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

FORM 10-Q
 

(Mark One)

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

For the quarterly period ended March 31, 2013
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

       For the transition period from ____________ to ____________

Commission File Number: 333-167090

ASIA CARBON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
26-2895795
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

Xi Gu Nan Street, Qing Xu County, Taiyuan City
Shanxi Province, People’s Republic of China
 (Address of principal executive offices) (Zip Code)

86-351-5966868
(Issuer'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 x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No o

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  55,656,858 shares of common stock, $.001 par value, as of May 10, 2013.

 
TABLE OF CONTENTS
 
PART I
 
FINANCIAL INFORMATION
 
Page
         
Item 1.
      F-1
         
        F-1
   
As of March 31, 2013 (Unaudited) and December 31, 2012
   
         
        F-2
   
For the Three Months Ended March 31, 2013 and 2012 (Unaudited)
   
         
        F-3
   
For the Three Months Ended March 31, 2013 and 2012 (Unaudited)
   
         
        F-4
   
As of March 31, 2013 (Unaudited) and December 31, 2012
   
         
Item 2.
      3
         
Item 3.
      9
         
Item 4.
      9
         
PART II
 
OTHER INFORMATION
   
         
Item 1.
      10
         
Item 1A.
      10
         
Item 2.
      10
         
Item 3.
      10
         
Item 4. 
      10
         
Item 5.
      10
         
Item 6.
      10
         
    11
     
    12
 

PART I

FINANCIAL INFORMATION

Item 1.  Financial Statements.
 
 
CONSOLIDATED BALANCE SHEETS
 
             
   
March 31,
   
December 31,
 
   
2013
   
2012
 
   
(Unaudited)
       
ASSETS
           
 Current Assets:
           
Cash and equivalents
  $ 6,054,268     $ 6,664,444  
Accounts receivable, net
    2,700,198       3,622,644  
Inventories
    1,673,992       2,393,121  
Prepaid expenses and other receivable
    20,860       6,420  
Total Current Assets
    10,449,318       12,686,629  
                 
 Property, Plant and Equipment, Net
    28,938,045       26,906,929  
                 
 Other Assets:
               
Land use rights, net
    211,869       214,356  
                 
 TOTAL ASSETS
  $ 39,599,232     $ 39,807,914  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
 Current Liabilities:
               
Short term debt
  $ 1,356,078     $ 1,364,014  
Accounts payable
    1,785,900       1,962,695  
Accrued liabilities
    150,212       169,302  
Taxes payable
    130,510       714,413  
Investor deposit payable
    50,000       -  
Due to shareholder
    26,503       26,625  
Total Current Liabilities
    3,499,203       4,237,049  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity:
               
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 authorized,
  none issued and outstanding
    -       -  
Blank Check Preferred Stock, $0.001 par value, 5,000,000 authorized,
  none issued and outstanding
    -       -  
Common stock, $0.001 par value, 100,000,000 authorized, 52,857,052
  issued and outstanding at March 31, 2013 and December 31, 2012
    52,857       52,857  
Additional paid-in capital
    7,035,461       6,690,461  
Statutory reserves
    2,757,200       2,757,200  
Retained earnings
    23,249,851       22,859,898  
Accumulated other comprehensive income
    3,004,660       3,210,449  
Total Stockholders' Equity
    36,100,029       35,570,865  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 39,599,232     $ 39,807,914  
 
The accompanying notes are an integral part of these consolidated financial statements.


ASIA CARBON INDUSTRIES, INC . AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(UNAUDITED)
 
             
   
Thre e Months Ended March 31,
 
   
2013
   
2012
 
             
Net Sales
  $ 5,963,945     $ 12,581,692  
Cost of Sales
    4,574,689       9,655,740  
Gross Profit
    1,389,256       2,925,952  
                 
Operating Expenses:
               
Selling
    81,785       91,691  
General and administrative
    618,708       310,388  
  Total Operating Expenses
    700,493       402,079  
Income From Operations
    688,763       2,523,873  
Other Income and (Expense)
               
Interest income
    -       11,060  
Interest expense
    (34,251 )     (45,634 )
  Total Other Income and (Expense)
    (34,251 )     (34,574 )
Income Before Provision for Income Tax
    654,512       2,489,299  
Provision for income tax
    264,559       682,218  
Net Income
    389,953       1,807,081  
                 
Other comprehensive loss – Foreign currency translation
    (205,789 )     (15,411 )
Comprehensive Income
  $ 184,164     $ 1,791,670  
                 
Net Income Per Share - Basic
  $ 0.01     $ 0.04  
Net Income Per Share - Diluted
  $ 0.01     $ 0.04  
Weighted Average Shares Outstanding - Basic
    52,857,052       51,194,583  
Weighted Average Shares Outstanding - Diluted
    54,888,900       51,194,583  
 
The accompanying notes are an integral part of these consolidated financial statements.


