x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Cayman Islands
|
000-52339
|
N/A
|
||
(State or other jurisdiction of incorporation or organization)
|
(Commission File No.)
|
(IRS Employee Identification No.)
|
PART 1 - FINANCIAL INFORMATION
|
||
PAGE
|
||
Item 1.
|
Financial Statements (Unaudited)
|
1
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
31
|
Item 4.
|
Controls and Procedures
|
31
|
PART II - OTHER INFORMATION
|
||
Item 6.
|
Exhibits
|
32
|
SIGNATURES
|
32
|
·
|
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
|
·
|
“Guizhou Yufeng” refers to Guizhou Yufeng Melt Co., Ltd., a PRC limited company;
|
·
|
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
|
·
|
“Jiangmen Huiyuan” refers Jiangmen Huiyuan Environmental Protection Technology Consultancy Co. Ltd ., a wholly foreign owned enterprise organized under the PRC laws;
|
·
|
“Jiangmen Wealth Water” refers to Jiangmen Wealth Water Purifying Agent Co., Ltd. , a PRC limited liability company;
|
·
|
“Operating Company” or “Operating Companies” refers to Jiangmen Huiyuan, Jiangmen Wealth Water, Guizhou Yufeng and Shangxi Wealth;
|
·
|
“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China;
|
·
|
“Renminbi” and “RMB” refer to the legal currency of China;
|
·
|
“SEC” refers to the United States Securities and Exchange Commission;
|
·
|
“Securities Act” refers to the Securities Act of 1933, as amended;
|
·
|
“Shanxi Wealth” refers to Shangxi Wealth Aluminate Materials Co., Ltd., a PRC limited company;
|
·
|
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States;
|
·
|
“Wealth Environmental Protection” refers to Wealth Environmental Protection Group, Inc., a British Virgin Islands company; and
|
·
|
“Wealth Environmental Technology” refers to Wealth Environmental Technology Holding, Ltd., a Hong Kong company.
|
Item 1.
|
Financial Statements.
|
Page
|
|
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010
|
2
|
Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2011 and 2010 (Unaudited)
|
3
|
Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2011 and 2010 (Unaudited)
|
4
|
Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2011 (Unaudited)
|
5-6
|
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)
|
7
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
8 – 23
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
September 30,
|
December 31,
|
|||||||
2011
(UNAUDITED)
|
2010
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
30,174,326
|
$
|
33,910,457
|
||||
Restricted cash
|
870,000
|
2,287,203
|
||||||
Accounts receivable
|
5,385,033
|
655,242
|
||||||
Note receivable
|
14,087,748
|
-
|
||||||
Interest receivable
|
62,612
|
-
|
||||||
Inventories
|
1,117,370
|
697,518
|
||||||
Advances to suppliers
|
3,803,692
|
-
|
||||||
Other current assets
|
15,976
|
20,943
|
||||||
Total current assets
|
55,516,757
|
37,571,363
|
||||||
Property, plant and equipment and land and mining rights, net
|
14,860,580
|
15,163,899
|
||||||
Total assets
|
$
|
70,377,337
|
$
|
52,735,262
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
2,272,137
|
$
|
704,166
|
||||
Accrued expenses
|
741,049
|
1,299,042
|
||||||
Due to shareholders
|
14,841
|
14,070
|
||||||
Value added taxes payable
|
591,382
|
389,053
|
||||||
Other taxes payable
|
133,927
|
25,907
|
||||||
Income tax payable
|
1,736,945
|
1,105,912
|
||||||
Total current liabilities
|
5,490,281
|
3,538,150
|
||||||
Deferred income taxes
|
284,236
|
205,078
|
||||||
Total liabilities
|
5,774,517
|
3,743,228
|
||||||
Commitments and contingencies
|
||||||||
Shareholders' equity:
|
||||||||
Preferred stock, $0.000128 par value, 781,250 shares
|
||||||||
authorized, 444,804 shares
|
||||||||
issued and outstanding on September 30, 2011
|
||||||||
and December 31, 2010
|
57
|
57
|
||||||
Common stock: $0.000128 par value, 39,062,500
|
||||||||
shares authorized, 27,951,700 shares issued
|
||||||||
and outstanding on September 30, 2011 and December 31, 2010
|
3,578
|
3,578
|
||||||
Additional paid-in capital
|
24,283,222
|
24,283,222
|
||||||
Accumulated other comprehensive income
|
6,187,280
|
4,603,591
|
||||||
Retained earnings (the restricted portion of retained earnings
|
||||||||
is $496,396 on September 30, 2011 and December 31, 2010)
|
34,128,683
|
20,101,586
|
||||||
Total shareholders’ equity
|
64,602,820
|
48,992,034
|
||||||
Total liabilities and shareholders’ equity
|
$
|
70,377,337
|
$
|
52,735,262
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net revenue
|
$ | 19,335,053 | $ | 14,578,237 | $ | 52,761,618 | $ | 36,024,913 | ||||||||
Cost of goods sold
|
10,759,594 | 7,441,198 | 28,364,739 | 18,548,682 | ||||||||||||
Gross profit
|
8,575,459 | 7,137,039 | 24,396,879 | 17,476,231 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Selling and marketing
|
568,573 | 474,840 | 1,590,600 | 1,133,482 | ||||||||||||
General and administrative
|
1,184,947 | 760,005 | 3,347,284 | 2,120,472 | ||||||||||||
Research and development
|
149,191 | - | 438,936 | - | ||||||||||||
Total operating expenses
|
1,902,711 | 1,234,845 | 5,376,820 | 3,253,954 | ||||||||||||
Income from operations
|
6,672,748 | 5,902,194 | 19,020,059 | 14,222,277 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
99,281 | 19,619 | 163,084 | 45,411 | ||||||||||||
Interest expense
|
- | (135,347 | ) | - | (135,347 | ) | ||||||||||
Total other income (expense)
|
99,281 | (115,728 | ) | 163,084 | (89,936 | ) | ||||||||||
Income before provision for income taxes
|
6,772,029 | 5,786,466 | 19,183,143 | 14,132,341 | ||||||||||||
Provision for income taxes
|
1,696,209 | 1,448,486 | 4,865,974 | 3,535,196 | ||||||||||||
Net income
|
5,075,820 | 4,337,980 | 14,317,169 | 10,597,145 | ||||||||||||
Less: cumulative dividends on preferred stock
|
100,081 | - | 300,243 | - | ||||||||||||
Net income attributable to common shareholders
|
$ | 4,975,739 | $ | 4,337,980 | $ | 14,016,926 | $ | 10,597,145 | ||||||||
Net income per common share - basic
|
$ | 0.18 | $ | 0.17 | $ | 0.50 | $ | 0.41 | ||||||||
Net income per common share - diluted
|
$ | 0.16 | $ | 0.17 | $ | 0.46 | $ | 0.41 | ||||||||
Weighted average number of common shares outstanding - basic
|
27,951,700 | 25,955,150 | 27,951,700 | 25,955,150 | ||||||||||||
Weighted average number of common shares outstanding - diluted
|
31,123,391 | 25,955,150 | 31,123,391 | 25,955,150 |
CHINA GROWTH CORPORATION
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(UNAUDITED)
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income
|
$ | 5,075,820 | $ | 4,337,980 | $ | 14,317,169 | $ | 10,597,145 | ||||||||
Other comprehensive income -
|
||||||||||||||||
foreign currency translation adjustments
|
633,699 | 648,323 | 1,583,689 | 794,237 | ||||||||||||
Comprehensive income
|
$ | 5,709,519 | $ | 4,986,303 | $ | 15,900,858 | $ | 11,391,382 |
CHINA GROWTH CORPORATION
|
||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||
(UNAUDITED)
|
||||||||||||||||||||
Additional
|
||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
||||||||||||||||
Balance as of January 1, 2010
|
-
|
$
|
-
|
25,955,150
|
$
|
3,322
|
$
|
15,072,648
|
||||||||||||
Capital contribution
