Attached files
| file | filename |
|---|---|
| EX-31.2 - Target Acquisitions I, Inc. | e610080_ex31-2.htm |
| EX-31.1 - Target Acquisitions I, Inc. | e610080_ex31-1.htm |
| EX-32.2 - Target Acquisitions I, Inc. | e610080_ex32-2.htm |
| EX-32.1 - Target Acquisitions I, Inc. | e610080_ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2012
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OR
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________.
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COMMISSION FILE NUMBER: 000-53328
TARGET ACQUISITIONS I, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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26-2895640
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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Chunshugou Luanzhuang Village, Zhuolu County, Zhangjiakou, Hebei Province, China
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075600
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(Address of principal executive offices)
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(Zip code)
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Issuer's telephone number: 86-313-6732526
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 o
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 x No o
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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company x
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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 o No x
State the number of shares outstanding of each of the issuer's classes of common equity, for the period covered by this report and as at the latest practicable date:
At August 13, 2012, we had outstanding 8,000,100 shares of common stock.
Explanatory Note
This amendment is being filed to amend Item 2 of Part I (Management's Discussion and Analysis of Financial Condition and Results of Operations) in response to a letter of comment we received from the Staff of the Division of Corporation Finance, Securities and Exchange Commission.
Special Note Regarding Forward Looking Statements
This report contains forward-looking statements. The forward-looking statements are contained principally in the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a company engaged in iron ore mining, processing and the production of iron ore concentrate in the People’s Republic of China (“PRC”) through our variable interest entity, China Jinxin. Currently, our only product is iron ore concentrate.
On October 1, 2011, effective the close of business September 30, 2011, we acquired 100% of the issued and outstanding capital stock of Real Fortune BVI for 8,000,000 shares of our common stock, which effectively constituted 100% of our issued and outstanding capital stock immediately after the consummation of the acquisition. The Share Exchange was accounted for as a recapitalization of Real Fortune BVI effected by a share exchange, wherein Real Fortune BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of Real Fortune BVI were brought forward at their book value and no goodwill was recognized. Consequently, the historical consolidated financial statements of Real Fortune BVI are now the historical financial statements of Target Acquisitions I, Inc.
As a result of our acquisition of Real Fortune BVI, we now own all of the issued and outstanding capital stock of Real Fortune BVI, which in turn owns all of the issued and outstanding capital stock of Real Fortune HK, which in turn owns all of the issued and outstanding capital stock of China Tongda. In addition, we effectively control China Jinxin through the VIE Agreements among China Tongda, China Jinxin and the shareholders of China Jinxin.
The following chart reflects our organizational structure as of the date of this report.
2
Status of Production
Through China Jinxin we currently own an iron ore concentrate production line in Zhuolu County with an annual production capacity of 300,000 tons of iron ore concentrate. We began construction of this facility in 2007 and began processing crude iron ore at it in March 2010. Our production plant can process up to 800,000 tons of iron ore every year. Our operations to date have been limited and to date, our facilities have not operated at maximum capacity for a full year on an uninterrupted basis. We ceased production from September 2010 to March 2011 because the local government implemented an “Energy Saving and Emission Reduction Plan” to reduce local power consumption and our installation of power equipment to enable us to maintain a stable power supply to our production equipment even during government cutbacks. In December 2011, we halted production to upgrade the production lines at the facility to improve iron ore refinement and increase the iron ore concentration rate. The Company estimates the cost of this project, which includes construction of the facilities and purchase of equipment, at approximately $900,0000 (RMB 5.8 million), which has been financed out of advances from Jiazhen Liu, one of our principal shareholders. As a result of recent design changes, the Company expects the project to be completed in November 2012, and production to resume i in January 2013.
We have not yet obtained the necessary permits to mine any iron ore. Initially we were granted the right to process iron ore recovered during the construction of our production facilities and ancillary roads; however, since August 2010, we have mined iron ore on the mine upon which our production facilities are located even though we do not have the right to do so. All mining permits available for issuance in Hebei province during 2012 have been granted. Consequently, no permits will be available to China Jinxin prior to January 2013. Further, there is no assurance ChinaJinxin will receive a permit at such time. If we are unable to obtain the necessary permits to mine in the areas surrounding our production facilities in the future and are challenged by related government authorities, we will have to purchase iron ores from third parties for processing at our production facilities.
