should be read in conjunction with that
report.
F-9
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 2 – BASIS OF
PRESENTATION (CONTINUED)
On July
1, 2009, The Company adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards
Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement
of FASB Statement No. 162). ASC 105-10 establishes the FASB ASC as the
source of authoritative accounting principles recognized by the FASB to be
applied in preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America (“U.S. GAAP”).
The adoption of this standard had no impact on the Company’s consolidated
financial statements.
NOTE 3 – USE OF
ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Management makes these estimates using the best
information available at the time the estimates are made; however actual results
when ultimately realized could differ from those estimates.
NOTE 4 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
(a)
|
Economic
and Political Risks
|
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other
things.
F-10
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)
|
Fair
Value of Financial Instruments
|
ASC
820-10 (formerly SFAS No. 157, Fair Value Measurements) establishes a
three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value. The hierarchy prioritizes the inputs into three levels based on the
extent to which inputs used in measuring fair value are observable in the
market.
These
tiers include:
•
Level 1—defined as observable inputs such as quoted prices in active
markets;
•
Level 2—defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable; and
•
Level 3—defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820-10 as of December 31, 2009 are as follows:
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
Carrying
Value as of
December
31, 2009
(Unaudited)
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Cash
and cash equivalents
|
$ | 119,599 | $ | 119,599 | $ | - | $ | - | ||||||||
Bank
acceptance notes
|
$ | 13,571,563 | $ | 13,571,563 | $ | - | $ | - |
(c)
|
Cash
and Cash Equivalents
|
For
financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturity of three months or less to be cash
equivalents. The Company maintains no bank account in the United States of
America.
(d)
|
Inventories
|
Inventories
are stated at the lower of cost or net realizable value. The cost of raw
materials is determined on the basis of weighted average. The cost of finished
goods is determined on the weighted average basis and comprises direct
materials, direct labor and an appropriate proportion of overhead.
Net
realizable value is based on estimated selling prices less any further costs
expected to be incurred for completion and disposal.
(e)
|
Prepayments
|
Prepayments
represent cash paid in advance to suppliers for purchases of raw
materials.
F-11
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f)
|
Plant
and Equipment
|
Plant and
equipment are carried at cost less accumulated depreciation and amortization.
Depreciation is provided over their estimated useful lives, using the
straight-line method. Leasehold improvements are amortized over the life of the
asset or the term of the lease, whichever is shorter. Estimated
useful lives are as follows:
Buildings
|
30
years
|
Machinery
|
10
years
|
Motor
vehicles
|
5
years
|
Office
equipment
|
5
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to expense as
incurred, whereas significant renewals and betterments are
capitalized.
(g)
|
Construction
in Progress
|
Construction
in progress represents direct costs of construction or the acquisition cost of
buildings or machinery and design fees. Capitalization of these costs ceases and
the construction in progress is transferred to plant and equipment when
substantially all the activities necessary to prepare the assets for their
intended use are completed. No depreciation is provided until the assets are
completed and ready for their intended use.
(h)
|
Land
Use Rights
|
According
to the laws of China, land in the PRC is owned by the government and cannot be
sold to an individual or company. However, the government grants the user
a “land use right” to use the land. The land use right granted to the
Company is being amortized using the straight-line method over the lease term of
fifty years.
(i)
|
Impairment
of Long-Term Assets
|
Long-term
assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to the guidelines established in ASC
360-10. The Company considers assets to be impaired if the carrying value
exceeds the future projected cash flows from the related operations. The
Company also re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
There was no impairment in 2009 and 2008.
F-12
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j)
|
Revenue
Recognition
|
Revenue
represents the invoiced value of goods sold, recognized upon the shipment of
goods to customers. Revenue is recognized when all of the following criteria are
met:
-Persuasive
evidence of an arrangement exists,
-Delivery
has occurred or services have been rendered,
-The
seller's price to the buyer is fixed or determinable, and
-Collectability
is reasonably assured.
The
majority of the Company’s revenue results from sales contracts with distributors
and revenue is recorded upon the shipment of goods. Management conducts credit
background checks for new customers as a means to reduce the subjectivity of
collectability.
The
Company offers warranties on its products for periods between three and six
months after the sale. The Company does not estimate and accrue a warranty
reserve because warranty claims have historically been infrequent and
insignificant. Warranty expenses related to product sales are charged to the
condensed consolidated statements of income and comprehensive income in the
period in which warranty claims occur. During the six months ended
December 31, 2009 and 2008, warranty expense was $77,765 and $44,832 for
respectively, and is included in selling and marketing expenses in the
accompanying condensed consolidated statements of income and comprehensive
income.
(k)
|
Retirement
Benefits
|
Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to expense as incurred. The
retirement benefits expense for the six months ended December 31, 2009 and 2008
are $11,070 and $6,312, respectively. All the retirement benefits expenses are
included in general and administrative expenses.
F-13
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)
|
Income
Taxes
|
Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statement of income in the period that
includes the enactment date. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will either expire before the
Company is able to realize their benefits, or that future deductibility is
uncertain. Also see Note 14.
(m)
|
Foreign
Currency Translation
|
The
accompanying condensed consolidated financial statements are presented in United
States dollars. The functional currency of the Company is the Renminbi (RMB).
Capital accounts of the consolidated financial statements are translated into
United States dollars from RMB at their historical exchange rates when the
capital transactions occurred. Assets and liabilities are translated at the
exchange rates as of balance sheet date. Income and expenditures are translated
at the average exchange rate of the quarter.
December
31, 2009
|
June 30,
2009
|
December
31, 2008
|
||||||||||
Period
end RMB : US$ exchange rate
|
6.8372 | 6.8448 | - | |||||||||
Period
average RMB : US$ exchange rate
|
6.8410 | - | 6.8630 |
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
the rates used in translation.
(n)
|
Comprehensive
Income
|
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, all
items that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements. Comprehensive income includes net income and the foreign currency
translation (loss) gain.
F-14
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o)
|
Earnings
Per Share
|
Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no potentially dilutive securities for the three and six month ended
December 31, 2009 and 2008.
(p)
|
Segment
|
The
Company operates in one business segment, the design, development, manufacture,
and commercialization of fuel injection pumps, injectors, multi-cylinder diesel
engines and small generator units mainly in the PRC. The sales by the Company
outside of the PRC were insignificant for the three and six months ended
December 31, 2009 and 2008.
(q)
|
Recent
Accounting Pronouncements
|
Effective
January 1, 2009, the FASB issued ASC 810-10 (formerly SFAS No. 160),
Noncontrolling Interests in Consolidated Financial Statements. This statement
establishes accounting and reporting standards that require the ownership
interests in subsidiaries’ non-parent owners be clearly presented in the equity
section of the balance sheet; requires the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
requires that changes in a parent’s ownership interest while the parent retains
its controlling financial interest in its subsidiary be accounted for
consistently; requires that when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value and the gain or loss on the deconsolidation of the subsidiary be
measured using the fair value of any noncontrolling equity; requires that
entities provide disclosures that clearly identify the interests of the parent
and the interests of the noncontrolling owners. This statement is effective as
of the beginning of an entity’s first fiscal year that begins after December 15,
2008. The Company has determined that ASC 810-10 does not materially affect, or
is reasonably likely to materially affect its financial statements.
Effective
January 1, 2009, the FASB issued ASC 815-10 (formerly SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133), which amends SFAS No.133 and expands disclosures to include
information about the fair value of derivatives, related credit risks and a
company's strategies and objectives for using derivatives. ASC 815-10 is
effective for fiscal periods beginning on or after November 15, 2008. The
Company has determined that ASC 815-10 does not materially affect, or is
reasonably likely to materially affect its financial
statements.
F-15
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q)
|
Recent
Accounting Pronouncements
(Continued)
|
Effective
January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task
Force (“EITF”) Issue No. 07-05), Determining Whether an Instrument (or Embedded
Feature) is indexed to an Entity’s Own Stock. ASC 815-40 addresses the
determination of whether an instrument (or an embedded feature) is indexed to an
entity's own stock, which is the first part of the scope exception in paragraph
11(a) of FASB SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (“SFAS 133”). If an instrument (or an embedded feature) that has the
characteristics of a derivative instrument under paragraphs 6–9 of SFAS 133 is
indexed to an entity's own stock, it is still necessary to evaluate whether it
is classified in stockholders' equity (or would be classified in stockholders'
equity if it were a freestanding instrument). Other applicable authoritative
accounting literature, including Issues ASC 815-40 (formerly EITF 00-19),
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock, and ASC 815-40 (formerly EITF 05-2), The
Meaning of “Conventional Debt Instrument” in Issue No. 00-19, provides guidance
for determining whether an instrument (or an embedded feature) is classified in
stockholders' equity (or would be classified in stockholders' equity if it were
a freestanding instrument). The adoption of ASC 815-40 did not have a
material effect on the condensed consolidated financial statements as of
September 30, 2009.
