NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
NOTE - 1
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended June 30, 2013 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2013 or for any future periods.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on the Form 10-K for the year ended December 31, 2012. The condensed consolidated balance sheet as of December 31, 2012 has been derived from audited financial statements.
NOTE - 2
ORGANIZATION AND BUSINESS BACKGROUND
China Marine Food Group Limited (“China Marine” or “the Company”), formerly known as New Paradigm Productions, Inc., was incorporated in the State of Nevada on October 1, 1999. The Company is headquartered and the principal operations are in Shishi City, Fujian Province, People’s Republic of China (“PRC”). The Company, through its subsidiaries, manufactures and distributes processed seafood products and algae-based beverage products. The Company also conducts marine catch activities sporadically throughout the year based on opportunities. The Company’s customers are located in domestic provinces in the PRC and overseas markets. The Company is publicly traded on the NYSE MKT under the symbol “CMFO” and can be found on the worldwide web at
www.china-marine.cn
.
China Marine and its subsidiaries are hereinafter referred to as “the Company”.
NOTE - 3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.
The unaudited condensed consolidated financial statements include the financial statements of China Marine and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation. Results of acquired subsidiaries are consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date that control ceases.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management include revenue recognition estimates, valuation of goodwill and intangible assets, equity instruments and allowance for doubtful accounts.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
|
●
|
Cash and cash equivalents
|
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
The Company maintains cash and cash equivalent balances at the financial institutions in the PRC, which are insured by the People’s Bank of China. The Company had cash concentration risk of $1,628,683 and $879,647 as of June 30, 2013 and December 31, 2012, respectively, which amounts exclude Ocean Technology.
|
●
|
Accounts receivable and allowance for doubtful accounts
|
Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Currently, the Company provides 0.5% of gross accounts receivable as the general allowance for doubtful accounts based on historical experience.
Inventories consist of frozen products from marine catch, processed seafood products, algae-based beverage products, ices and materials used in the manufacture of the Company’s products. Inventories are stated at the lower of cost or net realizable value, with cost being determined on a weighted average basis. Costs include purchased cost of raw materials, direct labor and manufacturing overhead costs. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand.
As of June 30, 2013 and December 31, 2012, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.
|
●
|
Property, plant and equipment
|
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
|
|
Depreciable life
|
|
Residual value
|
|
|
Buildings
|
30-50 years
|
|
10%
|
|
|
Plant and machinery
|
5-30 years
|
|
10%
|
|
|
Motor vehicles
|
8-10 years
|
|
10%
|
|
|
Office equipments
|
5 years
|
|
10%
|
|
Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Depreciation expense for the three and six months ended June 30, 2013 and 2012 were $265,662, $529,455 and $111,359, $224,900, respectively, which included $224,013, $446,493 and $70,176, $142,668 in cost of revenue.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
Certain property, plant and equipment with original costs of $1,456,987 have become fully depreciated as of June 30, 2013.
|
●
|
Construction in progress
|
Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.
|
●
|
Goodwill and intangible assets
|
Goodwill and intangible assets were the result of the acquisition of Xianghe. The activities of the algae-based drink business are considered as a separate reporting unit. Goodwill represents the cost of the acquired algae-based drink business in excess of the fair value of identifiable tangible and intangible net assets purchased. Intangible assets include trademarks and algae-based beverage know-how and are recorded at cost less accumulated amortization and any recognized impairment loss. The algae-based beverage know-how is amortized over its estimated useful life of 10 years on a straight-line basis, which coincides with the timing provided from the PRC protection guidelines for our product.
The Company evaluates the valuation of its goodwill according to the provisions of Accounting Standards Codification (“ASC”) 350,
Intangible-Goodwill and Other,
to determine if the current value of goodwill has been impaired. Goodwill of a reporting unit will be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. As discussed below, the Company experienced a triggering event during the third quarter of 2012 because results were lower than expected compared to the Company’s forecasts for its algae-based drink business during the year ended December 31, 2012. In accordance with ASC 350-20-35-18, if impairment is probable and can be reasonably estimated, the impairment should be recorded in the current reporting period. Accordingly, based on the preliminary results of the management’s valuation of the drink business, the Company recorded a goodwill impairment loss of 100% or $2.6 million during the third quarter of 2012. The amount was finalized in the fourth quarter as discussed below.
Changes in the carrying amount of goodwill are as follows:
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
2,553,757
|
|
|
Less: Goodwill impairment
|
|
|
-
|
|
|
|
(2,571,488
|
)
|
|
Effect of foreign currency translation
|
|
|
-
|
|
|
|
17,731
|
|
|
Ending balance
|
|
$
|
-
|
|
|
$
|
-
|
|
In accordance with ASC Topic 360-10-5, “
Impairment or Disposal of Long-Lived Assets
”, the Company performs an asset impairment test whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. For the year ended December 31, 2012, the Company engaged an independent valuation expert to value the Company’s intangible assets balance related to the algae-based drink business reporting unit. The result of the assessment of the Company’s intangible assets indicated that its carrying amount exceeded its fair value as of December 31, 2012. Accordingly, the difference of $2.2 million was recorded as impairment to the drink business intangible assets. This impairment of the intangible assets was considered in the finalization of the impairment of the goodwill.
