Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - CHINA SHIANYUN GROUP CORP., LTD. | ex311.htm |
EX-31.2 - EXHIBIT 31.2 - CHINA SHIANYUN GROUP CORP., LTD. | ex312.htm |
EX-32.2 - EXHIBIT 32.2 - CHINA SHIANYUN GROUP CORP., LTD. | ex322.htm |
EX-32.1 - EXHIBIT 32.1 - CHINA SHIANYUN GROUP CORP., LTD. | ex321.htm |
EXCEL - IDEA: XBRL DOCUMENT - CHINA SHIANYUN GROUP CORP., LTD. | Financial_Report.xls |
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 June 30, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF T SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-147084
CHINA GREEN CREATIVE, INC.
(Exact name of Registrant as specified in its charter)
Nevada
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83-0506099
|
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(State or Other Jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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|
|
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Guandong Province, China
|
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n/a
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(Address of principal executive offices)
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(Zip Code)
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86-755-23998799
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 T 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
Large accelerated filer £
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Accelerated filer £
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Non-accelerated filer £ (Do not check if a smaller reporting company)
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Smaller reporting company T
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 15, 2012, are as follows:
Class of Securities
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Shares Outstanding
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Common Stock, $0.001 par value
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5,000,052 shares
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China Green Creative, Inc. affected a 60-to-1 reverse stock split on July 23, 2012. All per share amounts and calculations in this Quarterly Report and the accompanying consolidated condensed financial statements have been retroactively adjusted to reflect the effects of the reverse stock split.
TABLE OF CONTENTS
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Part I – Financial Information
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Part II – Other Information
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||
June 30,
2012
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December 31,
2011
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|||||||
(Unaudited)
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(Audited)
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|||||||
Assets
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||||||||
Current assets
|
||||||||
Cash and cash equivalents
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$ | 231,667 | $ | 97,522 | ||||
Accounts receivable
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947,401 | 1,297,635 | ||||||
Inventories
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441,125 | 14,080 | ||||||
Amount due from a director
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29,988 | 57,460 | ||||||
Prepaid expenses and other receivables
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602,120 | 848,718 | ||||||
Total current assets
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2,252,301 | 2,315,415 | ||||||
Property, plant and equipment, net
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3,062,154 | 3,146,914 | ||||||
Land use rights, net
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98,647 | 100,155 | ||||||
Other intangible assets, net
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17,818 | 24,434 | ||||||
Total assets
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$ | 5,430,920 | $ | 5,586,918 | ||||
Liabilities and stockholders’ equity
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||||||||
Liabilities
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||||||||
Current liabilities
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||||||||
Accounts payable
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$ | 1,029,766 | $ | 959,326 | ||||
Accrued expenses and other payables
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1,908,653 | 2,037,437 | ||||||
Receipt in advance
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675,902 | 732,390 | ||||||
Short term debts
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1,116,022 | 1,734,807 | ||||||
Taxes payable
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1,849,398 | 1,808,484 | ||||||
Amount due to a director
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851,969 | 876,814 | ||||||
Total liabilities
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$ | 7,431,710 | $ | 8,149,258 | ||||
Stockholders’ equity
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||||||||
Common stock: Par value $0.001 per share; 400,000,000 shares authorized, 5,000,052 shares issued and outstanding
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5,000 | 5,000 | ||||||
Additional paid in capital
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1,927,689 | 1,927,689 | ||||||
Accumulated deficits
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(4,068,369 | ) | (4,615,313 | ) | ||||
Accumulated other comprehensive income
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134,890 | 120,284 | ||||||
Total stockholders’ equity
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$ | (2,000,790 | ) | $ | (2,562,340 | ) | ||
Total liabilities and stockholders’ equity
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$ | 5,430,920 | $ | 5,586,918 | ||||
See accompanying notes to condensed consolidated financial statements
CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
AND COMPREHENSIVE INCOME
(UNAUDITED)
For the three months
ended June 30,
|
For the six months
ended June 30,
|
|||||||||||||||
2012
|
2011
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2012
|
2011
|
|||||||||||||
Revenues
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$ | 1,709,598 | 406,918 | 2,391,956 | 1,126,101 | |||||||||||
Cost of sales
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758,906 | 69,490 | 1,104,683 | 313,388 | ||||||||||||
Selling and distribution
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89,984 | 35,991 | 202,601 | 218,238 | ||||||||||||
General and administrative expense (inclusive of depreciation and allowances)
|
338,867 | 332,382 | 493,843 | 511,206 | ||||||||||||
Operating profit/(loss)
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521,841 | (30,945 | ) | 590,829 | 83,269 | |||||||||||
Other expenses
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||||||||||||||||
Other expenses
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- | 3,732 | - | 3,769 | ||||||||||||
Interest expense
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24,294 | 8,458 | 43,885 | 10,238 | ||||||||||||
Total other expenses
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24,294 | 12,190 | 43,885 | 14,007 | ||||||||||||
Profit/(loss) from operations before provision for income taxes
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497,547 | (43,135 | ) | 546,944 | 69,262 | |||||||||||
Provision for income taxes
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- | - | - | - | ||||||||||||
Net income/(loss) for the period
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$ | 497,547 | (43,135 | ) | 546,944 | 69,262 | ||||||||||
Other comprehensive income
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||||||||||||||||