ASIA CARBON INDUSTRIES , INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
             
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Cash Flows from Operating Activities:
           
Net Income
  $ 389,953     $ 1,807,081  
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
               
Provision for doubtful accounts
    4,075       14,192  
Depreciation and amortization
    464,009       441,538  
Stock-based compensation
    345,000       112,500  
Changes in operating assets and liabilities:
               
Accounts receivable
    895,816       (1,074,448 )
Inventories
    704,049       (143,372 )
Prepaid expenses and other receivable
    (14,453 )     4,786  
Accounts payable
    (198,306 )     (841,890 )
Accrued expenses
    14,832       47,231  
Taxes payable
    (578,795 )     182,751  
Net Cash Provided by Operating Activities
    2,026,180       550,369  
                 
Cash Flows from Investing Activities:
               
Additions to construction  in progress
    (2,646,840 )     -  
Acquisitions of property, plant and equipment
    -       (939,786 )
Net Cash Used in Investing Activities
    (2,646,840 )     (939,786 )
                 
Cash Flows from Financing Activities:
               
Proceeds from investor deposit
    50,000       -  
Decrease in deposits payable
    -       (49,985 )
Proceeds from private placement
    -       99,970  
Net Cash Provided by Financing Activities
    50,000       49,985  
                 
Effect of Exchange Rate Changes on Cash
    (39,516 )     (4,476 )
Net Decrease in Cash and Equivalents
    (610,176 )     (343,908 )
Cash and Equivalents - Beginning of the Period
    6,664,444       8,092,411  
                 
Cash and Equivalents - End of the Period
  $ 6,054,268     $ 7,748,503  
                 
Supplemental Cash Flow Information:
               
Interest Paid
  $ 31,543     $ 45,976  
Income taxes
  $ 461,021     $ 589,467  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
ASIA CARBON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 (UNAUDITED) AND DECEMBER 31, 2012

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Asia Carbon Industries, Inc. (“Asia Carbon”) was incorporated June 23, 2008 under the laws of the State of Maryland.  Asia Carbon is a holding Company to develop business opportunities in the People’s Republic of China (“PRC” or “China”).

On November 10, 2008, Asia Carbon formed a wholly-owned subsidiary, Jin Zheng Li-Te-Wei-Si Carbon (Taiyuan) Inc. (“Liteweisi”) under PRC law in Taiyuan, China. Liteweisi is a management company formed to manage operations in China.

Taiyuan Hongxing Carbon Black Ltd. (“Hongxing”) was incorporated December 4, 2003 under the laws of the PRC. Hongxing is located at Qingxu County, Taiyuan, Shanxi province of China. Hongxing had two shareholders with registered capital of $384,300. Hongxing’s registered capital was $3,316,300 after one shareholder contributed $2,932,000 in 2008.

On December 29, 2009, Asia Carbon, through Liteweisi, entered into Entrusted Management, Exclusive Option, Exclusive Purchase, Pledge of Equity and Shareholders’ Voting Proxy Agreements (collectively, the “Entrusted Agreements”) with Hongxing and shareholders of Hongxing, Guoyun Yao and Chunde Meng (“Hongxing Shareholders”). The effect of the Entrusted Agreements was to cede control of management and the economic benefits of Hongxing to Liteweisi.  Asia Carbon issued 36,239,394 restricted shares of its common stock, par value $0.001 per share, to Karen Prudente, nominee and trustee for the Hongxing Shareholders for Hongxing and the Hongxing Shareholders for the Entrusted Agreements with Liteweisi.  The entry into the Entrusted Agreement and the issuance of shares to nominee and trustee holder to the Hongxing Shareholders are collectively referred to as “the transaction” hereafter.

The Entrusted Agreements gave Asia Carbon, through Liteweisi, the ability to substantially influence Hongxing’s operations and financial affairs, appoint its senior executives and approve all matters requiring shareholders’ approval. As a result of these Entrusted Agreements, which obligate Asia Carbon to absorb a majority of the risk of loss from Hongxing’s activities and enable Asia Carbon to receive a majority of its expected residual returns, Asia Carbon, through its wholly-owned subsidiaries, accounts for Hongxing as its Variable Interest Entity (“VIE”) under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) subtopic 810-10. Accordingly, Asia Carbon consolidates Hongxing’s operating results, assets and liabilities.

For accounting purposes, the transaction was accounted for in a manner similar to a reverse merger or recapitalization, since the stockholders of Hongxing owned a majority of Asia Carbon’s common stock immediately following the transaction. Consequently, the assets and liabilities and historical operations reflected in the consolidated financial statements prior to the transaction are those of Hongxing and are recorded at the historical cost of Hongxing, and the consolidated financial statements after completion of the transaction include the assets and liabilities of Asia Carbon, Liteweisi, and Hongxing (collectively, the “Company”), historical operations of Hongxing, and operations of Asia Carbon and Liteweisi from the date of the transaction. The 36,239,394 restricted shares of common stock issued to Karen Prudente were presented as outstanding for all periods.

On April 17, 2012, pursuant to Call Option Agreements dated December 29, 2009 between Karen Prudente and Ms. Guoyun Yao, the Chairman and Chief Executive Officer (“CEO”) of Asia Carbon, and Mr. Chun De Meng, a director and Chief Operating Officer (“COO”) of Asia Carbon, respectively (the “ Call Option Agreements”), Ms. Guoyun Yao and Mr. Chunde Meng exercised options to purchase 32,615,455 shares of common stock.

Asia Carbon, through Hongxing, manufactures three carbon black products N220, N330 and N660 under the brand name “Great Double Star” and other by-products. Most of the Company’s products are used by China’s tire industry.

Basis of Presentation

The accompanying consolidated financial statements were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).


Principles of Consolidation

The consolidated financial statements include the accounts of Asia Carbon, its subsidiaries, and its VIE for which Asia Carbon is the primary beneficiary. All significant inter-company transactions were eliminated in consolidation.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information

These financial statements and other financial information included in this Quarterly Report on Form 10-Q are unaudited, with the exception of the December 31, 2012 balance sheet. These unaudited interim consolidated financial statements were prepared in accordance with US GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP were condensed or omitted. Therefore, these unaudited interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and related notes as of and for the year ended December 31, 2012, included in the Company’s 2012 Annual Report on Form 10-K. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and equivalents, accounts receivable, prepaid expenses, short term debt, accounts payable and accrued liabilities, various taxes payable and amounts due to shareholder. The fair value of these financial instruments approximates their carrying amounts in the balance sheets due to their short term maturity or by comparison to other instruments with similar terms.

