PINX:CNGV Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012



 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER 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 T SECURITIES
EXCHANGE ACT OF 1934

Commission File No. 333-147084

CHINA GREEN CREATIVE, INC.
(Exact name of Registrant as specified in its charter)

Nevada
83-0506099
(State or Other Jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

24/F., Unit 3 Great China International Square, No. 1 Fuhua Rd.,
  
Futian District, Shenzhen Guandong Province, China
n/a
(Address of principal executive offices)
(Zip Code)

86-755-23998799
(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (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 T   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 £ 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 Ruble 12b-2 of the Exchange Act.
   
Large accelerated filer   £
Accelerated filer  £
Non-accelerated filer  £ (Do not check if a smaller reporting company)
Smaller reporting company  T

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of April 3, 2012, are as follows:
   
Class of Securities
Shares Outstanding
Common Stock, $0.001 par value
300,000,000 shares


 
 

 


CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


     
  
Part I – Financial Information
 
Item 1
Financial Statements
3
  
Unaudited Condensed Balance Sheets, March31, 2012 and December 31, 2011
3
  
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and three months ended March 31, 2012 and 2011
4
  
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011
5
  
Notes to the Unaudited Condensed Consolidated Financial Statements
6
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
Item 3
Quantitative and Qualitative Disclosures about Market Risk
18
Item 4
Controls and Procedures
19
     
 
Part II – Other Information
 
Item 1
Legal Proceedings
20
Item 2
Unregistered Sales Of Equity Securities And Use Of Proceeds
20
Item 3
Defaults Upon Senior Securities
20
Item 4
Removed and Reserved
20
Item 5
Other Information
20
Item 6
Exhibits
20
     
     


 
2

 

 
PART I – FINANCIAL INFORMATION

CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
March 31,
2012
   
December 31,
2011
 
   
(Unaudited)
   
(Audited)
 
Assets
           
Current assets
           
      Cash and cash equivalents
  $ 82,928     $ 97,522  
      Accounts receivable
    1,199,859       1,297,635  
      Inventories
    85,121       14,080  
      Amount due from a director
    25,785       57,460  
Prepaid expenses and other receivables
    877,243       848,718  
Total current assets
    2,270,936       2,315,415  
                 
Property, plant and equipment, net
    3,131,531       3,146,914  
Land use rights, net
    99,997       100,155  
Other intangible assets, net
    21,242       24,434  
                 
Total assets
  $ 5,523,706     $ 5,586,918  
                 

Liabilities and stockholders’ equity
           
Liabilities
           
Current liabilities
           
Accounts payable
  $ 1,045,688     $ 959,326  
Accrued expenses and other payables
    1,935,891       2,037,437  
Receipt in advance
    734,236       732,390  
Short term debts
    1,635,764       1,734,807  
Taxes payable
    1,821,733       1,808,484  
Amount due to a director
    869,425       876,814  
                 
Total liabilities
  $ 8,042,737     $ 8,149,258  
                 
Stockholders’ equity
               
Common stock: Par value $0.001 per share; 400,000,000 shares authorized, 300,000,000 shares issued and outstanding
    300,000       300,000  
Additional paid in capital
    1,632,689       1,632,689  
Accumulated deficits
    (4,565,916 )     (4,615,313 )
Accumulated other comprehensive income
    114,196       120,284  
Total stockholders’ equity
  $ (2,519,031 )   $ (2,562,340 )
                 
Total liabilities and stockholders’ equity
  $ 5,523,706     $ 5,586,918  
                 

See accompanying notes to condensed consolidated financial statements
 
 
 
3

 

CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
 
   
Three months ended March 31,
 
   
2012
   
2011
 
             
Revenues
    682,358       719,183  
                 
Cost of sales
    345,777       243,898  
                 
Selling and distribution expenses
    112,617       182,247  
                 
General and administrative expense (inclusive of depreciation and allowances)
    154,976       178,824  
                 
Operating profit
    68,988       114,214  
                 
Other expenses
               
Other expenses
    -       37  
Interest expense
    19,591       1,780  
Total other expenses
    19,591       1,817  
                 