Gain/(loss) on foreign currency translation
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20,694 | (31,944 | ) | 14,606 | (51,991 | ) | ||||||||||
Total comprehensive income/(loss) for the period
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$ | 518,241 | (75,079 | ) | 561,550 | 17,271 | ||||||||||
Earnings per share, basic and diluted
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$ | 0.10 | (0.01 | ) | 0.11 | 0.01 | ||||||||||
Weighted average number of shares outstanding, basic and diluted
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5,000,052 | 5,000,052 | 5,000,052 | 5,000,052 |
See accompanying notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
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||||||||
2012
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2011
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|||||||
Cash flows from operating activities
|
||||||||
Net income
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$ | 546,944 | $ | 69,262 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation expense
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77,775 | 67,521 | ||||||
Amortization expense of land use rights
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816 | 792 | ||||||
Amortization expense of other intangible assets
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6,476 | 5,643 | ||||||
Changes in operating assets and liabilities:
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||||||||
Decrease /(increase) in accounts receivable
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350,234 | (728,719 | ) | |||||
(Increase)/decrease in inventories
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(427,045 | ) | 184,329 | |||||
Decrease in prepaid expenses and other receivables
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246,598 | 288,367 | ||||||
Decrease /(increase) in amount due from a director
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27,472 | (32,243 | ) | |||||
Increase in accounts payable
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70,440 | 72,678 | ||||||
(Decrease) /increase in accrued expenses and other payables
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(128,784 | ) | 121,958 | |||||
Decrease in receipt in advance
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(56,488 | ) | (110,296 | ) | ||||
Increase/(decrease) in taxes payable
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40,914 | (27,591 | ) | |||||
Net cash (used in)/provided by operating activities
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$ | 755,352 | $ | (88,299 | ) | |||
Cash flows from investing activities
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||||||||
Additions to property, plant and equipment
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(14,547 | ) | (26,685 | ) | ||||
Net cash used in investing activities
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$ | (14,547 | ) | $ | (26,685 | ) | ||
Cash flows from financing activities
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||||||||
(Decrease)/increase in amount due to a director
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(24,845 | ) | 13,955 | |||||
(Decrease)/increase in other borrowings
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(609,455 | ) | 170,881 | |||||
Net cash provided by/(used in) financing activities
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$ | (634,300 | ) | $ | 184,836 | |||
Net increase in cash and cash equivalents
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$ | 106,505 | $ | 69,852 | ||||
Effect of foreign exchange rate changes
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$ | 27,640 | $ | (109,800 | ) | |||
Cash and cash equivalents at January 1
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$ | 97,522 | $ | 43,895 | ||||
Cash and cash equivalents at June 30
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$ | 231,667 | $ | 3,947 | ||||
Supplement disclosure of cash flows information:
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||||||||
Cash paid for interest
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$ | 39,487 | $ | - | ||||
Cash paid for income taxes
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$ | - | $ | - |
See accompanying notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
China Green Creative, Inc. (“CGC”), a Nevada Corporation, was incorporated on August 17, 2006 under the name of Glance, Inc. On January 21, 2009, we changed our name to China Green Creative, Inc. CGC and its subsidiaries (collectively known as the “Company”) are principally engaged in the distribution of consumer goods in the People’s Republic of China (“China” or the “PRC”).
As of June 30, 2012, the details of the Company’s subsidiaries are summarized as follows:
Name
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Domicile and date of incorporation
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Paid-in capital
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Effective ownership
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Principal activities
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||||||
Plenty Fame Holding, Limited (“Plenty Fame”)
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British Virgin Islands (the “BVI”)
January 18, 2008
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$50,000 | 100 | % |
Investment holding
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|||||
Prospect Hong Kong Development Limited (“Prospect”)
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Hong Kong Special Administrative Region (“HKSAR”)
October 17, 2008
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HK$10,000
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100 | % |
Investment holding
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|||||
Jiangxi Jien Industries Limited
(“Jiangxi Jien”)
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The PRC
April 8, 1997
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RMB16,000,000
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100 | % |
Sale of consumer products in the PRC.
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|||||
Shenzhen Jien Electronic Commerce Company Limited (“Shenzhen Jien”)
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The PRC
April 13, 2009
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RMB3,000,000
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100 | % |
Management of regional distribution rights and provision of related services.
|
|||||
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the three and six months ended June 30, 2012 and 2011 have been prepared pursuant to the rules & regulations of the SEC. Certain information and 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, although the Company believes that the following disclosures are adequate to make the information presented not misleading. All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”), while the reporting currency is the US Dollar.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of June 30, 2012, the results of its operations and cash flows for the three and six months ended June 30, 2012 and 2011.
The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results for a full year period.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts in China and Hong Kong.
(b) Inventories
Inventories consisting of trading goods, packing and other materials are stated at the lower of cost or net realizable value. Inventory costs are calculated using a weighted average method of accounting.
(c) Fair Value of Financial Instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, amount due from/(to) directors, receipt in advance, debts, accounts payable, accrued expenses and other payables, and taxes payable.
