PINX:DCRD Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012



U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q

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

For the Quarterly Period Ended June 30, 2012

[   ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ____to _____

000-53272
(Commission File Number)

DÉCOR PRODUCTS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)

Nevada
20-8211061
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
 

No. 6 Economic Zone, Wushaliwu, Chang’an Town
Dongguan, Guangdong Province, China
 (Address of principal executive offices)

(86) 769-85533948
(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [x] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted 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 [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 
 
Accelerated filer 
     
Non-accelerated filer 
 
Smaller reporting company 
(Do not check if smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [x]

Number of shares of common stock outstanding as of June 30, 2012:   6,866,122
 
 
 

 

TABLE OF CONTENTS
 
   
PART I. FINANCIAL INFORMATION
 
 
Page No.
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
   
Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011
1
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months ended June 30, 2012 and 2011
2
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011
3
Condensed Consolidated Statement of Stockholders’ Equity for the Six Months ended June 30, 2012
4
Notes to Condensed Consolidated Financial Statements
5
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
17
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
21
   
ITEM 4. CONTROLS AND PROCEDURES
21
   
   
PART II. OTHER INFORMATION
 
   
ITEM 1. LEGAL PROCEEDINGS
22
   
ITEM 1A. RISK FACTORS
22
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
22
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
22
   
ITEM 4. MINE SAFETY DISCLOSURES
22
   
ITEM 5. OTHER INFORMATION
22
   
ITEM 6. EXHIBITS
22
   
SIGNATURES
23
   


 
 

 

DÉCOR PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2012 AND DECEMBER 31, 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)

   
June 30, 2012
   
December 31, 2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 1,186,914     $ 578,494  
Restricted cash
    530,089       -  
Accounts receivable, trade
    14,131,985       13,483,457  
Inventories
    611,873       415,924  
Advances to suppliers
    337,652       163,182  
Deposits and prepayments
    126,404       125,684  
Total current assets
    16,924,917       14,766,741  
                 
Non-current assets:
               
Plant and equipment, net
    15,040,197       15,270,216  
Construction in progress
    13,867,343       12,608,417  
TOTAL ASSETS
  $ 45,832,457     $ 42,645,374  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable, trade
  $ 1,653,085     $ 232,224  
Short-term bank borrowings
    1,582,354       1,574,234  
Current portion of long-term bank borrowings
    907,144       798,158  
Convertible notes
    1,525,992       1,578,720  
Promissory notes
    405,000       405,000  
Amount due to a related party
    78,575       18,629  
Income tax payable
    379,605       89,763  
Accrued liabilities and other payable
    1,340,715       1,068,686  
Total current liabilities
    7,872,470       5,765,414  
                 
Long-term liabilities:
               
Long-term bank borrowings
    2,862,105       3,320,211  
                 
Total liabilities
    10,734,575       9,085,625  
                 
Commitments and contingencies
               
                 
Stockholders’ equity:
               
Preferred stock, $0.001 par value; 1,666,667 shares authorized; 0 shares issued and outstanding, respectively
    -       -  
Common stock, $0.001 par value; 33,333,333 shares authorized; 6,866,122 shares issued and outstanding, respectively
    6,866       6,866  
Additional paid-in capital
    2,126,130       2,126,130  
Statutory reserve
    1,458,023       1,458,023  
Accumulated other comprehensive income
    5,695,013       5,513,061  
Retained earnings
    25,811,850       24,455,669  
                 
Total stockholders’ equity
    35,097,882       33,559,749  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 45,832,457     $ 42,645,374  

See accompanying notes to condensed consolidated financial statements.

 
- 1 -

 

DÉCOR PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenues, net
  $ 5,817,356     $ 5,806,130     $ 9,636,264     $ 10,844,058  
                                 
Cost of revenue (inclusive of depreciation)
    (3,875,913 )     (3,797,506 )     (6,613,167 )     (7,303,283 )
                                 
Gross profit
    1,941,443       2,008,624       3,023,097       3,540,775  
                                 
Operating expenses:
                               
Sales and marketing
    (230,778 )     (228,961 )     (421,441 )     (524,758 )
General and administrative
    (189,779 )     (223,065 )     (353,148 )     (470,559 )
Total operating expenses
    (420,557 )     (452,026 )     (774,589 )     (995,317 )
                                 
Income from operations
    1,520,886       1,556,598       2,248,508       2,545,458  
                                 
Other income (expense):
                               
Interest income
    2,298       792       3,322       1,106  
Interest expense
    (183,823 )     (116,258 )     (371,223 )     (198,285 )
                                 
Income before income taxes
    1,339,361       1,441,132       1,880,607       2,348,279  
                                 
Income tax expense
    (384,535 )     (375,108 )     (524,426 )     (631,772 )
                                 