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Sale of preferred stock
|
444,804
|
57
|
-
|
-
|
6,671,974
|
|||||||||||||||
Beneficial conversion feature associated with convertible Debt
|
-
|
-
|
-
|
-
|
500,000
|
|||||||||||||||
Common stock issued in conversion of debt
|
-
|
-
|
998,275
|
128
|
499,872
|
|||||||||||||||
Common stock issued for services
|
-
|
-
|
998,275
|
128
|
1,538,728
|
|||||||||||||||
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other comprehensive income - foreign currency translation Adjustments
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Balance as of December 31, 2010
|
444,804
|
57
|
27,951,700
|
3,578
|
24,283,222
|
|||||||||||||||
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other comprehensive income - foreign currency translation Adjustments
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Balance as of September 30, 2011
|
444,804
|
$
|
57
|
27,951,700
|
$
|
3,578
|
$
|
24,283,222
|
CHINA GROWTH CORPORATION
|
|||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|||||||||||||||||||
(UNAUDITED)
|
|||||||||||||||||||
Accumulated
|
|||||||||||||||||||
Other
|
Total
|
||||||||||||||||||
Comprehensive
|
Due From
|
Retained Earnings
|
Shareholders’
|
||||||||||||||||
Income
|
Shareholders
|
Restricted
|
Unrestricted
|
Equity
|
|||||||||||||||
Balance as of January 1, 2010
|
$ | 3,291,703 | $ | (7,000 | ) | $ | 496,396 | $ | 8,984,555 | 27,841,624 | |||||||||
Capital contribution
|
- | 7,000 | - | - | 7,000 | ||||||||||||||
Sale of preferred stock
|
- | - | - | - | 6,672,031 | ||||||||||||||
Beneficial conversion feature associated with convertible debt
|
- | - | - | - | 500,000 | ||||||||||||||
Common stock issued in conversion of debt
|
- | - | - | - | 500,000 | ||||||||||||||
Common stock issued for services
|
- | - | - | - | 1,538,856 | ||||||||||||||
Dividends paid
|
- | - | - | (653,028 | ) | (653,028 | ) | ||||||||||||
Net income
|
- | - | - | 11,273,663 | 11,273,663 | ||||||||||||||
Other comprehensive income - foreign currency translation adjustments
|
1,311,888 | - | - | - | 1,311,888 | ||||||||||||||
Balance as of December 31, 2010
|
4,603,591 | - | 496,396 | 19,605,190 | 48,992,034 | ||||||||||||||
Dividends declared
|
- | - | - | (290,072 | ) | (290,072 | ) | ||||||||||||
Net income
|
- | - | - | 14,317,169 | 14,317,169 | ||||||||||||||
Other comprehensive income - foreign currency translation adjustments
|
1,583,689 | - | - | - | 1,583,689 | ||||||||||||||
Balance as of September 30, 2011
|
$ | 6,187,280 | $ | - | $ | 496,396 | $ | 33,632,287 | $ | 64,602,820 |
The accompanying notes form an integral part of these consolidated financial statements
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(UNAUDITED)
|
||||||||
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
14,317,169
|
$
|
10,597,145
|
||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Depreciation and amortization
|
968,021
|
875,678
|
||||||
Loss on disposal of fixed assets
|
-
|
969
|
||||||
Amortization of discount
|
-
|
125,000
|
||||||
Deferred income taxes
|
71,515
|
-
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(4,636,449
|
)
|
(515,203
|
)
|
||||
Interest receivable
|
(61,648
|
)
|
-
|
|||||
Inventories
|
(391,538
|
)
|
(204,903
|
)
|
||||
Advances to suppliers
|
(3,745,134
|
)
|
-
|
|||||
Due from affiliate
|
-
|
(114,485
|
)
|
|||||
Other current assets
|
5,333
|
589
|
||||||
Accounts payable
|
1,521,773
|
1,235,830
|
||||||
Accrued expenses
|
(580,371
|
)
|
26,583
|
|||||
Value added taxes payable
|
187,026
|
18,559
|
||||||
Other taxes payable
|
105,545
|
19,455
|
||||||
Income tax payable
|
586,673
|
577,303
|
||||||
Net cash provided by operating activities
|
8,347,915
|
12,642,520
|
||||||
Cash flows from investing activities:
|
||||||||
Purchase of property, equipment and improvement
|
(194,338
|
)
|
(1,230
|
)
|
||||
Proceeds from disposal of property, equipment and improvement
|
-
|
735
|
||||||
Decrease in restricted cash
|
1,417,203
|
-
|
||||||
Addition to note receivable
|
(13,870,865
|
)
|
||||||
Net cash provided by (used in) investing activities
|
(12,648,000
|
)
|
(495
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Capital contribution
|
15,082
|
|||||||
Proceeds received from issuance of convertible note payable
|
-
|
500,000
|
||||||
Due to shareholders ultimately declared as dividend
|
(537,865
|
)
|
||||||
Advances from shareholders
|
770
|
-
|
||||||
Dividends paid to shareholder
|
(290,829
|
)
|
-
|
|||||
Net cash provided by (used in) financing activities
|
(292,059
|
)
|
(22,783
|
)
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
856,013
|
497,664
|
||||||
Net increase in cash and cash equivalents
|
(3,736,131
|
)
|
13,116,906
|
|||||
Cash and cash equivalents at the beginning of period
|
33,910,457
|
12,722,568
|
||||||
Cash and cash equivalents at the end of period
|
$
|
30,174,326
|
$
|
25,839,474
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Income taxes paid
|
$
|
4,207,463
|
$
|
2,957,893
|
||||
Non-cash investing and financing activities:
|
||||||||
Cash collateral paid by a major shareholder
|
$
|
-
|
$
|
250,000
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(1)
|
Organization, Nature of Business and Basis of Presentation
|
Domicile and
|
|||||||||
Date of
|
Paid -In
|
Effective
|
|||||||
Name and Location
|
Incorporation
|
Capital
|
Ownership
|
Activities
|
|||||
Wealth Environmental Protection Group, Inc (“WEP”)
|
British Virgin Islands
June 3, 2010
|
$
|
7,000
|
100% Owned
|
Holding Company
|
||||
Wealth Environmental Technology Holding Ltd.(“Wealth Technology”) Hong Kong
|
Hong Kong
June 18, 2010
|
$
|
1,299
|
100% Owned
|
Holding Company
|
||||
Jiangmen Huiyuan Environmental Protection Technology Consultancy Co.
(“Jiangmen Huiyuan”)
Jiangmen, Guandong Province
|
Peoples Republic Of China (“PRC”)
July 22, 2010
|
$
|
15,082
|
100% Owned - Wholly Foreign Owned Entity (“WFOE”)
|
Holding Company
|
||||
Jiangmen Wealth Water
Purifying Agent Co., Ltd (“Jiangmen Wealth Water”)
Jiangmen, Guandong Province
|
PRC
April 25, 2003
|
$
|
4,049,060
|
100% Control Through
Contractual Arrangements
|
Manufacturing of water
purifying agents
|
||||
Guizhou Yufeng Melt Co., Ltd. (“Guizhou Yufeng”)
Guizhou Provincre
|
PRC
March 25, 2005
|
$
|
4,233,854
|
100% Control Through
Contractual Arrangements
|
Manufacturer of HAC Powder using bauxite and limestone from mines controlled under mining rights agreements
|
||||
Shangxi Wealth Aluminate
Materials Co., Ltd Shangxi Province
|
PRC
April 8, 2004
|
$
|
6,786,056
|
100% Control Through
Contractual Arrangements
|
Manufacturer of HAC Powder using bauxite
and limestone from mines controlled under mining rights agreements
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(1)
|
Organization, Nature of Business and Basis of Presentation, continued
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(2)
|
Summary of Significant Accounting Policies, continued
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(2)
|
Summary of Significant Accounting Policies, continued
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
|||||||||||||
Supplier 1
|
12
|
%
|
*
|
11
|
%
|
*
|