The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective period ends.
(d) Revenue Recognition
We generate revenues mainly from the sale of consumer products and also revenue from the sale of regional distribution rights.
The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable.
Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
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Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
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(ii)
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Continuing management fee income represents regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
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(iii)
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Brand usage fee income is recognized when service has been rendered and the rights to receive payment have been established.
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(e) Earnings Per Share
Basic earnings per share is 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. As of June 30, 2012 and 2011, there were no dilutive securities outstanding.
(f) Foreign Currency Translation
The accompanying consolidated financial statements are presented in United States Dollars (US$). 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 period. The translation rates are as follows:
June 30,
2012
|
December 31,
2011
|
June 30,
2011
|
||||||||||
|
||||||||||||
Period/year end RMB : US$ exchange rate
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0.1576 | 0.1587 | 0.1549 | |||||||||
Average yearly RMB : US$ exchange rate
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0.1583 | 0.1550 | 0.1536 | |||||||||
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC’s government.
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.
(g) Recent Accounting Pronouncements
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
NOTE 4 – ACCOUNTS RECEIVABLE
As of the balance sheet dates, the Company’s accounts receivable are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Dejun Zhang
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$ | 253,736 | $ | 545,097 | ||||
Others
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693,665 | 752,538 | ||||||
Total
|
$ | 947,401 | $ | 1,297,635 | ||||
Dejun Zhang contributed 16.54% and 40% of the Company’s revenues for the three months ended June 30, 2012 and 2011, respectively.
As of the balance sheet dates, the balances are unsecured, interest free and repayable according to terms of trade. The company will assess the collectability of accounts receivable on periodic basis and will make allowance for doubtful accounts when the amount receivable is no longer deemed to be collected by the company.
NOTE 5 – INVENTORIES
As of the balance sheet dates, the Company’s inventories are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Trading inventories
|
$ | 441,125 | $ | 14,080 | ||||
NOTE 6 – PREPAID EXPENSES AND OTHER RECEIVABLES
As of the balance sheet dates, the Company’s prepaid expenses and other receivables are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Prepaid expenses
|
$ | 505,802 | $ | 731,749 | ||||
Other receivables
|
96,318 | 116,969 | ||||||
Total
|
$ | 602,120 | $ | 848,718 | ||||
Prepaid expenses as of June 30, 2012 include prepaid promotion and advertising expenses of $149,457 to Beijing Shanghan International Cultural Creative Development Company Limited. The amount will be charged to expense when the related services have been provided by the vender.
The Company evaluates prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company.
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment in the PRC. As of the balance sheet dates, property, plant and equipment are summarized as follows:
Depreciable
lives
|
June 30,
2012
|
December 31,
2011
|
||||||||||
At cost:
|
||||||||||||
Plant
|
40 years
|
$ | 1,885,958 | $ | 1,899,122 | |||||||
Machinery
|
15 years
|
191,360 | 192,696 | |||||||||
Motor vehicle
|
10 years
|
43,700 | 44,005 | |||||||||
Office equipment
|
5 years
|
237,067 | 224,138 | |||||||||
Leasehold Improvement
|
2 years
|
361,113 | 363,634 | |||||||||
Construction in progress
|
N/A | 1,350,600 | 1,360,026 | |||||||||
4,069,798 | 4,083,621 | |||||||||||
Less: Accumulated depreciation
|
(1,007,644 | ) | (936,707 | ) | ||||||||
Property, plant and equipment, net
|
$ | 3,062,154 | $ | 3,146,914 | ||||||||
Depreciation expense for the six months ended June 30, 2012 and 2011 was $ 77,775 and $67,521, respectively.
NOTE 8 – LAND USE RIGHTS, NET
The Company’s land use rights represent the cost of purchasing the rights to use the leasehold land in the PRC for the production facilities of Jiangxi Jien. According to the law of the PRC, the government owns all the land in the PRC. Companies or individuals are only authorized to possess and use the land through land use rights granted by the PRC government.
As of the balance sheet dates, the Company’s land use rights are summarized as follows:
Useful lives
|
June 30,
2012
|
December 31,
2011
|
|||||||
At cost:
|
|||||||||
Land use rights
|
59 – 60 years
|
$ | 119,823 | $ | 120,660 | ||||
Less: Accumulated amortization
|
(21,176 | ) | (20,505 | ) | |||||
Land use rights, net
|
$ | 98,647 | $ | 100,155 | |||||
Amortization expense of land use rights for the six months ended June 30, 2012 and 2011 was $816 and $792, respectively.
NOTE 9 – OTHER INTANGIBLE ASSETS, NET
The Company’s other intangible assets represent the cost of setting up information systems to provide franchising services. As of the balance sheet dates, the Company’s other intangible assets are summarized as follows:
Useful lives
|
June 30,
2012
|
December 31,
2011
|
|||||||
At cost:
|
|||||||||
Information systems
|
5 years
|
$ | 44,757 | $ | 45,069 | ||||
Less: Accumulated amortization
|
(26,939 | ) | (20,635 | ) | |||||
Other intangible assets, net
|
$ | 17,818 | $ | 24,434 | |||||
Amortization expense of other intangible assets for the six months ended June 30, 2012 and 2011 was $6,476 and $5,643, respectively.