Profit before provision for income taxes
    49,397       112,397  
                 
Provision for income taxes
    -       -  
                 
Net income for the period
    49,397       112,397  
                 
Other comprehensive loss
               
Loss on foreign currency translation
    (6,088 )     (20,047 )
                 
Total comprehensive income for the period
    43,309       92,350  
                 
                 
Earnings per share, basic and diluted
    0.00       0.00  
                 
Weighted average number of shares outstanding, basic and diluted
    300,000,000       300,000,000  
 
See accompanying notes to condensed consolidated financial statements

 
4

 


CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Three months ended March 31,
 
   
2012
   
2011
 
             
Cash flows from operating activities
           
Net income
  $ 49,397     $ 112,397  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation expense
    37,864       35,925  
Amortization expense of land use rights
    410       393  
Amortization expense of other intangible assets
    3,248       2,161  
Changes in operating assets and liabilities:
               
Decrease/(increase) in accounts receivable
    97,776       (599,770 )
(Increase)/decrease in inventories
    (71,041 )     59,633  
(Increase)/decrease in prepaid expenses and other receivables
    (28,525 )     76,861  
Decrease/(increase) in amount due from a director
    31,675       (124 )
Increase in accounts payable
    86,362       212,112  
(Decrease )/increase in accrued expenses and other payables
    (101,546 )     102,481  
Increase in receipt in advance
    1,846       4,795  
Increase in taxes payable
    13,249       92,040  
                 
Net cash provided by operating activities
  $ 120,715     $ 98,904  
                 
Cash flows from investing activities
               
Additions to property, plant and equipment
  $ (14,593 )     (8,863 )
                 
Net cash used in investing activities
  $ (14,593 )   $ (8,863 )
                 
Cash flows from financing activities
               
(Decrease)/increase in amount due to a director
    (7,389 )     62,399  
Decrease in other borrowings
    (103,220 )     (131,133 )
                 
Net cash used in financing activities
  $ (110,609 )   $ (68,734 )
                 
Net (decrease)/increase in cash and cash equivalents
  $ (4,487 )   $ 21,307  
                 
Effect of foreign exchange rate changes
  $ (10,107 )   $ (52,343 )
                 
Cash and cash equivalents at January 1
  $ 97,522     $ 43,895  
                 
Cash and cash equivalents at March 31
  $ 82,928     $ 12,859  
                 
Supplement disclosure of cash flows information:
               
Cash paid for interest
  $ 16,688     $ -  
Cash paid for income taxes
  $ -     $ -  

See accompanying notes to condensed consolidated financial statements
 
 
 
5

 
 
 
CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012


NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

China Green Creative, Inc. (“CGC”), a Nevada Corporation, was incorporated on August 17, 2006 under the name of Glance, Inc. On January 21, 2009, we changed our name to China Green Creative, Inc. CGC and its subsidiaries (collectively known as the “Company”) are principally engaged in the distribution of consumer goods in the People’s Republic of China (“China” or the “PRC”).

As of March 31, 2012, the details of the Company’s subsidiaries are summarized as follows:

Name
 
Domicile and date of incorporation
 
Paid-in capital
 
Effective ownership
 
Principal activities
                 
Plenty Fame Holding, Limited (“Plenty Fame”)
 
British Virgin Islands (the “BVI”)
January 18, 2008
 
$50,000
 
100%
 
Investment holding
                 
Prospect Hong Kong Development Limited (“Prospect”)
 
Hong Kong Special Administrative Region (“HKSAR”)
October 17, 2008
 
HK$10,000
 
100%
 
Investment holding
                 
Jiangxi Jien Industries Limited
(“Jiangxi Jien”)
 
The PRC
April 8, 1997
 
RMB16,000,000
 
100%
 
Sale of consumer products in the PRC.
                 
Shenzhen Jien Electronic Commerce Company Limited (“Shenzhen Jien”)
 
The PRC
April 13, 2009
 
RMB3,000,000
 
100%
 
Management of regional distribution rights and provision of related services.
                 