On April
1, 2009, the FASB approved ASC 805-20 (formerly FSP FAS 141(R)-1), Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, which amends Statement 141(R) and eliminates the distinction
between contractual and non-contractual contingencies. Under ASC 805-20, an
acquirer is required to recognize at fair value an asset acquired or liability
assumed in a business combination that arises from a contingency if the
acquisition-date fair value of that asset or liability can be determined during
the measurement period. If the acquisition-date fair value cannot be determined,
the acquirer applies the recognition criteria in ASC 450-10 (formerly SFAS No.
5, Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of
the Amount of a Loss – and interpretation of FASB Statement No. 5,”) to
determine whether the contingency should be recognized as of the acquisition
date or after it. The Company is currently evaluating the potential impact of
adopting this statement.
ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amend the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. It did not amend existing recognition and measurement guidance
related to other-than-temporary impairments of equity securities. The Company is
required to adopt this ASC for interim and annual reporting periods ending after
June 15, 2009. This ASC does not require disclosures for periods presented for
comparative purposes at initial adoption. This ASC requires comparative
disclosures only for periods ending after initial adoption. The Company is
currently evaluating the potential impact of adopting this
statement.
F-16
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q)
|
Recent
Accounting Pronouncements
(Continued)
|
On April
9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB
28-1), Interim Disclosures about Fair Value of Financial Instruments to require
disclosures about fair value of financial instruments in interim period
financial statements of publicly traded companies and in summarized financial
information required by ASC 825-10, Interim Financial Reporting. The Company is
required to adopt this ASC for interim and annual reporting periods ending after
June 15, 2009. This ASC does not require disclosures for periods presented for
comparative purposes at initial adoption. This ASC requires comparative
disclosures only for periods ending after initial adoption. The Company is
currently evaluating the potential impact of adopting this
statement.
NOTE 5 –
CONCENTRATIONS
(a) Customers
The
Company’s major customers accounted for the following percentages of total sales
and accounts receivable as follows:
Sales
Six Months Ended
|
Accounts Receivable
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
Major Customers
|
2009
|
2008
|
2009
|
June 30, 2009
|
||||||||||||
Company
A
|
3.7 | % | 4.8 | % | - | - | ||||||||||
Company
B
|
2.7 | % | - | 2.4 | % | - | ||||||||||
Company
C
|
2.6 | % | - | 2.0 | % | - | ||||||||||
Company
D
|
2.3 | % | - | 0.1 | % | - | ||||||||||
Company
E
|
2.3 | % | - | 3.1 | % | - | ||||||||||
Company
F
|
- | 4.2 | % | - | - | |||||||||||
Company
G
|
- | 3.7 | % | - | 0.7 | % | ||||||||||
Company
H
|
- | 3.4 | % | - | 4.4 | % | ||||||||||
Company
I
|
- | 3.3 | % | - | 3.9 | % |
F-17
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 5 –
CONCENTRATIONS (CONTINUED)
(b) Suppliers
The
Company’s major suppliers accounted for the following percentages of total
purchases and accounts payable as follows:
Purchases
|
Accounts Payable
|
|||||||||||||||
Six Months Ended
|
||||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
Major Suppliers
|
2009
|
2008
|
2009
|
June 30, 2009
|
||||||||||||
Company
J
|
7.0 | % | 8.6 | % | - | 1.0 | % | |||||||||
Company
K
|
4.3 | % | 4.6 | % | - | - | ||||||||||
Company
L
|
2.8 | % | - | 0.5 | % | - | ||||||||||
Company
M
|
4.3 | % | 3.8 | % | 3.7 | % | 0.1 | % | ||||||||
Company
N
|
1.9 | % | - | 1.1 | % | - | ||||||||||
Company
O
|
- | 8.0 | % | - | 0.1 | % | ||||||||||
Company
P
|
- | 3.2 | % | - | - |
NOTE 6 –
INVENTORIES
Inventories
are summarized as follows:
December 31,
2009
|
June 30,
2009
|
|||||||
(Unaudited)
|
||||||||
Raw
materials
|
$ | 9,714,463 | $ | 6,186,654 | ||||
Work-in-progress
|
649,465 | 580,377 | ||||||
Finished
goods
|
6,200,088 | 1,084,102 | ||||||
Total
inventories
|
$ | 16,564,016 | $ | 7,851,133 |
F-18
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 7 – NOTES
RECEIVABLE FROM UNRELATED/RELATED INDIVIDUALS
Notes
receivable from unrelated/related individuals consist of the
following:
December 31,
2009
|
June 30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Notes
receivable from unrelated individuals:
|
|||||||||
Due
December 30, 2009, interest at 10% per annum
(subsequently
settled on its due date)
|
$ | - | $ | 25,640 | |||||
Due
December 30, 2009, interest at 10% per annum
(subsequently
settled on its due date)
|
- | 21,915 | |||||||
Due
December 24, 2010, interest at 10% per annum
|
25,669 | - | |||||||
Due
December 24, 2010, interest at 10% per annum
|
21,939 | - | |||||||
Total
|
$ | 47,608 | 47,555 | ||||||
Notes
receivable from related individuals:
|
|||||||||
Due
December 30, 2009, interest at 10% per annum (subsequently settled on its
due date)
|
(a)
|
- | 1,461 | ||||||
Due
March 31, 2010, interest at 7.2% per annum (subsequently received on
January 25, 2010 in advance)
|
(b)
|
555,783 | 555,169 | ||||||
Total
|
$ | 555,783 | $ | 556,630 |
Notes
receivable from unrelated individuals are unsecured.
(a) This
note is due from Mr. Li Zengshan, who is the director and 12.73% shareholder of
the Company. The balance represents a loan from the Company which was
unsecured.
(b) This
note is due from Mr. Jin Xin, who is director and 12.73% shareholder of the
Company. The balance represents a loan from the Company which is
unsecured.
NOTE 8 – BANK
ACCEPTANCE NOTES
December 31,
2009
|
June 30,
2009
|
|||||||
(Unaudited)
|
||||||||
Bank
acceptance notes (aggregated by month of maturity):
|
||||||||
Due
July, 2009 (subsequently settled on its due date)
|
- | 156,980 | ||||||
Due
January, 2010 (subsequently settled on its due date)
|
534,766 | - | ||||||
Due
February, 2010 ($53,851 was subsequently settled on its due
date)
|
1,753,376 | - | ||||||
Due
March, 2010
|
4,471,567 | - | ||||||
Due
April, 2010
|
2,623,882 | - | ||||||
Due
May, 2010
|
2,250,044 | - | ||||||
Due
June, 2010
|
1,937,928 | - | ||||||
Total
|
$ | 13,571,563 | $ | 156,980 |
F-19
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 9 – DUE
FROM/TO RELATED PARTIES
(I)
|
Due
From Related Parties
|
December
31,
2009
|
June
30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Jin
Xin
|
(a)
|
192,617 | - | ||||||
Liu
Huixiang
|
(g)
|
5,730 | - | ||||||
Jin
Ping
|
(b)
|
$ | - | $ | 14,584 | ||||
Total
due from related parties
|
$ | 198,347 | $ | 14,584 |
(II)
|
Due
To Related Parties
|
December
31,
2009
|
June
30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Liu
Dianjun
|
(c)
|
$ | 391,655 | $ | 403,475 | ||||
Li
Zengshan
|
(d)
|
68,242 | 45,668 | ||||||
Jin
Xin
|
(a)
|
- | 395,406 | ||||||
Zhang
Qixiu
|
(e)
|
32,177 | - | ||||||
Jin
Wei
|
(f)
|
14,158 | - | ||||||
Total
due to related parties
|
$ | 506,232 | $ | 844,549 |
(III)
|
Due
From Employees
|
December
31,
2009
|
June
30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Current
|
$ | 318,537 | $ | 103,869 | |||||
Total
due from employees
|
(h)
|
$ | 318,537 | $ | 103,869 |
(IV)
|
Due
To Employees
|
December
31,
2009
|
June
30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Current
|
$ | 134,260 | $ | 616,719 | |||||
Total
due to employees
|
(i)
|
$ | 134,260 | $ | 616,719 |
(a)
|
Jin
Xin is the shareholder of the Company and the chairman of Jinma, a
subsidiary of the Company. The receivable balance represented traveling
advances, which were unsecured, interest-free and collectible on demand.