Foreign Currency Translation

The functional currency of Hongxing and Liteweisi is the Chinese Renminbi (“RMB”).  The reporting currency of the Company is the United States dollar (“US dollar”).

The assets and liabilities of Hongxing and Liteweisi are translated into US dollars at period-end exchange rates.  The revenues and expenses are translated into US dollars at average exchange rates of the periods. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income within stockholders’ equity.

The foreign exchange rates used in the translation are follows:

   
Three Months Ended
       
   
March 31,
   
December 31,
 
   
2013
   
2012
   
2012
 
RMB/US$ exchange rate at the period end
   
0.1591
     
0.1568
     
0.1589
 
Average RMB/US$ exchange rate for the period
   
0.1580
     
0.1544
     
0.1547
 
 
Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency were included in the consolidated results of operations. There was no material foreign currency transaction gain or loss for the three months ended March 31, 2013 or 2012.


Cash and Equivalents

Cash and equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with a maturity of three months or less when purchased.

Inventories

Inventories are stated at the lower of cost, as determined on a weighted average basis, or market. Costs of inventories include raw materials and related costs incurred in bringing the products to the Company’s location and in proper condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The Company writes down inventories to market value if below cost. The Company also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets.

Long Lived Assets

The Company evaluates potential impairment of long-lived assets, in accordance with ASC subtopic 360-10-15 “Impairment or Disposal of Long-Lived Assets” which requires to evaluate a long-lived asset for recoverability when there are events or circumstances that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.

Revenue Recognition

The Company recognizes revenue from sales of products. Sales are recognized when these four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales revenue is presented net of value added tax (“VAT”), sales rebates and returns. No return allowance is made as product returns are insignificant based on historical experience. The Company performs ongoing credit evaluations of its customers’ financial condition, but generally does not require collateral to support customer receivables. Credit risk is controlled through credit approvals, limits and monitoring procedures. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other factors. Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have been exhausted. Freight-in costs are included in cost of sales.

Segment Information

FASB ASC subtopic 280-10, “Segment Reporting”, requires disclosures about segments and related information of a public entity.  The Company manufactures and sells carbon black made from tar oil. The Company and its major suppliers and customers are located in the PRC. The Company operates in a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

Statement of Cash Flows

In accordance FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon local currencies using average translation rates. As a result, amounts reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding asset and liabilities balances on the consolidated balance sheets.
 

Income Taxes

The Company accounts for income taxes using the asset and liability method described in FASB ASC subtopic 740-10, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.

Uncertain Tax Positions

Interest associated with unrecognized tax benefits are classified as income tax and penalties are classified in selling, general and administrative expenses in the consolidated statements of income and comprehensive income.

Reclassifications

Certain prior period amounts were reclassified to conform to the manner of presentation in the current period.

Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update ("ASU") 2013-02, Comprehensive Income—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). This ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income ("AOCI") by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. ASU 2013-02 will be effective prospectively for reporting periods beginning after December 15, 2012. Early adoption is permitted. As this ASU only requires enhanced disclosure, the adoption did not have an impact on the Company’s financial position or results of operations.

NOTE 3 – ACCOUNTS RECEIVABLE, NET

Accounts receivable balances were as follows:

   
March 31, 2013
   
December 31, 2012
 
Accounts receivable
  $ 2,775,647     $ 3,694,429  
Allowance for doubtful accounts
    (75,449 )     (71,785 )
Accounts receivable, net
  $ 2,700,198     $ 3,622,644  

 NOTE 4 – INVENTORIES

Inventories consisted of the following:

   
March 31, 2013
   
December 31, 2012
 
Raw materials
  $ 1,263,787     $ 1,277,286  
Packing and other materials
    19,599       40,664  
Finished products
    390,606       1,075,171  
    $ 1,673,992     $ 2,393,121  
 

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment are summarized as follows:

   
Estimated
             
   
Useful Lives
   
March 31, 2013
   
December 31, 2012
 
Plant
  20     $ 8,729,409     $ 8,340,697  
Machinery and equipment
  10       16,741,699       16,839,670  
Transportation equipment
  5       117,065       117,750  
Other machinery and equipment
  5       61,578       61,938  
Construction in progress
          7,154,089       4,969,047  
            32,803,840       30,329,102  
Less: accumulated depreciation
          3,865,795       3,422,173  
Property, plant and equipment, net
        $ 28,938,045     $ 26,906,929  

Depreciation was $462,771 and $440,307 for the three months ended March 31, 2013 and 2012, respectively.  Depreciation included in cost of sales was $210,540 and $414,499 for the three months ended March 31, 2013 and 2012, respectively.

The Company started the construction of a 3000KW power plant including a water recycling system in June 2012, which is to utilize residual exhaust gas generated from the Company’s carbon black manufacturing process.  Management expects the power plant will satisfy the Company’s electricity needs for the current production capacities. Cost of construction of the plant was approximately $6.4 million. The power plant was completed and is currently being utilized for commercial production.

Beginning in October 2012, the Company terminated its production on the three dry carbon black production lines and began to convert them to special carbon black (“SCB”) production lines. In connection with the construction of the SCB production lines, the Company transferred the book value of the three dry production lines from property, plant and equipment to construction in progress in the fourth quarter of 2012. Most of the equipment and parts on the dry carbon black production lines were in good condition and suitable to be used in the new SCB production line. The Company’s policy is to continuously depreciate these assets during the construction period using estimated remaining useful lives until they are reused, sold, or disposed of.

