Zeecol International, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Zeecol International, Inc.	Financial_Report.xls
EX-31.1 - EX-31.1 - Zeecol International, Inc.	ex31-1.htm
EX-32.1 - EX-32.1 - Zeecol International, Inc.	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File No. 000-53379

GREEN DRAGON WOOD PRODUCTS, INC.

(Exact name of small business issuer as specified in its charter)

FLORIDA		26-1133266
(State or other jurisdiction of incorporation or organization)		(I.R.S. Tax. I.D. No.)

Unit 312, 3rd Floor, New East Ocean Centre 9 Science Museum Road Kowloon, Hong Kong
(Address of Principal Executive Offices)

852-2482-5168
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the 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.


Large accelerated filer. o	Accelerated filer. o
Non-accelerated filer. o (Do not check if a smaller reporting company)	Smaller reporting company. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of each of the issuer’s classes of common stock as of February 14, 2015 23,725,000

Table of Contents

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	PART II
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
SIGNATURES		31

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Green Dragon Wood Products, Inc.

Condensed Consolidated Balance Sheets

As of December 31, 2014 and March 31, 2014

(Currency expressed in United States Dollars ("US$"), except for number of shares)

	December 31,		March 31,
	2014		2014
	(Unaudited)		(Audited)

ASSETS
CURRENT ASSETS
Cash and cash equivalent	$	44,863	$	34,597
Restricted cash		403,830		395,893
Accounts receivable, net		5,712,154		6,202,445
Bills Receivable		246,795		-
Income tax recoverable		26,789		26,789
Prepayments, deposits and other receivables		1,975,013		1,171,399
TOTAL CURRENT ASSETS		8,409,444		7,831,123

Non-current assets:
Plant and equipment, net		29,142		34,101
TOTAL NON-CURRENT ASSETS		29,142		34,101

TOTAL ASSETS	$	8,438,586	$	7,865,224

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving lines of credit	$	4,440,931	$	4,441,711
Accounts payable, trade		859,444		655,782
Accrued liabilities and other payables		735,634		564,769
Amount due to a director		34,694		16,318
Obligation under finance lease		12,578		12,219
TOTAL CURRENT LIABILITIES		6,083,281		5,690,799

NON-CURRENT LIABILITIES
Obligation under finance lease-over one year		22,049		31,548
TOTAL NON-CURRENT LIABILITIES		22,049		31,548

TOTAL LIABILITIES		6,105,330		5,722,347

See accompanying notes to condensed consolidated financial statements.

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Green Dragon Wood Products, Inc.

Condensed Consolidated Balance Sheets

As of December 31, 2014 and March 31, 2014

(Currency expressed in United States Dollars ("US$"), except for number of shares)

	December 31,			March 31,
	2014			2014
	(Unaudited)			(Audited)

STOCKHOLDERS' EQUITY
Preferred stock , $0.001 par value; 50,000,000 preferred shares authorized; Series A Convertible Preferred stock, 2,000,000 shares and 0 shares issued and outstanding, respectively.		2,000			2,000
Common stock, $0.001 par value; 450,000,000 shares authorized; 23,725,000 shares issued and outstanding, respectively.		23,725			23,725
Additional paid-in capital		1,236,400			1,236,400
Subscription receivable		(100,000	)		(100,000	)
Deferred stock-based compensation		(180,821	)		(306,392	)
Retained earnings		1,365,457			1,293,904
Accumulated other comprehensive loss		(13,505	)		(6,760	)
TOTAL STOCKHOLDERS' EQUITY		2,333,256			2,142,877

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,438,586		$	7,865,224

See accompanying notes to condensed consolidated financial statements.

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Green Dragon Wood Products, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(Currency expressed in United States Dollars ("US$"), except for number of shares)

(Unaudited)

	Three Months ended December 31,						Nine Months ended December 31,
	2014			2013			2014			2013

Revenues, net	$	2,891,555		$	2,874,932		$	8,179,960		$	6,477,493

Cost of revenue		(2,484,773	)		(2,722,131	)		(7,372,316	)		(6,131,034	)

Gross profit		406,782			152,801			807,644			346,459

General and administrative expenses		228,988			235,766			701,254			707,158

Total operating expenses		228,988			235,766			701,254			707,158

INCOME (LOSS) FROM OPERATIONS		177,794			(82,965	)		106,390			(360,699	)

Other income (expense):
Foreign exchange gain (loss), net		35,473			(5,737	)		34,424			(15,702	)
Loss on disposal of life insurance		-			(99,580	)		-			(99,580	)
Interest income		103			343			1,459			17,917
Interest expense		(55,680	)		(51,703	)		(169,448	)		(164,431	)
Other income		31,761			10,746			98,728			95,563

INCOME (LOSS) BEFORE INCOME TAXES		189,451			(228,896	)		71,553			(526,932	)

Income tax expense		-			-			-			(9,104	)

NET INCOME (LOSS)		189,451			(228,896	)		71,553			(536,036	)

Other comprehensive income (loss):
- Reclassification adjustment for disposal of available-for-sales securities		-			-			-			(52,363	)
- Foreign currency translation adjustment		(256	)		690			(6,745	)		(5,937	)


COMPREHENSIVE INCOME (LOSS)	$	189,195		$	(228,206	)	$	64,808		$	(594,336	)

Net income (loss) per share - Basic and diluted	$	0.008		$	(0.010	)	$	0.003		$	(0.023	)

Weighted average common shares outstanding during the year - Basic and diluted		23,725,000			23,725,000			23,725,000			23,186,636

See accompanying notes to condensed consolidated financial statements.

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Green Dragon Wood Products, Inc.

