Attached files
file | filename |
---|---|
8-K/A - Action Acquisition CORP | v207805_8ka.htm |
EX-10.1 - Action Acquisition CORP | v207805_ex10-1.htm |
EX-99.1 - Action Acquisition CORP | v207805_ex99-1.htm |
EX-99.3 - Action Acquisition CORP | v207805_ex99-3.htm |
EX-10.17 - Action Acquisition CORP | v207805_ex10-17.htm |
GRAND
POWER CAPITAL, INC.
CONSOLIDATED
BALANCE SHEETS
|
June 30, 2010
|
December 31, 2009
|
||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
& cash equivalents
|
$ | 215,746 | $ | 299,719 | ||||
Accounts
receivable, net
|
1,280,235 | 1,138,081 | ||||||
Bills
receivable
|
303,393 | 87,871 | ||||||
Other
receivables, net
|
237,201 | 217,383 | ||||||
Deposit
|
10,401 | 9,538 | ||||||
Prepayment
|
1,108,205 | 468,771 | ||||||
Inventory
|
381,637 | 546,968 | ||||||
Advance
to related party
|
19,818 | - | ||||||
Total
current assets
|
3,556,636 | 2,768,331 | ||||||
PROPERTY
AND EQUIPMENT, net
|
397,142 | 421,575 | ||||||
TOTAL
ASSETS
|
$ | 3,953,778 | $ | 3,189,906 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 48,234 | $ | 55,575 | ||||
Accrued
liabilities and other payables
|
21,278 | 10,685 | ||||||
Other
payable to Shenzhen ORB original shareholders
|
393,600 | - | ||||||
Tax
payable
|
712,357 | 549,979 | ||||||
Total
current liabilities
|
1,175,469 | 616,239 | ||||||
COMMITMENTS
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Common
stock, $1.00 par value, 50,000 shares authorized, 100 shares issued and
outstanding as of June 30, 2010 and December 31, 2009,
respectively
|
100 | 100 | ||||||
Additional
paid in capital
|
(100 | ) | 241,548 | |||||
Statutory
reserve
|
140,590 | 140,590 | ||||||
Accumulated
other comprehensive income
|
128,249 | 111,177 | ||||||
Retained
earnings
|
2,509,470 | 2,080,252 | ||||||
Total
stockholders' equity
|
2,778,309 | 2,573,667 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 3,953,778 | $ | 3,189,906 |
See
accompanying notes to these financial statements
1
GRAND
POWER CAPITAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
|
FOR THE THREE MONTHS ENDED JUNE 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales
|
$ | 2,362,028 | $ | 1,913,073 | $ | 1,438,959 | $ | 1,528,733 | ||||||||
Cost
of goods sold
|
1,322,124 | 1,028,089 | 764,336 | 808,361 | ||||||||||||
Gross
profit
|
1,039,904 | 884,984 | 674,623 | 720,372 | ||||||||||||
Operating
expenses
|
||||||||||||||||
Selling
expenses
|
119,998 | 127,046 | 66,306 | 99,428 | ||||||||||||
General
and administrative expenses
|
182,222 | 96,002 | 88,894 | 49,736 | ||||||||||||
Total
operating expenses
|
302,220 | 223,048 | 155,200 | 149,164 | ||||||||||||
Income
from operations
|
737,684 | 661,936 | 519,423 | 571,208 | ||||||||||||
Non-operating
income (expenses)
|
||||||||||||||||
Interest
income
|
1,663 | (1,282 | ) | 1,422 | (1,311 | ) | ||||||||||
Other
expenses
|
- | (1,482 | ) | - | 166 | |||||||||||
Total
non-operating expenses, net
|
1,663 | (2,764 | ) | 1,422 | (1,145 | ) | ||||||||||
Income
before income tax
|
739,347 | 659,172 | 520,845 | 570,063 | ||||||||||||
Income
tax expense
|
158,177 | 131,834 | 114,585 | 114,012 | ||||||||||||
Net
income
|
$ | 581,170 | $ | 527,338 | $ | 406,260 | $ | 456,051 | ||||||||
Other
comprehensive item
|
||||||||||||||||
Foreign
currency translation
|
17,072 | 603 | 16,341 | 865 | ||||||||||||
Comprehensive
Income
|
$ | 598,242 | $ | 527,941 | $ | 422,601 | $ | 456,916 | ||||||||
Basic
weighted average shares outstanding
|
100 | 100 | 100 | 100 | ||||||||||||
Basic
net earnings per share
|
$ | 5,812 | $ | 5,273 | $ | 4,063 | $ | 4,561 |
See
accompanying notes to these financial statements
2
GRAND