NOTE 2 – PRINCIPLES OF CONSOLIDATION

The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the three months ended March 31, 2012 and 2011 have been prepared pursuant to the rules & regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading.  All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”), while the reporting currency is the US Dollar.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of March 31, 2012, the results of its operations and cash flows for the three months ended March 31, 2012 and 2011.

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results for a full year period.
 
 
 
6

 
 
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  
Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  The Company maintains bank accounts in China and Hong Kong.

(b)  
Inventories

Inventories consisting of trading goods, packing and other materials are stated at the lower of cost or net realizable value. Inventory costs are calculated using a weighted average method of accounting.

(c) Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, amount due from/(to) directors, receipt in advance, debts, accounts payable, accrued expenses and other payables, and taxes payable.

The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
 
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective period ends.

(d)  
Revenue Recognition

We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.

The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable.

Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  
(ii)
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
(iii)
Brand usage fee income is recognized when service has been rendered and the rights to receive payment have been established.

(e)  
Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of March 31, 2012 and 2011, there were no dilutive securities outstanding.

(f) Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the period.  The translation rates are as follows:

   
March 31,
2012
   
December 31,
2011
   
March 31,
2011
 
 
                 
Period/year end RMB : US$ exchange rate
    0.1591       0.1587       0.1529  
Average yearly RMB : US$ exchange rate
    0.1588       0.1550       0.1522  
                         
 
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC’s government.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(g) Recent Accounting Pronouncements

The Company has adopted all recently issued accounting pronouncements.  The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.

 
 
7

 
 
 
NOTE 4 – ACCOUNTS RECEIVABLE

As of the balance sheet dates, the Company’s accounts receivable are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Zhang De Jun
  $ 72,454     $ 545,097  
Others
    1,127,405       752,538  
Total
  $ 1,199,859     $ 1,297,635  
                 
 
Zhang De Jun contributed 9.1% and 62.13% of the Company’s revenues for the three months ended March 31, 2012 and 2011, respectively.

As of the balance sheet dates, the balances are unsecured, interest free and repayable according to terms of trade.  The company will assess the collectability of accounts receivable on periodic basis and will make allowance for doubtful accounts when the amount receivable is no longer deemed to be collected by the company.

NOTE 5 – INVENTORIES

As of the balance sheet dates, the Company’s inventories are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Trading inventories
  $ 85,121     $ 14,080  
                 

NOTE 6 – PREPAID EXPENSES AND OTHER RECEIVABLES

As of the balance sheet dates, the Company’s prepaid expenses and other receivables are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Prepaid expenses
  $ 699,543     $ 731,749  
Other receivables
    177,700       116,969  
                 
Total
  $ 877,243     $ 848,718  
                 
 
Prepaid expenses as of March 31, 2012 include prepaid promotion and advertising expenses of $226,320 to Beijing Shanghan International Cultural Creative Development Company Limited.  The amount will be charged to expense upon the related services provided by the vender.

The Company evaluates prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company.

 
 
8

 

 
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment in the PRC. As of the balance sheet dates, property, plant and equipment are summarized as follows:

   
Depreciable
lives
   
March 31,
2012
   
December 31,
 2011
 
                   
At cost:
                 
Plant
 
40 years
    $ 1,903,908     $ 1,899,122  
Machinery
 
15 years
      193,182       192,696  
Motor vehicle
 
10 years
      44,116       44,005  
Office equipment
 
5 years
      239,323       224,138  
Leasehold Improvement
 
2 years
      364,550       363,634  
Construction in progress
    N/A       1,363,454       1,360,026  
              4,108,533       4,083,621  
                         
Less: Accumulated depreciation
            (977,002 )     (936,707 )
                         
Property, plant and equipment, net
          $ 3,131,531     $ 3,146,914  
                         
 
Depreciation expense for the three months ended March 31, 2012 and 2011 was $37,864 and $35,925, respectively.