Condensed Consolidated Statements of Stockholders' Equity

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars ("US$"), except for number of shares)

(Unaudited)

	Preferred stock				Common stock				Additional paid		Subscription			Deferred stock-based			Retained			Accumulated other comprehensive			Total stockholders’
	Shares		Amount		Shares		Amount		in capital		receivable			compensation			earnings			(loss) / income			equity

Balance as of March 31, 2013		2,000,000		2,000		20,200,000	$	20,200	$	1,222,300	$	(100,000	)	$	(473,059	)	$	1,713,255		$	51,402		$	2,436,098

Amortization of deferred stock-based compensation		-		-		-		-		-		-			166,667			-			-			166,667

Equity Settled – Share based Payment		-		-		3,525,000		3,525		14,100		-			-			-			-			17,625

Disposal on available-for-sales securities		-		-		-		-		-		-			-			-			(52,363	)		(52,363	)

Net loss for the 12 months ended March 31, 2014		-		-		-		-		-		-			-			(419,351	)		-			(419,351	)

Foreign currency translation adjustment		-		-		-		-		-		-			-			-			(5,799	)		(5,799	)

Balance as of March 31, 2014		2,000,000	$	2,000		23,725,000	$	23,725	$	1,236,400	$	(100,000	)	$	(306,392	)	$	1,293,904		$	(6,760	)	$	2,142,877

Amortization of deferred stock-based compensation		-		-		-		-		-		-			125,571			-			-			125,571

Equity Settled – Share based Payment		-		-		-		-		-		-			-			-			-			-

Disposal on available-for-sales securities		-		-		-		-		-		-			-			-			-			-

Net gain for the 9 months ended December 31, 2014		-		-		-		-		-		-			-			71,553			-			71,553

Foreign currency translation adjustment		-		-		-		-		-		-			-			-			(6,745	)		(6,745	)

Balance as of December 31, 2014		2,000,000	$	2,000		23,725,000	$	23,725	$	1,236,400	$	(100,000	)	$	(180,821	)	$	1,365,457		$	(13,505	)	$	2,333,256

See accompanying notes to condensed consolidated financial statements.

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Green Dragon Wood Products, Inc.

Condensed Consolidated Statements of Cash Flows

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(Currency expressed in United States Dollars ("US$"), except for number of shares)

(Unaudited)

	Nine Months ended December 31,
	2014			2013
Cash flow from operating activities:
Net income (loss)	$	71,553		$	(536,036	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		12,647			13,103
Stock-based compensation		125,571			143,196
Net gain arising on changes in fair value of life insurance		-			(49,078	)
Gain on disposal of available-for-sales securities		-			(84,704	)
Changes in operating assets and liabilities:
Accounts receivable		490,291			554,519
Prepayments, deposits and other receivables		(803,614	)		(652,810	)
Income tax recoverable		-			97,184
Accounts payable, trade		203,662			(429,034	)
Prepaid life insurance		-			99,580
Bills receivable		(246,795	)		-
Accrued liabilities and other payables		170,865			73,536
Income tax payable		-			(94,197	)

Net cash provided by (used in) operating activities		24,180			(864,741	)

Cash flows from investing activities:
Proceeds on disposal of life insurance		-			667,630
Purchase of plant and equipment		(7,688	)		(64	)
Proceed on disposal of available-for-sales securities		-			393,362

Net cash (used in) provided by investing activities		(7,688	)		1,060,928

Cash flows from financing activities:
Repayment of revolving lines of credit		(780	)		(27,379	)
Change in restricted cash		(7,937	)		514,276
Repayment of long-term insurance policy loan		-			(379,057	)
Repayment of finance lease		(9,140	)		(8,670	)
Repayment of short-term bank loan		-			(257,620	)
Repayment of long-term bank loans		-			(309,144	)
Advance from (repayment to) a director		18,376			(16,440	)

Net cash provided by (used in) financing activities		519			(484,034	)

Effect of exchange rate changes on cash and cash equivalents		(6,745	)		12,902

Net change in cash and cash equivalents		10,266			(274,945	)
Cash and cash equivalents, beginning of period		34,597			342,329
Cash and cash equivalents, end of period	$	44,863		$	67,384

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Green Dragon Wood Products, Inc.

Condensed Consolidated Statements of Cash Flows

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(Currency expressed in United States Dollars ("US$"), except for number of shares)

(Unaudited)

	Nine Months ended December 31,
	2014		2013
Supplemental disclosure of cash flow information:
Interest paid	$	169,448	$	164,431
Income tax paid	$	-	$	6,081

See accompanying notes to condensed consolidated financial statements.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of March 31, 2014 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended December 31, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2015 or for any future period.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2014.

2. ORGANIZATION AND BUSINESS BACKGROUND

Green Dragon Wood Products, Inc., (the “Company” or “GDWP”) was incorporated under the laws of the State of Florida on September 26, 2007.

The Company, through its subsidiaries, mainly engages in re-sale and trading of wood logs, wood lumber, wood veneer and other wood products in Hong Kong.

Details of the Company’s subsidiaries:

Company name	Place/date of incorporation	Particulars of issued share capital	Principal activities	Effective interest held

1. Green Dragon Industrial Inc. (“GDI”)	British Virgin Islands (“BVI”), May 30, 2007	37,500 issued shares of common stock of US$1 each	Investment holding		100	%

2. Green Dragon Wood Products Co., Limited (“GDWPCL”)	Hong Kong, March 14, 2000	5,000,000 issued shares of ordinary shares	Re-sale and trading of wood		100	%

GDWP and its subsidiaries are hereinafter referred to as the “Company”.

3. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

	Basis of consolidation

The condensed consolidated financial statements include the accounts of GDWP and its subsidiaries. All inter-company balances and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

	Use of estimates

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	Cash and cash equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

	Restricted cash

As of December 31, 2014 and March 31, 2014, the Company maintained minimum cash balances of $403,830 and $395,893 in a pledged deposit account as collateral for the revolving lines of credit and long-term bank borrowings provided by the financial institutions in Hong Kong.

	Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount less an allowance for any uncollectible accounts and do not bear interest, which are due within contractual payment terms, generally 60 to 180 days from shipment. The Company extends unsecured credit to its customers in the ordinary course of business, based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 180 days and those over a specified amount are reviewed individually for collectability. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

	Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

	Expected useful life
Computer equipment	3-5 years
Motor vehicle	3 years
Office equipment	5 years

Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

Depreciation expense for the three months ended December 31, 2014 and 2013 was $4,488 and $3,984, respectively.

Depreciation expense for the nine months ended December 31, 2014 and 2013 was $12,647 and $13,103 respectively.

