XOTC:CLAD Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012
 
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT
 
For the transition period from ___________ to _____________

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC.
(Exact name of small business issuer as specified in its charter)

Formerly known as Hazlo! Technologies, Inc.

Commission File No. 333-170480

Nevada
 
80-0638212
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

Room 2119 Mingyong Building, No. 60 Xian Road.
Shahekou District, Dalian, China 116021
(Address of Principal Executive Offices)
 
0086-13909840703
(Issuer’s telephone number)
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 90 days.  YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ 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 the definitions of “large accelerated filer, “accelerated filer,” “non-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
þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨  NO þ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 66,450,000 Shares of Common Stock, as of May 14, 2012
 


 
 

 

Table of Contents

PART I - FINANCIAL INFORMATION        
           
Item 1.
Financial Statements
    4  
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
    11  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    22  
Item 4.
Controls and Procedures
    22  
           
PART II - OTHER INFORMATION        
           
Item 1.
Legal Proceedings
    24  
Item 1A.
Risk Factors
    24  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    24  
Item 3.
Defaults Upon Senior Securities
    24  
Item 4.
Submissions of Matters to a Vote of Security Holders
    24  
Item 5.
Other Information
    24  
Item 6.
Exhibits
    25  
           
SIGNATURES     26  

 
2

 

As used in this Form 10-Q Quarterly Report, unless the context requires or is otherwise indicated, the terms “we,” “us,” “our,” the “Registrant,” the “Company,” “our company” and similar expressions include the following entities (as defined below):
 
(i)  China Liaoning Dingxu Ecological Agriculture Development, Inc., formerly known as Hazlo! Technologies, Inc., a Nevada corporation (“Company”, “we”, or “us”), which is a publicly traded company;
 
(ii)  China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company ( “DingXu BVI”)
 
(iii)  Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the People’s Republic of China and a ninety-nine percent owned subsidiary of DingXu BVI (“Panjin Hengrun”)
 
(iv)  Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the People’s Republic of China and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). 

“China” or “PRC” refers to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan.  “RMB” or “Renminbi” refers to the legal currency of China and “$” or “U.S. Dollars” refers to the legal currency of the United States.   We make no representation that the RMB or U.S. Dollar amounts referred to in this report could have been or could be converted into U.S. Dollars or RMB, as the case may be, at any particular rate or at all.  “GAAP” unless otherwise indicated refers to accounting principles generally accepted in the United States.

 
3

 
 
ITEM 1.     FINANCIAL STATEMENTS
 
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(AMOUNTS EXPRESSED IN US DOLLAR)
 
 
   
As of
 
   
March 31,
2012
   
December 31,
2011
 
   
(UNAUDITED)
       
ASSETS
 
             
Cash and cash equivalents
  $ 1,203,724       709,812  
Inventories
    10,023       2,862  
Advances to suppliers
    81,844       83,057  
Other receivables, net
    334,249       20,997  
                 
        Total Current Assets
    1,629,840       816,728  
                 
Property, plant and equipment, net
    4,655,930       4,743,710  
Construction in progress
    5,871,741       4,661,733  
Land use right
    3,199,161       3,225,474  
Long term prepaid lease
    983,605       999,927  
                 
        Total Non-Current Assets
    14,710,437       13,630,844  
                 
        Total Assets
  $ 16,340,277     $ 14,447,572  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current Liabilities:
               
Loan payable - current portion
  $ 474,796     $ 476,122  
Due to related parties
    5,634,908       4,186,337  
Other payables
    1,263,752       1,267,842  
                 
Total Current Liabilities
    7,373,456       5,930,301  
                 
Total Liabilities
    7,373,456       5,930,301  
                 
Commitments
    -       -  
                 
Stockholders' Equity:
               
Common stock ($0.001 par value; 75,000,000 shares authorized;
               
66,450,000 shares issued and outstanding
               
at March 31, 2012 and December 31, 2011, respectively)
    66,450       66,450  
Additional paid-in capital
    7,659,544       7,659,544  
Statutory reserve
    122,910       57,805  
Retained earnings
    885,899       479,420  
Accumulated other comprehensive income
    232,018       254,052  
                 
Total Stockholders' Equity
    8,966,821       8,517,271  
                 
Total Liabilities and Stockholders' Equity
  $ 16,340,277     $ 14,447,572  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
4