||||||||||
Supplier 2
|
17
|
%
|
18
|
%
|
17
|
%
|
19
|
%
|
||||||||
Supplier 3
|
12
|
%
|
15
|
%
|
12
|
%
|
16
|
%
|
||||||||
* Below 10%
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(2)
|
Summary of Significant Accounting Policies, continued
|
Nine Months
|
Nine Months
|
|||||||
Ended
|
Ended
|
|||||||
September 30, 2011
|
September 30, 2010
|
|||||||
VAT billed to customers for sales during the period
|
$
|
10,322,305
|
$
|
7,015,153
|
||||
Less: VAT billed to the Company for purchases during the period
|
4,089,441
|
2,546,242
|
||||||
Net VAT on transactions took place during the period
|
6,232,864
|
4,468,911
|
||||||
Amount remitted to the PRC
|
(6,030,535
|
)
|
(4,443,022
|
)
|
||||
VAT payable at beginning of period
|
389,053
|
335,787
|
||||||
VAT payable at period end
|
$
|
591,382
|
$
|
361,676
|
As of
|
As of
|
|||||||
September 30,
|
September 30,
|
|||||||
2011
|
2010
|
|||||||
Liabilities for taxes collected but not remitted
|
$
|
-
|
$
|
153,728
|
||||
Liabilities for taxes billed to customers but not collected
|
||||||||
from the customers or remitted to PRC
|
591,382
|
207,948
|
||||||
VAT payable at period end
|
$
|
591,382
|
$
|
361,676
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(3)
|
Note Receivable
|
(4)
|
Earnings Per Share
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||
Net income attributable to common shareholders - Basic
|
$
|
4,975,739
|
$
|
4,337,980
|
$
|
14,016,926
|
$
|
10,597,145
|
|||||||
Add: cumulative dividends attributable to
|
|||||||||||||||
6% convertible preferred stock
|
100,081
|
-
|
300,243
|
-
|
|||||||||||
Net income attributable to
|
|||||||||||||||
common shareholders - Diluted
|
$
|
5,075,820
|
$
|
4,337,980
|
$
|
14,317,169
|
$
|
10,597,145
|
|||||||
Weighted average number of common shares
|
|||||||||||||||
outstanding - Basic
|
27,951,700
|
25,955,150
|
27,951,700
|
25,955,150
|
|||||||||||
Dilutive effect of preferred stock conversion
|
3,171,691
|
-
|
3,171,691
|
-
|
|||||||||||
Weighted average number of common shares
|
|||||||||||||||
outstanding - Diluted
|
31,123,391
|
25,955,150
|
31,123,391
|
25,955,150
|
|||||||||||
Earnings per share:
|
|||||||||||||||
Basic
|
$
|
0.18
|
$
|
0.17
|
$
|
0.50
|
$
|
0.41
|
|||||||
Diluted
|
$
|
0.16
|
$
|
0.17
|
$
|
0.46
|
$
|
0.41
|
(5)
|
Contractual Agreements
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(5)
|
Contractual Agreements, continued
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(5)
|
Contractual Agreements, continued
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(5)
|
Contractual Agreements, continued
|
(6)
|
Inventories
|
September 30,
2011
|
December 31,
2010
|
|||||||
Raw Materials
|
$
|
822,043
|
$
|
469,793
|
||||
Work in progress
|
46,461
|
39,991
|
||||||
Finished goods
|
248,866
|
187,734
|
||||||
$
|
1,117,370
|
$
|
697,518
|
(7)
|
Property, Plant and Equipment and Land and Mining Rights
|
September 30,
2011
|
December 31,
2010
|
|||||||
Leasehold improvement
|
$
|
3,302,210
|
$
|
3,200,385
|
||||
Production equipment
|
6,655,975
|
6,426,255
|
||||||
Furniture and fixtures
|
436,900
|
320,513
|
||||||
Automobiles
|
311,556
|
238,057
|
||||||
Land use rights
|
2,263,438
|
2,193,644
|
||||||
Mining rights
|
8,922,240
|
8,647,120
|
||||||
21,892,319
|
21,025,974
|
|||||||
Less: Accumulated depreciation
|
7,031,739
|
5,862,075
|
||||||
$
|
14,860,580
|
$
|
15,163,899
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(7)
|
Property, Plant and Equipment and Land and Mining Rights, continued
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Depreciation of plant, equipment and improvements
|
$
|
176,866
|
$
|
173,741
|
$
|
520,196
|
$
|
519,576
|
||||||||
Amortization of land use rights
|
12,448
|
11,790
|
36,856
|
35,176
|
||||||||||||
Amortization of mining rights
|
150,412
|
125,690
|
410,969
|
320,926
|
||||||||||||
$
|
339,726
|
$
|
311,221
|
$
|
968,021
|
$
|
875,678
|
•
|
300,000 tons of limestone, from which the calcium needed for production of its products is derived
|
•
|
350,000 tons of bauxite, from which the aluminum for production of its products is derived.
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Limestone
|
27,461
|
22,181
|
76,428
|
61,221
|
||||||||||||
Bauxite
|
66,389
|
56,136
|
183,788
|
147,592
|
(8)
|
Income Taxes
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(8)
|
Income Taxes, continued
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Computed tax at the U.S. federal statutory rate of 34%
|
$
|
2,302,490
|
$
|
1,967,398
|
$
|
6,522,268
|
$
|
4,804,996
|
||||||||
Tax rate difference between the US and PRC on foreign earnings
|
(609,483
|
)
|
(520,782
|
)
|
(1,726,483
|
)
|
(1,271,911
|
)
|
||||||||
Change in valuation allowance
|
26,221
|
-
|
116,416
|
-
|
||||||||||||
Other
|
(23,019
|
)
|
1,870
|
(46,227
|
)
|
2,111
|
||||||||||
$
|
1,696,209
|
$
|
1,448,486
|
$
|
4,865,974
|
$
|
3,535,196
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(8)
|
Income Taxes, continued
|
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Deferred tax assets:
|
||||||||
Net operating losses
|
$
|
1,035,134
|
$
|
918,718
|
||||
Liability for social insurance premiums and provident housing funds
|
75,000
|
75,000
|
||||||
Total deferred tax assets
|
1,110,134
|
993,718
|
||||||
Deferred tax liabilities:
|
||||||||
Difference between book and tax amortization on mining rights
|
(359,236
|
)
|
(280,078
|
)
|
||||
Total deferred tax liabilities
|
(359,236
|
)
|
(280,078
|
)
|
||||
Net deferred tax assets before valuation allowance
|
750,898
|
713,640
|
||||||
Valuation allowance
|
(1,035,134
|
)
|
(918,718
|
)
|
||||
Net deferred tax liabilities
|
$
|
(284,236
|
)
|
$
|
(205,078
|
)
|
(9)
|
Shareholders’ Equity
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(9)
|
Shareholders’ Equity
|
Registered
|
General
|
|||||||
Capital
|
Reserve Fund
|
|||||||
Jiangmen Huiyuan
|
$
|
-
|
$
|
-
|
||||
Jiangmen Wealth Water
|
61,981
|
38,801
|
||||||
Guizhou Yufeng
|
61,981
|
39,211
|
||||||
Shangxi Wealth
|
619,806
|
418,384
|
||||||
$
|
743,768
|
$
|
496,396
|
(10)
|
Related Party Balances and Transactions
|
(11)
|
Segment Information
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(11)
|
Segment Information, continued
|
·
|
Jiangmen Wealth Water produces water purification agents for specific industrial uses such as the treatment of waste water from paper mills, decolorization agent to treat waste water that contains active dyes, acid dyes and direct dyes produced in the textile and printing industry, and other industry specific water purification applications. The Company uses HAC powder produced by the Guizhou Yefeng segment in the production of its water purification agents.
|
·
|
Guizhou Yefeng produces HAC powder from calcium and aluminum derived from its limestone and bauxite mines. The HAC powder is used by Jiangmen Wealth Water in the production of its water purification agents and is also sold to outside customers for waste water treatment.
|
·
|
Shanxi Wealth produces HAC powder from calcium and aluminum derived from its limestone and bauxite mines. The HAC powder is sold to outside customers for waste water treatment.