NOTE 6 – LAND USE RIGHTS, NET

On December 29, 2005, the Company lent RMB554,130 ($88,426) to Xigu Village (“Village”), which was interest free and due December 29, 2008. The Village failed to repay the loan by December 29, 2008. Pursuant to the loan agreement, once the Village was in default, the Company had the right to use the outstanding amount as a prepayment to its future rent obligation for 49 mu (8.07 acre) of land the Village owns. The lease requires a yearly payment of RMB10,000 ($1,596) from July 2003 through July 2053. The Company has no obligation to pay this lease due to the default of the Village loan. The balance of the Village loan receivable was capitalized on December 31, 2008 as land use rights and is amortized over the remaining life of the land use rights.

On October 31, 2007, the Company lent an additional RMB1,000,000 ($159,576) to the Village. The loan was interest free and due October 31, 2010. The Village failed to repay the loan as of October 31, 2010. Pursuant to the loan agreement, if the Village was unable to repay the loan when due, the Company had the right to offset the defaulted loan balance against future rent obligations of the Company’s newly leased second 49 mu (8.07 acre) parcel of land. The lease requires a yearly payment of RMB10,000 ($1,596) through June 2056 from June 2006. The Company has no obligation to pay this lease due to the default of the Village loan. The balance of the Village loan receivable was capitalized on November 1, 2010 as land use rights and is amortized over the remaining life of the land use rights.


Land use rights balances were as follows:

   
March 31, 2013
   
December 31, 2012
 
Land use rights
  $ 240,928     $ 249,453  
Less: accumulated amortization
    29,059       35,097  
Land use rights, net
  $ 211,869     $ 214,356  

Amortization of land use rights was recorded as rent. Rent expense was $1,238 and $1,231 for the three months ended March 31, 2013 and 2012, respectively.

As of March 31, 2013, the estimated future amortization of land use rights is as follows:

Years Ending
December 31,
     
2013
  $ 3,720  
2014
    4,960  
2015
    4,960  
2016
    4,960  
2017
    4,960  
2018
    4,960  
Thereafter
    183,349  
    $ 211,869  

NOTE 7 – SHORT TERM DEBT

Short term debt consisted of the following:

   
March 31, 2013
   
December 31, 2012
 
To Xigu Credit Union
           
  Interest at 12%, payable December 26, 2013
  $ 494,686     $ 497,581  
To Chengguan Credit Union
               
  Interest at 12%, payable December 26, 2013
    861,392       866,433  
    $ 1,356,078     $ 1,364,014  

The short term loans are renewable based on the past credit of the Company. Interest is paid quarterly. There are no other terms or loan covenants relating to these short term loans.

The Xigu Creidt Union short-term loan of $494,686 (RMB 3,100,000) was due on December 27, 2012 and was renewed at interest rate of 12%, the new maturity date is December 26, 2013.

The Chengguan Credit Union short-term loan of $861,392 (RMB 5,398,000) was due on December 27, 2012 and was renewed at interest rate of 12%, the new maturity date is December 26, 2013.

NOTE 8 – TAXES PAYABLE

Taxes payable consisted of the following:

   
March 31, 2013
   
December 31, 2012
 
PRC corporation income tax
  $ 264,994     $ 464,481  
Value added tax
    (134,484 )     230,352  
Other
    -       19,580  
Total
  $ 130,510     $ 714,413  
 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Country Risk

As the Company's principal operations are in the PRC, it is subject to considerations and risks not typically associated with companies in North America and Western Europe. These risks include, among others, risks associated with the political, economic and legal environment and foreign currency exchange limitations encountered in the PRC. The Company's results of operations may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, among other things.

In addition, all of the Company's transactions in the PRC are denominated in RMB, which must be converted into other currencies before remittance from the PRC. Both conversion of RMB into foreign currencies and remittance of foreign currencies abroad require approval of the PRC government.

Lack of Insurance

The Company currently has no insurance for its office facilities and operations and is not certain it can cover the risks associated with such lack of insurance or that it will be able to obtain and/or maintain insurance to cover these risks at economically feasible premiums.

Entry Into Guaranty Agreements – Related Party Transaction

On May 24, 2012, Liteweisi and Hongxing separately entered into a Guaranty Agreement with Mr. Liang Qiao, an individual residing in the PRC (the “Lender”), Ms. Guoyun Yao, the Company’s Chairman and CEO and Mr. Chunde Meng, the Company’s COO for a loan totaling RMB18 million ($2,872,371) (the “Loan”) due on August 23, 2012. Liteweisi and Hongxing were jointly liable for the Loan until it was repaid when the guaranty obligation ended.  The Loan was repaid in full in September 2012 and Liteweisi and Hongxing’s joint guaranty obligation extinguished.
 
Capital Commitments

As of March 31, 2013, the Company was committed to various construction and equipment purchase contracts for the SCB production lines with a total contract price of $634,156.

NOTE 10 – STOCKHOLDERS’ EQUITY

On March 15, 2012, the Board of Directors (“BOD”) passed a resolution to issue and sell 156,250 shares of common stock of the Company  to an accredited investor in China for $100,000. The stock was valued at $0.45 per share (the market closing price on March 14, 2012).  The difference between the market price and the actual sale price was recorded to Additional Paid-in Capital (“APIC”).

On May 3, 2012, the BOD passed a resolution to issue and sell 222,222 shares of common stock of the Company to two accredited investors in China for $100,000. The stock was valued at $0.38 per share (the market closing price on May 2, 2012). The difference between the market price and the actual sale price was recorded to APIC.

On December 5, 2012, the BOD passed a resolution to issue and sell 500,000 shares of common stock of the Company to two accredited investors in China for $100,000. The stock was valued at $0.14 per share (the market closing price on December 4, 2012). The difference between the market price and the actual sale price was recorded to APIC.