NET INCOME
    954,826       1,066,024     $ 1,356,181     $ 1,716,507  
                                 
Other comprehensive income:
                               
- Foreign currency translation gain
    25,836       685,095       181,952       938,862  
                                 
COMPREHENSIVE INCOME
  $ 980,662     $ 1,751,119     $ 1,538,133     $ 2,655,369  
                                 
Net income per share – Basic
  $ 0.14     $ 0.16     $ 0.20     $ 0.25  
Net income per share – Diluted
  $ 0.14     $ 0.13     $ 0.20     $ 0.22  
                                 
Weighted average common share outstanding – Basic
    6,866,122       6,866,122       6,866,122       6,866,122  
Weighted average common share outstanding – Diluted
    6,866,122       7,914,455       6,866,122       7,914,455  

See accompanying notes to condensed consolidated financial statements.

 
- 2 -

 

DÉCOR PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(Currency expressed in United States Dollars (“US$”))
(Unaudited)

   
Six months ended June 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net income
  $ 1,356,181     $ 1,716,507  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    1,649,402       1,357,585  
Loss on disposal of plant and equipment
    1,144       2,227  
Interest expenses, non-cash
    -       -  
Changes in operating assets and liabilities:
               
Accounts receivable, trade
    (578,443 )     (1,478,600 )
Advances to suppliers
    (173,469 )     491,923  
Deposits and prepayments
    (72 )     -  
Inventories
    (193,625 )     (62,806 )
Accounts payable, trade
    1,418,361       1,670,569  
Income tax payable
    289,113       (13,559 )
Accrued liabilities and other payable
    267,749       190,010  
                 
Net cash provided by operating activities
    4,036,341       3,873,856  
                 
Cash flows from investing activities:
               
Payments on plant and equipment
    (1,342,039 )     (809,209 )
Payments on construction in progress
    (1,192,791 )     (2,480,071 )
                 
Net cash used in investing activities
    (2,534,830 )     (3,289,280 )
                 
Cash flows from financing activities:
               
Change in restricted cash
    (529,602 )     (763,569 )
Advance from a related party
    59,946       189,880  
Payment on convertible notes
    (52,728 )     (186,517 )
Payment on long-term bank borrowings
    (370,025 )     (72,368 )
                 
Net cash used in financing activities
    (892,409 )     (832,574 )
                 
Effect of exchange rate changes on cash and cash equivalents
    (682 )     21,653  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    608,420       (226,345 )
                 
BEGINNING OF PERIOD
    578,494       972,888  
                 
END OF PERIOD
  $ 1,186,914     $ 746,543  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         
Cash paid for income taxes
  $ 289,966     $ 645,331  
Cash paid for interest
  $ 235,312     $ 140,418  

See accompanying notes to condensed consolidated financial statements.
 
 
 
- 3 -

 
 
DÉCOR PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
   
Common stock
                               
   
No. of shares
   
Amount
   
Additional paid-in capital
   
Statutory reserve
   
Accumulated other comprehensive income
   
Retained earnings
   
Total stockholders’ equity
 
                                           
Balance as of January 1, 2012
    6,866,122     $ 6,866     $ 2,126,130     $ 1,458,023     $ 5,513,061     $ 24,455,669     $ 33,559,749  
                                                         
Net income for the period
    -       -       -       -       -       1,356,181       1,356,181  
Foreign currency translation adjustment
    -       -       -       -       181,952       -       181,952  
 
Balance as of June 30, 2012
    6,866,122     $ 6,866     $ 2,126,130     $ 1,458,023     $ 5,695,013     $ 25,811,850     $ 35,097,882  

See accompanying notes to condensed consolidated financial statements.
 
 
- 4 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
NOTE 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 December 31, 2011 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 June 30, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2012 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 December 31, 2011.

NOTE 2 – ORGANIZATION AND BUSINESS BACKGROUND

Décor Products International, Inc. (“DCRD” or the “Company”) was organized under the laws of the State of Nevada on January 11, 2007 as Murals by Maurice, Inc. On July 1, 2009, the Company changed to its current name.

The Company, through its subsidiaries, mainly engaged in the manufacture and sales of furniture decorative paper and related products in the People’s Republic of China (the “PRC”). All the customers are located in the PRC.

The Company and its subsidiaries are hereinafter referred to as (the "Company").

NOTE 3 – GOING CONCERN UNCERTAINTIES

The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

As of June 30, 2012, the Company defaulted on the repayment of convertible notes and promissory notes with an aggregate amount of $2 million, which became immediately due and payable. The continuation of the Company as a going concern through June 30, 2013 is dependent upon the continuing financial support from its stockholders or negotiation of repayment term. Management believes the existing shareholders will provide the additional cash to meet the Company’s obligations as they become due.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.


NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING 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.

l
Use of estimates

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.
 
 
- 5 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)


l
Basis of consolidation

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

l
Restricted cash

The Company maintains certain amount of cash balance held by a financial institution in the PRC as collateral for banking facilities.

l
Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 90 to 180 days. Credit is extended based on evaluation of a customer's financial condition. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 180 days and over a specified amount are reviewed individually for collectibility. 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. When receivable balances are determined to be uncollectible, these balances are written off. The Company does not have any off-balance-sheet credit exposure related to its customers.

As of June 30, 2012 and December 31, 2011, the Company did not record an allowance for doubtful accounts.

l
Inventories

Inventories consist of raw papers, painting materials and components used in the manufacture of the Company’s products and the related parts and supplies. Inventories are stated at the lower of cost or net realizable value, with cost being determined on a weighted average basis. Costs include purchased cost of papers and painting inks, direct labor and manufacturing overhead costs. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand.

As of June 30, 2012 and December 31, 2011, there was no allowance for obsolete inventories, nor have there been any write-offs.

l
Advances to suppliers

The Company makes advances to certain vendors for purchase of its inventory items or material. The advances to suppliers are interest free and unsecured. Advances to suppliers are recorded when payment is made by the Company and relieved against inventory when goods are received. All inventory items or raw materials relating to these advances are subsequently made delivery to the Company.
 
 
- 6 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
l
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 and after taking into account their estimated residual values:

 
Expected useful lives
 
Residual value
 
Plant and machinery
3-10 years
    3 %
Leasehold improvement
Shorter of 10 years or lease term
    0 %
Motor vehicles
3-5 years
    3 %
Office equipment
3-5 years
    3 %

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 June 30, 2012 and 2011 were $822,000 and $676,219, which included $820,073 and $826,199 in cost of revenue, respectively.

Depreciation expense for the six months ended June 30, 2012 and 2011 were $1,649,402 and $1,357,585, which included $1,646,272 and $1,324,764 in cost of revenue, respectively.

l
Construction in progress

Construction in progress is stated at cost and represents the cost of acquiring contracts to build the now printing lines and prepayments paid to equipment vendors or builders during the construction of the new manufacturing facility (until it is substantially complete and ready for its intended use). No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into operational use. No capitalized interest was incurred during the period of construction. The Company is anticipating a new manufacturing facility for the production of laminated boards, in an area of 100,000 square feet, adjacent to the existing facility, which is scheduled to be completed in the third quarter of 2012.

l
Valuation of long-lived assets

In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the periods presented.

l
Revenue recognition

In accordance with ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.
 
 
- 7 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
The Company derives revenues from the sales of furniture decorative paper and related products. The Company recognizes its revenues net of value-added taxes ("VAT"). The Company is subject to VAT which is levied on the majority of the products at the standard rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales. The Company experienced no material product returns and recorded no reserve for sales returns for the six months ended June 30, 2012 and 2011.

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

l
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 consolidated statement of 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.

l
Income taxes

Income taxes are 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 six months ended June 30, 2012 and 2011, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2012, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts major businesses in the PRC 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.

l
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 shares outstanding during the period. Diluted income per share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion will be anti-dilutive.

l
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 statement of operations.
 
 
- 8 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
The reporting currency of the Company is the United States Dollars ("US$"). The Company's subsidiary in the PRC maintain its books and records in its local currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which the entity operates.

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 period. 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 statement of stockholders’ equity.

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective period:

   
June 30, 2012
   
June 30, 2011
 
Period-end RMB:US$1 exchange rate
    6.3197       6.4640  
Period average RMB:US$1 exchange rate
    6.3255       6.5482  

l
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 operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

l
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 financial statements. The Company operates in one reportable operating segment in the PRC.

 
l
Fair value of financial instruments

The carrying value of the Company’s financial instruments: cash, accounts receivable, advances to suppliers, deposits and prepayments, accounts payable, income tax payable, amount due to a related party, accrued liabilities and other payables approximate at their fair values because of the short-term nature of these financial instruments.

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of short-term and long-term bank borrowings approximate at its carrying amount. The fair value of convertible notes and promissory notes is disclosed in Note 6 and 7.

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; 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.
 
 
- 9 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
l
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.

In July 2012, the Financial Accounting Standards Board issued ASC Update No. 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 provides companies with the option to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If the Company concludes that it is more likely than not that the asset is impaired, it is required to determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with Topic 350. If the Company concludes otherwise, no further quantitative assessment is required. The Company does not expect the adoption of ASU 2012-02 to impact its results of operations or financial position.