NOTE 10 – AMOUNT DUE FROM/(TO) DIRECTORS
As of the balance sheet dates, the Company’s current accounts with the directors are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Xingzhang Ye
|
$ | 29,988 | $ | 57,460 | ||||
Xinghua Chen
|
$ | (851,969 | ) | $ | (876,814 | ) | ||
The amount due from Mr. Xingzhang Ye represents temporary advances to the director for the Company’s daily operating expenses. The balances are unsecured, interest free, and have no fixed terms of repayment.
The amount due to Mr. Xinghua Chen represents temporary advances from the director for the Company’s working capital use. The balance is unsecured, interest free, and has no fixed terms of repayment.
NOTE 11– DEBTS
The Company’s debts are summarized as follows:
Effective
interest rate
|
Outstanding balance
|
|||||||||||||||||
Name of parties
|
Due date
|
Nature
|
June 30,
2012
|
December 31,
2011
|
June 30,
2012
|
December 31,
2011
|
||||||||||||
Jianguo Oin
|
December,
2012
|
Unsecured
|
Nil
|
Nil
|
$ | 67,982 | $ | 187,482 | ||||||||||
Jian Shu
|
On demand
|
Unsecured
|
5.85 | % | 5.85 | % | 102,440 | 238,050 | ||||||||||
Shenzhen Datang Hexie Investments Limited
|
On demand
|
Unsecured
|
Nil
|
Nil
|
- | 39,675 | ||||||||||||
China Construction Bank
|
Novemebr, 2012
|
Secured
|
7.544 | % | 7.544 | % | 945,600 | 1,269,600 | ||||||||||
Short term debt
|
$ | 1,116,022 | $ | 1,734,807 | ||||||||||||||
Total interest expense related to these debts for the six months ended June 30, 2012 and 2011 was $43,885 and $10,238, respectively.
As of June 30, 2012, the bank loans were secured by pledges of certain fixed assets and land use rights held by of Jiangxi Jien.
NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES
As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Accrued operating expenses
|
$ | 11,410 | $ | 80,577 | ||||
Accrued interest expense – (i)
|
268,478 | 265,943 | ||||||
Amount due to Shenzhen Hanhong – (ii)
|
858,920 | 855,246 | ||||||
Other payables – (iii)
|
769,845 | 835,671 | ||||||
$ | 1,908,653 | $ | 2,037,437 | |||||
(i)
|
Amount represents accrued interest expense for loans from Qin Jianguo and Shu Jian (please also see footnote 11).
|
(ii)
|
The amount represents consultancy fee payable to Shenzhen Hanhong. Shenzhen Hanhong is a related party as Mr. Xing Hua Chen is a common director of the Company and Shenzhen Hanhong. The amount is interest free, unsecured and has no fixed terms of repayment.
|
(iii)
|
Included in other payables as of June 30, 2012 is an amount payable for office decoration in the amount of $252,160, and an amount payable for marketing and promotional expenses of $425,543. The remaining balance consists of amounts owed by the Company to various entities that are incurred by the Company in daily business operations other than trading nature. These liabilities and accrued operating expenses are non-interest bearing and are payable within one year.
|
NOTE 13 – RECEIPT IN ADVANCE
As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Receipt in advance
|
$ | 675,902 | $ | 732,390 | ||||
Receipt in advance consists of money received from customers for regional distribution rights which are yet to be performed. Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represents regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
NOTE 14 – TAXES PAYABLE
As of the balance sheet dates, the Company’s taxes payable are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Income tax payable
|
$ | 1,562,264 | $ | 289,059 | ||||
Value added tax payable
|
287,134 | 1,519,425 | ||||||
Total
|
$ | 1,849,398 | $ | 1,808,484 | ||||
NOTE 15 – COMMON STOCK
On July 23, 2012, we affected a reverse stock split at 1:60 to reduce our issued and outstanding shares of common stock from 300,000,000 to approximately 5,000,052 (including rounded up fractional shares), which was approved by our majority shareholders (the “Reverse Split”). The Reverse Split has been retroactively reflected in this interim report on Form 10-Q for the period ended June 30, 2012. As of the balance sheet dates, the Company has authorized 400,000,000 shares of common stock, par value $0.001 per share. The Company has also authorized 10,000,000 shares of preferred stock, but no preferred stock has been issued as of June 30, 2012.
NOTE 16 – SEGMENT REPORTING
The Company’s reportable segments of business include sale of consumer products and regional distribution rights. Each of these segments is conducted in a separate corporation and each functions independently of the others. The Company has no sales between segments.