POWER CAPITAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 581,170 | $ | 527,338 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
27,567 | 26,713 | ||||||
Decrease(Increase)
in current assets:
|
||||||||
Accounts
receivable
|
(135,219 | ) | (100,435 | ) | ||||
Bill
receivable
|
(213,959 | ) | (132,667 | ) | ||||
Prepayment
|
(633,659 | ) | (91,758 | ) | ||||
Other
receivables
|
(18,531 | ) | (40,838 | ) | ||||
Inventory
|
167,489 | (190,614 | ) | |||||
Deposit
|
(806 | ) | (2,927 | ) | ||||
Increase
(decrease) in current liabilities:
|
||||||||
Accounts
payable
|
(7,608 | ) | 60,242 | |||||
Receipt
in advance
|
- | 42,839 | ||||||
Accrued
liabilities and other payables
|
10,481 | 106,445 | ||||||
Tax
payable
|
158,556 | 140,649 | ||||||
Net
cash provided by (used in) operating activities
|
(64,519 | ) | 344,987 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquisition
of property & equipment
|
(953 | ) | - | |||||
Net
cash used in investing activities
|
(953 | ) | - | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Due
from related party
|
(19,718 | ) | (145,656 | ) | ||||
Net
cash used in financing activities
|
(19,718 | ) | (145,656 | ) | ||||
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
|
1,217 | 47 | ||||||
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
|
(83,973 | ) | 199,378 | |||||
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
299,719 | 58,849 | ||||||
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
$ | 215,746 | $ | 258,227 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest expenses
|
$ | - | $ | 1,327 | ||||
Cash
paid for income tax
|
$ | 9,264 | $ | 3,249 |
See
accompanying notes to these financial statements
3
GRAND
POWER CAPITAL, INC
STATEMENT
OF STOCKHOLDERS' EQUITY
FOR
THE SIX MONTHS ENDED JUNE 30, 2010
Common stock
|
Preferred stock
|
Statutory
|
Other
comprehensive
|
Retained
|
||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Paid in capital
|
reserves
|
income
|
earnings
|
Total
|
||||||||||||||||||||||||||||
Balance
at December 31, 2009 (Audited)
|
100 | 100 | - | - | 241,548 | 140,590 | 111,177 | 2,080,252 | 2,573,667 | |||||||||||||||||||||||||||
Recapitalization
on acquisition of Shenzhen ORB
|
- | - | - | - | (241,648 | ) | - | - | - | (241,648 | ) | |||||||||||||||||||||||||
Net
income for the period
|
- | - | - | - | - | - | - | 581,170 | 581,170 | |||||||||||||||||||||||||||
Dividend
to original shareholders of Shenzhen ORB
|
- | - | - | - | - | - | - | (151,952 | ) | (151,952 | ) | |||||||||||||||||||||||||
Foreign
currency translation gain
|
- | - | - | - | - | - | 17,072 | - | 17,072 | |||||||||||||||||||||||||||
Balance
at June 30, 2010 (Unaudited)
|
100 | $ | 100 | - | $ | - | $ | (100 | ) | $ | 140,590 | $ | 128,249 | $ | 2,509,470 | $ | 2,778,309 |
See
accompanying notes to these financial statements
4
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Grand
Power Capital, Inc. (the “Company” or “GPC”) was incorporated in British
Virgin Islands (“BVI”) in October 2009 and acquired 100% of the issued and
outstanding capital stock of Shenzhen ORB-FT New Materials Co., Ltd. (“Shenzhen
ORB”) in May 2010 for RMB 2,672,900 (US $393,000), of which,
approximately $241,000 of the $393,000 was recorded as return of
original share capital and the remaining $152,000 was recorded as a dividend to
the original shareholders of Shenzhen ORB.) The major shareholder of Shenzhen
ORB is the major shareholder of GPC. As GPC and Shenzhen ORB are under common
control, the acquisition has been accounted for as a reorganization of the
entities, with assets and liabilities transferred at their carrying amounts, and
the financial statements presented as if the reorganization had occurred
retroactively.