The payable balance represented prepayments for goods paid by Jin Xin on
behalf of the Company, which are unsecured, interest-free and has no fixed
repayment term.
|
(b)
|
Jin
Ping is the brother of Jin Xin, also see (a). The receivable balance
represented a traveling advance, which was unsecured, interest-free and
collectible on demand.
|
F-20
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 9 – DUE
FROM/TO RELATED PARTIES (CONTINUED)
(c)
|
Liu
Dianjun is a 34.44% shareholder of the Company and the chairman of
Hengyuan, a subsidiary of the Company. The balances represent money
advanced from Liu Dianjun, which are interest-free, unsecured and have no
fixed repayment terms.
|
(d)
|
Li
Zengshan is a shareholder of the Company and the chairman of Huaxin, a
subsidiary of the Company. The balances of $45,668 represent an unpaid
dividend, and the balance of $22,574 represents business related expenses
paid by Li Zengshan on behalf of the Company. The balances are
interest-free, unsecured and has no fixed repayment
term.
|
(e)
|
Zhang
Qixiu is the mother of Jin Xin, also see (a). The balance represents
business related expenses paid by Zhang Qixiu on behalf of the Company,
which are interest-free, unsecured and have no fixed repayment
term.
|
(f)
|
Jin
Wei is the brother of Jin Xin, also see (a). The balance represents money
advanced from Jin Wei, which is interest-free, unsecured and have no fixed
repayment term.
|
(g)
|
Liu
Huixiang is the son of Liu Dianjun, also see (c). The balance represented
the advance for daily business operation, which is unsecured,
interest-free and receivable on
demand.
|
(h)
|
Due
from employees are interest-free, unsecured and have no fixed repayment
terms. The Company provides these advances for business-related purposes
only, including for the purchases of raw materials and business-related
travel in the ordinary course of
business.
|
(i)
|
Due
to employees are interest-free, unsecured and have no fixed repayment
terms. The amounts primarily represent business and traveling related
expenses paid by sales personnel on behalf of the
Company.
|
NOTE 10 – LAND USE
RIGHTS
Land use
rights consist of the following:
December
31,
2009
|
June
30,
2009
|
|||||||
(Unaudited)
|
||||||||
Cost
of land use rights
|
$ | 1,082,192 | $ | 1,082,192 | ||||
Less:
Accumulated amortization
|
(127,442 | ) | (116,172 | ) | ||||
Land
use rights, net
|
$ | 954,750 | $ | 966,020 |
Amortization
expense for the six months ended December 31, 2009 and 2008 was $11,270 and
$11,234 respectively.
F-21
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 10 – LAND USE
RIGHTS (CONTINUED)
Amortization
expense for the next five years and thereafter is as follows:
2010
(six months)
|
$ | 11,270 | ||
2011
|
22,540 | |||
2012
|
22,540 | |||
2013
|
22,540 | |||
2014
|
22,540 | |||
Thereafter
|
853,320 | |||
Total
|
$ | 954,750 |
Two land
use rights with an aggregate net book value of $52,446 and $53,170 at December
31, 2009 and June 30, 2009, respectively, were registered in the names of two
management members of the Company. The Company’s PRC legal counsel has confirmed
the ownership of these two land use rights by the Company. The Company estimates
that the application for the transfer of the certificates of these two land use
rights will be completed by in June, 2010. These two land use rights were
pledged as collateral for bank loans borrowed by Li Zengshan and Liu Dianjun
(both are shareholders of the Company) in the amounts of $413,992 and $78,564,
respectively. Also see Note 17.
At
December 31, 2009 and June 30, 2009, the net book value of land use rights
pledged as collateral for bank loans was $743,467 and $752,059, respectively.
Also see Note 12.
NOTE
11 – PLANT AND EQUIPMENT
Plant and
equipment consist of the following:
December
31,
2009
|
June
30,
2009
|
|||||||
(Unaudited)
|
||||||||
At
cost:
|
||||||||
Buildings
|
$ | 2,806,581 | $ | 2,505,871 | ||||
Machinery
and equipment
|
1,014,664 | 988,414 | ||||||
Office
equipment
|
47,376 | 40,279 | ||||||
Motor
vehicles
|
428,917 | 301,104 | ||||||
4,297,538 | 3,835,668 | |||||||
Less
: Accumulated depreciation
|
||||||||
Buildings
|
(380,530 | ) | (336,677 | ) | ||||
Machinery
and equipment
|
(557,725 | ) | (507,106 | ) | ||||
Office
equipment
|
(32,546 | ) | (27,282 | ) | ||||
Motor
vehicles
|
(236,642 | ) | (223,840 | ) | ||||
(1,207,443 | ) | (1,094,905 | ) | |||||
Plant
and equipment, net
|
$ | 3,090,095 | $ | 2,740,763 |
Depreciation
expense for the six months ended December 31, 2009 and 2008 was $113,346 and
$117,000 respectively.
F-22
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
11 – PLANT AND EQUIPMENT (CONTINUED)
At
December 31, 2009, the legal title to five motor vehicles and two office
buildings with a total net book value of $82,118 and $648,247 were registered in
the names of management members of the Company. The Company’s PRC legal counsel
has confirmed the ownership of the motor vehicles and office buildings by the
Company. The Company estimates the transfer of the legal titles of the other
four motor vehicles will be completed by the end of June, 2010.
Two
office buildings were pledged as collateral for bank loans borrowed by Li
Zengshan and Liu Dianjun (both are shareholder of the Company) in the amounts of
$413,762 and $78,503, respectively. Also see Note 17.
Application
for ownership certificates of twelve buildings with an aggregate net book value
of $1,200,029 is in progress. The Company’s PRC legal counsel has confirmed the
ownership of the ten buildings by the Company. One of the twelve building’s
ownership certificate was subsequently received on January 8, 2010. The
application for the certificates of the buildings is expected to be completed in
June, 2010.
At
December 31, 2009 and June 30, 2009, the net book value of plant and equipment
pledged as collateral for bank loans was $73,259 and $993,461, respectively.
Also see Note 12.
NOTE
12 – SHORT-TERM BANK LOANS
Short-term
bank loans consist of the following:
December 31,
2009
|
June 30,
2009
|
|||||||
(Unaudited)
|
||||||||
Weifang
City Commercial Bank:
|
||||||||
Monthly
interest only payments at 7.97% per annum, due May 14, 2010, secured by a
land use right owned by the Company. Also see Note 10. (Repaid on August
16, 2009 in advance)
|
$ | - | $ | 292,194 | ||||
Rural
Credit Cooperative:
|
||||||||
Monthly
interest only payments at 7.97% per annum, due April 20, 2010, guaranteed
by Weifang Tongxin Precision Rubber Products Co., Ltd. and Weifang Dachang
Energy-Saving Equipment Co., Ltd.
|
131,633 | 131,487 |
F-23
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE
12 – SHORT-TERM BANK LOANS (CONTINUED)
December 31,
2009
|
June 30,
2009
|
|||||||
(Unaudited)
|
||||||||
Bank
of Communications
|
||||||||
Monthly
interest only payments at 8.22% per annum, due July 22, 2009, secured by a
land use right owned by the Company. Also see Note 10. (Repaid on its due
date)
|
$ | - | $ | 464,589 | ||||
Monthly
interest only payments at 8.22% per annum, due July 22, 2009, secured by a
building owned by the Company. Also see Notes 10 and 11. (Repaid on its
due date)
|
- | 993,461 | ||||||
Monthly
interest only payments at 5.84% per annum, due July 23, 2010, secured by a
land use right owned by the Company and guaranteed by a shareholder, Liu
Dianjun. Also see Note 10.
|
146,259 | - | ||||||
Monthly
interest only payments at 5.84% per annum, due July 23, 2010, secured by a
building owned by the Company and guaranteed by a shareholder, Liu
Dianjun. Also see Note 11.