NOTE 8 – LAND USE RIGHTS, NET

The Company’s land use rights represent the cost of purchasing the rights to use the leasehold land in the PRC for the production facilities of Jiangxi Jien. According to the law of the PRC, the government owns all the land in the PRC. Companies or individuals are only authorized to possess and use the land through land use rights granted by the PRC government.

As of the balance sheet dates, the Company’s land use rights are summarized as follows:

 
Useful lives
 
March 31,
2012
   
December 31,
 2011
 
At cost:
             
Land use rights
59 – 60 years
  $ 120,964     $ 120,660  
                   
Less: Accumulated amortization
      (20,967 )     (20,505 )
                   
Land use rights, net
    $ 99,997     $ 100,155  
                   
 
Amortization expense of land use rights for the three months ended March 31, 2012 and 2011 was $410 and $393, respectively.

 
 
9

 

 
NOTE 9 – OTHER INTANGIBLE ASSETS, NET

The Company’s other intangible assets represent cost of setting up information systems for the provision of franchising services. As of the balance sheet dates, the Company’s other intangible assets are summarized as follows:


 
 
Useful lives
 
March 31,
2012
   
December 31,
 2011
 
At cost:
             
Information systems
5 years
  $ 45,183     $ 45,069  
                   
Less: Accumulated amortization
      (23,941 )     (20,635 )
                   
Other intangible assets, net
    $ 21,242     $ 24,434  
                   
 
Amortization expense of other intangible assets for the three months ended March 31, 2012 and 2011 was $3,248 and $2,161, respectively.
NOTE 10 – AMOUNT DUE FROM/(TO) DIRECTORS

As of the balance sheet dates, the Company’s current accounts with the directors are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Ye Xin Zhang
  $ 25,785     $ 57,460  
                 
Chen Xing Hua
  $ (869,425 )   $ (876,814 )
                 
 
The amount due from Mr. Ye Xin Zhang represents temporary advances to the director for the Company’s daily operating expenses.  The balances are unsecured, interest free, and have no fixed terms of repayments.

The amount due to Mr. Chen Xing Hua represents temporary advances from the director for the Company’s working capital use. The balance is unsecured, interest free, and has no fixed terms of repayment.

NOTE 11– DEBTS

The Company’s debts are summarized as follows:

       
Effective
interest rate
   
Outstanding balance
 
Name of parties
Due date
Nature
 
March 31,
2012
   
December 31,
 2011
   
March 31,
2012
   
December 31,
 2011
 
                             
Qin Jianguo
On demand
Unsecured
 
Nil
   
Nil
    $ 187,954     $ 187,482  
Shu Jian
On demand
Unsecured
    5.85 %   5.85 %     175,010       238,050  
Shenzhen Datang Hexie Investment Ltd.
On demand
Unsecured
 
Nil
   
Nil
      -       39,675  
China Construction Bank
November, 2012
Secured
    7.544 %   7.544 %     1,272,800       1,269,600  
                                   
Short term debt
                    $ 1,635,764     $ 1,734,807  
                                   

Total interest expense related to these debts for the three months ended March 31, 2012 and 2011 was $19,591 and $1,780 respectively.

As of March 31, 2012, the bank loans were secured by pledges of certain fixed assets and land use rights held by of the Company.

 
 
10

 
 
 
NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES

As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Accrued operating expenses
  $ 25,795     $ 80,577  
Accrued interest expense – (i)
    269,521       265,943  
Amount due to Shenzhen Hanhong – (ii)
    867,095       855,246  
Other payables – (iii)
    773,480       835,671  
                 
    $ 1,935,891     $ 2,037,437  
                 

(i)  
Amount mainly represents accrued interest expense for loan from Qin Jianguo and Shu Jian (please also see footnote 11).

(ii)  
The amount mainly represents consultancy fee payable to Shenzhen Hanhong. Shenzhen Hanhong is a related party as Mr. Chen Xing Hua is a common director of the Company and Shenzhen Hanhong. The amount is interest free, unsecured and has no fixed terms of repayment.