Financial information of the Company’s business segments is as follows:
Six months ended June 30,
|
||||||||
2012
|
2011
|
|||||||
Revenues from:
|
||||||||
Sale of consumer products
|
$ | 2,111,765 | $ | 908,317 | ||||
Regional distribution rights
|
280,191 | 217,784 | ||||||
2,391,956 | 1,126,101 | |||||||
Segment profit/(loss) from:
|
||||||||
Sale of consumer products
|
569,972 | 158,662 | ||||||
Regional distribution rights
|
254,255 | 172,226 | ||||||
Corporate
|
(277,283 | ) | (261,626 | ) | ||||
546,944 | 69,262 | |||||||
Depreciation and amortization expenses:
|
||||||||
Sale of consumer products
|
48,760 | 41,177 | ||||||
Regional distribution services
|
36,211 | 32,779 | ||||||
Corporate
|
96 | - | ||||||
85,067 | 73,956 | |||||||
Segment assets:
|
||||||||
Sale of consumer products
|
4,309,655 | 4,459,942 | ||||||
Regional distribution services
|
1,121,265 | 1,063,764 | ||||||
Corporate
|
- | - | ||||||
5,430,920 | 5,523,706 | |||||||
Capital expenditure
|
||||||||
Sale of consumer products
|
14,547 | 26,685 | ||||||
Regional distribution services
|
- | - | ||||||
Corporate
|
- | - | ||||||
14,547 | 26,685 | |||||||
NOTE 17 – PROVISION FOR INCOME TAXES
Reconciliation of the expected tax with the actual tax expense is as follows:
Six months ended June 30,
|
||||||||||||||||
2012
|
2011
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Income from continuing operations before provision for income taxes
|
$ | 546,944 | $ | 69,262 | ||||||||||||
Expected PRC income tax expense at statutory tax rate of 25%
|
136,736 | 25.0 | 17,316 | 25.0 | ||||||||||||
Utilization of tax loss brought forward
|
(136,736 | ) | (25.0 | ) | (17,316 | ) | (25.0 | ) | ||||||||
Provision for Income Taxes
|
$ | - | - | $ | - | - |
(i)
|
Both Jiangxi Jien and Shenzhen Jien are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
|
(ii)
|
Plenty Fame is not subject to tax in accordance with the relevant tax laws and regulations of the BVI.
|
(iii)
|
Prospect did not generate any assessable profits since its incorporation and therefore is not subject to HKSAR tax.
|
NOTE 18 – RELATED PARTY TRANSACTIONS
In addition to the transactions detailed elsewhere in these financial statements, the Company entered into the following significant transactions with related parties:
Six months ended June 30,
|
||||||||
2012
|
2011
|
|||||||
Xinghua Chen
|
||||||||
Rental expenses payable for the Company’s office premises in Shenzhen, the PRC
|
$ | 39,892 | $ | 9,682 | ||||
Mr. Xinghua Chen, the director of Shenzhen Hanhong, is also a director of the Company. Please refer to note 10 to the consolidated financial statements.
In the opinion of the directors, the above transactions were entered into by the Company in the ordinary course of business.
NOTE 19 – CONCENTRATION OF RISK
The Company is exposed to the following concentration of risk:
Dejun Zhang contributed 16.54% and 40% of the Company’s revenues for the six months ended June 30, 2012 and 2011, respectively.
NOTE 20 – CAPITAL COMMITMENT
Capital Commitment:
As of the balance sheet dates, the Company’s capital commitments are summarized as follows:
June 30,
2012
|
December 31,
2011
|
|||||||
Construction-in-progress:
|
||||||||
Contracted but not provided for
|
$ | 1,539,255 | $ | 1,550,000 | ||||
NOTE 21 – GOING CONCERN
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since 2010, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant losses. As of June 30, 2012, the Company has accumulated deficits of $4,068,369 and a negative working capital of $5,179,409.
As of June 30, 2012 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Forward Looking Statements
This Form 10−Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of China Green Creative, Inc.. for the periods ended June 30, 2012 and 2011 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.
Overview
We are formulating and distributing consumer goods such as herbal teas and beverage, health liquors and meal replacement products in China. In order to satisfy our customer demands for high quality products, we enter with contracts with factories in China to produce the products with our design, formula, standards and distribute those products under our registered brand names. All our registered brands have obtained nation-wide product certifications. During the past fiscal year, we mainly used “GEN + ME” for our own product lines. We sell products under our registered brand name primarily through our regional independent third-party distributors in the PRC to customers mainly in Beijing, Shandong, Zhejiang, Fujian and Guangdong Provinces. To keep up in such a competitive industry, we constantly adjust our manufacture and distribution strategies in China according to current economic conditions, consumer preference, government policy and social climate in the marketplace.
In addition to the sales of consumer products, we also grant regional distribution rights for the use of our trademarks and provide continuing support services to our distributors.
Jiangxi Jien, a subsidiary of the Company, is developing a storage and logistic base in Anyi County, Jiangxi Province, China. As of June 30, 2012, the amount of approximately $1.8 million has incurred for the construction of storage and logistics base with a budgeted cost of $3.3 million. The Company expects to spend approximately $1.5 million for the base and the completion of the project relies on that the Company obtains sufficient funds in the next 12 months.
We expect to continue to invest in marketing, primarily in recruiting new regional distributors. We believe this will not only expand our regional distribution network, but increase our market acceptance and customer satisfaction.