|
585,035 | - | ||||||
Weifang
Commercial Bank
|
||||||||
Monthly
interest only payments at 9.7% per annum, due August 16, 2009, guaranteed
by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd. (Repaid on its
due date)
|
- | 292,194 | ||||||
Monthly
interest only payments at 7.43% per annum, due June 17, 2010, guaranteed
by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
|
292,517 | - | ||||||
Monthly
interest only payments at 7.43% per annum, due July 27, 2010, guaranteed
by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
|
585,035 | - | ||||||
Monthly
interest only payments at 7.97% per annum, due October 19, 2010,
guaranteed by Weifang Hengyuan Oil Pump & Oil Fitting Co.,
Ltd.
|
292,517 | - |
F-24
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 12 –
SHORT-TERM BANK LOANS (CONTINUED)
December 31,
2009
|
June 30,
2009
|
|||||||
(Unaudited)
|
||||||||
Industrial
and Commercial Bank of China:
|
||||||||
Monthly
interest only payments at 5.84% per annum, due May 6, 2010, secured by a
land use right owned by the Company. Also see Note 10.
|
$ | 511,905 | $ | 511,340 | ||||
Monthly
interest only payments at 5.84% per annum, due April 20, 2010, secured by
land use right owned by the Company. Also see Note 10.
|
73,129 | 73,049 | ||||||
China
Construction Bank:
|
||||||||
Monthly
interest only payments at 5.84% per annum, due September 2, 2010, borrowed
by Hengyuan, guaranteed by a shareholder, Liu Dianjun and
Xinde.
|
731,294 | - | ||||||
Total
|
$ | 3,349,324 | $ | 2,758,314 |
Interest
expense for short-term bank loans for the six months ended December 31, 2009 and
2008 was $199,059 and $186,409 respectively.
F-25
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 13 – NOTES
PAYABLE
Notes
payable consist of the following:
December
31,
2009
|
June
30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Notes
payable to an unrelated individual:
|
|||||||||
Due
January 21, 2010, interest at 10% per annum
(subsequently
settled on its due date)
|
$ | 42,415 | $ | 42,368 | |||||
Due
December 24, 2010 interest at 10% per annum
|
97,897 | - | |||||||
Due
December 30, 2009, interest at 10% per annum
(Settled
on its due date)
|
- | 131,487 | |||||||
Subtotal
|
140,312 | 173,855 | |||||||
Notes
payable to related individuals:
|
|||||||||
Due
May 12, 2010, interest at 5.76% per annum
(Settled
in advance)
|
(a)
|
- | 29,219 | ||||||
Due
May 12, 2010, interest at 5.76% per annum
|
(a)
|
32,502 | 32,466 | ||||||
Due
December 30, 2009, interest at 10% per annum
(Settled
on its due date)
|
(b)
|
- | 94,963 | ||||||
Due
August 4, 2010, interest at 6.91% per annum
|
(b)
|
71,166 | - | ||||||
Due
December 24, 2010, interest at 10% per annum
|
(b)
|
95,068 | - | ||||||
Subtotal
|
198,736 | 156,648 | |||||||
Bank
acceptance notes:
|
|||||||||
Due
March 11, 2010
|
438,776 | - | |||||||
Due
August 2, 2009 (Settled on its due date)
|
- | 438,293 | |||||||
Due
April 29, 2010
|
146,259 | - | |||||||
Subtotal
|
585,035 | 438,293 | |||||||
Total
|
$ | 924,083 | $ | 768,796 |
(a)
|
The
notes are or were due to Mr. Liu Dianjun, who is a 34.44% shareholder of
the Company. The current balance represents a loan to the Company which is
unsecured.
|
(b)
|
This
note is due to Mr. Li Zengshan, who is a shareholder of the Company. The
current balances represent loans to the Company which are
unsecured.
|
Notes
payable to an unrelated individual are unsecured.
F-26
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 14 – LONG
-TERM DEBT
Long-term
debt consists of the following:
September 30,
2009
|
June 30,
2009
|
||||||||
(Unaudited)
|
|||||||||
Notes
payable to related individuals:
|
|||||||||
Due
August 4, 2014, monthly interest payment is 6.91% per annum. Principal is
repaid every month in 60 equal installments from August 4,
2009.
|
(b)
|
$ | 342,826 | $ | - | ||||
Due
May 12, 2013, interest at 5.76% per annum (Settled in
advance)
|
(a)
|
- | 76,505 | ||||||
Due
May 12, 2012, monthly interest payment is 5.76% per annum. Principal is
repaid every month in 108 equal installments from May 15,
2003.
|
(a)
|
46,044 | 55,861 | ||||||
Total
|
$ | 388,870 | $ | 132,366 |
(a)
|
The
current note is due to Mr. Liu Dianjun, who is a 34.44% shareholder of the
Company. The balance represents a loan to the Company to support business
operations.
|
(b)
|
This
note is due to Mr. Li Zengshan, who is a shareholder of the Company. The
balance represents a loan to the Company to support business
operations.
|
Notes
payable to related individuals are unsecured.
NOTE
15 –TAXES
(a)
|
Corporation
Income Tax (“CIT”)
|
On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China (the “new CIT law”), which went into
effective on January 1, 2008. In accordance with the relevant tax laws and
regulations of PRC, the applicable corporate income tax rate for Hengyuan is
25%. In 2009 and 2008, Jinma and Huaxin were defined by the local tax
bureau as tax payers subject to the “Verification Collection” method, according
to which the amount of income taxes paid is determined by the local tax bureau
based on certain criteria instead of applying the CIT rate of 25%. Therefore,
the amount of income tax assessed for Jinma and Huaxin under this Verification
Collection method differed from the normal computation by applying the CIT rate
of 25%.
Effective
January 1, 2007, the Company adopted ASC 740-10, Accounting for Uncertainty in
Income Taxes (formerly "FIN 48", an interpretation of FASB statement No. 109),
Accounting for Income Taxes. The interpretation addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements.
F-27
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 15 – TAXES
(CONTINUED)
Under ASC
740-10, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10
also provides guidance on de-recognition, classification, interest and penalties
on income taxes, accounting in interim periods and requires increased
disclosures. As of December 31, 2009, the Company did not have a liability for
unrecognized tax benefits.
The
Company’s income tax expense for the six months ended December 31, 2009 and 2008
are summarized as follows:
December
31, 2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Current:
|
||||||||
Provision
for CIT
|
$ | 1,697,205 | $ | 538,236 | ||||
Deferred:
|
||||||||
Provision
for CIT
|
(8,313 | ) | (17,501 | ) | ||||
Income
tax expense
|
$ | 1,688,892 | $ | 520,735 |
The
Company’s income tax expense differs from the “expected” tax expense for the six
months ended December 31, 2009 and 2008 (computed by applying the CIT rate of
25% percent to income before income taxes) as follows:
December 31,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Computed
“expected” expense
|
$ | 2,594,943 | $ | 456,259 | ||||
Permanent
differences
|
(37,282 | ) | (24,215 | ) | ||||
Favourable
tax rates
|
(868,769 | ) | 88,691 | |||||
Income
tax expense
|
$ | 1,688,892 | $ | 520,735 |
The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities as of December 31, 2009 and June 30, 2009 are as
follows:
December 31,
2009
|
June 30, 2009
|
|||||||
(Unaudited)
|
||||||||
Deferred
tax assets:
|
||||||||
Current
portion:
|
||||||||
Sales
|
$ | 635 | $ | 15,621 | ||||
Bad
debt provision
|
51,222 | 20,694 | ||||||
Expenses
|
60,444 | 54,703 | ||||||
Subtotal
|
$ | 112,301 | $ | 91,018 |
F-28
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 15 – TAXES
(CONTINUED)
December 31
2009
|
June 30, 2009
|
|||||||
(Unaudited)
|
||||||||
Deferred
tax liabilities:
|
||||||||
Current
portion:
|
||||||||
Sales
cut-off
|
$ | (23,114 | ) | $ | (19,065 | ) | ||
Others
|
(25,743 | ) | (19,218 | ) | ||||
Subtotal
|
(48,857 | ) | (38,283 | ) | ||||
Net
deferred tax assets - current portion
|
63,444 | 52,735 | ||||||
Deferred
tax assets:
|
||||||||
Non-current
portion:
|
||||||||
Depreciation
|
105,627 | 99,921 | ||||||
Amortization
|
14,750 | 22,851 | ||||||
Subtotal
|
120,377 | 122,772 | ||||||
Net
deferred tax assets - non-current portion
|
120,377 | 122,772 | ||||||
Total
net deferred tax assets
|
$ | 183,821 | $ | 175,507 |
(b) Tax
Holiday Effect
For the
six months ended December 31, 2009 and 2008 the PRC corporate income tax rate
was 25%. Certain subsidiaries of the Company are entitled to favorable tax rates
for the six months ended December 31, 2009 and 2008.
