Smooth Global (China) Holdings, Inc. - FORM 10-Q

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EX-32 - RULE 13A-14(B) CERTIFICATION - Smooth Global (China) Holdings, Inc.	smgh10q20110331ex32.htm
EX-31 - RULE 13A-14(A) CERTIFICATION - Smooth Global (China) Holdings, Inc.	smgh10q20110331ex31.htm

U. S. 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 March 31, 2011

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____

Commission File No. 0-25707

SMOOTH GLOBAL (CHINA) HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Nevada	91-1948355
(State or Other Jurisdiction of	(I.R.S. Employer I.D. No.)
incorporation or organization)

Room 618, +17 Anyuan Road, Chaoyang District, Beijing, P.R. China 100029

(Address of Principal Executive Offices)

Issuer's Telephone Number: 86-10-6498-7788

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer ___ 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 ___ No X

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

May 23, 2011

Common Stock: 38,381,375 shares

INDEX



	PAGE

CONSOLIDATED BALANCE SHEETS	2

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME	3

CONSOLIDATED STATEMENTS OF CASH FLOWS	4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5-19

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


	March 31,			December 31,
	2011			2010
	(unaudited)
ASSETS

Current Assets:
Cash and cash equivalents	$	55,148		$	95,261
Notes receivable		41,094			75,621
Accounts receivable, net (Note 4)		1,360,656			1,176,039
Advance to suppliers		16,243			21,943
Inventories (Note 5)		371,160			312,996
Total current assets		1,844,301			1,681,860

Property, Plant, and Equipment, net (Note 6)		98,087			102,770
Intangible Asset-Patent, net		696			-
Lease Security Deposit		15,935			15,835

Total Assets	$	1,959,019		$	1,800,465

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable		562,986			517,255
Accrued expenses		162,532			88,640
Advance from customers		83,136			39,035
VAT and other taxes payable		419,753			413,334
Corporate taxes payable		165,775			165,116
Due to a related party (Note 7)		112,032			106,807
Total Current Liabilities		1,506,214			1,330,187

Commitments and Contingencies (Note 9)		-			-

Stockholders' Equity:
Common stock, $0.001 par value, 200,000,000 shares authorized;
38,381,375 shares issued and outstanding as of
March 31, 2011 and December 31, 2010		38,381			38,381
Additional paid-in capital		(92,631	)		(92,631	)
Retained earnings		451,120			471,545
Accumulated other comprehensive income		55,935			52,983
Stockholders' Equity		452,805			470,278

Total Liabilities and Stockholders' Equity	$	1,959,019		$	1,800,465

See Notes to Consolidated Financial Statements

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME



	For the Three Months Ended
	March 31,
	2011			2010
	(unaudited)			(unaudited)
Revenues
Sales	$	728,767		$	806,952
Costs of Sales		650,914			635,531
Gross Profit		77,853			171,421

Operating Expenses
Selling expenses		46,410			8,591
Payroll		16,384			10,161
Pension and employee benefit		22,408			2,818
Depreciation expenses		3,189			774
Office rent		4,553			2,063
Office expenses		6,419			2,078
Total Operating Expenses		99,363			26,485

Income (Loss) from Operations		(21,510	)		144,936

Other Income
Interest income		47			27
Other income		1,038			-
Total other income		1,085			27

Income (Loss) before provision
for Income Tax		(20,425	)		144,963

Provision for Income Tax		-			(34,426	)

Net Income (Loss)		(20,425	)		110,537

Other Comprehensive Income (Loss)
Effects of Foreign Currency Conversion		2,952			5

Comprehensive Income (Loss)	$	(17,473	)	$	110,542

Basic and fully diluted earnings (loss) per share	$	(0.00	)	$	0.01

Weighted average shares outstanding		38,381,375			20,000,000

See Notes to Consolidated Financial Statements

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Three Months Ended
	March 31,
	2011			2010
	(unaudited)			(unaudited)
Operating Activities

Net income (loss)	$	(20,425	)	$	110,537
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation		3,189			774
Changes in operating assets and liabilities:
(Increase)/Decrease in accounts receivable		(176,634	)		(247,425	)
(Increase)/notes receivable		34,904			(65,828	)
(Increase)/Decrease in advance to suppliers		5,823			(77,586	)
(Increase)/Decrease in inventories		(56,013	)		(223,032	)
(Increase)/Decrease in contract security deposit		-			(14,629	)
Increase/(Decrease) in accounts payable		42,324			313,562
Increase/(Decrease) in accrued expenses		73,307			-
Increase/(Decrease) in advance from customers		43,532			71,047
Increase/(Decrease) in VAT and other taxes payable		3,784			107,524
Increase/(Decrease) in corporate taxes payable		(388	)		34,425
Net cash provided (used) by operating activities		(46,597	)		9,369