 
 
CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(AMOUNTS EXPRESSED IN US DOLLAR)
(UNAUDITED)
 
   
For the Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
             
NET REVENUES
  $ 1,705,928     $ 946,751  
                 
COST OF REVENUES
    1,308,469       597,005  
                 
GROSS PROFIT
    397,459       349,746  
                 
OPERATING EXPENSES:
               
Depreciation and amortization
    105,968       646  
Selling, general and administrative
    163,381       136,620  
                 
Total Operating Expenses
    269,349       137,266  
                 
INCOME FROM OPERATIONS
    128,110       212,480  
                 
OTHER INCOME:
               
Other income
    353,475       -  
Interest expense
    (10,001     -  
                 
Total Other Income
    343,474       -  
                 
INCOME BEFORE PROVISION FOR INCOME TAX
    471,584       212,480  
                 
PROVISION FOR INCOME TAXES
    -       -  
                 
NET INCOME
  $ 471,584     $ 212,480  
                 
COMPREHENSIVE INCOME:
               
Net income
    471,584       212,480  
                 
OTHER COMPREHENSIVE INCOME (LOSS):
               
Unrealized foreign currency translation gain (loss)
    (22,034     239,062  
                 
COMPREHENSIVE INCOME
  $ 449,550     $ 451,542  
                 
NET INCOME PER COMMON SHARE:
               
Basic
  $ 0.01     $ 0.04  
Diluted
  $ 0.01     $ 0.04  
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
               
Basic
    66,450,000       5,200,000  
Diluted
    66,450,000       5,200,000  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
5

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)
(UNAUDITED)
 
   
For the Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 471,584     $ 212,480  
Adjustments to reconcile net income to net cash
               
used in operating activities:
               
Depreciation and amortization
    105,968       646  
Interest expense
    10,001       -  
Changes in assets and liabilities:
               
Inventories
    (7,180     (116,152 )
Other receivables
    (313,792 )     10,278  
Advances to suppliers
    983       -  
Other payables
    (560 )     (87,200 )
NET CASH PROVIDED BY OPERATING ACTIVITIES
    267,004       20,052  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property, plant and equipment
    (1,225,247 )     (1,745,434 )
Acquisition of land use right
    -       (240,064 )
NET CASH USED IN INVESTING ACTIVITIES
    (1,225,247 )     (1,985,498 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payment of interest expense
    (10,001 )     -  
Proceeds from related parties
    1,458,509       3,157,768  
NET CASH  PROVIDED BY FINANCING ACTIVITIES
    1,448,508       3,157,768  
                 
EFFECT OF EXCHANGE RATE ON CASH
    3,647       10,670  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    493,912       1,202,992  
                 
CASH AND CASH EQUIVALENTS - beginning of period
    709,812       79,178  
                 
CASH AND CASH EQUIVALENTS - end of period
  $ 1,203,724     $ 1,282,170  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:
               
Cash paid for:
               
Interest
  $ 10,001     $ -  
Income taxes
    -       -  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
6

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

NOTE 1.   ORGANIZATION AND DESCRIPTION OF BUSINESS

China Liaoning Dingxu Ecological Agriculture Development Inc. (the "Company") was incorporated under the laws of State of Nevada on August 19th, 2010.  The Company is primarily engaged in the growing and selling of agriculture products in People’s Republic of China (“PRC”).

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The company maintains its books and accounting records in Renminbi (“RMB”), and its reporting currency is United States dollars.

ACCOUNTING METHOD

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.

USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included.  Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Cost of finished goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity.
 
 
7

 
 
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:

Building
    20  
years
Plant
   
10-May
 
years
Office equipment
   
5-Mar
  years
Vehicles
    4  
years
 
Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.

LAND USE RIGHTS

The Company states land use right at cost less accumulated amortization. The land use right is amortized on straight line method during the contract period of 50 years. For the three months ended March 31, 2012 and 2011, amortization expense amounted to $17,356 and nil, respectively.

LONG TERM PREPAID LEASE

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

The Company records lease payments at cost less accumulated. As China’s regulations prohibit companies from acquiring land use right of farmlands, the Company entered into long term agreements with certain unrelated parties to rent land. The lease payments for the entire contract period are prepaid at the inception of leases. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years. For the three months ended March 31, 2012 and 2011, the Company recorded lease expense of $13,557 and nil, respectively.