|
·
|
Other represents the cost of corporate activities and eliminations
|
For the three months ended September 30, 2011
|
||||||||||||||||||||||||
Jiangmen
|
Guizhou
|
Shanxi
|
||||||||||||||||||||||
Wealth Water
|
Yefeng
|
Wealth
|
Corporate
|
Eliminations
|
Total
|
|||||||||||||||||||
Net revenue
|
$
|
10,581,290
|
$
|
3,731,506
|
$
|
7,016,284
|
$
|
-
|
$
|
(1,994,027
|
)
|
$
|
19,335,053
|
|||||||||||
Cost of revenue
|
6,223,213
|
2,060,388
|
4,470,020
|
-
|
(1,994,027
|
)
|
10,759,594
|
|||||||||||||||||
Gross profit
|
4,358,077
|
1,671,118
|
2,546,264
|
-
|
-
|
8,575,459
|
||||||||||||||||||
Selling and marketing
|
306,085
|
73,388
|
189,100
|
-
|
-
|
568,573
|
||||||||||||||||||
General and administrative
|
536,415
|
157,407
|
282,547
|
208,578
|
-
|
1,184,947
|
||||||||||||||||||
Research and development
|
140,543
|
8,648
|
-
|
-
|
-
|
149,191
|
||||||||||||||||||
Income from operations
|
$
|
3,375,034
|
$
|
1,431,675
|
$
|
2,074,617
|
$
|
(208,578
|
)
|
$
|
-
|
$
|
6,672,748
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(11)
|
Segment Information, continued
|
For the three months ended September 30, 2010
|
||||||||||||||||||||||||
Jiangmen
|
Guizhou
|
Shanxi
|
||||||||||||||||||||||
Wealth Water
|
Yefeng
|
Wealth
|
Corporate
|
Eliminations
|
Total
|
|||||||||||||||||||
Net revenue
|
$
|
8,120,167
|
$
|
2,723,177
|
$
|
5,292,859
|
$
|
-
|
$
|
(1,557,966
|
)
|
$
|
14,578,237
|
|||||||||||
Cost of revenue
|
4,530,441
|
1,483,765
|
2,984,958
|
-
|
(1,557,966
|
)
|
7,441,198
|
|||||||||||||||||
Gross profit
|
3,589,726
|
1,239,412
|
2,307,901
|
-
|
-
|
7,137,039
|
||||||||||||||||||
Selling and marketing
|
222,612
|
56,319
|
195,909
|
-
|
-
|
474,840
|
||||||||||||||||||
General and administrative
|
336,745
|
117,683
|
221,390
|
84,187
|
-
|
760,005
|
||||||||||||||||||
Research and development
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Income from operations
|
$
|
3,030,369
|
$
|
1,065,410
|
$
|
1,890,602
|
$
|
(84,187
|
)
|
$
|
-
|
$
|
5,902,194
|
For the nine months ended September 30, 2011
|
||||||||||||||||||||||||
Jiangmen
|
Guizhou
|
Shanxi
|
||||||||||||||||||||||
Wealth Water
|
Yefeng
|
Wealth
|
Corporate
|
Eliminations
|
Total
|
|||||||||||||||||||
Net revenue
|
$
|
28,619,169
|
$
|
10,397,210
|
$
|
19,753,559
|
$
|
-
|
$
|
(6,008,320
|
)
|
$
|
52,761,618
|
|||||||||||
Cost of revenue
|
16,910,098
|
5,562,590
|
11,900,371
|
-
|
(6,008,320
|
)
|
28,364,739
|
|||||||||||||||||
Gross profit
|
11,709,071
|
4,834,620
|
7,853,188
|
-
|
-
|
24,396,879
|
||||||||||||||||||
Selling and marketing
|
810,449
|
220,254
|
559,897
|
-
|
-
|
1,590,600
|
||||||||||||||||||
General and administrative
|
1,376,876
|
457,638
|
826,099
|
686,671
|
-
|
3,347,284
|
||||||||||||||||||
Research and development
|
416,126
|
22,810
|
-
|
-
|
-
|
438,936
|
||||||||||||||||||
Income from operations
|
$
|
9,105,620
|
$
|
4,133,918
|
$
|
6,467,192
|
$
|
(686,671
|
)
|
$
|
-
|
$
|
19,020,059
|
CHINA GROWTH CORPORATION AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(UNAUDITED)
|
(11)
|
Segment Information, continued
|
For the nine months ended September 30, 2010
|
||||||||||||||||||||||||
Jiangmen
|
Guizhou
|
Shanxi
|
||||||||||||||||||||||
Wealth Water
|
Yefeng
|
Wealth
|
Corporate
|
Eliminations
|
Total
|
|||||||||||||||||||
Net revenue
|
$
|
19,728,160
|
$
|
6,735,737
|
$
|
13,343,536
|
$
|
-
|
$
|
(3,782,520
|
)
|
$
|
36,024,913
|
|||||||||||
Cost of revenue
|
11,108,324
|
3,735,077
|
7,487,801
|
-
|
(3,782,520
|
)
|
18,548,682
|
|||||||||||||||||
Gross profit
|
8,619,836
|
3,000,660
|
5,855,735
|
-
|
-
|
17,476,231
|
||||||||||||||||||
Selling and marketing
|
557,062
|
149,477
|
426,943
|
-
|
-
|
1,133,482
|
||||||||||||||||||
General and administrative
|
911,623
|
327,077
|
653,866
|
227,906
|
-
|
2,120,472
|
||||||||||||||||||
Research and development
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Income from operations
|
$
|
7,151,151
|
$
|
2,524,106
|
$
|
4,774,926
|
$
|
(227,906
|
)
|
$
|
-
|
$
|
14,222,277
|
As of September 30, 2011
|
||||||||||||||||||||||||
Jiangmen
|
Guizhou
|
Shanxi
|
||||||||||||||||||||||
Wealth Water
|
Yefeng
|
Wealth
|
Corporate
|
Eliminations
|
Total
|
|||||||||||||||||||
Current assets
|
$
|
23,466,262
|
$
|
9,757,505
|
$
|
16,101,200
|
$
|
6,191,790
|
$
|
-
|
$
|
55,516,757
|
||||||||||||
Property, plant and equipment,
|
||||||||||||||||||||||||
land use and
|
||||||||||||||||||||||||
mining rights
|
2,755,902
|
4,992,163
|
7,112,515
|
-
|
-
|
14,860,580
|
||||||||||||||||||
Total assets
|
$
|
26,222,164
|
$
|
14,749,668
|
$
|
23,213,715
|
$
|
6,191,790
|
$
|
-
|
$
|
70,377,337
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Three Months Ended September 30,
|
||||||||||||||||
2011
|
% of Revenue
|
2010
|
% of Revenue
|
|||||||||||||
Net revenue
|
$ | 19,335,053 | 100.00 | % | $ | 14,578,237 | 100.00 | % | ||||||||
Cost of revenue
|
10,759,594 | 55.65 | % | 7,441,198 | 51.04 | % | ||||||||||
Gross profit
|
8,575,459 | 44.35 | % | 7,137,039 | 48.96 | % | ||||||||||
Operating expenses:
|
||||||||||||||||
Selling and marketing
|
568,573 | 2.94 | % | 474,840 | 3.26 | % | ||||||||||
General and administrative
|
1,184,947 | 6.13 | % | 760,005 | 5.21 | % | ||||||||||
Research and development
|
149,191 | 0.77 | % | - | 0.00 | % | ||||||||||
Total operating expenses
|
1,902,711 | 9.84 | % | 1,234,845 | 8.47 | % | ||||||||||
Income from operations
|
6,672,748 | 34.51 | % | 5,902,194 | 40.49 | % | ||||||||||
Other income (expenses):
|
||||||||||||||||
Interest income
|
99,281 | 0.51 | % | 19,619 | 0.13 | % | ||||||||||
Interest expense
|
- | 0.00 | % | (135,347 | ) | -0.93 | % | |||||||||
Total other income (expense)
|
99,281 | 0.51 | % | (115,728 | ) | -0.80 | % | |||||||||
Income before provision for income taxes
|
6,772,029 | 35.02 | % | 5,786,466 | 39.69 | % | ||||||||||
Provision for income taxes
|
1,696,209 | 8.77 | % | 1,448,486 | 9.94 | % | ||||||||||
Net income
|
$ | 5,075,820 | 26.25 | % | $ | 4,337,980 | 29.75 | % |
Nine Months Ended September 30,
|
||||||||||||||||
2011
|
% of Revenue
|
2010
|
% of Revenue
|
|||||||||||||
Net revenue
|
$ | 52,761,618 | 100.00 | % | $ | 36,024,913 | 100.00 | % | ||||||||
Cost of revenue
|
28,364,739 | 53.76 | % | 18,548,682 | 51.49 | % | ||||||||||
Gross profit
|
24,396,879 | 46.24 | % | 17,476,231 | 48.51 | % | ||||||||||
Operating expenses:
|
||||||||||||||||
Selling and marketing
|
1,590,600 | 3.01 | % | 1,133,482 | 3.15 | % | ||||||||||
General and administrative
|
3,347,284 | 6.34 | % | 2,120,472 | 5.89 | % | ||||||||||
Research and development
|
438,936 | 0.83 | % | - | 0.00 | % | ||||||||||
Total operating expenses
|
5,376,820 | 10.18 | % | 3,253,954 | 9.04 | % | ||||||||||
Income from operations
|
19,020,059 | 36.06 | % | 14,222,277 | 39.47 | % | ||||||||||
Other income (expenses):
|
||||||||||||||||
Interest income
|
163,084 | 0.31 | % | 45,411 | 0.13 | % | ||||||||||
Interest expense
|
- | 0.00 | % | (135,347 | ) | -0.38 | % | |||||||||
Total other income
|
163,084 | 0.31 | % | (89,936 | ) | 0.13 | % | |||||||||
Income before provision for income taxes
|
19,183,143 | 36.37 | % | 14,132,341 | 39.60 | % | ||||||||||
Provision for income taxes
|
4,865,974 | 9.22 | % | 3,535,196 | 9.81 | % | ||||||||||
Net income
|
$ | 14,317,169 | 27.15 | % | $ | 10,597,145 | 29.79 | % |
Nine Months Ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Net cash provided by operating activities
|
$
|
8,347,915
|
$
|
12,642,520
|
||||
Net cash provided by (used for) investing activities
|
(12,648,000
|
)
|
(495
|
)
|
||||
Net cash provided by (used for) financing activities
|
(292,059
|
)
|
(22,783
|
)
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
856,013
|
497,664
|
||||||
Cash and cash equivalents at the beginning of period
|
33,910,457
|
12,722,568
|
||||||
Cash and cash equivalents at the end of period
|
$
|
30,174,326
|
$
|
25,839,474
|
Nine Months Ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Effect on beginning cash at period end exchange rate
|
$
|
944,951
|
$
|
270,339
|
||||
Effect from operating activities during the period
|
135,562
|
227,744
|
||||||
Effect from investing activities during the period
|
(219,921
|
)
|
(9
|
)
|
||||
Effect from financing activities during the period
|
(4,579
|
)
|
(410
|
)
|
||||
Effect of exchange rate changes on cash
|
$
|
856,013
|
$
|
497,664
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Item 4.