Investing Activities

Addition to intangible assets-Patent		(694	)		-
Purchase of fixed assets		-			(6,330	)
Net cash provided (used) by investing activities		(694	)		(6,330	)

Financing Activities

Proceeds from related parties		4,534			-
Net cash provided (used) by financing activities		4,534			-

Increase (decrease) in cash		(42,757	)		3,039
Effects of exchange rates on cash		2,644			4
Cash at beginning of the period		95,261			35,447
Cash at end of the period	$	55,148		$	38,490

Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during year for:
Interest	$	-		$	-
Income taxes	$	-		$	-

See Notes to Consolidated Financial Statements

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1-	BASIS OF PRESENTATION

	The accompanying unaudited financial statements of Smooth Global (China) Holdings, Inc. and subsidiaries, (the “Company” or "Smooth Global (China)") were prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Management of the Company (“Management”) believes that the following disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and the notes for the year ended December 31, 2010.

	These unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of Management, are necessary to present fairly the financial position and results of operations of the Company for the periods presented. Operating results for the three months ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Note 2-	ORGANIZATION AND OPERATIONS

	Smooth Global (China) Holdings, Inc. ("Smooth Global (China)" or the "Company") was incorporated under the laws of the State of Nevada on December 2, 1998 with authorized common stock of 200,000,000 shares at $0.001 par value. Currently, the Company principally engages in the business of design, manufacture and distribution of rechargeable polymer lithium-ion batteries in the People's Republic of China ("PRC'), through its wholly-owned subsidiaries, Smooth Global Services Limited ("Smooth Global"), a limited liability company incorporated on January 25, 2006 in the British Virgin Island ("BVI") .

	On June 28, 2007, Smooth Global established a wholly owned subsidiary, Smooth Global (Beijing) Telecom Science Limited ("Beijing Telecom") in the Beijing City, PRC. Beijing Telecom was incorporated under the Company Law of PRC as a limited liability company with registered capital of $100,000. Beijing Telecom was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized in PRC.

	On December 16, 2010, Beijing Telecom finished the acquisition of 100% of the registered capital of Beijing Yupeng Hengli Technology Co., Ltd. ("Yupeng Hengli"). In connection with the acquisition, the Company issued 20,000,000 shares of its treasury stock to the two prior registered owners of Yupeng hengli, Ms. Wang, Xiaoping and Mr. Zhu, Chenyu, and their assignees, all of whom are PRC citizens. Upon completion of this transaction, Yupeng Hengli became a wholly-owned subsidiary of Beijing Telecom.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2-	ORGANIZATION AND OPERATIONS (continued)

	The acquisition of Yupeng Hengli resulted in a capital transaction accounted for as a reverse merger. The transaction was treated for accounting purposes as a recapitalization of the accounting acquirer (Yupeng Hengli) and a reorganization of the accounting acquiree (Beijing Telecom). Accordingly, the historical financial statements presented prior to the merger are the historical financial statements of Yupeng Hengli.

	Under the Company Law of PRC, Yupeng Hengli was incorporated on December 23, 2008 in Beijing City, PRC , as a limited liability company with a registered capital of RMB 500,000 (equivalent to US$72,948). Yupeng Hengli started its operation with distribution of rechargeable polymer lithium-ion batteries in PRC in 2009. Beginning from January 2010, Beijing Yupeng is engaged in the business of design, manufacture, and distribution of rechargeable polymer lithium-ion batteries in PRC.

	Smooth Global (China) also wholly owns Gold Profit (Asia) Group Limited ("Gold Profit"), a limited liability company incorporated in the BVI on July 28, 2006, which in turn wholly own Beijing Quan Tong Chang Information Service Limited a/k/a Beijing Smooth Global Information Services Ltd. (”QTC”), a limited liability company incorporated in Beijing City, PRC on August 2, 2003. Currently, QTC is engaged to provide business information consultant services.