REVENUE RECOGNITION

Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectibility is reasonably assured.
 
The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

TAXATION

Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.

The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.

Enterprise income tax

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from enterprise income tax from 2010 to 2012. Accordingly, the Company statutory rate was 0% and 0% for the three months ended March 31, 2012 and 2011, respectively.
 
 
8

 
 
Value added tax

The Provisional Regulations of The People’s Republic of China Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT from 2010 to 2012.

FOREIGN CURRENCY TRANSLATION

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

In accordance with ASC Topic 230, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.
 
IMPACT OF NEW ACCOUNTING STANDARDS

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
 
 
9

 

NOTE 3. PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment at March 31, 2012 and December 31, 2011 consists of the following:
 
   
March 31,
2012
   
December 31,
2011
 
    $       $    
Building
    4,525,703       4,538,344  
Plant
    232,768       233,418  
Vehicles
    42,219       42,337  
Office equipment
    54,230       54,008  
      4,854,920       4,868,107  
                 
Less: Accumulated depreciation
    198,990       124,397  
Property, plant and equipment, net
    4,655,930       4,743,710  
                 
Construction in progress
    5,871,741       4,661,733  
                 
      10,527,671       9,405,443  

For the three months ended March 31, 2012 and 2011, the Company recorded depreciation expense of $75,055 and $646, respectively.

NOTE 4. LOAN PAYABLE

The Company became indebted to Bank of China in December 2011 for $476,122, payable in December 2012, interest at 8.46% per annum. The loan is secured by a land use right with net book value of $570,885 of the Company.

For the three months ended March 31, 2012 and 2011, the Company recorded interest expense of $10,001 and nil, respectively.

NOTE 5. COMMON STOCK

The Company’s capitalization is 75,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.

The Company has not granted any stock options and has not recorded any stock-based compensation since inception.

NOTE 6. COMMITMENT AND CONTINGENCIES

Other than in the normal course of business, the Company did not have significant capital and other commitments, or significant guarantees as of March 31, 2012 and December 31, 2011, respectively.
 
NOTE 7. SUBSEQUENT EVENTS

The Company has performed an evaluation of subsequent events in accordance with ASC Topic 855 and the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
 
 
10

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

forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
 
Overview

We mainly engage in the business of growing and marketing fresh mushrooms and related mushroom products including mushroom spawn and mushroom seeds through our affiliated variable interest entity LiaoNing DingXu.

We mainly produce and sell two types of products:

(1)  
Fresh mushrooms. We grow fresh mushrooms in our greenhouse and sell them to markets. Our fresh mushrooms include oyster mushroom, king oyster mushroom, king trumpet mushroom, and button mushroom.
 
The revenues from the sales of fresh mushrooms constitute approximately 53% and 70% of our total revenues in the first quarter of 2012 and 2011, respectively.

(2)  
Related mushroom products including mushroom spawn and mushroom seeds. The revenues from the sales of related mushroom products constitute approximately 47% and 30% of our total revenues in the first quarter of 2012 and 2011, respectively.

History

We was incorporated under the name “Hazlo! Technologies, Inc.”  on August 19, 2010 in the State of Nevada. Our initial business plan was to modify and translate software and web applications originally written in English into Spanish and to focus on the needs of the Arizona business community to better serve the Spanish-speaking population.  We did not generate any  revenue from the said. IT services and data translation services.

On December 12, 2011, we entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which we issue 60,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI. Upon closing of the Share Exchange transaction, DingXu BVI became the wholly owned subsidiary of PUBCO.

China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (the “DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.
 
 
11

 

On July 5, 2011, DingXu BVI formed Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the People’s Republic of China  (“Panjin Hengrun”). DingXu BVI owns 99% of the total ownership of Panjing Hengrun.

On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the People’s Republic of China and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu.  Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.

Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entities (“VIE”) of Panjin Hengrun pursuant to FIN 46 (R) and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.

Set forth below is our organizational chart upon completion of the share exchange transaction:



Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司 (“Liaoning Dingxu”) was formed as a limited liability company organized under the laws of the People’s Republic of China on August 6, 2009. It mainly engages in the business of growing mushroom and marketing mushroom and related agricultural products.