In addition to the immediate risks relating to our ability to continue as a going concern and to obtain funding under the current market conditions, we are subject to certain risks common to customer products distributors in similar stages of development. See “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, file number 333-147084
12758068. Principal risks include risks relating to the uncertainty of our organic growth strategy, our ability to implement our strategy, a reliance on third party to supply products that comply with safety requirements, the concentration of our sales in a limited number of customers, our ability to remain competitive in the market, our dependence on key members of our management, and our ability to obtain adequate capital to fund future operations.
Recent Developments
On July 23, 2012, we affected a reverse stock split at 1:60 to reduce our issued and outstanding shares of common stock from 300,000,000 to approximately 5,000,052 including rounded up fractional shares. The reverse split was approved by a majority of our shareholders and is retroactively reflected in this interim report on Form 10-Q for the period ended June 30, 2012.
In an effort to stay competitive, as an adjustment of our distribution strategy, we plan to develop direct sales via internet and other electronic mediums. We have been advised that certain PRC regulatory restrictions over foreign invested internet content providers may apply to our business. As a result, we have been communicating with our PRC legal advisor to explore the appropriate approach to adjust or restructure our operating businesses in China to accommodate our business development. As we are currently evaluating the feasibility and costs of such adjustment, we are not yet able to estimate the timeline and costs related to the process or whether we will be able to obtain all necessary governmental approvals in order to complete such adjustment or restructure.
Results of Operations
Three Months Ended June 30, 2012 as Compared to Three Months Ended June 30, 2011
Three months ended
|
||||||||||||||||
June 30
|
Increase/
|
%
|
||||||||||||||
2012
|
2011
|
(decrease)
|
change
|
|||||||||||||
Revenue
|
$ | 1,709,598 | $ | 406,918 | $ | 1,302,680 | 320.1 | |||||||||
Cost of sales
|
758,906 | 69,490 | 689,416 | 992.1 | ||||||||||||
Selling and distribution expenses
|
89,984 | 35,991 | 53,993 | 150.0 | ||||||||||||
General and administrative expenses
|
338,867 | 332,382 | 6,485 | 2.0 | ||||||||||||
Income/(loss) before income taxes
|
497,547 | (43,135 | ) | 540,682 | N/A | |||||||||||
Provision for income taxes
|
- | - | - | N/A | ||||||||||||
Net income/(loss)
|
$ | 497,547 | $ | (43,135 | ) | $ | 540,682 | N/A |
Revenues
Revenue for the three months ended June 30, 2012 amounted to $1,709,598, represents a $1,302,680 or 320.1% increase, compared to $406,918 in the same period in 2011. Revenues for the three months ended June 30, 2012 and 2011 are analyzed as follows:
Three months ended
June 30,
|
Increase/
|
%
|
||||||||||||||
2012
|
2011
|
(decrease)
|
change
|
|||||||||||||
Sale of consumer products
|
$ | 1,498,009 | $ | 189,134 | 1,308,875 | 692.0 | ||||||||||
Regional distribution rights
|
211,589 | 217,784 | (6,195 | ) | (2.8 | ) | ||||||||||
1,709,598 | $ | 406,918 | $ | 1,302,680 | 320.1 |
(a)
|
Sale of consumer products
|
Our sales of consumer products consist of providing herbal teas and beverages, sauces, healthy blend oils, health liquors and meal replacement products. Sales significantly increased by $1,308,875, or 692.0%, from $189,134 for the three months period ended June 30, 2011 to $1,498,009 for the three months period ended June 30, 2012. This increase is a result of distribution of a series new health care products and our marketing efforts to recruit new distributors in different provinces.
The market for health care products in China is growing rapidly, driven by China’s economic growth, a growing urban population and improved general health consciousness among the people. Our main health care products include liquors rich in selenium and trace elements, wine and meal replacement products etc. These products are well received by the market and significantly boosted our sales in the second quarter of 2012.
Since 2011, we began to modify our sales strategies to improve the efficiency of our distribution network and expand the customer base. As a result, we recruited several new major distributors and developed our existing agents in the second quarter of 2012.
(b)
|
Regional distribution rights
|
Since the third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark.
Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received are initially recognized as receipt in advance, and recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represents regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
(iii)
|
Brand usage fee income is recognized when service has been rendered and the rights to receive payment have been established.
|
The continuing support services included adverting campaign, band promotion activities and training services provided to the distributor for the next three years after distribution rights are granted. The continuing management fee is recognized on a yearly basis.
Revenues from regional distribution rights slightly decreased by $6,195 or 2.8% from $217,784 for the three months ended June 30, 2011 to $211,589 in the same period of 2012. As the regional distribution rights business struggled, there was no additional initial fee income received in the very competitive market. We plan to make some adjustments in our regional distribution rights policy and provide more comprehensive and diversified terms to different level distributors. We expect our revenues from regional distribution rights will improve after implementation of the new policy in the next few months.
Cost of sales
Cost of sales represents cost of consumer products sold. The cost for regional distribution rights business are expenses incurred to recruit new agents, promote the brand image and implement strategic advertising campaigns, all of which are included in selling and marketing expenses.
Cost of sales mainly represents the cost from subcontractors, which increased significantly by $689,416 or 992.1% from $69,490 for the second quarter of 2011 to $758,906 for the same period in 2012. This increase was primarily attributable to increasing sales of consumer products in the three months period ended June 30, 2012. The increase in cost of sales was a greater percentage increase than our sales of consumer products reflected general increases in raw materials costs, costs of packing materials and increase of labor costs since the year of 2011.