	Yupeng Hengli and QTC are the two of these affiliated companies that are engaged in business operations. Smooth Global (China), Gold Profit, Smooth Global, and Beijing Telecom are all holding companies, whose business is to hold an equity ownership interest in Yupeng Hengli and QTC. All these affiliated companies are hereafter referred to as the "Company", whose structure is outlined as following:

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES

	Basis of Consolidation

	The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which require consolidation. Inter-company transactions have been eliminated in consolidation.

	The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the "Accounting Principles of China " ("PRC GAAP"). Certain accounting principles, which are stipulated by US GAAP, are not applicable in the PRC GAAP. The difference between PRC GAAP accounts of the Company and its US GAAP financial statements is immaterial.

	Certain amounts in the prior year's consolidated financial statements and notes have been revised to conform to the current year presentation.

	Subsequent Events

	The Company evaluated subsequent events through the date of issuance of these financial statements. We are not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our financial statements, or all such material events have been fully disclosed.

	Use of Estimates

	The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Foreign Currencies Translation

	The Company maintains its books and accounting records in PRC currency "Renminbi" ("RMB"), which is determined as the functional currency. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date of the transactions. Monetary assets and liabilities denominated in currencies other than RMB are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. Exchange differences are included in the statements of changes in owners' equity. Gain and losses resulting from foreign currency transactions are included in operations.

	The Company’s financial statements are translated into the reporting currency, the United States Dollar (“US$”). Assets and liabilities of the Company are translated at the prevailing exchange rate at each reporting period end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from translation of these financial statements are reflected as accumulated other comprehensive income (loss) in the owners’ equity.

	The exchange rates used for foreign currency translation were as follows (USD$1 = RMB):

Period Covered	Balance Sheet Date Rates	Average Rates

Three months ended March 31, 2011	6.57010	6.58940
Three months ended March 31, 2010	6.83610	6.83603
Year ended December 31, 2010	6.61180	6.66103
Year ended December 31, 2009	6.83720	6.84088

	Statement of Cash Flows

	In accordance with ASC 830-230, “Statement of Cash Flows”, cash flows from the Company’s operations is calculated based upon the functional currency. 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.

	Cash and Cash Equivalents

	Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Revenue Recognition

	The Company recognizes its revenues net of sales taxes and sales-related taxes. In accordance with FASB ASC 605, "Revenue Recognition", the Company recognizes revenue when the earnings process is complete. This generally occurs when services have been rendered and accepted or products are shipped to unaffiliated customers or picked up by unaffiliated customers in the Company's warehouse, title and risk of loss have been transferred, collectability is reasonably assured and pricing is fixed or determinable. The corresponding shipping and handling costs are included in the selling expenses.

	The Company warrants the product only in the event of defects for one year from the date of shipment. Historically, the Company has not experienced significant defects, and replacements for defects have been minimal. For the three months ended March 31, 2011 and 2010, no such returns and allowances have been recorded. Should returns increase in the future it would be necessary to adjust estimates, in which case recognition of revenues could be delayed. Payments received prior to satisfying the Company’s revenue recognition criteria are recorded as advance from customers.

	Product warranty

	The Company provides product warranties to its customers that all equipment manufactured by it will be free from defects in materials and workmanship under normal use for a period of one year from the date of shipment. The Company's costs and expenses in connection with such warranties has been immaterial and as of March 31, 2011 and December 31, 2010, no product warranty reserve was considered necessary.

	Accounts Receivable

	Accounts receivable are recorded at the invoiced amount and do not bear interest. Any allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. Management regularly 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 collectability of accounts receivable and the adequacy of the allowance. In circumstances in which we receive payment for accounts receivable which have previously been written off, we reverse the allowance and bad debt expenses.

	Inventory

	Inventories are stated at the lower of cost, as determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if they are below cost. Management regularly evaluates the composition of the Company’s inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Property, Plant and Equipment

	Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation and amortization are provided using the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets as follows:

Building and warehouses	20 years
Machinery and equipment	7 to 10 years
Office equipment and furniture	5 years
Motor vehicles	5 years

	Valuation of Long-Lived assets

	In accordance with Impairment or Disposal of Long-Lived Assets Subsections of ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized as of March 31, 2011 and December 31, 2010, respectively.

	Research and Development Costs

	The Company charges research and development costs to expense when incurred in accordance with the FASB ASC 730, “Research and Development”. Research and development costs were immaterial for the three months ended March 31, 2011 and 2010, respectively.