Shenzhen
ORB was incorporated in Guangdong Province, People’s Republic of China (PRC) in
2005. The company is a hi-tech enterprise primarily engaged in the development,
manufacture and sale of high-performance adhesive seal materials in the PRC. The
company provides glass bonding solutions to a wide range of industries,
including automobile, ships and boats, construction, and electronics, but
currently focusing on the automobile windshields area. The Company is also in
the process of producing other auto parts such as bumper, harness, lamp, and
cooling liquid.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with United
States generally accepted accounting principles (“US GAAP”). The Company’s
functional currency is the Chinese Renminbi (“RMB”); however the accompanying
financial statements have been translated and presented in United States Dollars
(“$” or “USD”).
Principle
of Consolidation
The
accompanying consolidated financial statements include the accounts of GPC, and
its wholly owned subsidiary Shenzhen ORB. The “Company” refers collectively to
GPC and Shenzhen ORB. All significant inter-company accounts and transactions
were eliminated in consolidation.
Use
of Estimates
In
preparing financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories. Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on account
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Based on management’s analysis noted
above, the bad debts allowance was determined by calculating 0.5% of accounts
receivable amount at the balance sheet date. Based on historical
collection activity, the Company made allowance of $5,750 and $5,719 at June 30,
2010 and December 31, 2009, respectively.
5
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
Inventories
Inventories
are valued at a lower cost or net realizable value with cost determined on a
weighted average basis. Management compares the cost of inventories with the net
realizable value and allowance is made for writing down their inventories to net
realizable value, if lower.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
improvements are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation is removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets without salvage value and estimated lives of
5-10 years.
Computer
and office equipment
|
5
years
|
Plant
and machinery
|
10
years
|
Research
and Development
Research
and development costs are related primarily to the Company testing its new
materials in development stage. Research and development costs are expensed as
incurred. For the six months ended June 30, 2010 and
2009, research and development expense was $ 61,216 and $ 39,217,
respectively. For the three months ended June 30, 2010 and 2009, research
and development expense was $28,338 and $21,195, respectively.
Income
Taxes
The
Company utilizes the Financial Accounting Standard Board (“FASB”), Accounting
Standard Codification (“ASC”) Topic 740, “Income Taxes”, which requires
recognition of deferred tax assets and liabilities for expected future tax
consequences of events that were included in the financial statements or tax
returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company adopted the provisions of ASC Topic 740, “Income Taxes”. When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities
upon examination.
Interest
associated with unrecognized tax benefits is classified as interest expense and
penalties are classified as selling, general and administrative expense in the
statements of income. The adoption of FASB ASC Topic 740 did not have a material
impact on the Company’s financial statements. At June 30, 2010 and December 31,
2009, the Company had not taken any significant uncertain tax position on its
tax return for 2009 and prior years or in computing its tax provision for
2010.
6
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) 104, (codified in
FASB ASC Topic 605). Sales revenue is recognized when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectability is reasonably assured. No revenue is recognized if
there are significant uncertainties regarding the recovery of the consideration
due or the possible return of goods; sales revenue is recognized when the
delivery is completed. Payments received before all of the relevant
criteria for revenue recognition are recorded as unearned revenue.
Sales
revenue represents the invoiced value of goods, net of value-added taxes
(“VAT”). All Company products are sold in the PRC and subject to the Chinese VAT
of 17% of the gross sales price. This VAT may be offset by VAT paid by the
Company on raw materials and other materials included in the cost of producing
the finished product. The Company records VAT payable and VAT receivable net of
payments in the financial statements. The VAT tax return is filed offsetting the
payables against the receivables. Sales and purchases are recorded net of VAT
collected and paid as the Company acts as an agent for the
government.
Cost
of Goods Sold
Cost of
goods sold consists primarily of material costs, labor costs, and related
overhead which are directly attributable to the production of the
products. Write-down of inventory to the lower of cost or net realizable
value is also recorded in the cost of goods sold.
Environmental
Costs and Liabilities
Liabilities
related to environmental compliance and future remedial costs are recorded when
the compliance or remedial efforts are probable and the costs can be reasonably
estimated. The PRC adopted environmental laws and regulations that affect the
operations of the auto industry. The outcome of environmental liabilities under
proposed or future environmental legislation cannot be reasonably estimated at
present, and could be material. Under existing legislation, however, Company
management believes there are no probable liabilities that will have a material
adverse effect on the financial position of the Company.