To date, we have received only temporary manufacturing licenses granted by the agencies of the local government, which allow us to process ore that we obtained from Zhuolu Mine or other third parties to utilize our facility.
Our ability to profit from this facility is wholly dependent upon our ability to extract and process iron ore from Zhuolu Mine and sell the output for a price that enables us to generate a profit. To date, all of our sales have been made to Handan Steel Group Company (“HSG”), a subsidiary of Hebei Steel and Iron Company, a state owned enterprise. We entered into a ten year contract with HSG which expires in January 2019. Pursuant to this agreement, we agreed to sell to HSG all of the output from our facility, which it agreed to purchase. The price paid to us by HSG is to be determined by HSG in light of the quality of our product and market prices and result in a proper margin to us. Thus, our ability to profit from our current production facility over the next seven years will be determined by the prices we receive from HSG. We cannot guarantee that HSG will not offer a price below what it pays to the Company’s competitors. The lower price will reduce the Company’s profit margin. However, if the Company is not satisfied with the price set by HSG, it can attempt to renegotiate the price. In an effort to obtain a higher price from HSG, we refused to deliver iron ore concentrate we produced in the fourth quarter of 2011. The iron ore concentrate we produced in the fourth quarter of 2011 remains in our inventory as we have not agreed upon a price for this ore with HSG. If this dispute should continue, we will be unable to generate revenue from our production of iron ore which would have a materially adverse effect upon our operations.
The following table sets forth our tons of iron ore processed and tons of iron ore concentrate we produced, for the years indicated:
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2010
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2011
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|||||||
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Iron ore processed (tons)
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397,860
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326,393
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||||||
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Production volume of iron ore concentrate (tons)
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110,569
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70,440
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||||||
The following table sets forth our tons of iron ore processed and tons of iron ore concentrate we produced, for the three months ended June 30, 2012 and 2011:
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2012
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2011
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|||||||
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Iron ore processed (tons)
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-
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-
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||||||
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Production volume of iron ore concentrate (tons)
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-
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25,283
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||||||
3
The following table sets forth our tons of iron ore processed and tons of iron ore concentrate we produced, for the six months ended June 30, 2012 and 2011:
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2012
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2011
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|||||||
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Iron ore processed (tons)
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-
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168,957
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||||||
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Production volume of iron ore concentrate (tons)
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-
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25,283
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||||||
All mineral resources in China are owned by the state. Thus, our ability to obtain iron ore is dependent upon our ability to obtain mineral licenses from the relevant state authorities or purchase ore from another party that has obtained mining rights from the state. It is generally not feasible to transport iron ore any significant distance before processing. We believe, as evidenced by our shareholders willingness to finance the construction of our facilities, that there is sufficient iron ore in the vicinity of our facilities to enable us to operate them at a profit. Nevertheless, we have yet to obtain long term rights to any iron mine and there is no assurance we will be able to do so. Although we have extracted iron ore from the Zhuolu Mine where our production facilities are located, we do not have the right to do so and can be subjected to various fines and penalties. However, given that the Company paid geological survey fees for the local government on the application of the mining rights on Zhuolu Mine and has not received any challenges from any authorities to our mining activities, the Company believes that even if fines and penalties are assessed against us in the future, the amount should be negotiable with the authorities. If we are unable to obtain mining rights to the Zhuolu Mine, we will have to cease mining operations at the Zhuolu Mine and we will seek to acquire iron ore from third parties. The failure to obtain iron ore reserves for processing at all or on reasonably acceptable terms would have a material adverse impact on our business and financial results.
To date we have been dependent upon cash advances from the shareholders of China Jinxin and cash generated from the operation of our production facilities. If we were not to obtain sufficient iron ore for processing, it is likely that our operations would cease unless these individuals continue to provide sufficient funds to maintain our plant and equipment until such time as our operations could be resumed.
We may seek to grow our operations by acquiring mining rights and other production facilities. The cash necessary to acquire such rights may exceed that which we have on hand. In such event, we may seek to raise the necessary cash through bank loans or the issuance of equity to the vendors of such rights, our shareholders or third parties. There can be no assurance such cash will be available to us on reasonable terms, if at all. The prices and terms at which we issue equity securities and the performance of any rights or facilities we acquire, will determine whether we operate profitably.