|
Controls and Procedures.
|
Item 6.
|
Exhibits.
|
Exhibit Number
|
Description
|
|
31.1*
|
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1+
|
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2+
|
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS**
|
XBRL Instance Document
|
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
CHINA GROWTH CORPORATION
|
||
Dated: November 14, 2011
|
By:
|
/s/ Mingzhuo Tan
|
Mingzhuo Tan
Chief Executive Officer, President and
Chairman of the Board of Directors
(Duly authorized officer and principal executive officer)
|
Dated: November 14, 2011
|
By:
|
/s/ Tin Nang (Chris) Lui
|
Tin Nang (Chris) Lui
Chief Financial Officer
(Duly authorized officer, principal financial officer and chief accounting officer )
|
Exhibit Number
|
Description
|
|
31.1*
|
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1+
|
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2+
|
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS**
|
XBRL Instance Document
|
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
|
a)
|
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
China Growth Corporation
|
|||
Date: November 14, 2011
|
By:
|
/s/ Mingzhuo Tan
|
|
Mingzhuo Tan
|
|||
President and Chief Executive Officer (Principal Executive Officer)
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
|
a)
|
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
China Growth Corporation
|
|||
Date: November 14, 2011
|
By:
|
/s/ Tin Nang (Chris) Lui
|
|
Tin Nang (Chris) Lui
|
|||
Chief Financial Officer (Principal Financial and Chief Accounting Officer)
|
China Growth Corporation
|
|||
Date: November 14, 2011
|
By:
|
/s/ Mingzhuo Tan
|
|
Mingzhuo Tan
|
|||
President and Chief Executive Officer (Principal Executive Officer)
|
China Growth Corporation
|
|||
Date: November 14, 2011
|
By:
|
/s/ Tin Nang (Chris) Lui
|
|
Tin Nang (Chris) Lui
|
|||
Chief Financial Officer (Principal Financial and Accounting Officer)
|
Condensed Consolidated Balance Sheets Parenthetical (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Statement Of Financial Position [Abstract] | ||
Preferred Stock, Par value | $ 0.000128 | $ 0.000128 |
Preferred Stock, Shares Authorized | 781,250 | 781,250 |
Preferred Stock, Shares Issued | 444,804 | 444,804 |
Preferred Stock, Shares Outstanding | 444,804 | 444,804 |
Common Stock, Par Value | $ 0.000128 | $ 0.000128 |
Common Stock, Shares Authorized | 39,062,500 | 39,062,500 |
Common Stock, Shares Issued | 27,951,700 | 27,951,700 |
Common Stock, Shares Outstanding | 27,951,700 | 27,951,700 |
Restricted Portion of Retained Earnings | $ 496,396 | $ 496,396 |
Condensed Consolidated Statements of Income (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net revenue | $ 19,335,053 | $ 14,578,237 | $ 52,761,618 | $ 36,024,913 |
Cost of goods sold | 10,759,594 | 7,441,198 | 28,364,739 | 18,548,682 |
Gross profit | 8,575,459 | 7,137,039 | 24,396,879 | 17,476,231 |
Operating expenses: | ||||
Selling and marketing | 568,573 | 474,840 | 1,590,600 | 1,133,482 |
General and administrative | 1,184,947 | 760,005 | 3,347,284 | 2,120,472 |
Research and development | 149,191 | 0 | 438,936 | 0 |
Total operating expenses | 1,902,711 | 1,234,845 | 5,376,820 | 3,253,954 |
Income from operations | 6,672,748 | 5,902,194 | 19,020,059 | 14,222,277 |
Other income (expenses): | ||||
Interest income | 99,281 | 19,619 | 163,084 | 45,411 |
Interest expense | 0 | (135,347) | 0 | (135,347) |
Total other income | 99,281 | (115,728) | 163,084 | (89,936) |
Income before provision for income taxes | 6,772,029 | 5,786,466 | 19,183,143 | 14,132,341 |
Provision for income taxes | 1,696,209 | 1,448,486 | 4,865,974 | 3,535,196 |
Net income | 5,075,820 | 4,337,980 | 14,317,169 | 10,597,145 |
Less: cumulative dividends on preferred stock | 100,081 | 0 | 300,243 | 0 |
Net income attributable to common shareholders | $ 4,975,739 | $ 4,337,980 | $ 14,016,926 | $ 10,597,145 |
Net income per common share - basic | $ 0.18 | $ 0.17 | $ 0.50 | $ 0.41 |
Net income per common share - diluted | $ 0.16 | $ 0.17 | $ 0.46 | $ 0.41 |
Weighted average number of common shares outstanding - basic | 27,951,700 | 25,955,150 | 27,951,700 | 25,955,150 |
Weighted average number of common shares outstanding - diluted | 31,123,391 | 25,955,150 | 31,123,391 | 25,955,150 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 11, 2011 | |
Document and Entity [Abstract] | ||
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Document Period End Date | Sep. 30, 2011 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Registrant Name | China Growth CORP | |
Entity Central Index Key | 0001381807 | |
Entity Common Stock, Shares Outstanding | 27,951,700 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Document Type | 10-Q |
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Contractul Agreements | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Contractul Agreements [Abstract] | |||
Contractul Agreements [Text Block] |
On September 29, 2010, WEP, through its wholly owned subsidiary, Jiangmen Huiyuan entered into the following agreements with Jiangmen Wealth Water and the shareholders of Jiangmen Wealth Water and such agreements are summarized as follows:
Exclusive Business Cooperation Agreement
Under the terms of the Exclusive Business Cooperation Agreement (“Cooperation Agreement”), Jiangmen Huiyuan has the exclusive rights to provide to Jiangmen Wealth Water complete technical support, technical and consulting services related to Jiangmen Wealth Water’s principal business. Jiangmen Wealth Water cannot assign its rights under such agreement to another third party without Jiangmen Huiyuan’s consent. However Jiangmen Huiyuan must provide a written notification to Jiangmen Wealth Water of its intent to assign the agreement to a third party but does not need the consent of Jiangmen Wealth Water for such assignment. Jiangmen Wealth Water agreed to pay an annual service fee to Jiangmen Huiyuan equal to 100% of the annual net income of Jiangmen Wealth Water. This agreement has a ten-year term, subject to renewal or early termination at the option of Jiangmen Huiyuan.
Equity Pledge Agreements
Under the Equity Pledge Agreements entered into among Jiangmen Huiyuan, Jiangmen Wealth Water and the shareholders of Jiangmen Wealth Water, the two shareholders of Jiangmen Wealth Water pledged their equity interests in Jiangmen Wealth Water to guarantee Jiangmen Wealth Water’s performance of its obligations under the Exclusive Business Cooperation Agreement and pay the consulting and service fees when they become due. If Jiangmen Wealth Water or any of its shareholders breaches his/her respective contractual obligations under the agreement, or upon the occurrence of an event of default, Jiangmen Huiyuan is entitled to certain rights, including the rights to dispose of the pledged equity interests. In addition, the shareholders of Jiangmen Wealth Water agreed not to dispose of the pledged equity interests or take any actions that would prejudice Jiangmen Huiyuan’s interest. Each of the Equity Pledge Agreements is valid until all the service fee payments due under the Exclusive Business Cooperation Agreement have been fulfilled. Since the Exclusive Business Cooperation Agreement may be renewed at Jiangmen Huiyuan’s option, the equity pledge will remain in effect in the case when the Exclusive Business Cooperation Agreement is being renewed, and until all payments due under the Exclusive Business Cooperation are paid in full by Jiangmen Wealth Water.