NOTE 5 – SHORT-TERM BANK BORROWINGS

Short-term bank borrowings consisted of the following:

   
June 30, 2012
   
December 31, 2011
 
             
Bank loans, payable to financial institutions in the PRC:
           
             
Equivalent to RMB5 million with effective interest rate at 8.528% per annum, payable monthly, due July 11, 2012, secured by a unrelated third party on a cross-guarantee basis
  $ 791,177     $ 787,117  
                 
Equivalent to RMB5 million with effective interest rate at 8.528% per annum, payable monthly, due October 23, 2012, secured by a unrelated third party on a cross-guarantee basis
    791,177       787,117  
                 
                 
Total short-term bank borrowings
  $ 1,582,354     $ 1,574,234  

NOTE 6 – CONVERTIBLE NOTES

At of June 30, 2012 and December 31, 2011, the carrying value of the convertible notes payable was $1,525,992 and $1,578,720, respectively and the debt discount was fully amortized.

During the six months ended June 30, 2012, the convertible notes were matured and became immediately overdue. In the event that the Company cannot pay the convertible note when due, an event of default would occur. The default interest shall be subject to 16%, if the Company has failed to make payments of interest and principal on the maturity date. Ms. Shi and Mr. Zhuang shall have rights to keep the proceeds from the sales of the pledge and the Shares to the extent of the unpaid interest and principal of the convertible notes. Ms. Shi and Mr. Zhuang shall have recourse for the outstanding balance.

As of June 30, 2012, the convertible notes became immediately due and the Company has been in negotiations with the holders of the convertible notes, but has not yet reached an agreement as to repayment schedule.

 
 
- 10 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)

NOTE 7 – CONVERTIBLE PROMISSORY NOTES

At June 30, 2012, the promissory notes are due and the Company has been in negotiations with the holders of the promissory notes, but has not yet reached an agreement as to repayment schedule.

In accordance with the terms and conditions in Promissory Notes, if the Company defaults in the payment of principal or interest due on the Promissory Notes, the holder of Promissory Notes (the “holder”) shall be entitled to receive and the Company agreed to pay all reasonable costs of collection incurred by holder, including, without limitation, reasonable attorney’s fees for consultation and suit. If any payment due is not made and remains unpaid for ten (10) days, it is in default hereof. Any such payment in default shall bear interest at 18% per annum. Should any payment not be made when due, there shall also be a late charge equal to 5% of the amount of the installment of principal or interest which is paid after the due date. In the event of default hereunder, the entire unpaid balance hereof shall, at the option of the holder, become due and payable upon demand. All costs and fees (including reasonable fees and disbursements of legal counsel) incurred by the holder as the result of any default by anyone liable hereunder or as the result of any collection effort by the holder shall also be due and owing to the holder. Failure to exercise any right shall not be deemed a waiver of the right to exercise the same at any subsequent date, or event.

NOTE 8 – AMOUNT DUE TO A RELATED PARTY

As of June 30, 2012 and December 31, 2011, amount due to a related party represented temporary advances made by Mr. Liu, the director of the Company, which was unsecured, interest-free with no fixed repayment term.

NOTE 9 – ACCRUED LIABILITIES AND OTHER PAYABLE

   
June 30, 2012
   
December 31, 2011
 
VAT payable
  $ -     $ 27,784  
Accrued payroll and benefit costs
    493,946       493,549  
Accrued professional and consulting fees
    444,989       225,470  
Accrued interest
    399,967       317,974  
Other payables
    1,813       3,909  
    $ 1,340,715     $ 1,068,686  

NOTE 10 – LONG-TERM BANK BORROWINGS

Long-term bank borrowings were as follows:

   
June 30, 2012
   
December 31, 2011
 
Bank loans, payable to financial institutions in the PRC:
           
             
Equivalent to RMB6,310,778 (2011: RMB7,000,000) with effective interest rate at 8.723% per annum, payable with monthly principal and interest payments of $35,052, due February 21, 2015, guaranteed and secured by the director
  $ 998,588       1,101,962  
                 
Equivalent to RMB17,509,749 (2011: RMB20,000,000) with effective interest rate at 8.723% per annum, with monthly principal and interest payments of $65,110, due September 20, 2016, collateralized by certain plant and machinery
    2,770,661       3,016,407  
                 
Total bank borrowings
    3,769,249       4,118,369  
                 
Less: current portion
    (907,144 )     (798,158 )
                 
Long-term bank borrowings, net of current portion
  $ 2,862,105     $ 3,320,211  
 
 
- 11 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
As of June 30, 2012, the minimum future payments of the aggregate bank borrowings in the next five years are as follows:

Period ending June 30:
     
2013
  $ 907,144  
2014
    992,290  
2015
    941,704  
2016
    729,693  
2017
    198,418  
         
Total borrowings
  $ 3,769,249  
 
NOTE 11 – STOCKHOLDERS’ EQUITY

(a)
Common stock

As of June 30, 2012, the Company had a total of 6,866,122 shares of its common stock issued and outstanding.