The profitability of the mining industry in China in general and of our company in particular, is highly dependent upon the demand for iron ore and other metals within China. This demand in turn, is heavily influenced by general economic factors, such as the rate of growth of the economy and of the construction industry. There can be no assurance that China will maintain the rapid rates of growth it has experienced in the recent past. If the rate of growth of the Chinese economy were to slow demand for iron and steel could fall, adversely impacting our operations.
Results of Operations
Comparison of the Three Months Ended June 30, 2012 and 2011
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Dollar
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Percentage
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|||||||||||||||||||||||
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2012
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% of Sales
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2011
(Restated)
|
% of Sales
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Increase (Decrease)
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Increase (Decrease)
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|||||||||||||||||||
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Sales
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$
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-
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-
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$
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4,377,375
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100
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%
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$
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(4,377,375
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)
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(100
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)%
|
||||||||||||
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Costs of goods sold
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-
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-
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2,219,870
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51
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%
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(2,219,870
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)
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(100
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)%
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|||||||||||||||
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Gross profit
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-
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2,157,505
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49
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%
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(2,157,505
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)
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(100
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)%
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||||||||||||||||
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Operating expenses
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409,764
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-
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273,585
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6
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%
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136,179
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50
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%
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||||||||||||||||
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Income (loss) from operations
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409,764
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-
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1,883,920
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43
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%
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(2,293,684
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)
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(122
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)%
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|||||||||||||||
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Other Income (expense), net
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(110
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)
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-
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466
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-
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%
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(576
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)
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(124
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) %
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||||||||||||||
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Income (loss) before income taxes
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(409,874
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)
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-
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1,884,386
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43
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%
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(2,294,260
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)
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(122
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)%
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||||||||||||||
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Income taxes
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389,422
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9
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%
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(389,422
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)
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(100
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)%
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|||||||||||||||||
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Net income (loss)
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$
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(409,874
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)
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-
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$
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1,494,964
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34
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%
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$
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(1,904,838
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)
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(127
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)%
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|||||||||||
4
Sales
Our revenues are derived from the sale of iron ore concentrate. We commenced production in March 2010. However, the Company ceased production from September 2010 to March 2011 because the local government implemented an “Energy Saving and Emission Reduction Plan” to reduce local power consumption. The Company installed power equipment to enable it to maintain a stable power supply to our production equipment and management believes the Energy Saving and Emission Reduction Plan is one-time event and disruptions to our access to energy will not have a material impact on our production in the future.
Sales for the three months ended June 30, 2012 were $0, compared to $4.38 million for the three months ended June 30, 2011, a decrease of $4.38 million or 100%. There were no sales for the three months ended June 30, 2012 because beginning in December 2011 the Company halted production to upgrade the production lines in order to improve its iron ore refinement and iron ore concentration rate and continued to withhold deliveries of concentrate produced during 2011 due to a pricing dispute with HSG. Due to recent design changes, the Company expects the upgrade project to be completed in November 2012, and production to be resumed January 2013.
Cost of Goods Sold
Cost of goods sold (“COGS”) consists primarily of fuel and power costs, direct material, direct labor, depreciation of production plant items and equipment, and accrual of the mining rights, which are directly attributable to the production of iron ore and iron ore concentrate.
We did not have any sales and production for the three months ended June 30, 2012. COGS for the three months ended June 30, 2012 was $0, a decrease of $2.22 million or 100%, compared to COGS of $2.22 million for the comparable period of 2011. The decrease of COGS was mainly the Company halted production to upgrade its production lines to improve its iron ore refinement and iron ore concentration rate.
Gross Profit
Gross profit was $0 for the three months ended June 30, 2012, a decrease of $2.16 million from $2.16 million for the comparable period of 2011. Profit margin was 0% for the three months ended June 30, 2012, compared to 49% for the 2011 period, which was the result of no sales and no production during the three months of June 30, 2012.
Operating Expenses
Operating expenses consist mainly of employee salary, depreciation and amortization of items not directly associated with production and utilities.
Operating expenses were $409,764 for three months ended June 30, 2012, compared to $273,585 for the corresponding 2011 period, an increase of $136,179 or 50%. The increase was mainly due to increased expenses for meetings and conference with government officials, training of personnel, employees’ salaries and audit fee.