	Cash Value of life insurance

The cash value of life insurance relates to the Company-owned life insurance policies on a current executive officer, which is stated at the cash surrender value of the contract, net of policy loans.

	Impairment of long-lived assets

In accordance with Accounting Standards Codification ("ASC") Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ”, the Company reviews its long-lived assets, including plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that useful lives are no longer appropriate. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge as of December 31, 2014.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	Revenue recognition

In accordance with ASC Topic 605, “Revenue Recognition” , the Company recognizes revenue when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured.

Revenue from re-sale and trading of wood logs, wood lumber, wood veneer and other wood products is recognized upon shipment to the customer when title and risk of loss are transferred and there are no continuing obligations to the customer. Title and the risks and rewards of ownership transfer to the customer at varying points, which is determined based on shipping terms. Revenue is recorded net of sales discounts, returns, allowances, customer rebates and other adjustments that are based upon management’s best estimates and historical experience and are provided for in the same period as the related revenues are recorded. Based on historical experience, management estimates that sales returns are immaterial and has not made allowance for estimated sales returns.

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

	Cost of revenue

Cost of revenue includes cost of wood logs, wood lumber and wood veneers for re-sale to the customers, purchase returns and sales commission. Shipping and handling costs associated with the distribution of the products to the customers totaled approximately $318,919 and $184,969 for the nine months ended December 31, 2014 and 2013, respectively, which are recorded in cost of revenue.

	Comprehensive income

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

	Income taxes

The provision for income taxes is determined in accordance with ASC Topic 740, “Income Taxes ” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three and nine months ended December 31, 2014 and 2013, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2014, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts major businesses in Hong Kong and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.

	Net income per share

The Company calculates net income per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common share outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common share that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	Foreign currencies translation

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.

The reporting currency of the Company is United States Dollar ("US$") and the accompanying condensed consolidated financial statements have been expressed in US$. In addition, the Company’s operating subsidiary in Hong Kong maintains its books and record in its local currency, Hong Kong Dollar (“HK$”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “ Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholders’ equity.

Translation of amounts from HK$ into US$1 has been made at the following exchange rates for the nine months ended December 31, 2014 and 2013:

	December 31,
	2014		2013
Period-end HK$: US$1 exchange rate		7.7568		7.7508
Period average HK$: US$1 exchange rate		7.7544		7.7547

	Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

	Segment reporting

ASC Topic 280, “ Segment Reporting ” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. For the three and nine months ended December 31, 2014 and 2013, the Company operates one reportable business segment in Hong Kong.

	Fair value of financial instruments

The carrying value of the Company’s financial instruments (excluding revolving lines of credit and long-term bank borrowings): cash, accounts receivable, prepayments, deposits and other receivables, accounts payable, amount due to a director, income tax payable, accrued liabilities and other payable approximate at their fair values because of the short-term nature of these financial instruments. The fair value of the marketable securities is based on quoted prices in active exchange-traded or over-the-counter markets.

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its revolving lines of credit and long-term bank borrowing approximate the carrying amount.

The Company also follows the guidance of ASC Topic 820-10, “ Fair Value Measurements and Disclosures ” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

~ Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

~Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

~Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014 AND 2013

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	Economic and political risk

The Company’s major operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in Hong Kong, as well as the general state of Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.

The Company’s major operations in Hong Kong are subject to considerations and significant risks typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

	Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

4. ACCOUNTS RECEIVABLE, NET

	December 31,			March 31,
	2014			2014
	(Unaudited)			(Audited)

Accounts receivable, trade	$	5,714,867		$	6,205,160
Less: allowances for doubtful accounts		(2,713	)		(2,715	)
Accounts receivable, net	$	5,712,154		$	6,202,445

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required.

For the three and nine months ended December 31, 2014 and 2013, no provision for doubtful accounts charged to operations.

5. PREPAYEMNT, DEPOSITS AND OTHER RECEIVABLES

Prepayments, deposits and other receivables consisted of:

	December 31,		March 31,
	2014		2014
	(Unaudited)		(Audited)

Purchase deposits to vendors	$	1,315,892	$	901,824
Rental and utilities deposits		27,928		27,945
Prepayment		5,310		-
Other receivables		625,883		241,630
Total	$	1,975,013	$	1,171,399

Purchase deposits represent deposit payments made to vendors for procurement, which are interest-free, unsecured and relieved against accounts payable when goods are received by the Company.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

6. REVOLVING LINES OF CREDIT

Revolving lines of credit consist of:

	December 31,		March 31,
	2014		2014
	(Unaudited)		(Audited)

Payable to financial institutions in Hong Kong:
DBS Bank (Hong Kong) Limited	$	1,957,827	$	1,810,274
Industrial and Commercial Bank of China (Asia) Limited		993,934		875,188
Shanghai Commercial Bank Limited		635,865		650,023
ICICI Bank Limited		-		255,414
		3,587,626		3,590,899
Payable to third parties (under supplier agreement)
Tai Wah Timber Factory Limited		853,305		850,812

Total	$	4,440,931	$	4,441,711

On February 4, 2013, the Company entered into a credit facility and financing agreement with the DBS Bank (Hong Kong) Limited (“DBS”) provides for borrowings up to HK$14,000,000 (approximately $1,805,000) for up to 120 days generally with interest at (i) 1% per annum below Prime Rate for Hong Kong Dollar bills and (ii) Standard Bills Rate quoted by DBS from time to time for foreign currency bills on the outstanding amount from drawdown until repayment in full as conclusively calculated by DBS.

The credit facility with the Industrial and Commercial Bank of China (Asia) Limited (“ICBC”) provides for borrowings up to HK$8,000,000 (approximately $1,031,000), which bears interest at a rate of 1% per annum below the ICBC’s Hong Kong Dollar Best Lending Rate and are guaranteed by the Hong Kong Mortgage Corporation Limited (“HKMC”), and Ms. Mei Ling Law and Mr. Kwok Leung Lee, directors of the Company.