(iii)  
Included in other payable as of March 31, 2012, there are an amount payable for office decoration in the amount of $254,560, and an amount payable for marketing and promotional expenses of $429,593. The remaining balance consists of amounts owed by the Company to various entities that are incurred by the Company in daily business operations other than trading nature.  These liabilities and accrued operating expenses are non-interest bearing and are payable within one year.

NOTE 13 – RECEIPT IN ADVANCE

As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Receipt in advance
  $ 734,236     $ 732,390  
                 
 
Receipt in advance mainly consists of money received from customers for regional distribution rights which are yet to be performed. Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)  
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  
(ii)  
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
 
NOTE 14 – TAXES PAYABLE

As of the balance sheet dates, the Company’s taxes payable are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Income tax payables
  $ 289,867     $ 289,059  
Value added tax payables
    1,531,866       1,519,425  
                 
Total
  $ 1,821,733     $ 1,808,484  
                 

NOTE 15 – COMMON STOCK

As of the balance sheet dates, the Company has authorized 400,000,000 shares $0.001 par value of common stock, of which 300,000,000 shares have been issued and outstanding. The Company has also authorized 10,000,000 shares of preferred class of stock, but no shares have been issued as of March 31, 2012.


 
11

 
 
 
NOTE 16 – SEGMENT REPORTING

The Company’s reportable segments of business include sale of consumer products and regional distribution rights.  Each of these segments is conducted in a separate corporation and each functions independently of the others. The Company has no sales between segments.

Financial information of the Company’s business segments is as follows:

   
Three months ended March 31,
 
   
2012
   
2011
 
             
Revenues from:
        $    
Sale of consumer products
    613,756       719,183  
Regional distribution rights
    68,602       -  
      682,358       719,183  
                 
Segment profit/(loss) from:
               
Sale of consumer products
    86,943       355,823  
Regional distribution rights
    55,608       (163,842 )
Corporate
    (93,154 )     (79,584 )
      49,397       112,397  
                 
Depreciation and amortization expenses:
               
Sale of consumer products
    23,311       20,501  
Regional distribution services
    18,115       17,978  
Corporate
    96       -  
      41,522       38,479  
                 
Segment assets:
               
Sale of consumer products
    4,392,695       4,412,005  
Regional distribution services
    1,131,011       1,174,817  
Corporate
    -       96  
      5,523,706       5,586,918  
                 
Capital expenditure
               
Sale of consumer products
    14,593       8,863  
Regional distribution services
    -       -  
Corporate
    -       -  
      14,593       8,863  
                 

NOTE 17 – PROVISION FOR INCOME TAXES

A reconciliation of the expected tax with the actual tax expense is as follows:

   
Three months ended March 31,
 
   
2012
   
2011
 
   
Amount
   
%
   
Amount
   
%
 
                         
Income before provision for income taxes
  $ 49,397             112,397        
                             
Expected PRC income tax expense at statutory tax rate of 25%
    12,349       25.0       28,099       25.0  
Utilization of tax loss brought forward
    (12,349 )     (25.0 )     (28,099 )     (25.0 )
                                 
Provision for Income Taxes
  $ -       -     $ -       -  

(i)  
Both Jiangxi Jien and Shenzhen Jien are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
(ii)  
Plenty Fame is not subject to tax in accordance with the relevant tax laws and regulations of the BVI.
(iii)  
Prospect did not generate any assessable profits since its incorporation and therefore is not subject to HKSAR tax.

 
 
12

 

 
NOTE 18 – RELATED PARTY TRANSACTIONS

In addition to the transactions detailed elsewhere in these financial statements, the Company entered into the following significant transactions with related parties:

   
Three months ended March 31,
 
   
2012
   
2011
 
             
Chen Xing Hua
           
Rental expenses payable for the Company’s office premises in Shenzhen, the PRC
  $ -     $ 9,598  
                 
 
Mr. Chen Xing Hua, the director of Shenzhen Hanhong, is also a director of the Company.  Details of which please refer to note 10 to the consolidated financial statements.

In the opinion of the directors, the above transactions were entered into by the Company in the normal course of business.
 