Selling and distribution expenses
Selling and distribution expenses for the three months period ended June 30, 2012 and 2011 amounted to $89,984 and $35,991, respectively. The increase of $53,993 or 150.0% was mainly attributable to our proactive marketing effort. There are more promotion activities and advertising campaigns held during the second quarter of 2012 to recruit new agents.
General and administrative expenses
General and administrative expenses increased by $6,485 or 2% from $332,382 for three months ended June 30, 2011 to $338,867 for three months ended June 30, 2012. We continue to implement our cost saving plan in the three months period ended June 30, 2012.
Income/(loss) before income taxes and provision for income taxes
The Company recorded a pretax gain $497,547 for the three months ended June 30, 2012, compared to a loss of $43,135 for the comparative period in 2011. The difference was mainly due to the dramatic increase of sales from consumer products business.
There was no PRC income tax provision for the second quarter of 2012 and 2011 as substantial amounts of pretax income were off-set by substantial accumulated losses incurred in previous years.
Net income/(loss)
We recorded net income of $497,547 for the second quarter of 2012, as compared to a loss of $43,135 for the same period in 2011. The increase in net income mainly resulted from the increasing revenue from consumer products.
Six Months Ended June 30, 2012 as Compared to Six Months Ended June 30, 2011
Six months ended
|
||||||||||||||||
June 30,
|
Increase/
|
%
|
||||||||||||||
2012
|
2011
|
(decrease)
|
change
|
|||||||||||||
Revenue
|
$ | 2,391,956 | 1,126,101 | 1,265,855 | 112.4 | |||||||||||
Cost of sales
|
1,104,683 | 313,388 | 791,295 | 252.5 | ||||||||||||
Selling and distribution expenses
|
202,601 | 218,238 | (15,637 | ) | (7.2 | ) | ||||||||||
General and administrative expenses
|
493,843 | 511,206 | (17,363 | ) | (3.4 | ) | ||||||||||
Income before income taxes
|
546,944 | 69,262 | 477,682 | 689.7 | ||||||||||||
Provision for income taxes
|
- | - | - | N/A | ||||||||||||
Net income
|
$ | 546,944 | 69,262 | 477,682 | 689.7 |
Revenues
Revenue for the six months ended June 30, 2012 amounted to $2,391,956, which represents a $1,265,855 or 112.4% increase compared to $1,126,101 for the same period in 2011. Revenues for the six months ended June 30, 2012 and 2011 are analyzed as follows:
Six months ended June 30,
|
Increase/
|
%
|
||||||||||||||
2012
|
2011
|
(decrease)
|
change
|
|||||||||||||
Sale of consumer products
|
$ | 2,111,765 | 908,317 | 1,203,448 | 132.5 | |||||||||||
Regional distribution rights
|
280,191 | 217,784 | 62,407 | 28.7 | ||||||||||||
2,391,956 | 1,126,101 | 1,265,855 | 112.4 | |||||||||||||
(a)
|
Sale of consumer products
|
Sales increased by $1,203,448, or 132.5%, from $908,317 for the six months period ended June 30, 2011 to $2,111,765 for the six months period ended June 30, 2012. The significant increase in sales revenue was mainly due to a series of heath care products developed and introduced in the market. The heath care products met the rapid growing market demand and improved our brand awareness, which also enabled us to expand our market share.
(b)
|
Regional distribution rights
|
Revenue arising from the regional distribution rights operations for the six months ended June 30, 2012 and 2011 amounted to $280,191 and 217,784, respectively. The increase of $62,407 or 28.7% mainly represented the brand usage fee received from the new agents. The amount met the criteria of brand usage fee and was recognized as revenue in the six months ended June 30, 2012, as compared to no such revenue for regional distribution rights recorded during the first half year of 2011.
Cost of sales
Cost of sales represents cost of consumer products sold. The amount increased from $313,388 for six months ended June 30, 2011 to $1,104,683 for the same period in 2012. The increase in cost of sales of $791,295 or 252.5% was in line with the increase in sales revenue from consumer products.
Selling and distribution expenses
Selling expenses for the six months ended June 30, 2012 and 2011 amounted to $202,601 and $218,238, respectively. The decrease in selling and distribution expenses of $15,637 or 7.2% was primarily attributed to less promotion and advertising expenses incurred in order to accommodate to the new market environment during the six months period ended June 30, 2012.
General and administrative expenses
General and administrative expenses decreased by $17,363 or 3.4% from $511,206 for the six months ended June 30, 2011 to $493,843 for the six months ended June 30, 2012. The decline mainly reflected the fact that our cost saving plan was implemented more efficiently in the six months ended June 30, 2012, which primarily represented the reduction in payroll, travelling expense and office expenses
Income before income taxes and provision for income taxes
The Company recorded a pretax income of $546,944 and $69,262 for the six months ended June 30, 2012 and 2011, respectively. The rapid increase was mainly due to the incremental income generated from the sales of consumer products business.