The
combined effects of the favorable tax rates available to the Company for the six
months ended December 31, 2009 and 2008 are as follows:
For the Six Months Ended
December 31
(Unaudited)
|
||||||||
2009
|
2008
|
|||||||
Tax
holiday effect
|
$ | (868,769 | ) | $ | 88,691 | |||
Basic
net income per share effect
|
$ | 0.020 | $ | 0.002 |
(c) Value
Added Tax (“VAT”)
Enterprises
or individuals, who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
Chinese Laws. The value added tax standard rate is 17% of the gross sale price
and the Company records its revenue net of VAT. A credit is available whereby
VAT paid on the purchases of semi-finished products or raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on the sales of the finished products.
F-29
WASATCH
FOOD SERVICES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
NOTE 15 – TAXES
(CONTINUED)
On
January 1, 2002, the export policy of VAT "Exemption, Credit and
Refund" began to apply to all exports by manufacture-based
enterprises. In accordance with this policy, exported goods are exempted
from output VAT and the input VAT charged for purchases of the raw materials,
components and power consumed for the production of the exported goods may be
refunded. The refund rates of diesel engine related products applicable to the
company are from 13% to 17%.
The VAT
payable was $12,278,064 and $89,611 at December 31, 2009 and June 30, 2009,
respectively.
NOTE
16 – DIVIDENDS
For the
six months ended December 31, 2008, the Company declared and paid cash dividends
of $913,026. The dividend payable was $85,247 and $92,072 at December
31, 2009 and June 30, 2009, respectively. Also see Note 9(d).
NOTE
17 – CONTINGENCIES
On May
15, 2003, Hengyuan entered into a guarantee contract to serve as guarantor for
the bank loans borrowed by Mr. Liu Dianjun, 34.44% shareholder of the company,
from Industrial and Commercial Bank of China with a guarantee amount of
$78,503. Under this guarantee contract, a land use right and an office
building of Hengyuan were pledged for the bank loans. (Also see Notes 10 and
11)
On August
4, 2009, Hengyuan entered into a guarantee contract to serve as guarantor for
bank loans borrowed by Mr. Li Zengshan, 12.73% shareholder of the company, from
the Industrial and Commercial Bank of China with a guarantee amount of
$413,762. Under this guarantee contract, a land use right and an office
building of Hengyuan were pledged for the bank loans. (Also see Notes 10 and
11)
NOTE
18 – COMMITMENT
The
Company has a capital commitment of approximately $575,939 for the construction
of the new production line in connection with the new plant as of December 31,
2009.
NOTE
19 – SUBSEQUENT EVENTS
In
preparing the condensed consolidated financial statements, the Company has
evaluated all subsequent events and transactions for potential recognition or
disclosure through February 16, 2010, the date the condensed consolidated
financial statements were issued.
F-30
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward
Looking Statements
The
following discussion of the financial condition and results of operations of
Wasatch Food Services, Inc. (the “Company” or “Wasatch”) is based
upon and should be read in conjunction with our unaudited condensed consolidated
financial statements and their related notes included in this report. This
report contains forward-looking statements. Generally, the words “believes”,
“anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”,
“continue” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the SEC from time to
time, which could cause actual results or outcomes to differ materially from
those projected. Undue reliance should not be placed on these forward-looking
statements which speak only as of the date hereof. We undertake no obligation to
update these forward-looking statements.
Prior
Operations of the Company
Wasatch was incorporated in Nevada in
December 2006 to engage as a franchisee of BAJIO® Mexican
Grill restaurants in the State of Idaho. In January 2007, Wasatch was
assigned certain rights under an area development agreement with Bajio, LLC (the
franchisor) that granted Wasatch the right to develop four BAJIO®
restaurant locations in Southern Idaho through December 31, 2009. In
October 2007, Wasatch entered into its first franchise agreement in Boise,
Idaho and thereafter entered into a lease, furnished and equipped the space and
opened for business in November 2007. Wasatch failed to open any additional
BAJIO®
restaurants within the time periods set forth in the area development agreement
and lost its right to develop such additional restaurants. During this time and
up to December 29, 2009, Wasatch conducted its operations solely through its
wholly-owned subsidiary, Bajio.
Wasatch was unsuccessful in developing
Bajio into a profitable business. Since inception in December 2006 through
December 31, 2009, Wasatch’s operating costs and expenses exceeded its operating
revenues, resulting in an accumulated deficit of $560,673. Wasatch had funded
its start-up costs and the excess of its costs and expenses over its operating
revenues primarily from the sale of its Common Stock and notes payable to
related parties and to its bank. As of December 31, 2009, Wasatch had current
assets of $21,377 (including cash of $6,193) and current liabilities of
$334,756, resulting in a working capital deficiency of $313,379.
Wasatch executed a purchase agreement
to sell Bajio following the consummation of the share exchange transaction
described in the section below.
The
Share Exchange Transaction
On December 28, 2009 (the “Closing Date”),
Wasatch entered into a share exchange agreement, or the Exchange Agreement, with
Jolly Promise Limited, an investment holding company organized under the laws of
the British Virgin Islands (“Jolly”) and the
stockholder of Jolly, Welldone Pacific Limited, a limited company organized
under the laws of the British Virgin Islands (the “Stockholder”). As a
result of the share exchange, or the Exchange, Wasatch acquired all of the
issued and outstanding securities of Jolly from the Stockholder in exchange for
forty-two million (42,000,000) newly-issued shares of Wasatch’s common stock,
par value $0.001 per share (“Common Stock”).
Immediately following the Exchange, the Stockholder owned seventy percent (70%)
of the sixty million (60,000,000) issued and outstanding shares of voting
capital stock of Wasatch. As a result of the Exchange, Jolly became a
wholly-owned subsidiary of Wasatch.
4
Following
the Exchange, the corporate structure of the Company consisted of Jolly, a
wholly-owned subsidiary of the Company, Jolly’s wholly-owned subsidiary, Hong
Kong Sindhi Fuel Injection Company Limited, a Hong Kong company (“HKSind”), HKSind’s
wholly-owned subsidiary, Weifang Huajie Fuel Injection Company Limited, a
People’s Republic of China or PRC company (“Huajie”), Huajie’s
wholly-owned subsidiary, Weifang Xinde Fuel Injection System Company Limited, a
PRC company (“Weifang”) and
Weifang’s wholly-owned subsidiaries, Huaxin Diesel Engine Co., Ltd., a PRC
company (“Huaxin”), Hengyuan
Oil Pump and Oil Fitting Co., Ltd., a PRC company (“Hengyuan”) and Jinma
Diesel Engine Co., Ltd., a PRC company (“Jinma” and together
with Jolly, HKSind, Huajie, Weifang, Huaxin and Hengyuan, the “Subsidiaries”). The
principal business activities of the Company and its Subsidiaries consist of the
production and marketing of fuel injection systems, non-vehicle diesel engines,
and diesel generator technology.
Our Common Stock is currently traded on
the Over-The-Counter Bulletin Board and on the Pink Sheets under the symbol
“WTFS.OB”.
Current
Operations of the Company
Introduction
Our Company operates in one business
segment, the design, development, manufacture, and commercialization of fuel
injection pumps, injectors, multi-cylinder diesel engines and small generator
units mainly in the People’s Republic of China. However, our products compete in
three primary product segments, namely (1) fuel injection system products,
(2) diesel engine products and (3) generator products. We believe our
broad range of products (including non-vehicle diesel engines, diesel
generators, injection pumps, injectors and three-coupling components, and
agricultural machinery and construction machinery) greatly reduces our
comprehensive costs which in turn, increases our competitiveness.