NOTE 19 – CONCENTRATION OF RISK

The Company is exposed to the following concentrations of risk:
 
Zhang De Jun contributed 9.1% and 62.13% of the Company’s revenues for the three months ended March 31, 2012 and 2011, respectively.

NOTE 20 – CAPITAL COMMITMENT

Capital Commitment:

As of the balance sheet dates, the Company’s capital commitment are summarized as follows:

   
March 31,
2012
   
December 31,
 2011
 
             
Construction-in-progress:
           
Contracted but not provided for
  $ 1,553,906     $ 1,550,000  
                 

NOTE 21 – GOING CONCERN

Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since 2010, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant accumulated losses. As of March 31, 2012, the Company has accumulated deficits of $4,565,916, a negative working capital of $5,771,801.

As of March 31, 2012 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
 
 
 
13

 
 
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report.

Forward Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "our company believes," "management believes" and similar language.  These forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Description of Business" and "Management's Discussion and Analysis", including under the heading “– Risk Factors”.  Our actual results may differ materially from results anticipated in these forward-looking statements.  We base our forward-looking statements on information currently available to us, and we assume no obligation to update them.  In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe that such comparisons cannot be relied upon as indicators of future performance.

Results of Operations

Results of Operations – Three Months Ended March 31, 2012 as Compared to Three Months Ended March 31, 2011

                         
   
Three months ended
             
   
March 31
   
Increase/
   
%
 
   
2012
   
2011
   
(decrease)
   
change
 
                         
Revenue
  $ 682,358     $ 719,183     $ (36,825 )     (5.1 )
Cost of sales
    345,777       243,898       101,879       41.8  
Selling and distribution expenses
    112,617       182,247       (69,630 )     (38.2 )
General and administrative expenses
    154,976       178,824       (23,848 )     (13.3 )
Income/(loss) before income taxes
    49,397       112,397       (63,000 )     (56.1 )
Provision for income taxes
    -       -       -       N/A  
Net income/(loss)
  $ 49,397     $ 112,397     $ (63,000 )     (56.1 )

Revenues
Revenue for the three months ended March 31, 2012 amounted to $682,358, represents a $36,825 or 5.1% decrease when compare to $719,183 for the same period last year.  Revenue for the three months ended March 31, 2012 and 2011 are analyzed as follows:

                         
   
Three months ended
March 31,
   
Increase/
   
%
 
   
2012
   
2011
   
(decrease)
   
change
 
                         
Sale of consumer products
  $ 613,756     $ 719,183       (105,427 )     (14.7 )
Regional distribution rights
    68,602       -       68,602       N/A  
      682,358       719,183       (36,825 )     (5.1 )
                                 

 
 
14

 
 
(a)  
Sale of consumer products
Our sales of consumer products consist of providing herbal teas and beverages, different flavor of compressed cereal bar, healthy water and health liquors.  Sales decreased by $105,427, or 14.7%, from $719,183 for the three month period ended March 31, 2011 to $613,756 for the three months period ended March 31, 2012.  The decrease in sales revenue was mainly due to selling price reduction in response to the increasingly intensive competition in the consumer products business.
 
Since the last quarter of 2011, the Company modified its sales strategies to lower the selling price of consumer products in an effort to reclaim the market share and manage the inventory levels. We plan to continue our efforts to develop new products to meet the market demand, strengthen the product quality, brand awareness, and improve the efficiency of our distribution network.

(b)  
Regional distribution rights

Since third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark.

Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  
(ii)
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
(iii)
Brand usage fee income is recognized when service has been rendered and the rights to receive payment have been established.

The continuing supporting services included adverting campaign, band promotion activities and training services provided to the distributor for the next three years after distribution rights granted. The continuing management fee will be recognized on a yearly basis.

As the regional distribution rights business struggled in 2011, there was no additional initial fee income received in the very competitive market. We made some adjustments in our regional distribution rights policy and provide more favorable terms to the distributors in the fourth quarter of 2011. As a result, we successfully recruited some new agents in the first quarter of 2012.