5
Net Income (Loss)
Net loss for the three months ended June 30, 2012 was $409,874, compared to net income of $1,494,964 for the 2011 period, a decrease of $1,904,838 or 127%. The decrease in income was mainly due to no sales and incurring of general and administrative expenses during the second quarter of 2012.
Comparison of the Six Months Ended June 30, 2012 and 2011
|
Dollar
|
Percentage
|
|||||||||||||||||||||||
|
2012
|
% of Sales
|
2011
(Restated)
|
% of Sales
|
Increase (Decrease)
|
Increase (Decrease)
|
|||||||||||||||||||
|
Sales
|
$
|
-
|
-
|
$
|
4,377,375
|
100
|
%
|
$
|
(4,377,375
|
)
|
(100
|
)%
|
||||||||||||
|
Costs of goods sold
|
-
|
-
|
2,219,870
|
51
|
%
|
(2,219,870
|
)
|
(100
|
)%
|
|||||||||||||||
|
Gross profit
|
-
|
2,157,505
|
49
|
%
|
(2,157,505
|
)
|
(100
|
)%
|
||||||||||||||||
|
Operating expenses
|
838,811
|
-
|
606,911
|
14
|
%
|
231,900
|
38
|
%
|
||||||||||||||||
|
Income (loss) from operations
|
(838,811
|
)
|
-
|
1,550,594
|
35
|
%
|
(2,389,405
|
)
|
(154
|
)%
|
||||||||||||||
|
Other Income (expense), net
|
(1,052
|
)
|
-
|
1,268
|
-
|
%
|
(2,320
|
)
|
(183)
|
%
|
||||||||||||||
|
Income (Loss) before income taxes
|
(839,863
|
)
|
-
|
1,551,862
|
35
|
%
|
(2,391,725
|
)
|
(154
|
)%
|
||||||||||||||
|
Income taxes
|
-
|
389,422
|
8
|
%
|
(389,422
|
)
|
(100
|
)%
|
||||||||||||||||
|
Net income (loss)
|
$
|
(839,863
|
)
|
-
|
$
|
1,162,440
|
27
|
%
|
$
|
(2,002,303
|
)
|
(172
|
)%
|
|||||||||||
Sales
Sales for the six months ended June 30, 2012 were $0, compared to $4.38 million for the six months ended June 30, 2011, a decrease of $4.38 million or 100%. There were no sales for the six months ended June 30, 2012 because beginning in December 2011 the Company halted production to upgrade the production lines in order to improve its iron ore refinement and iron ore concentration rate and continued to withhold deliveries of concentrate produced during 2011 due to a pricing dispute with HSG. The Company expects the project to be completed in November2012, and production to be resumed January 2013.
Cost of Goods Sold
COGS consists primarily of fuel and power costs, direct material, direct labor, depreciation of production plant items and equipment, and accrual of the mining rights, which are directly attributable to the production of iron ore and iron ore concentrate.
Due to the production line upgrade mentioned above and our refusal to deliver concentrate produced during 2011 due to a pricing dispute, for the six months ended June 30, 2012, we did not incur any sales. COGS for the six months ended June 30, 2012 was $0, a decrease of $4.38 million or 100%, compared to COGS of $4.38 million for the 2011 period.
Gross Profit
Gross profit was $0 million for the six months ended June 30, 2012, a decrease of $2.16 million from $2.16 million for the 2011 period. Profit margin was 0% for the six months ended June 30, 2012, compared to 49% for the 2011 period, which was the result of no sales and production during the six months ended June 30, 2012.
6
Operating Expenses
Operating expenses consists mainly of employee salary, depreciation and amortization of items not directly associated with production and utilities expenses.
Operating expenses were $838,811 for the six months ended June 30, 2012, compared to $606,911 for the corresponding 2011 period, an increase of $231,900 or 38%. The increase was mainly due to higher management and employees’ salary as labor costs increased in China, as well as increased audit and legal fee as a result of the Company being public in US.
Net Income
As a result of the lack of sales and the higher operating expenses discussed above, the Company had net loss of $839,863 for the six months ended June 30, 2012, a decrease of $2,002,303 as compared to the net income of $1,162,440 for the six months ended June 30, 2011.