Summary of the Company’s Current
Business
Our Company is based in China’s
Shandong Province in the city of Weifang, where many large and medium-sized
diesel engine enterprises and relevant products and components manufacturers are
located. Weifang is also an important traffic center on the east coast in
northern China. We believe our location makes the purchase of raw materials and
sales of our products very convenient and reduces the costs associated with
sales while reducing freight costs.
We have developed fuel injection system
products that we believe will meet the Euro III Emissions Standard, which will
become most relevant in light of China’s initiative to implement the Euro III
Emissions Standard in July 2010. Furthermore, we believe that we are
China’s only company with exclusive intellectual property rights for fuel
injection systems meeting such Euro III Emissions Standard which could lead to
broad market appeal. Due to our strict technical standards and quality control
in production process, our products have become well-known brands in their
markets throughout China. Our Company has always placed quality control first
and we received our ISO9001 certification in 2005. Moreover, our products have
been deemed “inspection-free” goods. During China’s “Eleventh Five-Year Plan”
(2006 through 2010), we intend to implement and pass ISO/TS16949 standards which
are the most advanced in China’s automobile industry.
Our products feature a cost and price
advantage arising from our independently owned intellectual property. For
example, our integrated electromechanical electronically-controlled
high-pressure fuel injection system with common rail sells for RMB7,000
(US$1,029) per set as compared with products produced by some of our largest
competitors (BOSCH and DENSO) which offer comparable products for RMB15,000
(US$2,011) per set. As a result, we believe such products will quickly gain
market share and be instrumental in improving our competitive position and brand
influence.
We also have a long-term relationship
with Tianjin University’s Combustion Laboratory of Combustion Engines, a
national key laboratory located in Tianjin, China, which contributes to our
growing expertise and reputation in the field of integrated electromechanical
electronically-controlled high-pressure fuel injection systems with common rail
in China. In addition, we have an experienced team of in-house technicians which
contributes to our product’s technical content and ultimately, our core
competitiveness.
5
Through independent development,
cooperation and introduction, we have developed a variety of diesel engine
injector assemblies for Sitair, 170, 190 and 105 models as well as
multi-cylinder No. 1, BX, BXD, IIW and DT12/24-10X (electronic regulator)
injection pump assemblies and oil transfer pumps. In addition, we have fully
acquired the production process and technology for EGR (Exhaust Gas
Recirculation) diesel engines and gas power generators that are in growing
demand in the marketplace.
Each of the Company’s subsidiaries has
its own marketing network. The Company’s goal is to utilize each of such
networks to create a countrywide network. The company has made its after-sales
service a priority, setting up a special after-sales service management
department to provide users with after-sales services.
Our principal offices are located at
Number 363, Sheng Li West Street, Weifang, Shandong Province, The People’s
Republic of China, Telephone: (86) 536-8322068, Facsimile:
852-28450504.
Description
of the Company’s Business Segments
The Company’ products compete in three
primary product segments, namely (1) fuel injection system products,
(2) diesel engine products and (3) generator products. We believe our
broad range of products (including non-vehicle diesel engines, diesel
generators, injection pumps, injectors and three-coupling components, and
agricultural machinery and construction machinery) greatly reduces our
comprehensive costs which in turn, increases our competitiveness.
A list of our products and services can
be found in our Current Report on Form 8-K as filed with the SEC on December 29,
2009 and on our website at http://www.chinaxinde.cn.
Enterprise
Marketing Strategy and Methods of Distribution
We have established nationwide
marketing and after-sale service networks in China. We have established more
than twenty branches throughout China, including Fu’an, Guangzhou, Dongguan,
Jiangdu, Chengdu, Chongqing, Kunming, Taiyuan, Shenyang, Changsha and Urumchi.
The Company employs agents throughout China, who receive commissions on the
amount of products that they help the Company to sell. Agreements with such
agents are generally formed during national trade fairs or other types of trade
exhibitions. We pay for transportation expenses and the products are generally
delivered via road vehicles.
Mobile technicians operate our
after-sales network. Each is assigned to a different geographical
area.
Sources and Availability of Raw
Materials from Suppliers
No single supplier accounted for more
than 10% of the Company’s purchases and accounts payable for the six months
ended December 31, 2009.
Key Customers
No single customer accounted for more
than 10% of the Company’s total revenue or accounts receivable for the six
months ended December 31, 2009.
Critical
Accounting Policies and Estimates
We prepare our financial statements in
accordance with generally accepted accounting principles in the United States,
which require us to make estimates and assumptions that affect the reported
amounts of our assets and liabilities, to disclose contingent assets and
liabilities on the date of the financial statements, and to disclose the
reported amounts of revenues and expenses incurred during the financial
reporting period. We continue to evaluate these estimates and assumptions that
we believe to be reasonable under the circumstances. We rely on these
evaluations as the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our
accounting policies require higher degrees of judgment than other in their
application.
6
This
section should be read together with the Summary of Significant Accounting
Policies included as Note 4 to the Condensed Consolidated Financial Statements
included herein.
Inventories
Inventories
are stated at the lower of cost or net realizable value. The cost of raw
materials is determined on the basis of weighted average. The cost of finished
goods is determined on the weighted average basis and comprises direct
materials, direct labor and an appropriate proportion of overhead.
Net
realizable value is based on estimated selling prices less any further costs
expected to be incurred for completion and disposal.
Plants and Equipment
Plants
and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is provided over their estimated useful lives, using
the straight-line method. Leasehold improvements are amortized over the life of
the asset or the term of the lease, whichever is shorter. Estimated
useful lives are as follows:
·
|
Buildings
|
30
years
|
·
|
Machinery
|
10
years
|
·
|
Motor
vehicles
|
5
years
|
·
|
Office
equipment
|
5
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to expense as
incurred, whereas significant renewals and betterments are
capitalized.
Revenue Recognition
Revenue
represents the invoiced value of goods sold, recognized upon the shipment of
goods to customers. Revenue is recognized when all of the following criteria are
met:
·
|
Persuasive
evidence of an arrangement exists,
|
·
|
Delivery
has occurred or services have been rendered,
|
·
|
The
seller's price to the buyer is fixed or determinable,
and
|
·
|
Collectability
is reasonably assured.
|
The
majority of the Company’s revenue results from sales contracts with distributors
and revenue is recorded upon the shipment of goods. Management conducts credit
background checks for new customers as a means to reduce the subjectivity of
collectability.
The
Company offers warranties on its products for periods between three and six
months after the sale. The Company does not estimate and accrue a warranty
reserve because warranty claims have historically been infrequent and
insignificant. Warranty expenses related to product sales are charged to the
condensed consolidated statements of income and comprehensive income in the
period in which warranty claims occur.
7
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statement of income in the period that
includes the enactment date. 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.
Comprehensive
Income
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, all
items that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements. Comprehensive income includes net income and the foreign currency
translation (loss) gain.
Earnings
Per Share
Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no potentially dilutive securities for the three and six month ended
December 31, 2009 and 2008.
Recently Issued Accounting
Pronouncement
A description of recent accounting
pronouncements is set forth under “Recent Accounting Pronouncements” in Note 4
of the Notes to the Condensed Consolidated Financial Statements contained in
this Quarterly Report on Form 10-Q, and such description is incorporated herein
by reference. Such description contains all of the information required with
respect thereto.
Results
of Operations
Comparison
of Three Months Ended December 31, 2009 and 2008
The
following table sets forth a summary of certain key components of our results of
operations for the periods indicated, in dollars and as a percentage of
revenues.