Shipping
and Handling Costs
Shipping
and handling costs related to delivery of finished goods are included in selling
expenses. During the six months ended June 30, 2010 and 2009, shipping and
handling costs were $76,101 and $62,303, respectively. During the three months
ended June 30, 2010 and 2009, shipping and handling costs were $46,835 and
$55,296, respectively.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist
primarily of accounts and other receivables. The Company does not require
collateral or other security to support these receivables. The Company conducts
periodic reviews of its clients' financial condition and customer payment
practices to minimize collection risk on accounts receivable.
The
operations of the Company are in the PRC. Accordingly, the Company's
business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, as well as by the
general state of the PRC economy.
Statement
of Cash Flows
In
accordance with SFAS No. 95, “Statement of Cash Flows,” (codified in FASB ASC
Topic 230), cash flows from the Company's operations are calculated based upon
local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows may not necessarily agree
with changes in the corresponding balances on the balance sheet.
Basic
and Diluted Net Income Per Share
GPC is a
BVI company with no operations. Shenzhen ORB is a limited company formed under
the laws of the PRC. Similar to limited liability companies (LLC) in the United
States, limited liability companies in the PRC do
not issue shares to the owners. The owners however, are called
shareholders. Ownership interest is determined in proportion to capital
contributed. Accordingly, earnings per share data are not
presented.
7
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
Fair
Value of Financial Instruments
Some of
the Company’s financial instruments, including cash and cash equivalents,
accounts receivable, other receivables, accounts payable, accrued liabilities
and short-term debt, have carrying amounts that approximate their fair values
due to their short maturities. ASC Topic 820, “Fair Value Measurements and
Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value
and establishes a three-level valuation hierarchy for disclosures of fair value
measurement that enhances disclosure requirements for fair value
measures. The carrying amounts reported in the consolidated balance sheets
for receivables and current liabilities each qualify as financial instruments
and are a reasonable estimate of their fair values because of the short period
of time between the origination of such instruments and their expected
realization and their current market rate of interest. The three levels of
valuation hierarchy are defined as follows:
·
|
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or
liabilities in active
markets.
|
·
|
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the
financial instrument.
|
·
|
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC
Topic 815, “Derivatives and Hedging.”
As of
June 30, 2010 and December 31, 2009, the Company did not identify any assets and
liabilities required to be presented on the balance sheet at fair
value.
Foreign
Currency Translation and Comprehensive Income
The
Company’s functional currency is the RMB. For financial reporting purposes, RMB
were translated into USD as the reporting currency. Assets and liabilities are
translated at the exchange rate in effect at the balance sheet date. Revenues
and expenses are translated at the average rate of exchange prevailing during
the reporting period. Translation adjustments arising from the use of different
exchange rates from period to period are included as a component of
stockholders' equity as "Accumulated other comprehensive income". Gains and
losses resulting from foreign currency transactions are included in income.
There was no significant fluctuation in exchange rate for the conversion of RMB
to USD after the balance sheet date.
The
Company uses ASC Topic 220 “Comprehensive Income”. Comprehensive income is
comprised of net income and all changes to the statements of stockholders’
equity, except those due to investments by stockholders, changes in
paid-in-capital and distributions to stockholders. Comprehensive income for the
six months ended June 30, 2010 and 2009 included net income and foreign currency
translation adjustments.
Segment
Reporting
ASC Topic
280, "Segment Reporting" requires use of the “management approach” model for
segment reporting. The management approach model is based on the way
a company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company.
8
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
ASC Topic
280 has no effect on the Company's financial statements as substantially all of
the Company's operations are conducted in one industry segment. The
Company consists of one reportable business segment. All of the
Company's assets are located in the PRC, and all of the Company’s revenue is
generated in the PRC.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In
October 2009, the FASB issued ASU No. 2009-13 on ASC Topic 605, “Revenue
Recognition – Multiple Deliverable Revenue Arrangement – a consensus of the FASB
Emerging Issues Task Force” (ASU 2009-13). ASU 2009-13 amended guidance related
to multiple-element arrangements which require an entity to allocate arrangement
consideration at the inception of an arrangement to all of its deliverables
based on their relative selling prices. The consensus eliminates the use of the
residual method of allocation and requires the relative-selling-price method in
all circumstances. All entities must adopt the guidance no later than the
beginning of their first fiscal year beginning on or after June 15, 2010.