The credit facility with Shanghai Commercial Bank Limited provides for borrowings up to HK$ 6,500,000 (approximately $838,000), which bears interest at a rate of 0.25% per annum over Hong Kong prime for HK dollars facilities and at a rate of 0.25% per annum over US prime for US dollars facilities and is personally guaranteed by Mr. Lee, director of the Company. The Company also is required to maintain a minimum cash deposit not less than $264,500 that is considered restricted as compensating balances to the extent the Company borrows against this line of credit. In addition, the Company is subject to the settlement of accounts due and payable to the restricted vendors under the line of credit at the bank’s discretion. The line will be extended or renewed on a regular basis at the option of the bank.

The credit facility with ICICI Bank at December 31, 2014 was the used credit amount of HK$0 (approximately $0), and it is changed from time to time.

The financing arrangement with Tai Wah Timber Factory Limited provides for borrowings with interest rate at 12% per annum, and the interest is required to pay monthly.

At December 31, 2014, the Company had aggregate banking facilities of $3,674,000 in which $86,374 is unused.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

7. OBLIGATION UNDER FINANCE LEASE

On February 20, 2013 the Company entered into a finance lease agreement with Wing Hang Bank Ltd to lease a motor vehicle. The lease has a term of 54 months expiring August 20, 2017 and provides for monthly lease payments of approximately $1,138 (HK$8,828).

As of December 31, 2014, the minimum remaining lease payments under this capital lease are as follows:

	December 31,			March 31,
	2014			2014
	(Unaudited)			(Audited)

Finance lease	$	34,627		$	43,767
Less : Current portion	$	(12,578	)	$	(12,219	)

Non-current portion		22,049			31,548

Years ending December 31:
2015	$	13,657
2016		13,657
2017		9,104
Total finance lease obligation		36,418
Less: interest		(1,791	)

Long-term portion of net minimum lease payments	$	34,627

8. AMOUNT DUE TO A DIRECTOR

As of December 31, 2014 and March 31, 2014, the balance represented temporary advances made to the Company by Mr. Lee, the director, which was unsecured, interest-free with no fixed terms of repayment.

9. INCOME TAXES

For the nine months ended December 31, 2014 and 2013, the local (United States) and foreign components of income before income taxes were comprised of the following:

	Nine months ended December 31,
	2014		2013

Tax jurisdictions from:
- Local	$	-	$	-
- Foreign		71,553		(526,932	)
Income (loss) before income taxes		71,553		(526,932	)

Provision for income taxes consisted of the following:

	Nine months ended December 31,
	2014		2013

Current:
- Local	$	-	$	-
- Foreign		-		9,104

Deferred:
- Local		-		-
- Foreign		-		-

Income tax expenses	$	-	$	9,104

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company and its subsidiaries are mainly operated in the United States of America, BVI and Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:

United States of America

GDWP is registered in the State of Florida and is subject to the tax laws of the United States of America. For the nine months ended December 31, 2014 and 2013, the Company incurred no operation in the United States of America. GDWP is delinquent in filing its United States corporation income tax returns for the periods from inception in 2007. The Company does not expect any tax to be due upon filing of these delinquent returns.

British Virgin Island

Under the current BVI law, GDI is not subject to tax on income or profit. For the nine months ended December 31, 2014 and 2013, GDI incurred no operation in the BVI.

Hong Kong

The Company’s major operating subsidiary is subject to Hong Kong Profits Tax, which is charged at the statutory income tax rate of 16.5% on its assessable income.

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes from foreign operation for the nine months ended December 31, 2014 and 2013 are as follows:

	Nine months ended December 31,
	2014			2013

(Loss) income before income taxes	$	71,553		$	(526,932	)
Statutory income tax rate		16.5	%		16.5	%
Income tax at Hong Kong statutory income tax rate		11,806			(86,944	)

Tax loss (utilised) not recognized		(11,806)			86,944
Tax adjustment for prior year		-			9,104

Income tax expenses	$	-		$	9,104

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There was no significant temporary difference as of December 31, 2014 and March 31, 2014, therefore no deferred tax assets or liabilities have been recognized.

10. EQUITY SETTLED – SHARE BASED COMPENSATION

On April 16, 2013, the Company adopted a 2013 Incentive Stock Plan (the “Plan”) with a term of ten years. The Plan is designed to retain directors, executives, and selected employees and consultants and reward them for making contributions to the success of the Company. Under the Plan, the Board of Directors has the authority to grant common stock and stock options for eligible directors, officers, employees, and consultants up to a total of 4,000,000 shares.

On May 13, 2013, the Company issued a total of 3,525,000 shares of common stock to five eligible persons under the Plan, as a reward for the services render by them to the Company for the period from April to June 2013, at the value of $0.005 per share.

As no market value of the common stock was available for valuation, the measurement of fair value of the common stock was based on the value of the services rendered, and it was $17,625 which then been recognized as administrative expenses in the period of the serviced rendered.

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINEMONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

11. SEGMENT INFORMATION

The Company considers its business activities to constitute one single reportable segment. The Company’s chief operating decision makers use consolidated results to make operating and strategic decisions. The geographic distribution analysis of the Company’s revenues by region is as follows:

	Nine months ended December 31,
	2014		2013

Revenue, net:
~ The PRC (including Hong Kong)	$	5,264,811	$	4,026,621
~ Middle East		1,169,219		797,640
~ India		1,312,029		981,671
~ Europe		50,208		58,323
~ Others		383,693		613,238

Total	$	8,179,960	$	6,477,493

All of the Company’s long-lived assets are located in Hong Kong.

12. CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customers

For the three and nine months ended December 31, 2014 and 2013, the customer who accounts for 10% or more of the Company's revenues and its outstanding accounts receivable at year-end date, are presented as follows:

	Three months ended December 31, 2014					December 31, 2014
	Revenues		Percentage of revenues			Accounts receivable
Customer D		838,243		29	%		297,197
Customer E		413,417		14	%		289,194
Customer I		362,185		12	%		235,982
Customer J		346,017		12	%		306,573
Total	$	1,959,862		67	%	$	1,128,946

	Nine months ended December 31, 2014					December 31, 2014
	Revenues		Percentage of revenues			Accounts receivable
Customer E		1,140,722		14	%		289,194
Customer D		1,020,823		13	%		297,197
Customer B (Vendor A)		1,000,634		12	%		-
Total	$	3,162,179		39	%	$	586,391

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	Three months ended December 31, 2013					December 31, 2013
	Revenues		Percentage of revenues			Accounts receivable
Customer A		994,804		35	%		1,442,986
Customer D		466,387		16	%		159,563
Customer C		387,473		14	%		146,520
Customer B (Vendor A)		307,195		11	%		3,051,902
Total	$	2,155,859		76	%	$	4,800,971

	Nine months ended December 31, 2013					December 31, 2013
	Revenues		Percentage of revenues			Accounts receivable
Customer A		2,636,124		41	%		1,442,986
Customer B (Vendor A)		883,748		14	%		3,051,902
Customer C		745,776		12	%		146,520
Customer D		724,706		11	%		159,563
Total	$	4,990,354		78	%	$	4,800,971

(b) Major vendors

For the three and nine months ended December 31, 2014 and 2013, the vendor who accounts for 10% or more of the Company's purchases and its outstanding accounts payable at year-end date, are presented as follows:

	Three months ended December 31, 2014					December 31, 2014
	Purchases		Percentage of purchases			Accounts payable

Vendor A (Customer B)	$	1,054,091		38	%	$	-
Vendor D		531,527		19	%		115,873
Vendor J		269,020		10	%		140,006
Total	$	1,854,638		67	%	$	255,879

	Nine months ended December 31, 2014					December 31, 2014
	Purchases		Percentage of purchases			Accounts payable

Vendor A (Customer B)	$	2,102,476		30	%	$	-
Vendor D		1,226,016		17	%		115,873
Total	$	3,328,492		47	%	$	115,873

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	Three months ended December 31, 2013					December 31, 2013
	Purchases		Percentage of purchases			Accounts payable

Vendor A (Customer B)	$	1,058,828		40	%	$	-
Vendor E		345,446		13	%		-
Vendor H		300,696		11	%		136,403
Total	$	1,704,970		64	%	$	136,403

	Nine months ended December 31, 2013					December 31, 2013
	Purchases		Percentage of purchases			Accounts payable

Vendor A (Customer B)	$	2,157,642		37	%	$	-
Vendor E		728,629		13	%		-
Total	$	2,886,271		50	%	$	-

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

(d) Interest rate risk

As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.

The Company’s interest-rate risk arises from revolving lines of credit and bank borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of December 31, 2014, all of borrowings were at variable rates. The interest rates and terms of repayment of the borrowings are disclosed in Note 7.

(e) Exchange rate risk

The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HK$ converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.

13. COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

The Company’s subsidiary in Hong Kong is committed under several non-cancelable operating leases with fixed monthly rentals, due through September 2016. Total rent expenses for the nine months ended December 31, 2014 and 2013 was $95,844 and $95,801, respectively.

As of December 31, 2014, the Company has the future minimum rental payments approximately $133,560 (HK$1,036,000) under various non-cancelable operating leases in the next two years, as follows:

Year ending December 31:
2015	$	81,807
2016		51,753
Total	$	133,560

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GREEN DRAGON WOOD PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(b) Legal proceedings

(i) On February 12, 2009, a claim was filed by Chi Yim Yip, Roger (“Mr. Yip”) and Characters Capital Group Limited (“CCGL”) against Mr. Kwok Leung Lee (“Mr. Lee”), a director of the Company, and GDWPCL alleging (i) breach of contract by GDWP concerning the engagement of CCGL to assist GDWPCL in securing GDWP’s listing on the OTC Bulletin Board and (ii) defamation by Mr. Lee related to the contract dispute. Damages being sought include $31,287 in liquidated damages from GDWPCL, aggravated/exemplary damages and injunction from further defamation. The claim was filed with the High Court of the Hong Kong Special Administrative Region, Court of First Instance.

On April 9, 2009, Mr. Lee and GDWPCL filed a Defense and Counterclaim. GDWPCL asserted a breach of contract claim against CCGL, alleging that CCGL failed to fulfill its obligations pursuant to the CCGL agreement to effect the listing of GDWP through a reverse merger by the use of a company that was listed on the Pink Sheets. Mr. Lee additionally asserted a breach of contract claim against Mr.Yip for the Stock Purchase Agreement dated March 31, 2007, for failing to deliver a shell company, Tabatha V, Inc., that was listed on the Pink Sheets, which, pursuant to the Stock Purchase Agreement, was to be purchased by Mr. Lee. Both Mr. Lee and GDWPCL also claimed damages for fraudulent misrepresentation related to the failure to deliver the Pink Sheet shell company. On May 22, 2009, Mr.Yip and CCGL replied to the counterclaim.

On January 26, 2011, the High Court of the Hong Kong Special Administrative Region granted leave to Mr. Yip and CCGL to set the case down for a 7-day trial. The trial occurred in October 2013 and the parties are waiting for the judgment of the court.

At December 31, 2014, in the opinion of Company management, the resolution of this matter will not have a material effect on the Company’s financial statements in the foreseeable future.

(ii) On March 17, 2014, Paul Stamper (“Plaintiff”) filed a complaint (the “Complaint”) against, among other parties, GDWPCL, in the Hendricks Superior Court located in Hendricks County in the State of Indiana, Case No. 32D05-1403-MI-70, seeking, among other things, enforcement of a judgment entered into against all defendants on December 8, 2011 in Wabash County Circuit Court, Case No. 85C01-1112-MI-1013, in the aggregate principal amount of $42,697.14 plus interest and costs (the “Judgment”). The Company, its officers and directors deny the material allegations of the Complaint since the Company does not conduct business in the State of Indiana and intend to vigorously defend itself in this action.

During the third quarter of 2014, the Company is committed to a series of 22 structured foreign exchange contracts with DBS bank to hedge the fluctuation between USD and RMB for a term of period from November 2013 to August 2015, monthly expiry. As of December 31, 2014, 14 contracts were fully executed and the remaining 8 contracts are outstanding. The Company expects no material contingent loss from these committed contracts in the next twelve months.

14. SUBSEQUENT EVENTS

In accordance with ASC Topic 855, “ Subsequent Events ”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after December 31, 2014 up through the date was the Company presented this condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Note Regarding Forward-Looking Statements

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

	the effect of political, economic, and market conditions and geopolitical events;
	legislative and regulatory changes that affect our business;
	the availability of funds and working capital;
	the actions and initiatives of current and potential competitors;
	investor sentiment; and
	our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report, except as required by law.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this report.