(b)
Warrants

As of June 30, 2012, the Company has 1,048,333 shares of outstanding warrants at the weighted-average exercise price of $3.15. There was no movement during the six months ended June 30, 2012. The Company measured the fair value of warrants on the grant date using the Black-Scholes option pricing model, with the following assumptions:

Expected life (in years)
    5  
Volatility
    159 %
Risk free interest rate
    0.31%-0.37 %
Dividend yield
    0 %

NOTE 12 – INCOME TAXES

For the six months ended June 30, 2012 and 2011, the local (United States) and foreign components of income before income taxes were comprised of the following:

   
Six months ended June 30,
 
   
2012
   
2011
 
Tax jurisdictions from:
           
- Local
  $ -     $ (18,426 )
- Foreign
    1,880,607       2,366,705  
Income before income taxes
  $ 1,880,607     $ 2,348,279  

The effective tax rate in the periods 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 has subsidiaries that operate in various countries: United States, BVI and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:

United States of America

The Company is registered in the State of Nevada and is subject to the tax laws of the United States of America.
 
 
- 12 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)

British Virgin Island

Under the current BVI law, Wide Broad is not subject to tax on its income or profits. For the six months ended June 30, 2012 and 2011, Wide Broad suffered from an operating profit of $10 and an operating loss of $151,047, respectively.

The PRC

The Company generated its income from a subsidiary operating in the PRC for the six months ended June 30, 2012 and 2011. CHDITN is subject to the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”) at a unified income tax rate of 25%.

A reconciliation of income tax rate to the effective income tax rate for the six months ended June 30, 2012 and 2011 is as follows:

   
Six months ended June 30,
 
   
2012
   
2011
 
             
Income before income taxes
  $ 1,880,597     $ 2,517,752  
Statutory income tax rate
    25 %     25 %
Income tax expense at statutory tax rate
    470,149       629,438  
                 
Tax effect of non-taxable items
    54,277       2,334  
Income tax expense
  $ 524,426     $ 631,772  

No provision for deferred tax assets or liabilities has been made, since the Company has no material temporary difference between the tax bases of assets and liabilities and their carrying amounts.


NOTE 13 – CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)         Major customers

For the three and six months ended June 30, 2012 and 2011, there was no single customer who accounted for 10% or more of the Company’s revenues.

(b)         Major vendors

For the three and six months ended June 30, 2012, the vendor who accounted for 10% or more of the Company’s purchases and its outstanding balance at period-end date, are presented as follows:
 
     
Three months ended June 30, 2012
 
June 30, 2012
Vendor
   
Purchases
 
Percentage
of purchases
 
Accounts
payable, trade
                   
Vendor A
   
$
1,316,892
 
44%
 
$
-
Vendor B
     
405,296
 
13%
   
-
                   
Total:    
$
1,722,188
 
57%
 
$
-
 
 
- 13 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
     
Six months ended June 30, 2012
 
June 30, 2012
 
Vendor
   
Purchases
 
Percentage
of purchases
 
Accounts
payable, trade
                   
Vendor A
   
$
1,316,892
 
25%
 
$
-
Vendor B
     
925,597
 
17%
   
-
                   
Total:
 
 
$
2,242,489
 
42%
 
$
-

For the three and six months ended June 30, 2011, the vendor who accounted for 10% or more of the Company’s purchases and its outstanding balance at period-end date, are presented as follows:

     
Three months ended June 30, 2011
   
June 30, 2011
 
Vendor
   
Purchases
 
Percentage
of purchases
   
Accounts
payable, trade
                     
Vendor A
   
$
675,758
 
27%
   
$
163,047
Vendor B
     
376,469
 
15%
     
-
Vendor C
     
367,001
 
15%
     
-
Vendor D
     
360,395
 
14%
     
93,506
                     
Total:    
$
1,779,623
 
71%
   
$
256,553

     
Six months ended June 30, 2011
   
June 30, 2011
 
Vendor
   
Purchases
 
Percentage
of purchases
   
Accounts
payable, trade
                     
Vendor A
   
$
2,206,713
 
40%
   
$
163,047
Vendor B
     
751,058
 
14%
     
-
Vendor C
     
592,865
 
11%
     
-
Vendor D
     
607,788
 
11%
     
93,506
Vendor E
     
555,579
 
10%
     
-
                     
Total:    
$
4,714,003
 
86%
   
$
256,553

(c)         Credit risk

Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its accounts and retention receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. Credit is extended based on evaluation of a customer's financial condition. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
 
 
- 14 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)

(d)         Exchange rate risk

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

 (e)         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 bank borrowings, convertible notes and promissory notes. Borrowings issued at variable rates expose the Company to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Company to fair value interest-rate risk. Company policy is to maintain approximately all of its borrowings in fixed rate instruments. At the period-end, the bank borrowings were both at fixed and floating rates.