	Advertising Costs

	The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the FASB ASC 720-35, “Advertising Costs”. Advertising expenses were included in selling expenses. Advertising expenses were immaterial for the three months ended March 31, 2011 and 2010, respectively.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Value-added Tax ("VAT") and other taxes

	Sales revenue represents the invoiced value of goods, net of a value-added tax (VAT). The VAT collected on sales is netted against the taxes paid for purchases of cost of goods sold to determine the amounts payable and refundable. The Company presents VAT on a net basis.

	The Company is subject to various taxes such as City Development Tax, and Education tax to the local government tax authorities. The City Development Tax and Education Tax are generally collected on a certain percentage of VAT.

	Comprehensive Income

	ASC 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statement of changes in shareholders' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

	Segment Reporting

	ASC 280 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. The Company operated in one business segment for the three months ended March 31, 2011 and 2010, respectively.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Related parties

	For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

	China Contribution Plan

	Full time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution.

	The Company made the provisions based on the number of qualified employees and the rate and base regulated by the government. However, the Company did not make full monthly contribution to these funds. In the event that any current or former employee files a complaint with the PRC government, the Company may be subject to administrative fines. The Company believes that these fines would be minimal, and accrual for such fines has been made in this regard.

	Statutory Reserves

	Pursuant to the applicable laws in the PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the Company's registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Beginning from January 1, 2006, enterprise is no longer required to make appropriation to the statutory public welfare fund. No appropriations to the discretionary surplus reserve have been made.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Income Taxes

	The Company accounts for income tax in accordance with FASB ASC 740,"Income Taxes", which requires the asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences 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 apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

	Although the PRC Income Tax Law allows the enterprises to offset their future net income with operating losses carried forward, an enterprise need approval from the local tax authority before it can claim such tax benefit, and the outcome of the application is generally uncertain. Therefore, the Management established a 100% valuation allowance for the operation losses carried forward and no deferred tax assets have been recorded.

	The Company adopted a new FASB guidance, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The new FASB guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB guidance also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. In accordance with the new FASB guidance, the Company performed a self-assessment and concluded that there were no significant uncertain tax positions requiring recognition in its consolidated financial statements.

	The Company accounts for income taxes in interim periods in accordance with FASB ASC 740-270, "Interim Reporting". The Company has determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company's fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

	Earnings (Loss) Per Share

	The Company reports earnings per share in accordance with FASB ASC 260, “Earnings Per Share” , which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) 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 are no potentially dilutive securities outstanding (options and warrants) for the three months ended March 31, 2011 and 2010, respectively.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	Recent Accounting Pronouncements

	In January 2011, the FASB temporarily deferred the disclosures regarding troubled debt restructurings which were included in the disclosure requirements about the credit quality of financing receivables and the allowance for credit losses which was issued in July 2010. In April 2011, the FASB issued additional guidance and clarifications to help creditors in determining whether a creditor has granted a concession, and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The new guidance and the previously deferred disclosures are effective July 1, 2011 applied retrospectively to January 1, 2011. Prospective application is required for any new impairments identified as a result of this guidance. The Management does not expect the adoption of this new guidance will have a material effect on the Company’s financial position and results of operations.

	In December 2010, FASB issued an amendment to the disclosure of supplementary pro forma information for business combinations. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this new guidance did not have a material effect on the Company’s financial position and results of operations.

	In December 2010, FASB issued an amendment to goodwill impairment test. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this new guidance did not have a material effect on the Company’s financial position and results of operations.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	Recent Accounting Pronouncements (continued)

	In April 2010, FASB issued an amendment to Stock Compensation. The amendment clarifies that an employee stock-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares 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 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this new guidance did not have a material effect on the Company’s financial position and results of operations.

	In January 2010, the FASB issued additional disclosure requirements for fair value measurements. The guidance requires previous fair value hierarchy disclosures to be further disaggregated by class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. In addition, significant transfers between Levels 1 and 2 of the fair value hierarchy are required to be disclosed. These additional requirements became effective January 1, 2010 for quarterly and annual reporting. The adoption of this new guidance did not have a material effect on the Company’s financial position and results of operations. In addition, the fair value disclosure amendments also require more detailed disclosures of the changes in Level 3 instruments. These changes are effective beginning January 1, 2011.The adoption of these new guidances did not have a material effect on the Company’s financial position and results of operations.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4-	ACCOUNTS RECEIVABLE

	Accounts receivable consists of the following:

	March 31,			December 31,
	2011			2010
	(unaudited)

Accounts receivable	$	1,362,512		$	1,177,895
Less: Allowance for doubtful accounts		(1,856	)		(1,856	)
Accounts receivable, net	$	1,360,656		$	1,176,039

	Bad debt expense charged to operations was $0 and $0 for the three months ended March 31, 2011 and 2010, respectively.