Entities may elect to adopt the guidance through either prospective application
for revenue arrangements entered into, or materially modified, after the
effective date or through retrospective application to all revenue arrangements
for all periods presented. Since the Company does not have multiple
element arrangements; therefore, ASU No. 2009-13 is not currently applicable to
the Company.
In
October 2009, the FASB issued ASU No. 2009-14 on ASC Topic 985, “Certain Revenue
Arrangements-That Include Software Elements” (ASU 2009-14). ASU 2009-14 amended
guidance that is expected to significantly affect how entities account for
revenue arrangements that contain both hardware and software elements. As a
result, many tangible products that rely on software will be accounted for under
the revised multiple-element arrangements revenue recognition guidance, rather
than the software revenue recognition guidance. The revised guidance must be
adopted by all entities no later than fiscal years beginning on or after June
15, 2010. An entity must select the same transition method and same period for
the adoption of both this guidance and the revisions to the multiple-element
arrangements guidance noted above. The Company does not have revenue
arrangements including software element; therefore, AUS 2009-14 is not
applicable to the Company.
In April
2010 the FASB issued ASU No. 2010-13, “Compensation – Stock Compensation” (ASC
Topic 718), Effect of Denominating the Exercise Price of a Share-Based Payment
Award in the Currency of the Market in Which the Underlying Equity Security
Trades. This ASU provides amendments to ASC Topic 718 to clarify that an
employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of the entity’s
equity securities trades should not be considered to contain a condition that is
not a market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments in this ASU are effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2010. The
amendments in this ASU should be applied by recording a cumulative-effect
adjustment to the opening balance of retained earnings. The cumulative-effect
adjustment should be calculated for all awards outstanding as of the beginning
of the fiscal year in which the amendments are initially applied, as if the
amendments had been applied consistently since the inception of the award. The
cumulative-effect adjustment should be presented separately. Earlier application
is permitted. This standard is not currently applicable to the
Company.
Recently
Adopted Accounting Pronouncements
In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures” (ASC Topic 820), Improving Disclosures about Fair Value
Measurements. This update provides amendments to ASC Topic 820 that will provide
more robust disclosures about (1) the different classes of assets and
liabilities measured at fair value, (2) the valuation techniques and inputs
used, (3) the activity in Level 3 fair value measurements, and (4) the transfers
between Levels 1, 2, and 3. This standard is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. This standard is not currently applicable to the
Company.
In
January 2010, the FASB issued ASU No. 2010-05, “Compensation – Stock
Compensation” (ASC Topic 718), Escrowed Share Arrangements and the Presumption
of Compensation. This update codifies Emerging Issues Task Force D-110. This
standard is not currently applicable to the Company.
9
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
In
January 2010, the FASB issued ASU N0. 2010-01, “Equity” (ASC Topic 505),
Accounting for Distributions to Shareholders with Components of Stock and Cash.
The update clarifies that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential limitation
on the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected prospectively in
earnings per share and is not considered a stock dividend for purposes of ASC
Topic 505 and ASC Topic 260, “Earnings Per Share”. This standard is effective
for interim and annual periods ending on or after December 15, 2009, and should
be applied on a retrospective basis. This standard is not currently applicable
to the Company.
3.
INVENTORY
Inventory
consisted of finished goods and raw material at June 30, 2010 and December 31,
2009 as following:
2010
|
2009
|
|||||||
Finished
goods
|
$
|
344,492
|
$
|
531,387
|
||||
Raw
material
|
37,145
|
15,581
|
||||||
$
|
381,637
|
$
|
546,968
|
4.
PROPERTY AND EQUIPMENT, NET
As of
June 30, 2010 and December 31, 2009, property and equipment consisted of the
following:
2010
|
2009
|
|||||||
Office
equipment
|
$
|
12,340
|
$
|
11,320
|
||||
Plant
and machinery
|
530,121
|
527,225
|
||||||
Less:
Accumulated depreciation
|
(145,319
|
)
|
(116,970
|
)
|
||||
$
|
397,142
|
$
|
421,575
|
Depreciation
expense was $27,567 and $26,713 for the six months ended June 30, 2010 and 2009,
respectively. Depreciation expense was $13,800 and $13,362 for the three months
ended June 30, 2010 and 2009, respectively.
5.
PREPAYMENT
Prepayment
was mainly the payment to original equipment manufacturing (“OEM”) factories. As
the transactions are not yet started or not completed, the amounts were recorded
as prepayment instead of cost of sale. At June 30, 2010 and December 31, 2009,
the prepayment was $1,108,205 and $468,771, respectively.