Liquidity and Capital Resources
The Company’s ability to generate cash from operations is dependent upon its ability to obtain iron ore to process and to maintain the permits necessary to process such ore at its current facilities, neither of which is assured. If the Company could not obtain iron ore to process or was no longer able to process ore, it would be dependent upon cash infusions from its current shareholders or third parties in the form of loans or equity contributions, or a combination thereof, to maintain its facilities until it can resume operations. There is no assurance such cash will be available from current shareholders or from third parties and, if it is available, what the terms of any loan or investment might be. If we are unable to obtain the funding required, we may have to curtail or cease our operations.
On June 30, 2012, the Company had cash and equivalents of $35,602. We do not anticipate significant cash expenditures in the immediate future on our current production facilities. Consequently, in the absence of a significant acquisition, the Company believes its cash on hand will be sufficient to satisfy its needs for cash for the immediate future and with anticipated advances from shareholders over the next 12 months. However, in the future, the Company intends to continue the expansion of operations by acquiring new production facilities and mines. The acquisitions will be paid for with cash or our equity securities, or combinations of both. Although currently all of the acquisitions are in early stages of negotiation, the Company will need outside funding from our current shareholders, bank loans or the issuance of equity securities once we make progress on the acquisitions. Failure to obtain such financing could have a material adverse effect on our business expansion. The sale by the Company of its equity securities would dilute the interest of its current shareholders. Further, there is no guarantee the terms on which such an issuance would occur, if at all, would be favorable to the Company’s current shareholders.
As of June 30, 2012, cash and equivalents were $35,602, compared to $176,039 as of June 30, 2011. The following is a summary of cash provided by or used in each of the indicated types of activities during six months ended June 30, 2012 and 2011, respectively.
|
2012
|
2011 (Restated)
|
|||||||
|
Net cash provided (used) in operating activities
|
$
|
(306,505
|
)
|
$
|
1,362,760
|
|||
|
Net cash used in investing activities
|
( 490,103
|
)
|
(581
|
)
|
||||
|
Net cash provided (used) financing activities
|
636,395
|
(1,473,476
|
)
|
|||||
|
Exchange rate effect on cash
|
(301
|
)
|
4,037
|
|||||
|
Net cash (outflow) inflow
|
$
|
(160,514
|
)
|
$
|
(107,260
|
)
|
||
Net cash used in operating activities
Cash has historically been used in operations and for advances to suppliers. Net cash used in operating activities was $306,505 for the six months ended June 30, 2012, compared to net cash provided in operating activities was $1,362,760. The cash outflow from operating activities for the six months ended June 30, 2012 was principally attributable to the net loss of $839,863 and advances to suppliers of $164,010, offset by cash inflow from increased accrued expenses of $172,577.
7
Net cash used in investing activities
Net cash used in investing activities was $490,103 for the six months ended June 30, 2012, compared to cash used in investing activities was $581 for the six months ended June 30, 2011. The cash outflow during the six months of 2012 was mainly attributable to the purchase and installation of equipment for future iron ore refining. In the corresponding 2011 period, we spent only $581 for purchasing of small equipments.
Net cash provided by financing activities
Net cash provided by financing activities was $636,395 for the six months ended June 30, 2012, compared to $1,473,476 net cash used by financing activities in the comparable period of 2011. The net cash provided by financing activities in the six months ended June 30, 2012 was due to advances from shareholders of $636,395. In the 2011 period, we had cash inflow from short term borrowings of $128,700 and contributions to paid in capital of $4.58 million from shareholders, offset by repayment of long term payables of $1.45 million and repayment to related party of $4.7 million.
At June 30, 2012, we had a working capital deficit of $1,199,236, an increase from the deficit at December 31, 2011 of $397,608 which was driven by increased accrued liabilities and advances from shareholders in the form of loans. The Company had no bank loans at June 30, 2012. Our customer is a state-owned company and has dependable credit. We believe our available funds together with anticipated loans from shareholders will be sufficient to meet our anticipated ongoing operating needs for the next 12 months, and our capital needs, if any, for production facilities at the Zhuolu Mine. Currently, there are no significant capital improvements planned for our production facilities at the Zhuolu Mine. The Company may need to raise additional capital if it decides to make one or more substantial acquisitions of mineral rights or other production facilities. There can be no guarantee we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our Board. If we cannot obtain the financing necessary to complete any potential acquisition our ability to expand our operations will be hindered.