Note 5-	INVENTORIES

	Inventories consist of following:

	March 31,		December 31,
	2011		2010
	(unaudited)

Finished goods	$	247,337	$	199,775
Work-in-progress		64,567		54,059
Raw materials		59,256		59,162
Total	$	371,160	$	312,996

Note 6-	PROPERTY AND EQUIPMENT, NET

	The following is a summary of property, plant and equipment-at cost, less accumulated depreciation:

	March 31,			December 31,
	2011			2010
	(unaudited)

Machinery and equipment	$	16,666		$	16,562
Office equipment and furniture		16,192			16,089
Motor vehicles		87,915			87,360
		120,773			120,011

Less: Accumulated depreciation		(22,686	)		(17,241	)

Total	$	98,087		$	102,770

Depreciation expense charged to operations was $3,189 and $774 for the three months ended March 31, 2011 and 2010, respectively.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7-	DUE TO A RELATED PARTY

	Due to a related party represents loans from Ms. Shuying Zheng who was the CEO and the majority shareholder of the Company when the loans were made, to finance the operations of QTC and Beijing Telecom due to lack of cash resources. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from these activities are classified as cash flows from financing activities.

Note 8-	CONCENTRATIONS AND CREDIT RISKS

	The Company maintains its cash and cash equivalents with various financial institutions in the PRC which do not provide insurance for amounts on deposit. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area.

	The Company operates principally in the PRC and grants credit to its customers in this geographic region. Although the PRC is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s operations.

	Major Customer

	For the three months ended March 31, 2011 and 2010, no customer had net sales exceeding 10% of the Company’s total net sales for the respective period.

	Major Suppliers

	For the three months ended March 31, 2011 and 2010, the Company’s one largest supplier accounted for 44.3% and 98.7%, respectively, of the Company’s total purchases. The account payable balances for the Company’s largest supplier was $164,823 and $209,259 as of March 31, 2011 and 2010, respectively.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9-	COMMITMENTS AND CONTINGENCIES

	Minimum Lease Payments on Operating Lease

	The Company rents a production facility and significant production equipment from a third party for a three-year period ended December 31, 2012. Rent expense amounted to $233,671 and $nil for the year ended December 31, 2010 and 2009, respectively. As of December 31, 2010, the future minimum lease payments for the lease are as following:

Year ending	Lease
December 31,	Payment

2011		231,674
2012		231,674
	$	463,348

	Lack of Insurance

	The Company does not carry any business interruption insurance, products liability insurance or any other insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that the investors would lose their entire investment in the Company.

	The Company could be exposed to liabilities or other claims for which the Company has no insurance protection. The Company does not currently maintain any business interruption insurance, products liability insurance, or any other comprehensive insurance policy. As a result, the Company may incur uninsured liabilities and losses as a result of the conduct of its business. There can be no guarantee that the Company will be able to obtain insurance coverage in the future, and even if it can obtain coverage, the Company may not carry sufficient insurance coverage to satisfy potential claims. Should uninsured losses occur, any purchasers of the Company’s common stock could lose their entire investment.

	Because the Company does not carry products liability insurance, a failure of any of the products marketed by the Company may subject the Company to the risk of product liability claims and litigation arising from injuries allegedly caused by the unqualified composition or quality of its products. The Company cannot assure that it will have enough funds to defend or pay for liabilities arising out of a products liability claim. To the extent the Company incurs any product liability or other litigation losses, its expenses could materially increase. There can be no assurance that the Company will have sufficient funds to pay for such expenses, which could end its operations and the investors would lose their entire investment.

	Environmental

	In the ordinary course of its business, the Company is subject to numerous environmental laws and regulations covering compliance matters or imposing liability for the costs of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances. Currently, our environmental compliance costs are immaterial to our operating costs. However, changes in these laws and regulations may significantly increase our environmental compliance costs and therefore have a material adverse effect on the Company’s financial position and results of operations. Also, any failure by the Company to adequately comply with such laws and regulations could subject the Company to significant future liabilities.