On March 7, 2013, the BOD passed a resolution to authorize the Company to issue 31,848 shares of common stock to a director for his past services.  The cost is estimated at $5,000 based on the closing price of $0.16 of the common stock on March 6, 2013.

On March 20, 2013, the BOD passed a resolution to issue and sell 250,000 shares of common stock of the Company to one accredited investor in China for $50,000. The stock was valued at $0.20 per share (the market closing price on March 19, 2013).
 

2011 Stock Incentive Plan

On September 13, 2011, the BOD of Asia Carbon passed a resolution to adopt Asia Carbon’s 2011 Incentive Stock Plan (the “Plan”) which aims to support and increase the Company’s ability to attract, engage and retain individuals of exceptional talent, to provide additional incentive for persons employed by the Company, including without limitation any employee, director, general partner or officer, and to advance the best interests of the Company by providing to those persons who have a substantial responsibility for its management, affairs, and growth, a proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company. The Plan reserved 5,000,000 shares of common stock of the Company for the issuance of equity awards thereunder.

On March 16, 2012, the BOD passed a resolution to issue 1,000,000 shares of common stock of the Company under the Plan to 10 senior managers or key employees as part of compensation for 2012. The cost is estimated at $450,000 based on the closing price of the Company’s common stock on March 15, 2012 of $0.45. The Company expensed this compensation cost evenly throughout  2012.

On March 27, 2013, the BOD passed a resolution to authorize the Company to issue 2,000,000 shares of common stock of the Company under the Plan to 10 senior managers or key employees as part of compensation for 2012. The cost is estimated at $340,000 based on the closing price of $0.17 of the Company’s common stock on February 6, 2013. The Company expensed this compensation cost in the three months ended March 31, 2013.

NOTE 11 – CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in various banks in China. Currently, no deposit insurance system has been set up in China. Therefore, the Company will bear all the risks if any of these banks become insolvent. As of March 31, 2013 and December 31, 2012, the Company’s uninsured cash balances were approximately $6,049,000 and $6,632,000, respectively.

NOTE 12 – INCOME TAXES

The Company generated substantially all of its net income from its PRC operations for the three months ended March 31, 2013 and 2012 and recorded income tax provisions for the periods. The Company’s China operation is subject to the PRC standard enterprise income tax rate of 25% based on its taxable net profit.

Current PRC Tax Law also imposes a 10% withholding tax on all dividends paid by PRC companies to non-PRC shareholders  unless any foreign shareholder’s jurisdiction has a tax treaty with the PRC that provides for a different withholding arrangement and contains rules governing such matters as international transfer pricing.  No provision for withholding or other tax on the undistributed earnings of the PRC companies was made as the earnings of these PRC companies, in the opinion of the management, will be reinvested indefinitely.

The Company did not have any significant temporary differences giving rise to deferred tax liabilities as of March 31, 2013 and December 31, 2012.

For the three months ended March 31, 2013 and 2012, reconciliation of the differences between the statutory US Federal income tax rate and the effective rate were as follows:

   
2013
   
2012
 
             
US statutory tax rate
   
34.0
%
   
34.0
%
Tax rate difference
   
(15.0
)%
   
(9.0
)%
Changes in valuation allowance
   
22.7
%
   
2.4
%
Other
   
(1.3)
%
   
-
%
Effective rate
   
40.4
%
   
27.4
%
 
At March 31, 2013, the Company had US net operating loss carry forwards of $2,115,046. A 100% valuation allowance was recorded against their potential tax benefit due to the uncertainty of its realization.

For the three months ended March 31, 2013 and 2012, the Company had no unrecognized tax benefits and related interest and penalties expenses.  Currently, the Company is not subject to examination by major tax jurisdictions.
 

NOTE 13 – MAJOR CUSTOMERS AND VENDORS

For the three months ended March 31, 2013, five customers accounted for 23%, 17%, 16%, 12% and 11% of the Company’s total revenue. At March 31, 2013, the outstanding trade receivables from these five customers were 20%, 17%, 16%, 3% and 9% of the total outstanding trade receivables.

For the three months ended March 31, 2012, four customers accounted for 11%, 22%, 26% and 13% of the Company’s total revenue.  At March 31, 2012, the outstanding trade receivables from these four customers were 13%, 19%, 24% and 13% of the total outstanding trade receivables.

For the three months ended March 31, 2013, four suppliers accounted for 29%, 29%, 16% and 26% of the Company’s total purchases. At March 31, 2013, the outstanding trade payables to these four suppliers were 20%, 21%, 0% and 10% of the total outstanding trade payables.

For the three months ended March 31, 2012, five suppliers accounted for 13%, 12%, 13%, 13% and 13% of the Company’s total purchases.  At March 31, 2012, the outstanding trade payables to these five suppliers were 17%, 17%, 17%, 17% and 17% of the total outstanding trade payables.

The loss of any of these suppliers or customers could have a material adverse effect on the Company’s financial position and results of operations.

NOTE 14 – SUBSEQUENT EVENTS

Effective as of April 16, 2013, Asia Carbon entered into a financial services agreement with ELZ Accountancy Corp and Ms. Elaine Zhao.  Pursuant to the terms of the Agreement, Ms. Zhao agreed to serve as the Company’s Chief Financial Officer (“CFO”) for a term of one year at an annual salary of $50,000.  In addition, effective as of the same day, the BOD granted 30,000 shares of restricted stock under the Plan to vest in four tranches quarterly with a performance target of the Company’s filing its periodic reports in a timely fashion.

On April 26, 2013, the BOD passed a resolution to issue and sell 384,615 shares of common stock of the Company to one accredited investor in China for $50,000. The stock was valued at $0.13 per share (the market closing price on April 24, 2013).