Except as otherwise indicated by the context, references in this Form 10-Q to “we,” “us,” “our,” “the Registrant”, “Green Dragon”, “our Company,” or “the Company” are to Green Dragon Wood Products, Inc., a Florida corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “BVI” are to British Virgin Islands; (ii) “PRC” and “China” are to the People’s Republic of China; (iii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iv) “RMB” are to Yuan Renminbi of China; (v) “Securities Act” are to the Securities Act of 1933, as amended; and (vi) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of condensed consolidated our financial statements.

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We believe the following is among the most critical accounting policies that impact our condensed consolidated financial statements. We suggest that our significant accounting policies, as described in our condensed consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 60 to 180 days from shipment. The Company extends unsecured credit to its customers in the ordinary course of business, based on evaluation of a customer's financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 180 days and those over a specified amount are reviewed individually for collectability. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The credit terms of our two major customers are summarized as below:

Major Customers	Contractual Credit Term	Repayment Term #

Customer A	60 to 90 days	Accounts receivable are repaid on a regular basis to the Company and the cash receipt is made to Customer B upon the instruction of the Company.

Customer B (also a major supplier)	90 to 180 days	Customer B receives the cash settlement from Customer A and the aggregate receivable will offset against its trade payable.

In March 2010, the Company entered into a tri-parties settlement arrangement among Customer A and Customer B. Under such arrangement, Customer A agreed to transfer its accounts receivable balance to Customer B and Customer B agreed to receive such accounts receivable balance from Customer A, on behalf of the Company, to offset against its trade payable due to the Company.

Accounting Standard Codification ("ASC") Topic 605

We recognize revenue in accordance with ASC Topic 605, “Revenue Recognition” when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.

The majority of the Company's revenue results from sales contracts with direct customers and revenues are generated upon the shipment of goods. The Company's pricing structure is fixed and there are no rebate or discount programs. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectability. Based on these factors, the Company believes that it can apply the provisions of ASC Topic 605 with minimal subjectivity.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

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Results of Operations

Comparison of the Three Months Ended December 31, 2014 and 2013

The following table summarizes the results of our operations during the three months ended December 31, 2014 and 2013, and provides information regarding the dollar and percentage increase or (decrease) from the three months ended December 31, 2014 to the three months ended December 31, 2013.

	Three Months Ended
	December 31,						Increase/			Increase/
	2014			2013			(Decrease)			(Decrease)

Revenue, net	$	2,891,555		$	2,874,932		$	16,623			1	%
Cost of Revenue		(2,484,773	)		(2,722,131	)		(237,358	)		(9	)%
Gross Profit		406,782			152,801			253,981			166	%

General and Administrative Expenses		228,988			235,766			(6,778	)		(3	)%
Total Operating Expenses		228,988			235,766			(6,778	)		(3	)%
Income / (Loss) from Operations		177,794			(82,965	)		260,759			314	%
Other Income / (Expense)		11,657			(145,931	)		157,588			14	%
Income / (Loss) before Income Tax		189,451			(228,896	)		418,347			183	%
Income Tax Expense		-			-			-			-	%
Net Income / (Loss)	$	189,451		$	(228,896	)	$	418,347			183	%

Revenue

Revenue for the three months ended December 31, 2014 was $2,891,555, an increase of $16,623 or 1% from $2,874,932 for the comparable period in 2013. The increase was primarily attributable to shipments postponed from last quarter to this quarter.

Cost of revenue and gross profit

Cost of revenue for the three months ended December 31, 2014 was $2,484,773, a decrease of $237,358 or 9% from $2,722,131 for the comparable period in 2013. The decrease was primarily attributable to decrease in purchase cost.

Gross profit for the three months ended December 31, 2014 was $406,782, an increase of $253,981 or 166% from $152,801 for the comparable period in 2013. The increase was primarily attributable to increase of sales of high profit margin product.

General and Administrative

General and administrative expenses mainly consist of payroll, rental expenses, professional fee, bank charges and exchange gain or loss on foreign currency.

General and administrative expenses for the three months ended December 31, 2014 was $228,988, a decrease of $6,778 or 3% from $235,766 for the comparable period in 2013. The decrease was primarily attributable to gain on the exchange difference in the EURO.

Other Income/(Expense)

Other income for the three months ended December 31, 2014 was $11,657, an increase of $157,588 or 14% from other expense of $145,931 for the comparable period in 2013. The increase was due to a loss of $99,580 on disposal of life insurance was recorded in last year, and no such loss was recorded in this year.

Income / (Loss) before income tax

Income before income tax for the three months ended December 31, 2014 was $189,451, an increase of $418,347 or 183% compared to loss of $228,896 for the comparable year in 2013. The increase was due to a decrease of $237,358 in purchase cost and a loss of $99,580 on disposal of life insurance was recorded in last year, and no such loss was recorded in this year.

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Net (loss) / income

Net income for the three months ended December 31, 2014 was $189,451, an increase in income of $418,347 or 183% from a loss of $228,896 for the comparable period in 2013. The increase in income was primarily to the increase of income before income tax discussed above.

Comparison of the Nine Months Ended December 31, 2014 and 2013

The following table summarizes the results of our operations during the nine months ended December 31, 2014 and 2013, and provides information regarding the dollar and percentage increase or (decrease) from the nine months ended December 31, 2014 to the nine months ended December 31, 2013.

	Nine Months Ended
	December 31,						Increase/			Increase/
	2014			2013			(Decrease)			(Decrease)

Revenue, net	$	8,179,960		$	6,477,493		$	1,702,467			26	%
Cost of Revenue		(7,372,316	)		(6,131,034	)		1,241,282			20	%
Gross Profit		807,644			346,459			461,185			133	%

General and Administrative Expenses		701,254			707,158			(5,904	)		(1	)%
Total Operating Expenses		701,254			707,158			(5,904	)		(1	)%
Income / (Loss) from Operations		106,390			(360,699	)		467,089			129	%
Other Expense		(34,837	)		(166,233	)		(131,396	)		(79	%)
Income / (Loss) before Income Tax		71,553			(526,932	)		598,485			114	%
Income Tax Expense		-			(9,104	)		9,104			n/a
Net Income / (Loss)	$	71,553		$	(536,036	)	$	607,589			113	%

Revenue

Revenue for the nine months ended December 31, 2014 was $8,179,960, an increase of $1,702,467 or 26% from $6,477,493 for the comparable period in 2013. This increase was primarily attributable to the result of our effort in broadening our customer base in China and India market.