Upon the completion of share exchange transaction, our business operations are carried out through Panjin Hengrun and its affiliated operating entity Liaoning Dingxu. On December 12, 2011, we ceased the business of development stage IT service and data translation services and started to engage in the business of growing mushroom and marketing mushroom and related agricultural products through Liaoning Dingxu.
 
 
12

 

Financial condition as of March 31, 2012 and 2011
 
The following table presents an overview of our results of assets, liabilities and shareholders’ equity as of March 31, 2012 and December 31, 2011.

   
March 31,
   
December 31,
 
Increase
   
2012
   
2011
 
(decrease)
               
Current assets
             
Cash
   
1,208,352
     
709,812
 
498,540
                   
Other Receivables
   
334,249
     
20,997
 
313,252
                   
Advance to suppliers
   
81,844
     
83,057
 
(1,213)
                   
Inventory
   
10,023
     
2,862
 
7,161
                   
Total current assets
   
1,629,840
     
816,728
 
813,112
                   
 Non-current assets
                 
Property, plant and equipment - net of accumulated depreciation
   
4,655,930
     
4,743,710
 
(87,780)
                   
Construction in progress
   
5,871,741
     
4,661,733
 
1,210,008
                   
Land use rights
   
3,199,161
     
3,225,474
 
(26,313)
                   
Long term prepaid lease
   
983,605
     
999,927
 
(16,322)
                   
Total non-current assets
   
14,710,437
     
13,630,844
 
1,079,593
                   
Total assets
   
16,340,277
     
14,447,572
 
1,892,705
                   
Current liabilities
             
                   
Short-term loan
   
474,796
     
476,122
 
(1,326)
                   
Other payables
   
1,263,752
     
1,267,842
 
(4,090)
                   
Due to Related Parties
   
5,634,908
     
4,186,337
 
1,448,571
                   
Total liabilities
   
7,373,456
     
5,930,301
 
1,443,155
                   
Shareholders’ liabilities
                 
Common stock
   
66,450
     
66,450
 
-
                   
Paid-in capital
   
7,659,544
     
7,659,544
 
-
                   
Statutory reserve
   
122,910
     
57,805
 
65,105
                   
Retained earnings
   
885,899
     
479,420
 
406,479
                   
Other comprehensive income - foreign currency
   
232,018
     
254,052
 
(22,034)
               
Total shareholders’ equity
   
8,966,821
     
8,517,271
 
449,550
                   
Total liabilities and shareholders’ equity
   
16,340,277
     
14,447,572
 
1,892,705
 
 
13

 
 
Liquidity and Capital Resources:

To date, our operations have been funded by contributions to non-current liability due to related parties our and the net cash provided by our operations. As a result, at March 31, 2012 we had $1,629,840 current assets, an increase of $813,112 since our last year ended on December 31, 2011. At the same time, we had $ 1,738,548current liabilities consisted of the $ 474,796 bank loan expiring at the end of 2012 and borrowing of the shareholder and the $1,263,752 contract deposit from the mushroom planters. The contract deposit has no limited to pay back in the next year. We had working capital totaling $1,155,044 except the contract deposit. So our capital resources are more than sufficient to fund our operations for the coming period.

During the three months ended March 31, 2012, our operating activities provided $267,004 in net cash. Over the long term, our expectation to see a trend of growing sales for our mushroom series products, including fresh mushrooms & mushroom spawns and seeds, resulting from the growing of the market scales, improving of general agriculture industry, improving of the planting skills and the quality of our products, and the continuing encouragement from local government. As we invested $8,828,000 in 2011 and $1,080,000 in the first quarter of 2012 to develop our mushroom planting greenhouse and structures, mushroom seeds cultivate workshop and manufacturing workshop, the categories and total quantities of our products would be much higher than we produced in the last period.

Current assets:

1. Other receivables

Other receivables mainly consisted of loan to local farming organization and staff borrowing. We have lend $238,702 to local farming organization to support them developing mushroom plant, hence we observed a significant increase of the other receivables compared to December 31, 2011.

2. Advance to suppliers
 
The subject of advance to suppliers was mainly used to record the advance paid to raw material suppliers and project contractors or builder.