Also on April 26, 2013, the BOD passed a resolution to authorize the Company to issue 103,333 shares of common stock to the former CFO of the Company for his past services.  The fair value was $12,400 based on the closing price of $0.12 per share that day.


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as the slow-down of the global financial markets and its impact on economic growth in general, the competition in the carbon black industry and the impact of such competition on pricing, revenues and margins, and the factors set forth elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Unless the context indicates otherwise, as used in the following discussion, “Company”, “we,” “us,” and “our,” refer to (i) Asia Carbon Industries, Inc. (“Asia Carbon”), a corporation incorporated in the State of Maryland; (ii) Jin Zheng Li-Te-Wei-Si Carbon (Taiyuan) Inc. (“Liteweisi”), a wholly-owned subsidiary of Asia Carbon organized under the laws of the PRC; (iii) Taiyuan Hongxing Carbon Black Ltd. (“Hongxing”), a company organized under the laws of the PRC, the Variable Interest Entity (“VIE”) of Asia Carbon.

Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “US dollar” and “$” are to United States dollars; and (iii) “RMB”, “Yuan” and Renminbi are to the currency of the PRC or China.
 
The Company, through Hongxing, its operating company in the PRC, manufactures carbon black products under the brand name “Great Double Star” and other by-products.

The Company currently manufactures two “hard” and one “soft” carbon black products, N220, N330, and N660, respectively. N220 and N330 are hard carbon black. N220 has good strength and elongation properties, and is mainly used in the manufacturing of automobile tires. N330 has a lower production cost and is mainly used in manufacturing the sides of automobile tires. N660 is a soft carbon black which has the flexibility necessary for the production of automobile tire inner tubes and hoses.

Most of the Company’s products are used by the tire industry in China.

Recent Development

In June 2012, the Company began construction on a 3000 KW power plant. Utilizing residual exhaust gas generated from the Company’s carbon black manufacturing process, the plant’s capacity is expected to satisfy the Company’s electricity needs for its current production lines. The cost of the construction of the plant was $6.4 million. The power plant was completed and is currently being utilized for commercial production. Management estimates the plant will bring savings of $570,000 annually given all four production lines are running near full capacity.

In October 2012, the Company began converting its three dry production lines to special carbon black (“SCB”) production lines. SCB has a broader range of use compared to the more traditional products including use as a pigmenting agent, UV stabilizer or conductive agent in a variety of products, such as plastics, toners and printing ink and coating, battery and electrical parts. Management believes SCB will generate more revenues as a result of higher sales prices. The conversion continued to affect the Company’s operating results in the first quarter of 2013 as the three dry production lines have not been in operations since the fourth quarter of 2012. The conversion will continue to have a negative impact on the Company’s 2013 operating results until completion, expected to be by the end of the second quarter of 2013. This project is funded by the cash from the Company’s operations. The total estimated cost is $5.5 million.
 
  
Results of Operations

Comparisons for the Three Months Ended March 31, 2013 and 2012

Sales

     
Three Months Ended March 31,
 
     
2013
   
2012
 
     
Sales
   
Quantity
(Metric Ton)
   
Sales
   
Quantity
(Metric Ton)
 
N220     $ 4,901,983       5,811     $ 7,815,209       8,000  
N330       281,376       333       1,990,807       2,284  
N660       219,309       284       1,922,322       2,289  
Naphthalene oil
      561,277       840       853,354       1,050  
Total
    $ 5,963,945       7,268     $ 12,581,692       13,623  
 
Total sales decreased $6,617,747 or 53% during the three months ended March 31, 2013 compared to the 2012 period.  The decrease in sales was primarily due to the decrease in production and unit sales prices.

During the first quarter of 2013, the average selling prices of our products was $821 per metric ton, a decrease of $103, or 11%, from $924 in the 2012 period.

During the first quarter of 2013, the Company sold 7,268 metric tons of carbon black and naphthalene oil, a decrease of 6,355 metric tons, or 47%, compared to 13,623 metric tons in the 2012 period. The decrease was mainly attributable to the Company’s SCB production lines renovation project. Beginning in October 2012, the Company suspended production on its three dry carbon black production lines and began to convert them to SCB production lines.

Cost of Sales

Cost of sales was $4,574,689 for the three months ended March 31, 2013, a decrease of $5,081,051, or 53%, compared to $9,655,740 in the 2012 period. It was mainly attributable to the decrease in production and average purchase price of the primary raw material, coal tar. The average price of coal tar was $355 per metric ton in the first quarter of 2013, a decrease of $30 per metric ton, or 8% from $385 per metric ton in the 2012 period.  The quantity of coal tar used in production in the first quarter of 2013 was  8,392 metric tons, a decrease of 14,470 metric tons, or 63% compared to 22,862 metric tons in the 2012 period.  The decrease in usage of coal tar was mainly due to the suspension of production on the three dry carbon black production lines for conversion to SCB production lines.

Gross Profit

Gross profit was $1,389,256 in the three months ended March 31, 2013, a decrease of $1,536,696, or 53%, compared to $2,925,952 in the 2012 period. The decrease was a result of the decrease in sales. The profit margin was 23% for both 2013 and 2012.
 
Operating Expenses

   
Three Months Ended March 31,
 
   
2013
   
2012
   
% Change
 
Operating expenses
  $ 700,493     $ 402,079       74.2 %
% of Sales
    12 %     3 %        
 

Operating expenses increased by $298,414 or 74.2% during the three months ended March 31, 2013 compared to the same period of 2012.