Exclusive Option Agreements
Under the two Exclusive Option Agreements among Jiangmen Huiyuan, Jiangmen Wealth Water and the shareholders of Jiangmen Wealth Water, prior to any sale of equity interest of Jiangmen Wealth Water to Jiangmen Huiyuan, the shareholder of Jiangmen Wealth Water agreed to grant exclusive rights to Jiangmen Huiyuan to purchase the equity interests from the shareholders of Jiangmen Wealth Water at a price equal to the registered capital of the proportion of equity interest being purchased to the extent which is permitted by the relevant laws and regulations of the PRC.
Irrevocable Power of Attorney
Under the Irrevocable Power of Attorney, each of the shareholders of Jiangmen Wealth Water granted to Jiangmen Huiyuan the power to exercise all voting rights of such shareholdings in shareholders’ meetings, including, but not limited to, the power to determine the sale or transfer of all or part of such shareholder’s equity interest in, and appoint and elect the directors, the legal representative, chief executive officer and other senior management of Jiangmen Wealth Water. Upon the execution of this Power of Attorney, all the rights of shareholdings in Jiangmen Wealth Water have been assigned to Jiangmen Huiyuan.
Subscription Agreement
Pursuant to the Subscription Agreement, the Company is obligated to file a registration statement with the SEC covering the resale of the ordinary shares underlying the Preference Shares and the Warrants (the “Registrable Securities”) no later than thirty (30) days following the closing date. In the event that the registration statement is not timely filed, the Company is obligated to pay to each investor liquidated damages equal to 1% of each investor’s investment per month pursuant to the Subscription Agreement. In addition, the Company must use its best efforts to cause the registration statement to be declared effective under the Securities Act as promptly as possible, but in no event later than 180 days following the Closing Date (the “Effective Date”). If the registration statement is not declared effective by the SEC on or prior to the Effective Date, then the Company is obligated to pay to each investor liquidated damages equal to 1% of such investor’s investment.
The maximum aggregate liquidated damages payable to each Subscriber under this Agreement is seven percent (7%) of the purchase price paid by such Subscriber pursuant to this Agreement. However, such liquidated damages payable in the event that the Registration Statement is not declared effective by the Effective Date will be waived, provided that (1) the Company has responded to all SEC comments on the Registration Statement and its amendments within twenty (20) business days of their respective receipt, which shall be extended to thirty (30) business days if the SEC response cannot be submitted because the Company is required to provide updated financial statements pursuant to Regulation S-X; and (2) if the Company is current with the filing of all periodic reports under the Exchange Act. Based on the terms of the registration payment arrangement, the Company could become subject to cash damages of up to 7% of the $6,672,031we raised under the Subscription Agreement or $467,042.
The securities shall only be treated as Registrable Securities if and only for so long as they (i) have not been sold (A) pursuant to a registration statement; (B) to or through a broker, dealer or underwriter in a public distribution or a public securities transaction; and/or (C) in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”) under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; (ii) are not held by a holder or a permitted transferee; and (iii) are not eligible for sale pursuant to Rule 144 (or any successor thereto) under the Securities Act.
In connection with filing the registration statement, if the SEC limits the amount of Registrable Securities to be registered for resale pursuant to Rule 415 under the Securities Act, then the Company shall be entitled to exclude such disallowed Registrable Securities (the “Cut Back Shares”) on a pro rata basis among the holders thereof with a first priority given to the shares underlying the Warrants. The Company shall prepare, and, as soon as practicable but in no event later than the six months from the date the registration statement was declared effective, file with the SEC an additional registration statement (“Additional Registration Statement”) on Form S-1 covering the resale of all of the disallowed Registrable Securities not previously registered on an Additional Registration Statement hereunder. The Company shall use its best efforts to have each Additional Registration Statement declared effective by the SEC as soon as practicable. No liquidated damages will accrue on or as to any Cut Back Shares, and the required Filing Date for such additional Registration Statement including the Cutback Shares will be tolled, until such time as the Company is able to effect the registration of the Cut Back Shares in accordance with any SEC comments. The Company filed the Form S-1 in October 2011 and is currently under the SEC review process.
Make Good Escrow Agreement
In connection with the Private Placement, the Company entered into a Make Good Escrow Agreement (the “Make Good Escrow Agreement”) with Star Prince, and Access America Investments, LLC as representative of the investors, pursuant to which Star Prince delivered into an escrow account share certificates evidencing 4,500,000 ordinary shares held by it (after giving effect to the Reverse Split), to be held in favor of the investors in order to secure certain make good obligations. Under the Make Good Escrow Agreement, the Company established minimum after tax net income thresholds (as determined in accordance with GAAP and excluding any non-cash expenses and one-time expenses related to the reverse acquisition of WEP and the private placement transaction) of $13.2 million for fiscal year 2010 and $18.09 million for fiscal year 2011 and minimum earnings per share thresholds (calculated on a fully diluted basis and including adjustment for any stock splits, stock combinations, stock dividends or similar transactions, and for shares issued in one public offering or pursuant to the exercise of any warrants, options, or other securities issued during or prior to the calculation period) of $0.58 for fiscal year 2010 and $0.66 for fiscal year 2011. If our after tax net income or earnings per share for either fiscal year 2010 or fiscal year 2011 is less than 90% of the applicable performance threshold, then the performance threshold will be deemed not to have been achieved, and the investors will be entitled to receive ordinary shares based upon a pre-defined formula agreed to between the parties. The parties agreed that, for purposes of determining whether or not any of the performance thresholds are met, the release of any of the escrowed shares and any related expense recorded under U.S. GAAP shall not be deemed to be an expense, charge, or any other deduction from revenues even if U.S. GAAP requires contrary treatment or the annual report for the respective fiscal years filed with the SEC by the Company may report otherwise. At September 30, 2011, none was due to investors under the Make Good Escrow Agreement.
Holdback Escrow Agreement
In connection with the Private Placement, the Company entered into a holdback escrow agreement (the “Holdback Escrow Agreement”), with Anslow & Jaclin, LLP, the escrow agent, and Access America Investments, LLC (“AAI”), as representative of the investors, pursuant to which $2,167,203 was deposited with the escrow agent to be distributed upon the satisfaction of certain covenants set forth in the Subscription Agreement. Pursuant to the Holdback Escrow Agreement, the $1,500,000 will be released to the Company upon the hiring of a chief financial officer (“CFO”) on terms acceptable to Access America Investments, LLC and $667,203 will be released to us upon appointment of the required independent directors to our board of directors. On March 1, 2011, the Company appointed the required independent directors to its board of directors and $667,203 fund held in escrow was released to the Company. In June 2011, the Company hired a qualified CFO. Per the Company’s negotiation with AAI in June 2011, $750,000 was released as a result of hiring a CFO and the remaining $750,000 will be released based on the negotiation results in September 2011. The Company is still in negotiation with AAI about the release of the remaining funds held in escrow.
Investor Relations Escrow Agreement
The Company entered into an investor relations escrow agreement with Anslow & Jaclin, LLP, the escrow agent, and Access America Investments, LLC, as representative of the investors, pursuant to which $120,000 was deposited with the escrow agent to be distributed in incremental amounts to pay our investor relations firm, the choice of which is subject to the approval of Access America Investments, LLC, which approval cannot be unreasonably withheld. These funds remain in escrow at September 30, 2011.
Lockup Agreements
In connection with the Private Placement, we also entered into lockup agreements, or the Lockup Agreement, with WEP shareholders, pursuant to which each of WEP Shareholder agreed not to transfer any of the Company’s capital stock held directly or indirectly by them for an eighteen-month period following the closing of the Private Placement, unless it is approved otherwise by Access America Investments, LLC. |
Related Party Balances and Transactions | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Related Party Transactions [Abstract] | |||
Related Party Transactions Disclosure [Text Block] |
During the nine months ended September 30, 2011, the Company declared and paid a dividend in the amount of $290,829 to Mr. Ming Zhou Tan (“Mr. Tan”) to acquire his remaining 38% equity interest in Shanxi Wealth. During the nine months ended September 30, 2011, Mr. Tan loaned $770 to the Company. As of September 30, 2011 and December 31, 2010, amount due to shareholders totaled $14,841 and $14,070, respectively.
During the year ended December 31, 2010, the Company entered into an office lease agreement for its corporate offices in office space owned by Mr. Tan. The lease is for a term of 5 years and provides for monthly lease payments of $11,833. For the three months and nine months ended September 30, 2011, the Company incurred approximately $36,000 and $107,000, respectively, lease expense related to this office lease in its consolidated financial statements.