The amount received from the new agents met the criteria of brand usage fee and was recognized as revenue in the three months ended March 31, 2012, as compared to no such revenue for regional distribution rights recorded during the first quarter of 2011.

Cost of sales
Cost of sales represents cost of consumer products sold. The cost for regional distribution rights business are expenses incurred to recruit new agents, promote the brand image and implement strategic advertising campaigns, all of which are included in selling and marketing expenses.

Cost of sales mainly represents the cost from subcontractors, which increased significantly by $101,879 or 41.8% from $243,898 for the first quarter of 2011 to $345,777 for the same period in 2012. This increase was primarily attributable to general increases in raw materials costs, costs of packing materials and increase of labor costs since the year of 2010.

Selling and distribution expenses
Selling and distribution expenses for the three months ended March 31, 2012 and 2011 amounted to $112,617 and $182,247, respectively. The substantial decrease of $69,630 or 38.2% was mainly attributable to the modification of the marketing strategy. We cut some marketing campaigns and promotion activities in order to accommodate to the new market environment and improve the effectiveness of our sales and marketing expenses during the first quarter of 2012.

General and administrative expenses
General and administrative expenses dropped by $23,848 or 13.3% from $178,824 for the first quarter of 2011 to $154,976 for the same quarter of 2012. The decrease mainly reflected the fact that our cost saving plan was implemented more efficiently in the three months ended March 31, 2012, which primarily represented the reduction in payroll, travelling expense and office expenses.

Income before income taxes and provision for income taxes
The Company recorded a pretax income of $49,397 and $112,397 for the three months ended March 31, 2012 and 2011, respectively.

Our consumer products segment recorded a pretax income of $86,943 for the three months ended March 31, 2012, compared to a pretax income of $355,823 for the same period of 2011. The decrease was mainly due to the decrease in selling price and significant increase in cost of sales, which was offset in part by drop in selling and distribution expenses.

Our regional distribution rights segment recorded a pretax income of $55,608 and a pretax loss of $163,842 in the three months ended March 31, 2012 and 2011, respectively. The change primarily resulted from no initial fee income generated during the first quarter of 2011.

There was no PRC income tax provision for the first quarter of 2012 and 2011 as substantial amount of pretax income were absorbed by substantial accumulated losses incurred in previous years.
 
 
 
15

 

 
Net income
We recorded a net income of $49,397 for the first quarter of 2012, as compared to a net income of $112,397 for the same period in 2011. The decrease in net income was mainly attributable to the increase in cost of sales and the reduction in selling price.

Cash and cash equivalents
As of March 31, 2012, the Company had a total cash and cash equivalents of $82,928 compared to $97,522 as of December 31, 2011. The cash was mainly used to fund our operations. The Company’s cash flows for the three months ended March 31, 2012 are analyzed as follows:
 
Cash Flow from Continuing Operations

   
Three months ended
 
   
March 31,
 
   
2012
   
2011
 
             
Net cash provided by operating activities
  $ 120,715     $ 98,904  
Net cash used in investing activities
    (14,593 )     (8,863 )
Net cash used in financing activities
    (110,609 )     (68,734 )
Net increase/(decrease) in cash and cash equivalents
  $ (4,487 )   $ 21,307  

During the three months ended March 31, 2012, we had net cash provided by operating activities of $120,715, as compared to net cash provided by operating activities of $98,904 for the same period last year. The increase in cash inflow from operating activities was primarily due to more cash settlement of accounts receivables in this period.

Our cash flow used in investing activities for the three months ended March 31, 2012 and 2011 amounted to $14,593 and $8,863, respectively. The net cash used in investing activities mainly represents purchase of equipment and machinery during the both period.

Our cash flows used in financing activities for the three months ended March 31, 2012 amounted to $110,609, as compared to net cash used in financing activities of $68,734 for the same period last year. The difference mainly represents the repayment of loans of $103,220.