The higher operating expenses in dollars and as a percentage of sales in the first quarter of 2013 were mainly due to an increase in   stock-based compensation of $232,500 and an increase in administrative facility expense of $92,633 as a result of repairing office building. As most of the general and administrative expenses are fixed, the decrease in sales also contributed to the increase in operating expenses as a percentage of sales. The increase in stock-based compensation was due to the 2,000,000 shares of common stock granted to 10 senior managers or key employees at March 27, 2013.  Since such shares were awarded for the employees’ services in 2012, they vested immediately and the expense was recorded in full in the first quarter of 2013. The increase in operating expenses was partly offset by a decrease in professional fee of $22,695.

Net Income

Net income was $389,953 in the three months ended March 31, 2013, a decrease of $1,417,128, or 78%, compared to $1,807,081 in the same period of 2012. The decrease in net income was a result of aforementioned lower gross profit and higher operating expenses, partly offset by lower income tax.

Liquidity and Capital Resources

We had cash and equivalents of $6,054,268 and $6,664,444 as of March 31, 2013 and December 2012, respectively. Our funds are kept in financial institutions in the PRC, which do not provide insurance for amounts on deposit.  Moreover, we are subject to the regulations of the PRC which restrict the transfer of cash from the PRC, except under certain specific circumstances. Accordingly, such funds may not be readily available to us to satisfy obligations incurred outside the PRC.

Accounts receivable were $2,700,198 and $3,622,644, or 26% and 29%, of current assets, as of March 31, 2013 and December 31, 2012, respectively. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay, or to fail to make payments in a timely manner, our liquidity and results of operations could be adversely affected. An economic or industry downturn could adversely affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collections costs and defaults in excess of management’s expectations. A significant deterioration in our ability to collect accounts receivable could affect our cash flow and working capital and could also impact the cost or availability of financing available to us.

Accounts receivable aging as of March 31, 2013 and December 31, 2012 was as follows:

   
Total
   
Current
   
31-90 days
   
91-180 days
   
181-360 days
   
Over 361 days
 
March 31, 2013
    100.00 %     63.36 %     29.11 %     5.58 %     1.95 %     0.00 %
December 31, 2012
    100.00 %     79.13 %     19.40 %     0.00 %     1.47 %     0.00 %
 
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts, the aging of accounts receivable, our history of bad debts, and the general condition of the industry. If a major customer’s credit worthiness deteriorates, or our customers’ actual defaults exceed historical experience, our estimates could change and impact our reported results. We have not experienced significant amount of bad debt since the inception of our operations. Allowance for doubtful accounts was $75,449 and $71,785 as of March 31, 2013 and December 31, 2012, respectively.
 

Operating activities
 
For the three months ended March 31, 2013, net cash provided by operating activities was $2,026,180. This was primarily due to net income of $389,953, adjusted by non-cash related expenses including provision for doubtful accounts of $4,075, depreciation and amortization of $464,009 and stock-based compensation of $345,000, then increased by favorable changes in working capital of $823,143. The favorable changes in working capital mainly resulted from a decrease in accounts receivable of $895,816 as some prior period accounts receivable got collected and a decrease in inventory of $704,049 as a result of the ongoing SCB production lines conversion, partly offset by a decrease in accounts payable of $198,306 and a decrease in taxes payable of $578,795.
 
For the three months ended March 31, 2012, net cash provided by operating activities was $550,369. This was primarily due to net income of $1,807,081, adjusted by non-cash related expenses including provision for doubtful accounts of $14,192, depreciation and amortization of $441,538 and stock-based compensation of $112,500, then decreased by unfavorable changes in working capital of $1,824,942. The unfavorable changes in working capital mainly resulted from an increase in accounts receivable of $1,074,448, an increase in inventory of $143,372 and a decrease in accounts payable of $841,890, partly offset by an increase in taxes payable of $182,751.
 
Investing activities
 
Net cash used in investing activities was $2,646,840 for the three months ended March 31, 2013 due to the capital expenditures on the construction of SCB production lines.
 
Net cash used in investing activities were $939,786 in the three months ended March 31, 2012. The capital expenditures of $939,786 in the three months ended March 31, 2012 related to the Company’s new warehouse.
 
Financing Activities
 
Net cash provided by financing activities was $50,000 for the three months ended March 31, 2013 which was a deposit to purchase 384,615 shares of the Company’s common stock.
 
Net cash provided by financing activities was $49,985 in the three months ended March 31, 2012, which was received from one private investor.
 
Short Term Debt
 
Short term debt consisted of the following:

   
March 31, 2013
   
December 31, 2012
 
To Xigu Credit Union
           
  Interest at 12%, payable December 26, 2013
  $ 494,686     $ 497,581  
To Chengguan Credit Union
               
  Interest at 12%, payable December 26, 2013
    861,392       866,433  
    $ 1,356,078     $ 1,364,014  

The short term loans are renewable based on the past credit of the Company. Interest is paid quarterly. There are no other terms or loan covenants relating to these short term loans.

The Xigu Creidt Union short-term loan of $494,686 (RMB 3,100,000) was due on December 27, 2012 and was renewed at interest rate of 12%, the new maturity date is December 26, 2013.

The Chengguan Credit Union short-term loan of $861,392 (RMB 5,398,000) was due on December 27, 2012 and was renewed at interest rate of 12%, the new maturity date is December 26, 2013.
 

Our ability to maintain sufficient liquidity depends partially on our ability to achieve anticipated levels of revenue, while continuing to control costs. If we do not have sufficient available cash, we will have to seek additional debt or equity financing through other external sources, which may not be available on acceptable terms, or at all. Failure to maintain financing arrangements on acceptable terms would have a material adverse effect on our business, results of operations and financial condition.

We believe our working capital, together with our cash flow from operations and loans from banks will be sufficient to enable us to meet our cash requirements for the next 12 months. However, as we are seeking to increase our production capacity in the near future, and it is possible that cash from operations will not be enough to support our expansion and we may require additional funding from external source, either debt or equity financing. We cannot be sure funding will be available on reasonable terms when we require such funding, if at all.