For Three
Months Ended
December 31,
2009
|
% Of
Revenue
|
For Three
Months Ended
December 31,
2008
|
% Of
Revenue
|
Change In
Amount
|
Change In
%
|
|||||||||||||||||||
REVENUES,
NET
|
$ | 35,750,798 | 100.00 | % | $ | 10,510,018 | 100.00 | % | $ | 25,240,780 | 240.16 | % | ||||||||||||
COST
OF GOODS SOLD
|
(28,962,481 | ) | (81.01 | )% | (9,676,825 | ) | (92.07 | )% | (19,285,656 | ) | 199.30 | % | ||||||||||||
GROSS
PROFIT
|
6,788,317 | 18.99 | % | 833,193 | 7.93 | % | 5,955,124 | 714.74 | % | |||||||||||||||
Selling
and distribution expenses
|
849,851 | 2.38 | % | 288,902 | 2.75 | % | 560,949 | 194.17 | % | |||||||||||||||
General
and administrative expenses
|
194,410 | 0.54 | % | 160,074 | 1.52 | % | 34,336 | 21.45 | % | |||||||||||||||
INCOME
FROM OPERATIONS
|
5,744,056 | 16.07 | % | 384,217 | 3.66 | % | 5,359,839 | 1395.00 | % | |||||||||||||||
Interest
expense, net
|
(70,647 | ) | (0.20 | )% | (80,734 | ) | (0.77 | )% | 10,087 | (12.49 | )% | |||||||||||||
Other
income, net
|
4,482 | 0.01 | % | 40,953 | 0.39 | % | (36,471 | ) | (89.06 | )% | ||||||||||||||
INCOME
FROM OPERATIONS BEFORE INCOME TAXES
|
5,677,891 | 15.88 | % | 344,436 | 3.28 | % | 5,333,455 | 1548.46 | % | |||||||||||||||
INCOME
TAX
|
961,736 | 2.69 | % | 57,401 | 0.55 | % | 904,335 | 1575.47 | % | |||||||||||||||
NET
INCOME
|
4,716,155 | 13.19 | % | 287,035 | 2.73 | % | 4,429,120 | 1543.06 | % |
8
Revenues
Revenues
for the three months ended December 31, 2009 and 2008 were $35,750,798 and
$10,510,018, respectively. The increase in revenues of $25,240,780 was mainly
attributable to an increase in the domestic economy trend which led to a
dramatic increase in market demand, successful marketing efforts, retaining
existing customers, addition of large customers and the Company’s optimization
of its manufacturing capacity. The Company enlarged the production lines of
diesel engines and the selling of a full product range of electricity pumps and
multi-cylinders which tripled its sales, amounting to $9,323,284 for the three
months ended December 31, 2009 and $3,237,213 for the three months ended
December 31, 2008. The adoption of Chinese emission III standards
also increased market demand with respect to environmental friendly products as
compared to traditional diesel engines. As such, sales of our new environmental
friendly products increased, driven by such increased demand, and revenues
increased as compared to the same period in 2008.
Cost
of Sales
Cost of
sales was $28,962,481 for the three months ended December 31, 2009, an increase
of $19,285,656 or 199.30%, as compared with $9,676,825 for the three months
ended December 31, 2008. The total cost of sales increased generally in line
with the sales volume increase. Cost of sales as a percentage of total revenues
were 81.01% and 92.07% for the three months ended December 31, 2009 and 2008,
respectively, with a decrease of approximately 11.06%. The decrease was the
result of a decrease in the cost of raw materials as steel prices continued to
decrease into 2009 and together with strengthened production cost control
resulted in decreased production costs.
Selling
and Distribution Expenses
Selling
and distribution expenses, increased from $288,902 in the three months ended
December 31, 2008 to $849,851 in the same period of 2009, representing a 194.17%
increase. The increase was primarily due to an increase in sales commissions as
a result of the Company’s expansion of its sales network.
General
and Administrative Expenses
General
and administrative expenses increased from $160,074 for the three months ended
December 31, 2008 to $194,410 in the same period of 2009, or a 21.45%
increase.
Other
Income, Net
Other
income was $4,482 for the three months ended December 31, 2009 compared to
$40,953 for the three months ended December 31, 2008. This was primarily due to
a loss of $39,727 on the settlement of accounts receivable and accounts payable
for fixed assets.
9
Interest
Expense, Net
Net
interest expense declined by $10,087, or 12.49%, to $70,647 for the three months
ended December 31, 2009, compared with $80,734 for the same period in 2008. This
decrease was primarily attributable to an interest rate decline on bank loans
and an increase in interest income related to notes receivable.
Net
Income
Net
income was $4,716,155 and $287,035 for the three months ended
December 31, 2009 and 2008, respectively. Such increase was primarily
attributable to the increase in sales and gross margin.
Results
of Operations
Comparison of Six Months Ended
December 31, 2009 and 2008
The
following table sets forth a summary of certain key components of our results of
operations for the periods indicated, in dollars and as a percentage of
revenues:
For Six
Months Ended
December 31,
2009
|
% Of
Revenue
|
For Six
Months Ended
December 31,
2008
|
% Of
Revenue
|
Change In
Amount
|
Change In
%
|
|||||||||||||||||||
REVENUES,
NET
|
$ | 73,367,699 | 100.00 | % | $ | 29,013,878 | 100.00 | % | $ | 44,353,821 | 152.87 | % | ||||||||||||
COST
OF GOODS SOLD
|
(60,590,584 | ) | (82.58 | )% | (25,800,697 | ) | (88.93 | )% | (34,789,887 | ) | 134.84 | % | ||||||||||||
GROSS
PROFIT
|
12,777,115 | 17.42 | % | 3,213,181 | 11.07 | % | 9,563,934 | 297.65 | % | |||||||||||||||
Selling
and distribution expenses
|
1,282,423 | 1.75 | % | 792,644 | 2.73 | % | 489,779 | 61.79 | % | |||||||||||||||
General
and administrative expenses
|
487,529 | 0.66 | % | 456,330 | 1.57 | % | 31,199 | 6.84 | % | |||||||||||||||
INCOME
FROM OPERATIONS
|
11,007,163 | 15.00 | % | 1,964,207 | 6.77 | % | 9,042,956 | 460.39 | % | |||||||||||||||
Interest
expense, net
|
(176,936 | ) | (0.24 | )% | (183,511 | ) | (0.63 | )% | 6,575 | (3.58 | )% | |||||||||||||
Other
(expenses) income, net
|
(784 | ) | 0.00 | % | 43,875 | 0.15 | % | (44,659 | ) | (101.79 | )% | |||||||||||||
INCOME
FROM OPERATIONS BEFORE INCOME TAXES
|
10,829,443 | 14.76 | % | 1,824,571 | 6.29 | % | 9,004,872 | 493.53 | % | |||||||||||||||
INCOME
TAX
|
1,688,892 | 2.30 | % | 520,735 | 1.79 | % | 1,168,157 | 224.33 | % | |||||||||||||||
NET
INCOME
|
9,140,551 | 12.46 | % | 1,303,836 | 4.49 | % | 7,836,715 | 601.05 | % |
Revenues
Revenues
for the six months ended December 31, 2009 and 2008 were $73,367,699 and
$29,013,878, respectively. The increase in revenues of $44,353,821 or 152.87%
was mainly attributable to the ability of the Company’s new products to meet
market demand. We optimized our production resources and increased our
production lines to include both traditional products and new products. The
scope and diversity of our products enabled us not only to satisfy additional
orders, but also to take advantage of new market opportunities as well. Due to
our ability to quickly respond to the market and the update of our product
offerings, we had an increase in sales.
Cost
of Sales
Cost of
goods sold was $60,590,584 for the six months ended December 31, 2009, compared
to $25,800,697 for the six months ended December 31, 2008. Expressed as a
percentage of revenues, cost of goods sold was 82.58% for the six months ended
December 31, 2009, compared to 88.93% for the six months ended December 31,
2008. The decrease in cost of goods sold as a percentage of revenues was mainly
attributable to the significant increase in revenues due to the strong market
demand as well as the sales increase for products which have higher gross
margins.
10
Selling
and Distribution Expenses
Selling
and distribution expenses, increased from $792,644 for the six months ended
December 31, 2008 to $1,282,423 in the same period of 2009, representing a
61.79% increase. It was mainly due to the increase in sales commissions to
distributors for their outstanding performances resulting in our increase in
revenues.
General
and Administrative Expenses
General
and administrative expenses increased from $456,330 for the six months ended
December 31, 2008 to $487,529 in the same period of 2009, or a 6.84%
increase.
Other
Income, Net
Other
expense was $784 for the six months ended December 31, 2009 compared to other
income of $43,875 for the six months ended December 31, 2008. This was primarily
due to a loss of $61,633 on the settlement of accounts receivable and accounts
payable for fixed assets.
Interest
Expense, Net
Interest
expenses were $176,936 and $183,511 for the six months ended December 31, 2009
and 2008, respectively. Such decrease was primarily attributable to
an interest rate decline on bank loans and an increase in interest income
related to notes receivable.
Net
Income
Net
income was $9,140,551 and $1,303,836 for the six months ended December 31, 2009
and 2008, respectively. Such increase was attributable to the Company’s
expansion and development of new products.