Cost of revenue and gross profit

Cost of revenue for the nine months ended December 31, 2014 was $7,372,316, an increase of $1,241,282 or 20% from $6,131,034 for the comparable period in 2013. This increase was primarily attributable to the increase in sales.

Gross profit for the nine months ended December 31, 2014 was $807,644, an increase of $461,185 or 133% from $346,459 for the comparable period in 2013. This increase was primarily attributable to the increase in sales.

General and Administrative

General and administrative expenses for the nine months ended December 31, 2014 was $701,254, a decrease of $5,904 or 1% from $707,158 for the comparable period in 2013. This decrease was primarily attributable to cost saving.

Other Expense

Other expense for the nine months ended December 31, 2014 was $34,837, a decrease $131,396 or 79% from $166,233 for the comparable period in 2013. The decrease was due to a loss of $99,580 on disposal of life insurance was recorded in last year, and no such loss was recorded in this year.

Income / (Loss) before income tax

Income before income tax for the nine months ended December 31, 2014 was $71,553, an increase in income of $598,485 or 114% compared to loss of $526,932 for the comparable year in 2013. The increase in income was due primarily attributable to increase in sales.

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Net income / (loss)

Net income for the nine months ended December 31, 2014 was $71,553, an increase in income of $607,589 or 113% from net income of $536,036 for the comparable period in 2013. The increase in income was primarily to the increase of income before income tax discussed above.

Liquidity and Capital Resources

Cash and Cash Equivalents

Our cash and cash equivalents as at the beginning of the nine months ended December 31, 2014 was $34,597 and increased to $44,863 at the end of the period, an increase of $10,266. The increase was primarily attributable to net cash provided by operating activities.

Net cash provided by / (used in) operating activities

Net cash provided by operating activities for the nine months ended December 31, 2014 was $24,180, an increase of $888,921 or 103% from cash used in operating activities of $864,741 for the comparable period in 2013. This increase was primarily attributable to a decrease of cash outflow to suppliers.

Net cash (used in) / provided by investing activities

Net cash used in investing activities was $7,688 and provided by $1,060,928 for the nine months ended December 31, 2014 and 2013, respectively. The decrease of $1,068,616 in net cash provided by investing activities was mainly attributable to cash inflow on the proceeds of disposal of available-for-sales securities was received in year 2013.

Net cash provided by / (used in) financing activities

Net cash provided by financing activities for the nine months ended December 31, 2014 was $519, a decrease of $484,553 or almost 100%, from cash used in financing activities of $484,034 for the comparable period in 2013. The decrease in cash used in financing activities was primarily attributable to repayment of short term and long term bank loans in year 2013, and no such repayment in year 2014.

Non-cash transaction

In March 2010, the Company entered into a tri-parties settlement arrangement among two major customers, Customer A and Party B. Under such arrangement, Customer A agreed to transfer its accounts receivable balance to Party B and Party B agreed to receive such accounts receivable balance from Customer A, on behalf of the Company, to offset against its trade payable due to the Company.

Pursuant to the terms of the Tri-parties Settlement Arrangement among Customer A, Party B and us;

1.	Customer A agrees to make cash payments directly to the designated bank accounts of Party B, per our monthly instruction;
2.	We and Party B agree to offset the cash proceeds against the accounts payable which we owe to Party B, and;
3.	In any event if Party B is not reimbursed by Customer A, we are responsible to chase Customer A for the settlement under obligation among the sales contracts. Meanwhile, we are legally liable to repay the accounts payable to Party B under the purchase contract.

Under this arrangement, we can assure the collection from Customer A to meet with the purchase payable due to Party B on a timely basis. We also can reduce the time and costs to handle the fund remittance among Customer A, Party B and ourselves. As we continue to make the purchase orders to Party B, the accounts receivable originally due from Customer A will be gradually eliminated and offset by our future accounts payable due to Party B.

We have developed a prolonged business relationship with Party “B” in the sale and purchase of wood veneer and the related products with a history of 10 years. In the normal course of business, Party B is acting as a “customer” or a “vendor”, who generally sells and buys different types of wood products to and from us on an arm-length basis. These sale and purchases transactions are independent.

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We expect to sustain and continue this prolonged business relationship with Party B, because;

1.	Party B has a long-term commercial history and experience in sale and procurement of wood products in China;
2.	Party B has developed an extensive marketing and sourcing network in China, and;
3.	We have built up a prolonged trust and confidence in doing business with each other.

We believe that there is no collectability concern with regard to the accounts receivable balance due from Party B, which will be recoverable by our future purchase orders.

As of December 31, 2014 and March 31, 2014, the accounts receivable balance transferred from Customer A to Party B was $0 and $951,161, respectively. The accounts receivable balances of Customer A and Party B under the tri-parties settlement arrangement is presented as follows:

	As of December 31, 2014
	Customer A		Party B
Accounts receivable	$	858,916	$	2,994,364
Accounts payable		-		-
Add (less): Transfer of accounts receivable from Customer A to Party B		-		-
Accounts receivable, net	$	858,916	$	2,994,364

	As of March 31, 2014
	Customer A			Party B
Accounts receivable	$	1,935,073		$	2,889,446
Accounts payable		-			-
Add (less): Transfer of accounts receivable from Customer A to Party B		(951,161	)		951,161
Accounts receivable, net	$	983,912		$	3,840,607

As of December 31, 2014 and March 31, 2014, the aging analysis of Party B is as follow:

	As of
	December 31, 2014		March 31, 2014
0-90 days	$	416,105	$	1,290,439
91-180 days		1,084,643		1,435,544
181-270 days		775,915		628,301
271-360 days		717,701		486,323
Over 360 days		-		-
Total	$	2,994,364	$	3,840,607

Trends

We are not aware of any trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.