Contractual Obligations

As of March 31, 2013, the Company was committed to various construction and equipment purchase contracts for the SCB production lines with a total contract price of $634,156.

Off-balance Sheet Arrangements

On May 24, 2012, Liteweisi and Hongxing separately entered into a Guaranty Agreement with Mr. Liang Qiao, an individual residing in the PRC, Ms. Guoyun Yao, the Company’s Chairman and CEO and Mr. Chunde Meng, the Company’s COO for a loan totaling RMB18 million ($2,863,980) (the “Loan”). The Loan was due on August 23, 2012. Liteweisi and Hongxing were jointly liable for the Loan until it was repaid at which point the guaranty obligation extinguished. The Loan was repaid in full in September 2012 and Liteweisi and Hongxing’s joint guaranty obligation extinguished.

Critical Accounting Policies and Estimates

The Company believes the accounting principles utilized by it conform to accounting principles generally accepted in the United States of America (“US GAAP”). The Company applies the following critical accounting policies related to revenue recognition in the preparation of its financial statements.
 
General

The Company’s consolidated financial statements are prepared in accordance with US GAAP, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions it believes to be 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. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors. Management believes the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Revenue is recognized when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Revenue is presented net of value added tax (“VAT”), sales rebates and returns. No return allowance is made as product returns are insignificant based on historical experience. The Company performs ongoing credit evaluations of its customers’ financial condition, but usually does not require collateral to support customer receivables.  The credit risk is controlled through credit approvals, limits and monitoring procedures.  The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other factors.  Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have been exhausted.  Freight-in costs are included in cost of sales.
 

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and equivalents, accounts receivable, prepaid expenses, short term debt, accounts payable and accrued liabilities, various taxes payable and amounts due to shareholder.  The fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to their short term maturity or by comparison to other instruments with similar terms.

Foreign Currency Translation

The consolidated financial statements of the Company are translated pursuant to ASC 830, “Foreign Currency Matters.” The functional currency of Hongxing and Liteweisi is the Chinese Renminbi (“RMB”).  The reporting currency of the Company is the United States dollar (“US dollar”). The financial statements of Hongxing and Liteweisi are translated to US dollars using year-end exchange rates for assets and liabilities, historical rates for equities, and average exchange rates for revenues, costs and expenses. Translation adjustments are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains or losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations.

Segment Information

ASC 280-10, “Disclosure About Segments of and Enterprise and Related Information”, requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. The Company operates in a single segment and will evaluate additional segment disclosure requirements as it expands its operations.


Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Smaller reporting companies are not required to provide the information required by this item.
 
Item 4.  Controls and Procedures.
 
(a)   Evaluation of disclosure controls and procedures .
 
At the conclusion of the period ended March 31, 2013 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective and adequately designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
(b)   Changes in internal controls .
 
As reported in our Annual Report on Form 10-K for our fiscal year ended December 31, 2012, as of such fiscal year end we identified material weaknesses in our internal control over financial reporting and described several actions we plan to take to remedy such material weaknesses.  During the quarter ended March 31, 2013, we continued on job training of accounting and other related personnel.
 
Other than as set forth herein, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II
 
OTHER INFORMATION
 
Item 1.  Legal Proceedings.
 
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
 
Item 1A.  Risk Factors.
 
Smaller reporting companies are not required to provide the information required by this item.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
On March 20, 2013, the Company issued 250,000 shares of common stock to one investor for $50,000.

On April 24, 2013, the Company issued 384,615 shares of common stock to one investor for $50,000.

On April 26, 2013, the Company issued 103,333 shares of common stock to Mr. Xiaolong Zhou, its former CFO.

The issuances above were in reliance upon the exemption afforded by Section 4(2) of the Securities Act of 1933, as amended.

Effective April 16, 2013, in connection with the Company’s engagement of  Ms. Elaine Zhao as the Company’s new CFO, the Company issued 30,000 shares of common stock under its 2010 Stock Incentive Plan. The shares are subject to vesting performance targets as ascribed in the financial services agreement by and among the Company, ELZ Accountancy Corp and Ms. Zhao.

Item 3.  Defaults Upon Senior Securities
 
None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information
 
None.

Item 6.  Exhibits.

The exhibits required by this item are set forth in the Exhibit Index attached hereto.
 
 

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ASIA CARBON INDUSTRIES, INC.
 
       
Date:  May 15, 2013
By:
/s/ Guoyun Yao  
    Guoyun Yao  
    Chief Executive Officer, President, Secretary and Chairman of the Board
(principal executive officer)
 
       
       
Date:  May 15, 2013 By: /s/ Elaine Zhao  
    Elaine Zhao  
    Chief Financial Officer  
    (principal financial officer and principal accounting officer)  

           
 
EXHIBIT INDEX
 
No.
Description
   
10.1
Financial Services Agreement, dated as of April 16, 2013, between the Company, ELZ Accountancy Corp and Ms. Elaine Zhao, incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2013.
   
31.1
   
31.2
   
32.1
   
32.2
   
101.INS
 XBRL Instance Document
   
101.SCH
XBRL Taxonomy Extension Schema Document
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

* Attached as Exhibits 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements. The XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “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, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
 
 
12
 

 
Asia Carbon Industries (CE) (USOTC:ACRB)
Graphique Historique de l'Action
De Oct 2024 à Nov 2024 Plus de graphiques de la Bourse Asia Carbon Industries (CE)
Asia Carbon Industries (CE) (USOTC:ACRB)
Graphique Historique de l'Action
De Nov 2023 à Nov 2024 Plus de graphiques de la Bourse Asia Carbon Industries (CE)