3. Inventory
 
The total inventory as at March 31 of 2012 didn’t fluctuate significantly compared to the same period in 2011. The balance at the end of this period consisted of raw materials and expendable materials that were unused and could not be classified as fixed assets as their value was very low.

Non-Current assets:

4. Property, plant and equipment

Our property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:
 
Building and constructions
   
20   years
 
Plant
    5-10 years   
Office equipment
   
3-5   years
 
Vehicles
       4    years   
 
As consistent with the policies in the year of 2011, maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.

 
14

 

Property, Plant and Equipment consists of the following:

 
March 31,
2012
 
December 31,
2011
 
 
USD
 
USD
 
Building
 a
4,525,703
   
4,538,344
 
Plant
 b
232,768
   
229,443
 
Vehicles
 c
42,219
   
42,337
 
Office equipment
 d
54,230
   
57,983
 
Less: Accumulated depreciation
 e
198,990
   
124,397
 
Property, plant and equipment, net
 
4,655,930
   
4,743,710
 
Construction in progress
 f
5,871,741
   
4,661,733
 
Total property, plant & equipment
 
10,527,671
   
9,405,443
 

a.
The building mainly represented for the greenhouses, manufacturing workshops, warehouse and office building, all of which were transferred from the construction in progress (CIP).
   
b.
The plant represented for the planting area or structures completed and transferred out from CIP.
   
c.
The vehicles were the  truck for transporting raw materials or finish goods.
   
d.
The office equipment include the office computers, printers, desks and other office appliance.
   
e.
For the three months ended March 31, 2012 and 2011, the Company recorded depreciation of US$75,055 and US$646, respectively.
   
f.
The detailed information of the construction projects in progress which was not yet transfer to fixed assets is as below:
 
   
March 31,
2012
   
December 31, 2011
 
   
USD
   
USD
 
Mushroom seeds cultivate workshop and warehouse
    1,115,252       1,114,084  
Manufacturing workshops
    335,889       322,494  
Greenhouse and Planting structures
    4,408,521       3,218,533  
Others
    12,079       6,622  
Total amount of CIP
    5,871,741       4,661,733  
 
5. Land use right

The Company states land use rights at cost less accumulated amortization. As the business growing and expanding in the period of 2011, the company recognized a total amount of USD 2,965,000 land use right in the year of 2011. The land use right was used to build up greenhouse and planting structures, manufacturing workshop and other buildings. There is no land use right recognized in the first quarter of 2012.

The land use rights are amortized on straight line method during the contract period, varying from 47 to 50 years. Amortization expense of US$ 17,356 and nil for the three months ended March 31, 2012 and 2011 were recorded, respectively. As of March 31, 2012and 2011, the values of land use rights are US$3,199,161 and nil.
 
 
15

 

6. Long-term prepaid lease

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

The Company records lease payments at cost less accumulated amortization and amount that to be amortized within one year. The amount to be amortized within one year is recorded as current portion of prepaid leases. As China’s regulations prohibit companies from acquiring land use right of farmlands, the Company entered into long term agreements with local government to rent land. The rental payments for the entire contract period are prepaid at the inception of leases and the payment amount was $1,031,599 in 2011. The rental payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years.

Lease expense of US$13,557 and nil were recorded for the three months ended March 31, 2012 and 2011.

Liabilities
Current liabilities:

7.Short-term loan

The Company became indebted to Bank of China in December 2011 for $476,122, payable in December 2012, interest at 8.46% per annum. The loan is secured by a land use right with net book value of $568,583 of the Company.

For the three months ended March 31, 2012 and 2011, $10,001 and nil interest expense was recorded.

8. Other payables

The total amount of other payables consisted of the contract deposit from the mushroom planters.  The balance had no change in the first quarter of 2012.

9. Due to related parties

The total amount of due to related parties consisted of the borrowing of the shareholder. Since the Mr. Chin lend $1,300,000 to the company for rent the land to build greenhouse and planting structure, the balance had a significant increase as of March 31, 2012 compared to that as of December 31, 2011.

Results of Operations for the three months ended March 31, 2012 and 2011

The following table presents an overview of our results of operation for the three months ended March 31, 2012 and 2011.