(f)         Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

(a)
Operating lease commitments

The Company’s subsidiary in the PRC is committed under several non-cancelable operating leases of office premises and manufacturing facility with a term of 10 years with fixed monthly rentals, due through December 31, 2020. Total rent expense for the six months ended June 30, 2012 and 2011 was $75,948 and $83,308, respectively.

As of June 30, 2012, the Company has future minimum rental payments due under non-cancelable operating leases in the next five years and thereafter, as follows:

Year ending June 30:
     
2013
  $ 128,171  
2014
    242,100  
2015
    256,341  
2016
    256,341  
2017
    261,563  
Thereafter
    478,029  
         
Total
  $ 1,622,545  
 
 
- 15 -

DÉCOR PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(Currency expressed in United States Dollars (“US$"), except for number of shares)
(Unaudited)
 
(b)
Capital commitment

The Company is committed under a number of agreements with an independent contractors or suppliers in relation to the construction of the new manufacturing facility for the production of laminated boards. The construction is expected to be completed in the third quarter of 2012. Total estimated construction costs are approximately $33 million.

As of June 30, 2012, the Company has the aggregate contingent payments of approximately $8.6 million to the third party contractors and equipment vendors in the next twelve months.

(c)
Guarantees

As of June 30, 2012, the Company’s subsidiary, CHDITN is contingently liable as guarantor with respect to the maximum exposure of $4,747,061 (equivalent to RMB30,000,000) to a unrelated third party, Dongguan XiaoYuanDing Technology Co., Ltd (“DXT”) on a cross-guarantee basis. The term of these guarantees are commenced for 2 years, expiry in October 2012. At any time from the date of guarantees, should DXT fail to make its due debt payments, CHDITN will be obligated to perform under the guarantees by primarily making the required payments, including late fees and penalties.

In accordance with ASC 460-10, “Guarantees”, a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. The Company did not receive any consideration for the guarantee and has determined the indemnification fair value to be insignificant. As of June 30, 2012, the Company has not recorded any liabilities under these guarantees.

(d)
Unused available line of credit

The Company has a credit facility with Industrial Bank Co., Ltd totaling $4,747,061 (equivalent to RMB30 million), including short-term bank borrowings and bills payable, under which the Company may borrow on an unsecured and cross-guarantee basis in a term of 2 years, expiry in October 2012. As of June 30, 2012, the Company has the unused available line of credit totaling $1,976,399 on a cross-guarantee basis.

NOTE15
SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.

 
- 16 -

 

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

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current expectations, estimates, forecasts and projections about us, our future performance and the industries in which we operate as well as our management’s assumptions and beliefs.  Statements that contain words like “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, or variations of such words and similar expressions are forward-looking statements.  In addition, any statements that refer to trends in our businesses, future financial results, and our liquidity and business plans are forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements.  There can be no assurance that forward-looking statements will be achieved, and actual results could differ materially from those expressed or implied by forward-looking statements.  Important factors that could cause actual results to differ materially include those discussed under “Risk Factors” in our Annual Report on From 10-K for the year ended December 31, 2011.  We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, knowledge of economic and market factors and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.

We regularly evaluate our estimates, assumptions and judgments and make changes accordingly. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that the estimates, assumptions and judgments involved in revenue recognition, receivables and allowances for doubtful accounts, accruals, stock-based compensation, inventories, deferred costs, income taxes, impairment of long-lived assets and valuation and impairment of investments have the greatest potential impact on our condensed consolidated financial statements, so we consider these to be our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

For a description of the new accounting standards that affect us, see Note 4 of notes to our condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

   
For the three months ended June 30,
   
For the six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenue, net
  $ 5,817,356     $ 5,806,130     $ 9,636,264     $ 10,844,058  
Cost of Revenue:
  $ 3,875,913     $ 3,797,506     $ 6,613,167     $ 7,303,283  
Operating Expenses:
  $ 420,557     $ 452,026     $ 774,589     $ 995,317  
Income from Operations:
  $ 1,520,886     $ 1,556,598     $ 2,248,508     $ 2,545,458  
Interest Expense:
  $ 183,823     $ 116,258     $ 371,223     $ 198,285  
Income Taxes:
  $ 384,535     $ 375,108     $ 524,426     $ 631,772  
Net Income:
  $ 954,826     $ 1,066,024     $ 1,356,181     $ 1,716,507  
Other Comprehensive Income:
  $ 25,836     $ 685,095     $ 181,952     $ 938,862  
Total Comprehensive Income:
  $ 980,662     $ 1,751,119     $ 1,538,133     $ 2,655,369  


 
- 17 -

 


Revenues

We generated net revenues of $5,817,356 and $9,636,264 for the three and six months ended June 30, 2012, respectively, compared to net revenues of $5,806,130 and $10,844,058 for the same periods in 2011.  The increase in sales of $11,226 for the three months ended June 30, 2012, compared to the same period in 2011. Decrease n sales of $1,207,794for the six months ending June 30, 2012, compared to the same periods in 2011, was due primarily to the decline in sales of our décor paper. The clients reduce the purchasing.