6.
BILLS RECEIVABLE
Bills
receivable represented an instrument which contains an unconditional order to
pay a certain amount on an agreed date. It was used as an assurance
for customers making the payment on time according to the agreed terms when the
goods are sold on credit and payment is deferred to a future date. As
of June 30, 2010 and December 31, 2009, bills receivable was $303,393 and
$87,871, respectively.
7. OTHER RECEIVABLES
Other
receivables represented cash advances to employees and short term advances to
non-related parties, with no interest bearing and payable upon
demand. Based on historical collection activity, the Company made allowance
of $1,093 and $1,092 at June 30, 2010 and December 31, 2009, respectively. The
net amount of other receivables was $237,201 and $217,383 at June 30, 2010 and
December 31, 2009, respectively.
8.
MAJOR CUSTOMERS AND VENDORS
Two major
customers accounted for 78% (51% and 27% for each) and 76% (54% and 22% for
each) of sales for the six months ended June 30, 2010 and 2009, respectively.
Accounts receivable from these customers amounted to $942,518 as of June 30,
2010. If these customers were lost, it is unlikely that the Company would be
able to replace the lost revenue, at least in the near term.
10
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
The
Company purchased its products from three major vendors during the six months
ended June 30, 2010 with each accounting for 41%, 31% and 14% of purchases,
respectively. Accounts payable to these vendors were $34,852 as of June 30,
2010. The Company had three major vendors during six months ended June 30, 2009
with each vendor accounting for 62%, 12% and 12% of the total
purchases.
9.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following at June 30, 2010 and
December 31, 2009, respectively:
2010
|
2009
|
|||||||
Other
payables
|
$
|
10,546
|
$
|
-
|
||||
Accrued
salaries
|
10,732
|
10,685
|
||||||
Total
|
$
|
21,278
|
$
|
10,685
|
10.
DUE FROM RELATED PARTY
Due from
related party represented payments of $19,818 made by the Company for a
director’s expenses. It was an advance with no interest, payable upon demand,
and was unsecured. This amount was repaid by the related party on August 27,
2010.
Other payable
to Shenzhen ORB original shareholders
As of
June 30, 2010, the Company had $393,600 unsecured, due on demand and non
interest-bearing payable to the original owner of Shenzhen ORB for the
acquisition of Shenzhen ORB by GPC.
11.
TAXES PAYABLE
Taxes
payable consisted of the following at June 30, 2010 and December 31,
2009:
2010
|
2009
|
|||||||
Value-added
tax payable
|
$
|
59,509
|
$
|
48,209
|
||||
Education
surtax and other taxes payable
|
595
|
1,928
|
||||||
Income
tax payable
|
652,253
|
499,842
|
||||||
Total
|
$
|
712,357
|
$
|
549,979
|
12.
INCOME TAXES
Shenzhen
ORB is governed by the Income Tax Law of the PRC concerning the private-run
enterprises in special district. Prior to 2008, the Company was subject to tax
at a statutory rate of 15% on income reported in the statutory financial
statements after appropriated tax adjustments. According to the new
income tax law that became effective January 1, 2008, for those enterprises to
which the 15% tax rate was applicable previously, the applicable rates shall be
gradually increasing over a five-year period to reach the new statutory income
tax rate of 25% as follows:
Year
|
Tax Rate
|
|||
2007
|
15
|
%
|
||
2008
|
18
|
%
|
||
2009
|
20
|
%
|
||
2010
|
22
|
%
|
||
2011
|
24
|
%
|
||
2012
|
25
|
%
|
11
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the six and three months ended June 30, 2010 and
2009:
|
For the Six Months
Ended June 30,
|
For the Three Months
Ended June 30,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
US
statutory rates
|
34.0 | % | 34.0 | % | 34.0 | % | 34.0 | % | ||||||||
Tax
rate difference
|
(9.0 | )% | (9.0 | )% | (9.0 | )% | (9.0 | )% | ||||||||
Effect
of tax holiday
|
(3.0 | )% | (5.0 | )% | (3.0 | )% | (5.0 | )% | ||||||||
Other
|
(0.6 | )% | - | - | - | |||||||||||
Effective
income tax rate
|
21.4 | % | 20.0 | % | 22.0 | % | 20.0 | % |
There
were no material temporary differences on deferred tax as of June 30, 2010 and
2009.