               
Increase
 
   
2012
   
2011
   
(decrease)
 
                   
Total revenue
   
1,705,928
     
946,751
     
759,177
 
Total cost of revenue
   
(1,308,469)
     
(597,005)
     
(711,464)
 
Gross profit
   
397,459
     
349,746
     
47,713
 
Operating expenses
   
(269,349)
     
(137,266)
     
(132,083)
 
Income from operations
   
128,110
     
212,480
     
(84,370)
 
Other income
   
353,475
     
-
     
353,475
 
Interest expense
   
10,001
     
-
     
10,001
 
Income before income taxes
   
471,584
     
212,480
     
259,104
 
Income taxes
                       
Net income
   
471,584
     
212,480
     
259,104
 

1. Revenue

The following table sets forth the breakdown of our revenue for the three months ended March 31, 2012 and 2011, respectively:

   
2012
         
2011
       
   
USD
   
%
   
USD
   
%
 
Fresh Mushrooms sales
   
904,349
     
53.01%
     
660,054
     
69.65%
 
Mushroom spawns and seeds sales
   
801,579
     
46.99%
     
286,697
     
30.35%
 
Total revenue
   
1,705,928
     
100%
     
946,751
     
100%
 

Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.
 
 
16

 

We derived our revenues predominantly from sales of our fresh mushrooms, mushroom spawn and seeds.  For the three months ended March 31, 2012 and 2011, revenues from sales of our fresh mushrooms sales were $904,349 and $660,054 respectively representing an increase of $244,295 during the three months ended March 31, 2012. Revenues from sales of our mushroom spawn and seeds were $801,579 and $286,697 for the three months ended March 31, 2012 and 2011, which also indicated $514,882 increase compared to the period in 2011.

The increase was primarily due to the increase of the sales volume as a result of an increasing numbers of new customers developed during the year 2011. To be specific, the increase in our revenue was attributable to the following reasons:

a.  
We started to open and run the business in the second half of 2009. In the years of 2009 and 2010, the company was still under a development stage with relatively low brand name. The company began the mushroom sales in January of 2011, which led to lower amount of sales revenue in first quarter of 2011 compared with 2012.  For the first quarter of 2012, as the company progressed toward maturity, we strengthened our sales and marketing campaign which helped to enhance our brand name and increase our sales.

b.  
The business model of cooperation with local farmers and farming organizations developed since local government encouraged the farmers to develop the local agriculture. As a result, our mushroom spawns and seeds were also supported and welcomed by local farmers and farming organizations, which increased our sales.

We now have more than four kinds of mushroom products and more than six kinds of mushroom seeds, and the categories of our products are still growing. As the greenhouse and planting structures under construction being completed in the future, the categories and total quantities of our products would be much higher than we produced in the first quarter of 2012.

We expect to see a trend of growing sales for our mushroom series products, including fresh mushroom & mushroom spawns and seeds, resulting from the growing of the market scales, improving of general agriculture industry, improving of the planting skills and the quality of our products, and the continuing encouragement from local government. 

2. Cost of revenue

The following table presents a breakdown of our cost of revenue of fresh mushroom  and mushroom spawns and seeds for the three months ended March 31, 2012 and 2011.
 
   
2012
   
2011
 
   
USD
   
USD
 
             
Cost of fresh mushrooms sales
   
713,945
     
446,599
 
                 
Cost of mushroom spawns and seeds sales
   
594,524
     
150,406
 
                 
Total
   
1,231,088
     
597,005
 
 
Cost of fresh mushrooms sales: Our cost of fresh mushrooms sales consists primarily of costs associated with purchased materials, planting cost and purchased fresh mushroom from farmers or farming organizations. Cost of fresh mushrooms sales are allocated to each kind of mushroom using the specific identification method. Costs are allocated to specific units within a product based on the ratio of the sales quantities of units to the total sellable quantities of the product.

Cost of mushroom spawns and seeds sales: Our cost of mushroom spawns and seeds sales mainly represented the costs of purchased and cultivate seeds or spawns. We used our workshop to cultivate well mushroom seeds or spawns and sold them to local farmers or farming organizations. We also purchased some good quality mushroom seeds from third party and sold them to our customers as well after our selection. The costs are as well allocated to specific units within a product based on the ratio of the sales quantities of units to the total sellable quantities of the product.
 