After the commencement of our new production line for laminated boards, which is expected to be completed in the third quarter of 2012, we expect that our net revenues will grow steadily due to our core production shift from the decor paper to laminated board, which we expect to generate higher sales revenues and profits.

Cost of Revenue

Cost of revenue primarily includes cost of supplies to manufacture our décor paper. We incurred $3,875,913 and $3,797,506 in cost of revenue, or 66.6% and 65.4% of sales revenues, during the three months ended June 30, 2012 and 2011, respectively.  The cost of revenue as a percentage of revenue increased slightly during the second quarter of 2012 mainly due to increase in purchase price of raw materials, ink and paper.

During the six months ended June 30, 2012 and 2011, we had $6,613,167 and $7,303,283 in cost of revenue, or 68.6% and 67.3% of sales revenues, respectively.  The cost of revenue as a percentage of revenue increased due to increase in purchase price of raw materials, ink and paper.

Operating Expenses

The following table summarizes our operating expenses during the period indicated:

 
Three months ended June 30,
 
Six months ended June 30,
 
   
2012
% of
net sales
     
2011
% of
net sales
   
2012
% of
net sales
   
2011
% of
net sales
 
 
(in thousands)
   
(in thousands)
 
Sales and marketing
$
230,778
4.0
%
 
$
228,961
4.0
%
 
$
421,441
4.4
%
 
$
524,758
4.9
%
General and Administrative
 
189,779
3.3
%
   
223,065
3.8
%
   
353,148
3.7
%
   
470,559
4.3
%
Total net operating expenses
$
420,557
7.3
%
 
$
452,026
7.8
%
 
$
774,589
8.1
%
 
$
995,317
9.2
%

We incurred total net operating expenses of $420,557 and $774,589 for the three and six months ended June 30, 2012, respectively, compared to the operating expenses of $452,026 and $995,317 for the same periods in 2011.  The decrease in operating expenses during the second quarter of 2012 was primary due to decrease in sales and marketing expenses, which was decrease in line with decline in sales.

Interest Expense

We incurred interest expense of $183,823 and $371,223 for the three and six months ended June 30, 2012, respectively, compared to the interest expenses of $116,258 and $198,285 for the same periods in 2011.  The increase in interest expense in 2012 was primary due to the loan increase.

Income Tax Expense

We incurred income taxes of $384,535 and $524,426 for the three and six months ended June 30, 2012, respectively, compared to income taxes of $375,108 and $631,772 for the same periods in 2011.  The decrease in income tax expense in the 2012 periods was due primarily to decreases in taxable income during the corresponding periods in 2012.

 
- 18 -

 


Net Income

We generated net income of $954,826 and $1,356,181 for the three and six months ended June 30, 2012, respectively, compared to net income of $1,066,024 and $1,716,507 for the same periods in 2011.  The decrease in net income in 2012 periods compared to 2011 was due primarily due to a decline in income from operations, which was caused by a decline in our sales of our décor paper and an increase in our cost of revenue in the first quarter and first six months of 2012 compared to the same periods of 2011.

Liquidity and Capital Resources

Balance Sheet and Cash Flows

Cash flows provided by operating activities were $4,036,341and $3,873,856 for the six months ended June 30, 2012 and 2011, respectively. Positive cash flows from operations for the six months ended June 30, 2012 resulted primarily from our net income of $1,356,181, an increase in accounts receivable and inventories of $578,443 and $193,625, respectively, an increase in accounts payable by $1,418,361, and an increase in accrued liabilities and other payables by $267,749, plus an increase in income tax payable of $289,113; partially offset by an increase in advances to suppliers by $173,469. Positive cash flows from operations for the six months ended June 30, 2011 resulted primarily from our net income of $1,716,507, a decrease in advances to suppliers by $491,923, an increase in accounts payable of $1,670,569, and an increase in accrued liabilities and other payables by $190,010, partially offset by increases in accounts receivable and inventories of $1,478,600 and $62,806  respectively, plus a decrease in income tax payable of $13,559.