13.
STATUTORY RESERVES
Pursuant
to the corporate law of the PRC effective January 1, 2006, the Company’s
operating subsidiary, Shenzhen ORB, is now only required to maintain one
statutory reserve by appropriating from its after-tax profit before declaration
or payment of dividends. The statutory reserve represents restricted retained
earnings.
Surplus reserve
fund
Shenzhen
ORB is now only required to transfer 10% of its net income, as determined under
PRC accounting rules and regulations, to a statutory surplus reserve fund until
such reserve balance reaches 50% of Shenzhen ORB’s registered capital. For the
six months ended June 30, 2010, Shenzhen ORB transferred $0 to the reserve. For
the year ended December 31, 2009, Shenzhen ORB transferred $38,821 to this
reserve.
The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any. The fund may be utilized for
business expansion or converted into share capital by issuing new shares to
existing shareholders in proportion to their equity interest or by increasing
the par value of the shares currently held by them, provided that the remaining
reserve balance after such capital issuance is not less than 25% of the
registered capital.
Common welfare
fund
Common
welfare fund is a voluntary fund into which Shenzhen ORB can elect to transfer
5% to 10% of its net income. Shenzhen ORB did not make any contribution to
this fund in the six and three months ended June 30, 2010 and 2009.
This fund
can only be utilized on capital items for the collective benefit of Shenzhen
ORB’s employees, such as construction of dormitories, cafeteria facilities, and
other staff welfare facilities. This fund is non-distributable other than upon
liquidation.
14.
COMMITMENTS
Rents
Shenzhen
ORB leased an office in Chongqing city under a long term, non-cancelable lease
agreement on December 1, 2008 with an expiration date of November 30,
2011. The monthly rent under the lease was approximately $527 (RMB
3,600). Based on the lease agreement, Shenzhen ORB will be required to pay
penalty for early lease termination, which is the deposit for the lease along
with the remaining rents up to the original lease termination date.
As of
June 30, 2010, future minimum rental payments required under this operating
lease is as follows:
12
GRAND
POWER CAPITAL, INC
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010 (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)
As
of June 30,
|
Amount
|
|||
2010
|
$
|
6,300
|
||
2011
|
2,600
|
|||
Total
|
$
|
8,900
|
Total
rental expense for the six months ended June 30, 2010 and 2009 was $24,213 and
$5,620, respectively. Total rent expense was $11,515 and $2,811 for the three
months ended June 30, 2010 and 2009, respectively.
Consulting
Service
On March
1, 2010, the Company entered into a consulting service agreement expiring on
December 31, 2010 with a consulting company. Under the agreement, this
consulting company will provide a feasibility study report for the expansion of
new product lines, identify no less than five targets for the Company and guide
the Company in the consummation of any such acquisition. The total consulting
fee is approximately $282,800 (RMB 1.92 million). The Company paid 50% of the
consulting fee upon signing of the agreement, and will pay the remaining 50% of
the consulting fee upon completion of the acquisition. The Company recorded the
payment of first 50% of consulting fee as prepayment at June 30, 2010, and will
expense it to general and administrative expense when the consulting service is
rendered by the consulting firm. Based on the agreement, the Company can be
subjected to a later payment penalty of two times a China bank’s short term loan
interest rate. The Corporation Representative of the consulting
company is a director of Shenzhen ORB
15.
OPERATING RISKS
The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
The
Company’s sales, purchase and expense transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.
16.
SUBSEQUENT EVENT
Action
Acquisition Corporation ("Action”) acquired GPC on September 10, 2010
through a share exchange as described above. Under US GAAP, the share exchange
is considered to be a capital transaction in substance, rather than a business
combination. That is, the share exchange is equivalent to the
issuance of stock by GPC for the net monetary assets of Action, accompanied by a
recapitalization, and is accounted for as a change in capital structure. GPC’s
shareholders will own the majority of the shares and will exercise significant
influence over the operating and financial policies of the consolidated entity.
Pro forma financial information is not applicable as this is not a business
combination under Article 11-01 of Regulation S-X and Action is a public shell
company with no operations. The post reorganization comparative historical
financial statements will be the historical financial statements of Shenzhen ORB
accompanied by a recapitalization.
On
November 3, 2010, Action changed its name from Action Acquisition Corporation to
ORB Automotive Corporation (“ORB”).
13