 
17

 

3. Gross profit

The following table presents the gross profit of our businesses for the three months ended March 31, 2012 and March 31 of 2011:
 
   
2012
   
2011
 
   
Gross
   
Gross
   
Gross
   
Gross
 
Production Category
 
Profit
   
Margin
   
Profit
   
Margin
 
   
USD
   
%
   
USD
   
%
 
                         
Fresh mushrooms sales
   
190,404
     
21.1
%
   
213,455
     
32.3%
 
                                 
Mushroom spawns and seeds sales
   
207,055
     
25.8
%
   
136,291
     
47.5%
 
                                 
Total gross profit
   
397,459
     
23.3
%
   
349,746
     
36.9%
 
 
Gross profit from our mushroom growing business increased by $ 397,459 for three months ended March 31, 2012 from $349,746 for the three months ended March 31, 2011.  The increase was a primary result from cumulative effect of our business development and sales volume increase. The gross margin of our Fresh mushrooms decreased from 32.3% for the three months ended March 31, 2011 to 21.1% for the three months ended March 31, 2012.And the gross margin of our mushroom spawns and seeds decreased from 47.5% for the three months ended March 31, 2011 to 23.3% for the three months ended March 31, 2012.

The decrease of gross margin was principally attributed to that the price of oyster mushroom and oyster mushroom seeds came down in the first quarter of 2012. Since oyster mushroom is low technical to plant, the local farmers and farming organizations preferred to plant it and got good harvest, that resulted in the market price of oyster mushroom came down and oyster mushroom seeds price came down accordingly.

4. Operating expenses
 
For the three months ended March 31, 2012, our operating expenses were $269,349, representing an increase of $ 132,082 or 96.2%, as compared to that for the three months ended March 31, 2011.  The increase was primarily a result of increase in land lease expenses, company organization cost and depreciation or amortization expenses, which increased $105,322 or 80% of the total increased operating expense. The increase in operating expenses in the current year was also a result of increased office expenses, salaries and bonus in response to the increased sales.
 
We expect that our operating expenses will increase as we will further expand our business and operations.  In addition, as a result of business development, we will also build up more greenhouses and structures, which would lead to a significant increase of the depreciation or amortization expenses. Moreover, our operating expense may also increase due to our need for more personnel as our business continues to grow.

5. Other income

Other income is used to record the company’s non operating income, such as government grant, inventory profit and donation from other third parties, etc. For the three months ended in March 31, 2012, we recognized other income from the government grant for encourage developing local agriculture.

6. Income taxes

Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.
 
 
18

 

Results of Operations for the three months ended March 31, 2012 and 2011 (Continued)

6. Income taxes (continued)

The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from corporate income tax from 2010 to 2012. Accordingly, the company statutory rate was 0% and 0% for the three months ended March 31, 2012 and 2011.

Cash flow for the three months ended March 31, 2012 and 2011

The following table presents selected cash flow data from our cash flow statements for the three months ended March 2012 and 2011, respectively.
 
   
2011
   
2010
 
             
Net cash provided by (used in) operating activities
 
$
267,004
   
$
20,052
 
                 
Net cash used in investing activities
   
(1,225,247)
     
(1,985,498)
 
                 
Net cash provided by (used in) financing activities
   
1,448,508
     
3,157,768
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
3,647
     
10,670
 
                 
Net increase(decrease) in cash and cash equivalents
   
493,912
     
1,202,992
 
                 
Cash and cash equivalents, beginning of year
   
709,812
     
79,178
 
                 
Cash and cash equivalents, end of year
 
$
1,203,724
   
$
1,282,170
 

Operating Activities
 
Net cash used in operating activities for the three months ended March 31, 2012 was $267,004, which was primarily due to (i) an increase of the net income $471,584 and (ii) an total increase of $105,968 of the depreciation and amortization of fixed assets, land use right and prepaid lease and (iii)an total decrease of $310,548 of  the changes in assets and liabilities. 
 
Investing Activities
 
Net cash used in investing activities was $1,225,247 for the three months ended March 31, 2012, which was primarily attributable to our payments of $1,225,247 for the construction in progress to build greenhouse and planting structures.
 