Inflation

We believe that inflation has not had a material or significant impact on our revenue or our results of operations.

Working Capital

Our working capital was $2,326,163 and $2,140,324 at December 31, 2014 and March 31, 2014, respectively.

We currently generate our cash flow through our operations. We believe that our cash flow generated from operations will be sufficient to sustain operations for at least the next 12 months. There is no identifiable expansion plan as of December 31, 2014, but from time to time, we may identify new business opportunities to improve the profitability and working capital from operations.

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Capital Resources

As of December 31, 2014, the Company has a revolving line of credit with DBS Bank (Hong Kong) Limited with an outstanding balance of $1,957,827, a revolving line of credit with Industrial and Commercial Bank of China (Asia) Limited with an outstanding balance of $993,934, a revolving line of credit with Shanghai Commercial Bank with an outstanding balance of $635,865, an outstanding balance of $0 with ICICI Bank Limited , and a trade financing payable to Tai Wah Timber Factory Limited in an aggregate of $853,305. The company requires additional fund if expand our business.

The credit facility with ICICI Bank at December 31, 2014 was the used credit amount of HK$0 (approximately $0), and it is changed from time to time.

Financing Arrangement

The financing arrangement with Tai Wah Timber Factory Limited provides for borrowings with interest rate at 12% per annum, and the interest is required to pay monthly.

As of December 31, 2014 and March 31, 2014, the outstanding balance was $853,305 and $850,812, respectively.

While the capital resources of the Company are stable from a cash perspective, the credit of the Company for debt financing if necessary is extremely strong due to our strong banking relations and the credit facilities provided for our veneer products. From time to time we do have a need to exercise our credit options on a short term basis due to the nature of our business as importers/exporters. The company has established lines of credit with banks and management maintains very strong relations with these banks. Management believes that its current lines of credit are more than sufficient to cover any short and long term liquidity needs. Our historical financial liquidity needs have been shown to be more than adequately covered by our credit facilities. We believe that the strength of our management team to maintain strict internal control of its cash flow and liquidity that the current credit facilities are adequate for our needs.

In the event we are unable to generate sufficient funds to continue our business efforts or if the company is pursued by a larger company for a business combination, we will analyze all strategies to continue the company and increase shareholder value. Only under these circumstances would we consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination to increase business and potentially increase the shareholder value of the Company. Management believes its responsibility to increase shareholder value is of paramount importance, which means the Company should consider the aforementioned alternatives in the event funding is not available on favorable terms to the Company when and if needed.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management carried out an evaluation, with the participation of our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act), as of the period covered by this report. Disclosure controls and procedures are defined as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon their evaluation, our management (including our Chief Executive Officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2014 based on the material weaknesses defined below.

	●	The Company did not implement proper segregation of duties due to the Company’s small size and only one executive officer. In certain instances, persons responsible to review transactions for validity, completeness and accuracy were also responsible for preparation.
	●	Due to the Company’s limited resources, the Company does not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in the Company’s financial transactions in accordance with US GAAP. Additionally, the Company does not have a formal audit committee, and the Board does not have a financial expert, thus the Company lacks the board oversight role within the financial reporting process.

MANAGEMENT’S REMEDIATION PLAN

While management believes that the Company’s condensed consolidated financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US GAAP, based on the control deficiencies identified above, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

	·	The Company is currently looking for an outside consultant with considerable public company reporting experience and breadth of knowledge of US GAAP to assist it with the preparation and review of its condensed consolidated financial statements. The Company is committed to establishing procedures and utilizing experienced individuals with professional supervision to properly segregate duties, prepare and approve the condensed consolidated financial statements and footnote disclosures in accordance with US GAAP.
	·	The Board of Directors will be more actively involved in providing additional oversight of the Company’s internal controls, formal review of our condensed consolidated financial statements, and more detailed review of the periodic reports we anticipate filing with the SEC.
	·	The Company has initiated efforts to ensure our employees understand the importance of internal controls and compliance with corporate policies and procedures.
	·	The Company may retain third party specialists to assist us in the design, implementation and testing of our internal controls as necessary.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION\

ITEM 1. LEGAL PROCEEDINGS.

On February 12, 2009, a claim was filed by Chi Yim Yip, Roger (“Mr. Yip”) and Characters Capital Group Limited (“CCGL”) against Mr. Kwok Leung Lee (“Mr. Lee”), a director of the Company, and GDWPCL alleging (i) breach of contract by GDWP concerning the engagement of CCGL to assist GDWPCL in securing GDWP’s listing on the OTC Bulletin Board and (ii) defamation by Mr. Lee related to the contract dispute. Damages being sought include $31,287 in liquidated damages from GDWPCL, aggravated/exemplary damages and injunction from further defamation. The claim was filed with the High Court of the Hong Kong Special Administrative Region, Court of First Instance.

At December 31, 2014, in the opinion of Company management, the resolution of this matter will not have a material effect on the Company’s financial statements in the foreseeable future.

On March 17, 2014, Paul Stamper (“Plaintiff”) filed a complaint (the “Complaint”) against, among other parties, GDWPCL, in the Hendricks Superior Court located in Hendricks County in the State of Indiana, Case No. 32D05-1403-MI-70, seeking, among other things, enforcement of a judgment entered into against all defendants on December 8, 2011 in Wabash County Circuit Court, Case No. 85C01-1112-MI-1013, in the aggregate principal amount of $42,697.14 plus interest and costs (the “Judgment”). The Company, its officers and directors deny the material allegations of the Complaint since the Company does not conduct business in the State of Indiana and intend to vigorously defend itself in this action.

Other than as disclosed above, we know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.

EXHIBIT NO.		DESCRIPTION

31.1		Certificate of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certificate of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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.


	GREEN DRAGON WOOD PRODUCTS, INC.


Dated: February 23, 2015	/s/Kwok Leung Lee
	Kwok Leung Lee
	President
	(principal executive officer, principal financial officer, and principal accounting officer)

Zeecol International, Inc. - FORM 10-Q - February 23, 2015

Attached files

Zeecol International, Inc. Reports