At December 31, 2010, the Company owed four shareholders $4,677,850 for working capital needs. Those borrowings were non-interest bearing and payable on demand. By December 31, 2011, the Company had paid in full all shareholders’ borrowings with the proceeds from shareholder’s capital contribution. During the six months ended June 30, 2012, the Company borrowed $634,635 from one of its shareholders for working capital needs, the Company and the shareholder who provided these funds have agreed that these monies together with additional
advances that increased the total amount due to the shareholder to $898,000 (RMB 5,694,000) as of September 10, 2012, will be interest free until September 13, 2013. At such time, interest will begin to accrue at a rate of 8% per annum on the amount outstanding from time to time and all amounts inclusive of accrued interest will be repaid within two years of the our commencement of production at the Zhuolu Mine.
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We present below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.
The following table summarizes our contractual obligations as of June 30, 2012, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.
|
|
Payments Due by Period
|
|||||||||||||||||||
|
|
Total
|
Less than 1
Year
|
1-3 Years
|
3-5 Years
|
5 Years +
|
|||||||||||||||
|
|
||||||||||||||||||||
|
Contractual Obligations:
|
||||||||||||||||||||
|
Payable to contractor
|
$
|
869,579
|
$
|
869,579
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
8
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which were prepared in accordance with US GAAP. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we may, under Section 7(a)(2)(B) of the Securities Act, delay adoption of new or revised accounting standards applicable to public companies until such standards would otherwise apply to private companies. We may take advantage of this extended transition period until the first to occur of the date that we (i) are no longer an "emerging growth company" or (ii) affirmatively and irrevocably opt out of this extended transition period. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an "emerging growth company" or affirmatively and irrevocably opt out of the exemption provided by Securities Act Section 7(a)(2)(B), upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
Basis of Presentations
Our financial statements are prepared in accordance with US GAAP and the requirements of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).
Method of Accounting
We maintain our general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by us conform to US GAAP and were consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
9
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
Inventory
Inventory consists of iron ore, iron ore concentrate and supplies. Inventory is valued at the lower of average cost or market, cost being determined on a moving weighted average basis method and including labor costs and all expenditures incurred in the course of production.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using shorter of useful life of the property or the unit of depletion method. For shorter lived assets straight-line method over estimated lives ranging from 3 to 20 years is used as follows:
|
Office Equipment
|
3-5 years
|
|
Machinery
|
10 years
|
|
Vehicles
|
5 years
|
|
Building
|
20 years
|
Revenue Recognition
The Company’s revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales are recognized when a formal arrangement exists, which is generally represented by a contract between the Company and the buyer; the price is fixed or determinable; title has passed to the buyer, which generally is at the time of delivery; no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.
Sales represent the invoiced value of iron ore and iron ore concentrate, net of value-added tax (“VAT”). All of the Company’s iron ore concentrate sold in the PRC is subject to a VAT of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There has been no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
10
The fluctuation of exchange rates does not imply free convertibility of RMB to other foreign currencies. All foreign exchange transactions continue to take place either through the People’s Bank of China (“PBOC”) or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the PBOC.
The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.
Segment Reporting
Disclosures about segments of an enterprise and related information requires use of the “management approach” model for segment reporting, codified in FASB ASC Topic 280. 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.
FASB ASC Topic 280 has no effect on the Company’s financial statements as substantially all of its operations are conducted in one industry segment – iron ore refining.
Recent Accounting Pronouncements
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. Under the amendments in this ASU, an entity has two options for presenting its comprehensive income: to present comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. There was no material impact on our consolidated financial statements upon adoption.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value (“FV”) of a reporting unit is less than its carrying amount. If greater than 50% likelihood exists that the FV is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this ASU beginning with its Quarterly Report on Form 10-Q for the three months ended March 31, 2012. There was no material impact on our consolidated financial statements upon adoption.
In December 2011, The FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in ASU 2011-05. ASU 2011-12 defers the requirement a company present reclassification adjustments for each component of accumulated other comprehensive income (“AOCI”) in both net income and other comprehensive income (“OCI”) on the face of the financial statements. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement will not have a material impact on its financial statements.
11
PART II
OTHER INFORMATION
Item 6 - Exhibits
The following exhibits are filed with this amendment to this report:
|
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
32.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
TARGET ACQUISITIONS I, INC.
|
|||
|
Dated: September 18, 2012
|
By:
|
/s/ Changkui Zhu
|
|
|
Changkui Zhu
|
|||
|
Chief Executive Officer
|
|||
13