During the years ended December 31, 2010, the Company loaned a total amount of $115,163 and, on a non-interest bearing basis, to an affiliated company, which is owned by the Company’s shareholders, Mr. Tan and Ms. Hong Yu Du (“Ms Du”), the wife of Mr. Tan. In addition, during the year ended December 31, 2010, through a restructuring process, Jiangmen Wealth paid $74,705 and $463,160 on behalf of Mr. Tan and Ms. Du to acquire 100% equity interest of Guizhou Yufeng and 62% equity interest of Shainxi Wealth, respectively. Upon completion of this restructuring, the remaining 38% of Shainxi Wealth was owned by Mr. Tan who assigned all the ownership rights including voting rights to Jiangmen Wealth. Mr. Tan and Ms. Du collectively owned 100% of Jiangmen Wealth and its subsidiaries after this restructuring. |
Organization, Nature of Business and Basis of Presentation | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation Of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] |
China Growth Corporation. (“the Company” or “China Growth”) was incorporated in the Cayman Islands on December 7, 2006. The Company was originally organized as a “blank check” shell company to investigate and acquire a target company or business desiring to be a publicly held corporation. Wealth Environmental Protection Group, Inc. (“WEP”) was incorporated under the laws of the British Virgin Islands on June 3, 2010 to serve as an investment holding company. On December 15, 2010, the Company (i) closed a share exchange transaction pursuant to which it became the 100% parent of WEP, and (ii) assumed the operations of WEP and its subsidiaries.
The share exchange transaction has been treated as a recapitalization of WEP, with China Growth emerging as the surviving legal entity and WEP is considered as the acquirer for accounting purpose. Prior to the recapitalization, the China Growth had essentially no assets or liabilities and issued approximately 96% of its outstanding shares to the shareholders of WEP and their designees in the recapitalization. The historical consolidated financial statements of WEP are retroactively presented as the financial statements of China Growth. A summary of the Company subsidiaries is currently as follows:
On September 29, 2010, Jiangmen Huiyuan entered into a series of contractual agreements with Jiangmen Wealth Water, and its shareholders, in which Jiangmen Huiyuan effectively assumed management of the business activities of Jiangmen Wealth Water and has the right to appoint all executives and senior management and the members of the board of directors of Jiangmen Wealth Water. The contractual arrangements are comprised of a series of agreements, including an Exclusive Business Cooperation Agreement, Exclusive Option Agreement, Equity Interest Pledge Agreement and Power of Attorney, through which Jiangmen Huiyuan has the right to provide exclusive complete business support and technical and consulting service to Jiangmen Wealth Water for an annual fee in the amount of Jiangmen Wealth Water’s yearly net profits after tax. Additionally, Jiangmen Wealth Water’s shareholders have pledged their rights, titles and equity interest in Jiangmen Wealth Water as security for Jiangmen Huiyuan to collect consulting and services fees provided to Jiangmen Wealth Water through an Equity Pledge Agreement. In order to further reinforce Jiangmen Huiyuan’s rights to control and operate Jiangmen Wealth Water, the shareholders of
Jiangmen Wealth Water have granted Jiangmen Huiyuan the exclusive right and option to acquire all of their equity interests in Jiangmen Wealth Water through an Exclusive Option Agreement.
Jiangmen Wealth Water owns all of the issued and outstanding capital stock of Guizhou Yufeng, and Shanxi Wealth. During the years ended December 31, 2009 and 2008, Mr. Tan and his spouse, Ms. Hong Yu Du (“Ms. Du”) directly or through an affiliated company, had controlling equity interests in Jiangmen Wealth Water, Guizhou Yufeng and Shanixi Wealth. In August and September 2010, through a restructuring process, Jiangmen Wealth Water paid $74,705 and $463,160 to acquire 100% equity interest of Guizhou Yufeng and 62% equity interest of Shainxi Wealth, respectively. On December 27, 2010 the Company acquired the remaining 38% equity interest of Shainxi Wealth owned by Mr. Tan through declared a dividend payable of $290,072 to Mr. Tan on Jan 3, 2011. Mr. Tan and Ms. Du collectively owned 100% of Jiangmen Wealth Water and its subsidiaries after this restructuring.
Based on Jiangmen Huiyuan’s contractual relationship with Jiangmen Wealth, the Company has determined that a variable interest entity has been created and therefore Jiangmen Wealth is considered a consolidated subsidiary of the Company. Additionally, because all of the companies are currently under common control, the series of agreements and restructurings referred to above have been accounted for as a reorganization of the entities and the financial statements have been prepared as if the reorganization had occurred retroactively. Accordingly these financial statements present the consolidated operating results, assets and liabilities of Wealth and its subsidiaries, which are collectively referred to as the “Company”.
The Company produces and sells water purifying agents and high-performance aluminate calcium (HAC) powder, the core ingredient of its water purifying agents in China.
The accompanying condensed consolidated balance sheet as of December 31, 2010, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of China Growth as of September 30, 2011 and the results of operations for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010, and the cash flows for the nine-month periods ended September 30, 2011 and September 30, 2010. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010. The results of operations for the three months and nine months ended September 30, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year. |
Property, Plant and Equipment and Land Mining Rights | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment Disclosure [Text Block] |
A summary of property, plant and equipment and land and mining rights is as follows:
Depreciation and amortization expense was $339,726 and $311,221 for the three months ended September 30, 2011 and 2010, respectively, and $968,021 and $875,678 for the nine months ended September 30, 2011 and 2010, respectively. A breakdown of depreciation and amortization expenses is summarized as follows:
At September 30, 2011 and December 31, 2010, the Company holds mining rights to two limestone mines and two bauxite mines from which they are allowed to produce:
During the three months and nine months ended September 30, 2011 and 2010, the Company had production from its limestone and bauxite mines as follows (in tons):
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Income Taxes | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Text Block] |
The Company has not recorded a provision for U.S. federal income tax for the three months and nine months ended September 30, 2011 and 2010 because substantially all of the Company’s operations are conducted in the PRC.
On March 16, 2007, the National People’s Congress of China approved the new Corporate Income Tax Law of the PRC (New CIT Law), which is effective from January 1, 2008. Under the New CIT Law, the statutory corporate income tax rate applicable to most companies, including the Company is 25%. In accordance with the New CIT Law, enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and subject to the PRC income tax at the rate of 25% on worldwide income. The definition of “place of effective management” refers to an establishment that exercises, in substance, overall management and control over the production and business, personnel, accounting, properties, etc. of an enterprise. As of September 30, 2011, no detailed interpretation or guidance has been issued to define “place of effective management”. Furthermore, as of September 30, 2011, the administrative practice associated with interpreting and applying the concept of “place of effective management” is unclear. However, the Company has analyzed the applicability of this law, as of and for the years ended December 31, 2010 and 2009, and the Company has accrued and paid PRC tax on such basis. The Company will continue to monitor changes in the interpretation or guidance of this law.
The New CIT Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. Such dividends were exempted from PRC tax under the previous income tax law and regulations.
The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional tax liabilities.