Working Capital
As of March 31, 2012, the Company recorded a working capital deficit of $5,771,801, as compared to a deficit of $5,833,843 as of December 31, 2011. The slight increase in working capital was mainly due to a net income generated from our operation for the three months ended March 31, 2012. The Company is developing a storage and logistic base in Anyi County, Jiangxi Province, China, with an expected cost of approximately $3.3 million.  As of March 31, 2012, amount of $1.7 million has been incurred and the Company intends to spend another $1.6 million for the storage and logistic base in the next 12 months..

Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since 2010, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and has incurred significant accumulated losses. As of March 31, 2012, the Company has accumulated deficits of $4,565,916, a negative working capital of $5,771,801.

As of March 31, 2012 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company will attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 
 
16

 


Off-Balance Sheet Transactions
We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, cash flows, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered 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 estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements.

We believe that the following critical accounting policy reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial statements and affect our financial condition and results of operations.

Revenue Recognition
We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.

The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable.

Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)
Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  
(ii)
Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.
(iii)
Brand usage fee income is recognized when service has been rendered and the rights to receive payment have been established.

Recent Accounting Pronouncements

The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its condensed consolidated financial statements.
 
 
 
17

 


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to various market risks arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and interest rates, which could impact our results of operations and financial position. We do not currently engage in any hedging or other market risk management tools, and we do not enter into derivatives or other financial instruments for trading or speculative purposes.
 
Foreign Currency Exchange Rate Risk
 
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Chinese Renminbi, could adversely affect our financial results. During the three months ended March 31, 2012, approximately all of our sales are denominated in foreign currencies. We expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby mitigating our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not substantial. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.
 
All of our sales denominated in foreign currencies are denominated in the Chinese Renminbi. Our principal exchange rate risk therefore exists between the U.S. dollar and this currency. Fluctuations from the beginning to the end of any given reporting period result in the re-measurement of our foreign currency-denominated receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other income (expense), net in our combined consolidated financial statements. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.
 
Interest Rate Risk
 
Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant. 
 
Inflation
 
In recent years, China has not experienced significant inflation, and thus inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 5.4%, 4.6% and -0.7% in 2011, 2010 and 2009, respectively.
 
Currency Exchange Fluctuations
 
All of the Company's revenues are denominated in Chinese Renminbi, while its expenses are denominated primarily in Chinese Renminbi ("RMB"). The value of the RMB-to-U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People's Bank of China, which are set daily based on the previous day's inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the RMB from the United States dollar. At the recent quarterly regular meeting of People's Bank of China, its Currency Policy Committee affirmed the effects of the reform on RMB exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of RMB has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so. 
 
 
 
18

 
 
 
Concentration of Credit Risk
 
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions as described below:
 
1. 
 Approximately 100% of the Company's revenue is derived from the PRC. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.

 2.
  If the Company is unable to derive any revenues from China, it would have a significant, financially disruptive effect on normal operations of the Company.

ITEM 4.  CONTROLS AND PROCEDURES

Our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures are appropriate and effective. They have evaluated these controls and procedures as of the date of this report on Form 10-Q. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Our management believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
 

 
19

 


PART II -OTHER INFORMATION
   
ITEM 1.
LEGAL PROCEEDINGS

None.
   
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.
   
ITEM 3.
DEFAULT UPON SENIOR SECURITIES

None.
   
ITEM 4.
[REMOVED AND RESERVED]

None.
   
ITEM 5.
OTHER INFORMATION

None.

ITEM 6.               EXHIBITS

Exhibits

   
Exhibit
Number
Description
31.1
Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
20

 
 
 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
   
   
   
 
CHINA GREEN CREATIVE, INC.
   
   
Dated: May 17, 2012
/s/ Ye Xing Zhang
 
Ye Xing Zhang
 
Chief Executive Officer
   
   
   
Dated: May 17, 2012
/s/ Deng Lin
 
Deng Lin
 
Chief Financial Officer

 
 
 

 

PINX:CNGV Quarterly Report 10-Q Filling

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

PINX:CNGV Quarterly Report 10-Q Filing - 3/31/2012
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