SMOOTH GLOBAL (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9-	COMMITMENTS AND CONTINGENCIES (continued)

	Risks of losses

	The Company is potentially exposed to risks of losses that may result from business interruptions, injury to others (including employees) and damage to property. These losses may be uninsured, especially due to the fact that the Company’s operations are in China, where business insurance is not readily available. If: (i) information is available before the Company’s financial statements are issued or are available to be issued indicates that such loss is probable and (ii) the amount of the loss can be reasonably estimated, an estimated loss will be accrued by a charge to income. If such loss is probable but the amount of loss cannot be reasonably estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. As of March 31, 2011 and December 31, 2010, the Company has not experienced any uninsured losses from injury to others or other losses.

	PRC's political and economic system

	The Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company's performance.

	Governmental control of currency conversion

	The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. The Company receives all of its revenues in Renminbi, which is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict the Company’s ability to remit sufficient foreign currency to satisfy foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.

	The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents the Company from obtaining sufficient foreign currency to satisfy its currency demands, the Company may not be able to pay certain of its expenses as they come due.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Revenue for the three months ended March 31, 2011 was $728,767, a decrease of $78,185 or 9.7% from $806,952 for the three months ended March 31, 2010. During the same period, our costs of sales increased by $15,383, or 2.2%, from $635,531 to $650,914, resulting in a decrease of $93,568, or 54.6%, in gross profit. This decrease occurred because we relocated our production facility during the quarter. As a result, almost of all our sales in the three months ended March 31, 2011 were resales of batteries we purchased from other manufacturers, the cost of which substantially exceeds the costs of goods manufactured in our facility.

Operating expenses increased from $26,485 in the three months ended March 31, 2010 to $99,363 for the three months ended March 31, 2011, representing an increase of $72,878, or 275%. The increase was primarily attributable to the increase of $37,819 in the selling expense, a result of our efforts to develop our market share. For the same reason, our payroll and pension expense increased by $25,813 in the three months ended March 31, 2011, as we increased our staff in order to expand our business.

We experienced a net loss of 20,425 for the three months ended March 31, 2011, as compared to net income of $110,537 for the three months ended March 31, 2010. As noted above, the change was primarily caused by the relocation of our manufacturing facility during the quarter. We anticipate, therefore, that our operations will return to profitability during the remainder of 2011.

Liquidity and Capital Resources

To date, the Company has been financed by paid-in capital from the founders of Yupeng Hengli, cash generated from operations, and a $112,032 non-interest bearing loan from an individual who had been a shareholder at the time when the credit was extended. As a result of these factors, we had working capital of $338,087 at March 31, 2011. The primary component of our working capital was accounts receivable totaling $1,360,656 (an increase of $176,634 during the quarter ended March 31, 2011). The allowance for doubtful accounts netted against the total accounts receivable is $1,856, a relatively low level of .16%, reflecting our confidence, in light of all the circumstances, that we will be paid by our customers. We have had no bad debt expenses during the three months ended March 31, 2011 or the preceding two years.

Cash on hand decreased from $95,264 on December 31, 2010 to $55,148 on March 31, 2011, as our operations used $46,597 in cash. Our use of cash was slightly greater than our net loss, as we increased our accounts payable and accrued expenses in rough proportion to the increase in our accounts receivable.

The Company has no long term liabilities. Therefore, we believe that we can continue to fund operations at the current level of activity. However, in order to finance the Company’s continuing growth and construction of a new manufacturing facility, we will need to develop alternative sources of funds. The Company is currently negotiating with investment bankers and seeking loans from commercial banks. However, no financing agreements are yet in place.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2011. Pursuant to Rule13a-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, “disclosure controls and procedures” means controls and other procedures that are designed to insure that information required to be disclosed by Smooth Global (China) Holdings in the reports that it files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time limits specified in the Commission’s rules. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to insure that information Smooth Global (China) Holdings is required to disclose in the reports it files with the Commission is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that Smooth Global (China) Holdings’ system of disclosure controls and procedures was effective as of March 31, 2010 for the purposes described in this paragraph.

Changes in Internal Controls. There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during Smooth Global (China) Holdings’ first fiscal quarter that has materially affected or is reasonably likely to materially affect Smooth Global (China) Holdings’ internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

There has been no material change to the risk factors set forth in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2010.

Item 6. Exhibits

31	Rule 13a-14(a) Certification
32	Rule 13a-14(b) Certification

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	SMOOTH GLOBAL (CHINA) HOLDINGS, INC.

Date: May 24, 2011	By: /s/ Xiaojing Xu
	Xiaojing Xu, Chief Executive Officer

	By: /s/ Hui Liang
	Hui Liang, Chief Financial Officer

Attached files

Smooth Global (China) Holdings, Inc. Reports

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