Cash flows used in investing activities were $2,534,830 for the six months ended June 30, 2012 and $3,289,280 for the six months ended June 30, 2011. The cash flows used in investments for the six months ended June 30, 2012 were due to the payments of $1,342,039 to acquire plant and equipment and $1,192,791 to construction in progress.
 
 
Cash flows used in financing activities were $892,409 and $832,574 during the six months ended June 30, 2012 and 2011 respectively. Cash outflows during the six months ended June 30, 2012 were due primarily to an increase in restricted cash of $529,602, and the payments on bank borrowings of $370,025, offset by an advance from a related party of $59,946. Cash outflows during the six months ended June 30, 2011 were due primarily to an increase in restricted cash of $763,569, and the repayment to convertible note holders of $186,517, and the payments on bank borrowings of $72,368, offset by an advance from a related party of $189,880.

Liquidity

We project that we will need additional capital to fund operations over the next 6 months. We anticipate we will need an additional $2,000,000 per year in 2012 and 2013.

Overall, we have funded our cash needs from inception through June 30, 2012 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.

We had cash of $1,186,914 on hand as of June 30, 2012. Currently, we have enough cash to fund our operations for about six months. This is based on an assumed continuation of our current cash flows from operating activities and financing activities, positive working capital and projected revenues and a favorable outcome of our ongoing negotiations with the holders of our outstanding convertible notes which have matured.  However, if our actual revenues fall short of needed capital or we are unable to resolve our negotiations with our note holders with either a conversion into shares or extension of the terms of the convertible notes, we may not be able to sustain our capital needs. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $2,000,000 per year starting in 2012. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us.

On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, additional infusions of capital and debt financing. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected. Additionally, we will have to significantly modify our business plan.

 
- 19 -

 


Demand for our products and services will depend on, among other things, market acceptance of our products, the décor paper and laminated board market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recessionary periods.

Off-balance sheet arrangements

At June 30, 2012, we had no off-balance sheet arrangements

Contractual obligations and other commitments

Our obligations under contractual obligations and commercial commitments at June 30, 2012 were as follows:

   
Payments Due by Period
 
   
Total
   
Less than 1 year
   
1-3 years
   
3-5 years
   
More Than 5 years
 
       
Operating leases
  $ 1,622,545     $ 128,171     $ 498,441     $ 517,904     $ 478,029  
Purchase commitments
    8,626,576       8,626,576                          
Total
  $ 10,249,121     $ 8,754,747     $ 498,441     $ 517,904     $ 478,029  

Operating leases

We lease certain facilities under non-cancelable operating leases that expire at various dates beyond 2020.

Purchase commitments

The Company is committed under a number of agreements with independent contractors or suppliers in relation to the construction of the new manufacturing facility for laminated boards. Construction is expected to be completed in the third quarter of 2012. Total estimated construction costs are approximately $33 million. As of June 30, 2012, the Company has aggregate contingent payments of approximately $8.6 million to third party contractors and equipment vendors in the next twelve months.


 
- 20 -

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a)           Evaluation of disclosure controls and procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, as appropriate to allow timely decisions regarding required disclosure.

(b)           Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


 
- 21 -

 

PART II. OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS
 
The Company previously reported a lawsuit filed against the Company and its subsidiary CHDITN on or about January 5, 2011 by Greentree Financial Group Inc. (“Greentree”) in the Circuit Court of Broward County, Florida, Case No. 11-000245-09, seeking repayment of the principal of a $140,000 promissory note plus unpaid interest, late charges, attorneys’ fees and court costs.  On or about May 19, 2011, a default judgment was entered against the Company.  There have been no further material developments involving this litigation.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2011. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Two convertible notes issued by the Company with a principal amount of $2,340,000 matured and became due on November 10, 2011.  We are currently negotiating with the holders of these notes, including a possible conversion of the notes into shares of stock or extension of the terms of the convertible notes.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1
Certification of Chief Executive Officer
   
31.2
Certification of Chief Financial Officer
   
32.1
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002



 
- 22 -

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.


 
DÉCOR PRODUCTS INTERNATIONAL, INC.
 
     
Date: August 20, 2012
By:  
/s/ Rui Sheng Liu
 
Rui Sheng Liu
President and Chief Executive Officer 
(Principal Executive Officer)
 
Date: August 20, 2012
By:  
/s/ Qing Hua Lin
 
Qing Hua Lin
Chief Financial Officer 
(Principal Financial Officer)
 



 
- 23 -

 

PINX:DCRD Quarterly Report 10-Q Filling

PINX:DCRD Stock - Get Quarterly Report SEC Filing of PINX:DCRD stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
PINX:DCRD Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:DCRD Quarterly Report 10-Q Filing - 3/31/2012  |  Next: PINX:DDMGQ Insider Activity 3 Filing - 2/22/2012