Liquidity
and Capital Resources
We generally finance our operations
through our operating profit and borrowings from banks.
During the reporting periods, we
arranged a number of bank loans to satisfy our financing needs. As of the date
of this report, we have not experienced any difficulty in raising funds through
bank loans, and we have not experienced any liquidity problems in settling our
payables in the normal course of business and repaying our bank loans when they
are due. We believe that the Company has adequate funds and capital with respect
to conducting its business over the next twelve months.
The following table sets forth the
summary of our cash flows, in dollars, for the periods indicated:
Six Months Ended December 31
(Unaudited)
|
||||||||
2009
|
2008
|
|||||||
Net
cash provided by (used in) operating activities
|
$ | 13,125,252 | $ | (4,448,192 | ) | |||
Net
cash (used in) provided by investing activities
|
$ | (14,183,185 | ) | $ | 5,617,320 | |||
Net
cash provided by (used in) financing activities
|
$ | 994,751 | $ | (1,438,455 | ) | |||
Net
decrease in cash and cash equivalents
|
$ | (63,182 | ) | $ | (269,327 | ) | ||
Effect
of exchange rate changes on cash
|
$ | 55,205 | $ | 145,931 | ||||
Cash
and cash equivalents at beginning of period
|
$ | 127,576 | $ | 164,435 | ||||
Cash
and cash equivalents at end of period
|
$ | 119,599 | $ | 41,039 |
11
We believe that the level of financial
resources is a significant factor for our future development and accordingly, we
may determine from time to time to raise capital through private debt or equity
financing to strengthen the Company’s financial position, to expand our
facilities and to provide us with additional flexibility to take advantage of
business opportunities. No assurances can be given that we will be
successful in raising such additional capital on terms acceptable to
us.
Operating
Activities
Net cash
provided by operating activities was $13,125,252 for the six months ended
December 31, 2009, which is primarily attributable to our net income of
$9,140,551 adjusted by non-cash depreciation and amortization of $124,616,
increase in VAT payables of $12,188,453, increase in tax payable
of $1,693,117 and increase in accounts payable of $636,349, off-set
by an increase in inventories of $8,353,060, increase in accounts receivable of
$809,078, decrease in due to employees of $482,459, and decrease in
due to related parties of $338,316. Net cash used in operating activities was
$4,448,192 for the six months ended December 31, 2008, which is primarily
attributable to our net income of $1,303,836 adjusted by non-cash depreciation
and amortization of $128,234, decrease in inventories of $823,107, increase in
taxes payable of $536,162 and decrease in due from related parties of $231,943,
off-set by an increase in accounts receivable of $3,872,250, decrease in
accounts payable of $3,174,655 and decrease in customer deposits of
$1,183,346.
Investing
Activities
Net cash
used in investing activities was $14,183,185 for the six months ended December
31, 2009, which was primarily attributable to our repayments of notes receivable
of $51,499,380, off-set by issuances of notes receivable of $64,904,916. Net
cash provided by investing activities was $5,617,320 for the six months ended
December 31, 2008, which was primarily attributable to repayments of notes
receivable of $29,358,052, off-set by issuance of notes receivable of
$23,671,695.
Financing
Activities
Net cash
provided by financing activities was $994,751 for the six months ended December
31, 2009, which was primarily attributable to our proceeds from short-term loans
of $2,923,558, proceeds from notes payable of $1,527,559, off-set by repayments
of notes payable of $1,018,846 and repayments of short-term loans of $2,335,923.
Net cash used in financing activities was $1,438,455 for the six months ended
December 31, 2008, which was primarily attributable to our proceeds from
short-term loans of $582,835, off-set by dividend paid of $913,026, repayments
of short-term loans of $789,742 and repayments of notes payable of
$318,522.
Working
Capital
Our
working capital steadily increased to $39,689,708 as of December 31, 2009 as
compared to $31,267,687 as of June 30, 2009. This increase was attributable to
an increase in net income.
12
Off-Balance
Sheet Arrangements
We do not have any outstanding
derivative financial instruments, off-balance sheet guarantees, interest rate
swap transactions of foreign currency forward contracts. Furthermore, we do not
have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to
such entity. We do not have any variable interest in an unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or that
engages in leasing, hedging or research and development services with
us.
13
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RMB
Appreciation
The
Company believes that inflation has not had a material effect on its operations
to date. However, continued appreciation of the RMB against the
U.S. Dollar and its effect on the Company's export business, could have a
material adverse effect on the Company. In the event of a material
adverse effect on the Company, our strategy would be to reduce our reliance on
exports and to increase domestic sales.
The
Company is Subject to Special Considerations do to its Operations in the
PRC
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other
things.
ITEM
4. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as
of the end of the fiscal quarter covered by this report. Based on this
evaluation, our management, including our principal executive officer and our
principal financial officer, concluded that our disclosure controls and
procedures were effective during, and as of the end of, the fiscal quarter
covered by this report, to ensure that information required to be disclosed by
us in the reports filed or submitted by us under the Exchange Act (i) is
recorded, processed, summarized and reported within the time period specified in
SEC rules and forms, and (ii) is accumulated and communicated to our management,
including our principal executive officer and our principal financial officer,
as appropriate to allow appropriate decisions on a timely basis regarding
required disclosure.
Internal
Control over Financial Reporting
There
were no changes in internal control over financial reporting that occurred
during the fiscal quarter covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In the normal course of business, we
are named as defendant in lawsuits in which claims are asserted against us. In
our opinion, the liabilities, if any, which may ultimately result from such
lawsuits, are not expected to have a material adverse effect on our financial
position, results of operations or cash flows. As of December 31, 2009, there
was no pending or outstanding material litigation with the Company.
14
ITEM
1A. RISK FACTORS
Not required for a "smaller reporting
company".
ITEM
2. UREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
With the exception of the Exchange (as
described in Item 2 herein above), during the quarter ended December 31, 2009,
the Company had no unregistered sales of equity securities. For further
information regarding the Exchange please see the Company’s Current Report on
Form 8-K filed with the SEC on December 29, 2009.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
(a) Exhibits
EXHIBIT
NO.
|
|
DESCRIPTION
|
|
LOCATION
|
2.1
|
Share
Exchange Agreement, dated December 28, 2009, by and among Wasatch
Food Services, Inc., Jolly Promise Limited and Welldone Pacific
Limited
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as
filed with the SEC on December 29, 2009.
|
||
3.1
|
Articles
of Incorporation of Wasatch Food Services, Inc.
|
Incorporated
by reference to Exhibit 3.1 to the Registrant’s General Form for
Registration of Securities on Form 10 as filed with the SEC on
May 15, 2009
|
||
3.2
|
Bylaws
of Wasatch Food Services, Inc.
|
Incorporated
by reference to Exhibit 3.2 to the Registrant’s General Form for
Registration of Securities on Form 10 as filed with the SEC on
May 15, 2009
|
||
3.3
|
Memorandum
and Articles of Association of Jolly Promise Limited, dated July 2,
2008
|
Incorporated
by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as
filed with the SEC on December 29, 2009.
|
||
3.4
|
Certificate
of Incorporation of Jolly Promise Limited
|
Incorporated
by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K as
filed with the SEC on December 29,
2009.
|
15
10.1
|
Stock
Purchase Agreement between Shaun Carter and Wasatch Food Services, Inc.,
dated December 28, 2009
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 29, 2009.
|
||
21
|
List
of Subsidiaries of Wasatch Food Services, Inc.
|
Incorporated
by reference to Exhibit 21 to the Company’s Current Report on Form 8-K as
filed with the SEC on December 29, 2009.
|
||
31.1
|
Certifications
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
Provided
herewith
|
||
31.2
|
Certifications
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
Provided
herewith
|
||
32.1
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
the Sarbanes-Oxley Act Of 2002
|
Provided
herewith
|
||
32.2
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
the Sarbanes-Oxley Act Of 2002
|
Provided
herewith
|
16
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Quarterly Report on Form
10-Q report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February
16, 2010
|
By:
|
/s/
Dianjun Liu
|
Name:
Dianjun Liu
|
||
Its:
President, Chief Executive Officer
and
Principal Executive Officer
|
Date: February
16, 2010
|
By:
|
/s/
Chenglin Wang
|
Name:
Chenglin Wang
|
||
Its:
Chief Financial Officer, Corporate
Secretary,
and Principal Financial and
Accounting
Officer
|
17