The Company conducts substantially all of its business in PRC and it is subject to PRC income taxes at a 25% standard tax rate in 2011 and 2010. Following is a reconciliation of the Company’s income tax provision of $1,696,209 and $1,448,486 for the three months ended September 30, 2011 and 2010, respectively, and $4,865,974 and $3,535,196 for the nine months ended September 30, 2011 and 2010, respectively, to the expected US statutory rate of 34%:
At September 30, 2011 and December 31, 2010, differences between the basis of assets and liabilities reported in the accompanying financial statements and those recognized for tax reporting purposes in the PRC, and the related deferred taxes were as follows:
The Company accounts for uncertainty in income taxes in accordance with applicable accounting standards, which prescribe a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These accounting standards also provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. |
Inventories | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Text Block] |
A summary of inventories is as follows:
Inventories are stated at the lower of cost or market. The weighted average cost method is used to account for the Company inventories. |
Condensed Consolidated Statements of Shareholders' Equity (USD $) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Due From Shareholders | Retained Earnings, Appropriated | Retained Earnings, Unappropriated | Total |
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Balance at Dec. 31, 2009 | $ 0 | $ 3,322 | $ 15,072,648 | $ 3,291,703 | $ (7,000) | $ 496,396 | $ 8,984,555 | $ 27,841,624 |
Balance (Shares) at Dec. 31, 2009 | 0 | 25,955,150 | 0 | 0 | 0 | 0 | 0 | 0 |
Capital contribution | 0 | 0 | 0 | 0 | 7,000 | 0 | 0 | 7,000 |
Sale of preferred stock | 57 | 0 | 6,671,974 | 0 | 0 | 0 | 0 | 6,672,031 |
Sale of preferred stock (Shares) | 444,804 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Beneficial conversion feature associated with convertible Debt | 0 | 0 | 500,000 | 0 | 0 | 0 | 0 | 500,000 |
Common stock issued in conversion of debt | 0 | 128 | 499,872 | 0 | 0 | 0 | 0 | 500,000 |
Common stock issued in conversion of debt (Shares) | 0 | 998,275 | 0 | 0 | 0 | 0 | 0 | 0 |
Common stock issued for services | 0 | 128 | 1,538,728 | 0 | 0 | 0 | 0 | 1,538,856 |
Common stock issued for services (Shares) | 0 | 998,275 | 0 | 0 | 0 | 0 | 0 | 0 |
Dividends paid | 0 | 0 | 0 | 0 | 0 | 0 | (653,028) | (653,028) |
Net income | 0 | 0 | 0 | 0 | 0 | 0 | 11,273,663 | 11,273,663 |
Other comprehensive income - foreign currency translation adjustments | 0 | 0 | 0 | 1,311,888 | 0 | 0 | 0 | 1,311,888 |
Ending Balance at Dec. 31, 2010 | 57 | 3,578 | 24,283,222 | 4,603,591 | 0 | 496,396 | 19,605,190 | 48,992,034 |
Ending Balance (Shares) at Dec. 31, 2010 | 444,804 | 27,951,700 | 0 | 0 | 0 | 0 | 0 | 0 |
Dividends paid | 0 | 0 | 0 | 0 | 0 | 0 | (290,072) | (290,072) |
Net income | 0 | 0 | 0 | 0 | 0 | 0 | 14,317,169 | 14,317,169 |
Other comprehensive income - foreign currency translation adjustments | 0 | 0 | 0 | 1,583,689 | 0 | 0 | 0 | 1,583,689 |
Ending Balance at Sep. 30, 2011 | $ 57 | $ 3,578 | $ 24,283,222 | $ 6,187,280 | $ 0 | $ 496,396 | $ 33,632,287 | $ 64,602,820 |
Ending Balance (Shares) at Sep. 30, 2011 | 444,804 | 27,951,700 | 0 | 0 | 0 | 0 | 0 | 0 |
Summary of Significant Accounting Policies | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies [Text Block] |
Principles of Consolidation
These condensed consolidated financial statements present the consolidated accounts of WEP and its subsidiaries, Wealth Technology, Jiangmen Huiyan, and its variable interest entities, Jiangmen Wealth Water, Guizhou Yunfeng and Shanxi Wealth, which are collectively referred to as the “Company”. This presentation is based upon the retroactive treatment of series of agreements and restructurings of companies under common control as described in Note (1).
All inter-company transactions and balances have been eliminated in preparation of the condensed consolidated financial statements.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses in the condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include collectibility of accounts receivable, useful lives and impairment of property and equipment, mineral reserves available for mining production, total expected use of mineral reserves and value and realizability of intangible assets. Actual results could differ from those estimates.
Segments
For the three months and nine months ended September 30, 2011 and 2010, the Company’s operations have been broken down into segment based on production facility, in the manner that management reviews operations on a regular basis. All our operations revolve around the production of water purification agents made to similar specifications. All of the Company’s segments have similar assets, customers and distribution methods, and their economic characteristics are similar with regard to their gross margin percentages.
Currency Reporting
The Company’s operations in the PRC use the local currency, Renminbi (“RMB”), as their functional currency, whereas amounts reported in the accompanying condensed consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the condensed consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of September 30, 2011 and December 31, 2010 and the condensed consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized.
The resulting translation gain adjustments are recorded as other comprehensive income in the condensed consolidated statements of comprehensive income and as
a separate component of equity in the condensed consolidated balance sheets.
Revenue Recognition
The Company’s main source of revenue is generated from sales of water purifying agents and high-performance calcium aluminates powder. The Company recognizes revenue when there is persuasive evidence of a sales arrangement, delivery and acceptance by the customer has occurred, the sales price is fixed or determinable, and collection is probable. Under the Company’s typical sales terms for both water purifying agents and HAC powder, the Company recognizes revenue when product is shipped from its production facilities because shipments are made FOB shipping point with the customer bearing all shipping costs and title and risk of loss transferring to the customer upon shipment. Sales terms for water purifying agents and HAC powder do not include customer acceptance provisions, the right of return (unless the product is proven to be defective) or other post-delivery obligations. The Company has not experienced any significant returns associated with defective product.
Value added taxes represent amounts collected on behalf of specific government agencies that require remittance of tax by specified dates. Value added taxes are collected at the time of sales and are detailed on invoices provided to customers. The Company accounts for value added taxes on a net basis. The Company recorded and paid sales related taxes based on a percentage of the value added taxes and reported the revenue net of the sales related taxes.
Major Customers
During the three months and nine months ended September 30, 2011 and 2010, there was no customer accounted for 10% or more of our net revenue.
Major Suppliers
During the three months and nine months ended September 30, 2011 and 2010, certain suppliers accounted for more than 10% of the Company’s total net purchases as follows:
Value-Added Tax (“VAT”)
Enterprises or individuals, who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value-added tax in accordance with the PRC laws. The value-added tax standard rate for sales made by the Company is 17% of the gross sales price and the Company records its revenue net of VAT. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products. When the Company purchases raw materials, the VAT incurred by the Company, and subject to credit, generally varies from 6% to 17% depending on the type of materials or services purchased. There is a significant difference in the VAT that the Company incurs on purchases and the amount the Company bills to customers for sales of HAC powder and water purifying agents due to the fact that the Company converts raw materials from their mined state to finished product and is responsible for the substantial portion of increased value in its products.
Value-Added Tax
(“VAT”), continued
Following is an analysis of VAT billed to the Company on purchases, VAT billed by the Company on sales and VAT remitted to PRC during the nine months ended September 30, 2011 and 2010, with information related to the liability for uncollected or unremitted VAT at September 30, 2011 and 2010:
New Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-6, Improving Disclosures About Fair Value Measurements, that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to level 3 measurements; and
clarifying, among other things, the existing fair value disclosures about the level of disaggregation. This ASU is effective for the first quarter of 2010, except for the requirement to provide level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. The adoption of this pronouncement does not have a material impact on the Company’s consolidated results of operations or financial condition.
In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements. |
Note Receivable | 9 Months Ended | ||
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Note Receivable [Abstract] | |||
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
On August 29, 2011, the Company entered into a secured note receivable agreement with a non-related party in the amount of $14,087,748 (RMB90,000,000). The note carries an annual interest rate of 9%. This note expires on November 28, 2011 and is secured by the debtor’s land use right, certain tangible assets and all the business operation rights. |
Segement Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting, Disclosure Of Other Information About Entitys Reportable Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] |
The Company follows FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company has three operating segments identified by manufacturing facility and each segment is operated in a separate subsidiary. The Company primarily evaluates performance based on income before income taxes and excluding non-recurring items. The operations and product produced by the Company’s various segments are as follows:
The segment data presented below was prepared on the same basis as the Company’s consolidated financial statements:
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Earnings Per Share | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Text Block] |
Basic net earnings per share is computed using the weighted-average number of common shares outstanding. The dilutive effect of potential common shares outstanding is included in diluted net earnings per share. The computations of basic net earnings per share and diluted net earnings per share for three months and nine months ended September 30, 2011 and 2010 are as follows:
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Condensed Consolidated Statements of Comprehensive Income (USD $) | 3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net income | $ 5,075,820 | $ 4,337,980 | $ 14,317,169 | $ 10,597,145 |
Other comprehensive income - | ||||
- foreign currency translation adjustments | 633,699 | 648,323 | 1,583,689 | 794,237 |
Comprehensive income | $ 5,709,519 | $ 4,986,303 | $ 15,900,858 | $ 11,391,382 |
Shareholders' Equity | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note Disclosure [Text Block] |
General Reserve Fund
In accordance with the PRC Regulations on Enterprises with Foreign Investment, an enterprise established in the PRC with foreign investment is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WOFE is required to allocate at least 10% of its annual after-tax profit to the General Reserve Fund until the balance of such fund has reached 50% of its respective registered capital. A non- wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. As a result, $496,396 has been appropriated to the accumulated statutory reserves (included in the retained earnings) by the Company as of September 30, 2011 and December 31, 2010 and the balance represents a fully funded General Reserve Fund:
Following is an analysis of the general fund by subsidiary at September 30, 2011 and December 31, 2010:
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