There was no PRC income tax provision for the six months ended June 30, 2011 and 2012 as substantial amount of pretax income were off-set by accumulated losses incurred in previous years.
Net income
We recorded net income of $546,944 for the six months ended June 30, 2012, as compared to net income of $69,262 for the same period in 2011, an increase of $477,682 or 690%. The change was mainly due to our growing sales and effective cost saving plan.
Cash and cash equivalents
As of June 30, 2012, the Company had a total cash and cash equivalents of $231,667 compared to $97,522 as of December 31, 2011. The cash was mainly used to fund our operations. The Company’s cash flows for the six months ended June 30, 2012 are analyzed as follows:
Cash Flow from Continuing Operations
Six months ended
|
||||||||
June 30,
|
||||||||
2012
|
2011
|
|||||||
Net cash provided by/(used in) operating activities
|
$ | 755,352 | $ | (88,299 | ) | |||
Net cash used in investing activities
|
(14,547 | ) | (26,685 | ) | ||||
Net cash (used in)/provided by financing activities
|
(634,300 | ) | 184,836 | |||||
Net increase in cash and cash equivalents
|
$ | 106,505 | $ | 69,852 |
During the three months ended June 30, 2012, we had net cash provided by operating activities of $755,352, compared to net cash used in operating activities of $88,299 for the same period in 2011. The significant increase in cash inflow from operating activities was primarily due to the growth in sales of consumer products, which was offset in part by increasing purchase of inventories.
Our cash flow used in investing activities for the six months ended June 30, 2012 and 2011 amounted to $14,547 and $26,685, respectively. The net cash used in investing activities mainly represents purchase of equipment and machinery during the both periods.
Our cash flows used in financing activities for the six months ended June 30, 2012 amounted to $634,300, as compared to net cash provided by financing activities of $184,836 for the comparative period in 2011. The difference is mainly due to the repayment of borrowing, which amounted to $609,455.
Working Capital
As of June 30, 2012, the Company recorded a working capital deficit of $5,179,409, as compared to a deficit of $5,833,843 as of December 31, 2011. The increase in working capital was mainly due to net income generated from our operation for the six months ended March 31, 2012. The Company is developing a storage and logistic base in Anyi County, Jiangxi Province, China, with an expected cost of approximately $3.3 million. As of June 30, 2012, an amount of $1.8 million was incurred and the Company intends to spend another $1.5 million for the storage and logistic base in the next 12 months.
Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since 2010, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant losses. As of June 30, 2012, the Company has accumulated deficits of $4,068,369, and a negative working capital of $5,179,409.
As of June 30, 2012, the Company might need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Off-Balance Sheet Transactions
We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, cash flows, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements.
We believe that the following critical accounting policy reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial statements and affect our financial condition and results of operations.
Revenue Recognition
We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.
The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable.
Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
(i)
|
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.
|
(ii)
|
Continuing management fee income represents regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
|
(iii)
|
Brand usage fee income is recognized when service has been rendered and the rights to receive payment have been established.
|
Recent Accounting Pronouncements
The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. This information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.
Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2012. However, based on our review as of that date, our management have identified what they believe to be significant deficiencies, which are discussed below.. A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.
Our management identified significant deficiencies related to 1) Insufficient knowledge regarding U.S. GAAP reporting by our existing accounting staff; 2) Insufficient accounting staff which results in a lack of segregation of duties necessary for an efficient internal control system; and 3) Insufficient documentation with our existing financial processes, risk assessment and internal controls. However, management believes that these deficiencies do not amount to a material weakness. A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management is not aware of any material weaknesses in our internal control over financial reporting, and nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of June 30, 2012. The reportable conditions and other areas of our internal control over financial reporting identified by us as needing improvement have not resulted in a material restatement of our financial statements, and we are not aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement of omission in any report we have filed or submitted.
In order to correct the foregoing deficiencies, we engaged consultants who are familiar with PRC GAAP and US GAAP to assist us in the preparation of financial statements in accordance with US GAAP, and, we intend to recruit experienced professionals to augment our financial staff for sufficient US GAAP, financial reporting, which would improve our controls and procedure, with the regard to the financial statements preparation; and improve the knowledge of U.S. accounting standards for our current accounting staff.
Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we intend to implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.
We believe that the foregoing steps, if effectively implemented and maintained, will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.
Changes in Internal Control Over Financial Reporting
Other than as set forth above, there have been no changes in the Company’s internal control over financial reporting during the six months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II.
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
None.
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
None.
ITEM 3.
|
DEFAULT UPON SENIOR SECURITIES
|
None.
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable
ITEM 5.
|
OTHER INFORMATION
|
In July, 2012, we engaged Hunter Taubman Weiss LLP to act as Securities Counsel in connection with our ongoing reporting requirements pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) for all required periodic filings under the Exchange Act .
ITEM 6. EXHIBITS
Exhibits
Exhibit
Number
|
Description
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31.1
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Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA GREEN CREATIVE, INC.
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Dated: Augsut 20, 2012
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/s/ Xingzhang Ye
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Xingzhang Ye
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Chief Executive Officer
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Dated: August 20, 2012
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/s/ Lin Deng
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Lin Deng
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Chief Financial Officer
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