Financing activities
 
Net cash provided by financing activities was $1,448,508 for the three months ended March 31, 2012, which was mainly attributable to a total  $1,458,509 of the current account from a related party and a $10,001 interest expense.
 
 
19

 
 
Significant Accounting Policies

USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included.  Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Cost of finished goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity.

REVENUE RECOGNITION

Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.
 
The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company is the RMB and the RMB is not freely convertible into foreign currencies. The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. 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 transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities translated at exchange rates at the balance sheet date, revenue and expenses are translated at the average exchange rates for the period, and members' equity is translated at historical exchange rates. Translation adjustments are included in accumulated other comprehensive income, a component of members’ equity.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.

TAXATION

Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.
 
 
20

 

Significant Accounting Policies (Continued)

TAXATION (continued)

The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.

Enterprise income tax

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from corporate income tax from 2010 to 2012. Accordingly, the company statutory rate was 0% and 0% for the three months ended March 31, 2012 and 2011.

Value added tax

The Provisional Regulations of The People’s Republic of China Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT for the three months ended March 31, 2012 and 2011.

PROPERTY, PLANT and EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:
 
Building and constructions
    20     years  
Plant
    5-10 years  
Office equipment
   
3-5   years
 
Vehicles
    4       years  
 
Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.

LAND USE RIGHTS

The Company states land use rights at cost less accumulated amortization. The land use rights are amortized on straight line method during the contract period, varying from 47 to 50 years.

LONG TERM PREPAID LEASE

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

 
21

 
 
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required

ITEM 4.     CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the 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, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act.

Based upon the required evaluation, our CEO and CFO concluded that as of March 31, 2012, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company has identified the following weaknesses in internal control:

The Company does not have an independent board of directors or audit committee or adequate segregation of duties;
 
All of our financial reporting is carried out by our financial consultant.
 
We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company. 
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
 
 
22

 
 
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of March 31, 2012, the Company’s internal control over financial reporting was not effective due to the following weakness:

The Company does not have an independent board of directors or audit committee or adequate segregation of duties;
All of our financial reporting is carried out by our financial consultant.
We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company. 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Controls
 
We have also evaluated our internal controls for financial reporting, and there has been no change in our internal control over financial reporting that occurred during the year ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 
23

 
 
PART II - OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS

Currently we are not aware of any litigation pending or threatened by or against the Company.

ITEM 1A. RISK FACTORS

Not required for Smaller Reporting Company.

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

On August 29, 2011, Chin Yung Kong acquired 4,700,000 shares of common stock from Michael Klinicki and Alejandra De La Torre and subsequently Chin Yung Kung took control of the Company. The sales of 4,700,000 shares of common stock were pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

On December 12, 2011, we entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which we issue 60,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI.  The sales of 60,000,000 shares of common stock were pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.     SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.     OTHER INFORMATION

None
 
 
24

 

ITEM 6. EXHIBITS

Exhibit No.
 
Description
3.1
 
Articles of Incorporation*
3.2
 
Bylaws*
10.1
 
Share Exchange Agreement**
10.2
 
Consulting Service Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.3
 
Operating Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.4
 
Equity Pledge Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.5
 
Option Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.6
 
Proxy Agreement (Panjin Hengrun and Liaoning Dingxu)**
31.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
31.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
     
     
101***
 
The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements. 
101.INS****       
XBRL Instance
101.SCH***     
XBRL Taxonomy Extension Schema
101.CAL***       
XBRL Taxonomy Extension Calculation
101.DEF***    
XBRL Taxonomy Extension Definition
101.LAB***    
XBRL Taxonomy Extension Labels
101.PRE***    
 XBRL Taxonomy Extension Presentation
_________
* Incorporated by reference to our Registration Statement on Form S-1, filed on November 9, 2010

**Incorporated by reference to the Form 8-K Current Report filed on December 13, 2011.

*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
25

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
China Liaoning Dingxu Ecological Agriculture Development, Inc.
Formerly known as Hazlo! Technologies, Inc
 
       
May 17, 2012
By:
/ S / Chin Yung Kong  
    Chin Yung Kong  
    President and Chief Executive Officer  
 
 
26

XOTC:CLAD Quarterly Report 10-Q Filling

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

XOTC:CLAD Quarterly Report 10-Q Filing - 3/31/2012
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