Drink business amortization expenses
for the three and six months ended June 30, 2013 and 2012 were $566,565, $1,126,415 and $636,476, $1,273,983, respectively. Using the current exchange rate, the estimated annual amortization expense is $2,277,017 for each of the five succeeding years.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
During the six month ended June 30, 2013, the algae-based drink revenue was higher than that for the same period a year ago but still lower than the Company’s latest forecasts used in the annual impairment tests. Accordingly, the Company revised its forecasts of the drink business reflecting the lower-than-expected beverage demand as experienced during the first half of 2013 and performed an updated valuation of its drink business using revised forecasts. Preliminary estimated results prepared by the Company indicated a fair market value of $13.7 million which was less than the carrying value as of June 30, 2013. Accordingly, the Company recorded an impairment loss of $1.1 million to the intangible assets during the second quarter of 2013. The Company will closely monitor the performance of the drink business and engage an independent valuation expert during the third quarter of 2013 to perform a full valuation of the algae-based drink business reporting unit. If the final valuation results indicate that further intangible assets impairment is necessary, this impairment will be recorded during the third quarter of 2013.
Changes in the carrying amount of intangible assets are as follows:
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
15,616,259
|
|
|
$
|
20,225,220
|
|
|
Less: Accumulated amortization
|
|
|
(1,126,415
|
)
|
|
|
(2,547,711
|
)
|
|
Less: Intangible assets impairment
|
|
|
(1,085,183
|
)
|
|
|
(2,223,879
|
)
|
|
Effect of foreign currency translation
|
|
|
299,798
|
|
|
|
162,629
|
|
|
Ending balance
|
|
$
|
13,704,459
|
|
|
$
|
15,616,259
|
|
|
●
|
Impairment of long-lived assets
|
In accordance with the provisions of ASC Topic 360-10-5, “
Impairment or Disposal of Long-Lived Assets
”, all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Apart from the impairment of goodwill and intangible assets as disclosed in the above, there was no impairment for other long-lived assets as of June 30, 2013 and December 31, 2012.
In accordance with the ASC Topic 605,
“Revenue Recognition”
, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company derives revenues from the processing, distribution and sale of processed seafood products, sale of marine catch and ices, and the sale and distribution of algae-based beverage products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate ranging from 13% to 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.
The Company recognizes revenue from the sale of processed seafood products and algae-based beverage products upon receipt of the delivery confirmation provided by the distributor’s carrier and the title and risk of loss of the product has transferred to the distributor. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. The Company recognizes revenue from marine catch and ices when title has transferred to the buyer, which usually coincides with the signing of the sales contract on the transaction date or the transaction date being stipulated in the sales contract. The Company experienced no material product returns and recorded no reserve for sales returns for the period ended June 30, 2013 and December 31, 2012.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
For processed seafood products, the Company offers sales incentives, consisting of free products, to customers based on yearly sales targets. For algae-based beverage products, the Company offers two types of sales incentives, both consisting of free products. Quarterly incentives are based on the number of cases sold during the quarter and yearly incentives are also based on number of cases sold, as well as other thresholds. These are non-cash incentives and are solely used for promotional activities purposes. These amounts totaling $397,675 and $256,277 for the period ended June 30, 2013 and 2012, respectively, are accrued as sales and marketing expenses during the same month revenue is recognized.
Rental income from operating leases on real estate properties is recognized on a straight-line basis over the lease period.
The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, “
Income Taxes
” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the period ended June 30, 2013 and December 31, 2012, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2013 and December 31, 2012, the Company did not have any significant unrecognized uncertain tax positions.
The Company conducts major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.
|
●
|
Foreign currencies translation
|
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations and comprehensive income.
The reporting currency of the Company is the United States Dollars ("US$"). The Company's subsidiaries in the PRC maintain their books and records in its local currency, the Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which these entities operate.
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “
Translation of Financial Statement”
, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of changes in shareholders’ equity.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective years:
|
|
|
June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Period-end exchange rates RMB:US$1
|
|
|
6.1732
|
|
|
|
6.3089
|
|
|
Average exchange rates RMB:US$1 for three months period ended
|
|
|
6.2025
|
|
|
|
6.3078
|
|
|
Average exchange rates RMB:US$1 for six months period ended
|
|
|
6.2395
|
|
|
|
6.3027
|
|
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
|
●
|
Stock-based compensation
|
The Company adopts ASC Topic 718-20,
"Compensation - Stock Compensation"
("ASC 718-20"), using the fair value method. Under ASC 718-20, stock-based compensation cost is measured at the grant date based on the fair value of the award or using the Black-Scholes pricing model and is recognized as expense over the appropriate service period.
The Company has adopted ASC Topic 820,
Fair Value Measurement and Disclosure
, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
The carrying value of financial items of the Company, included cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other current assets, short-term borrowings, accounts payable, amount due to a shareholder, income tax payable and accrued liabilities and other payables, approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy.
The fair value of short-term borrowings as of June 30, 2013 and December 31, 2012 was $19,291,453 and $8,760,375, respectively, which are identical to their carrying values.
The Company does not have any assets or liabilities that are measured on a recurring basis at fair value.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
The Company uses the discounted cash flow approach when determining fair values of its non-recurring fair value measurements. Certain unobservable units for these assets are offered quotes, lack of marketability, long-term revenue growth rates and discounts rates. For Level 3 measurements, significant increases or decreases in either of those inputs in isolation could result in a significantly lower or higher fair value measurement. In general, a change in the long-term growth rate of our algae-based drink business could negatively affect the fair value of our intangible assets.
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
|
●
|
Recent accounting pronouncements
|
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In January 2013, the FASB issued ASU 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
, which clarified that the scope of ASU 2011-11,
Disclosures about Offsetting Assets and Liabilities
, would apply to derivatives including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or are subject to a master netting arrangement or similar agreement. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. The adoption of ASU 2013-01 is not expected to have material impact on the Company’s consolidated financial statements.
In February 2013, the Financial Accounting Standards Board issued ASU 2013-02,
Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
(“ASU 2013-02”). ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, it requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income 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 accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. Early adoption is permitted. The Company does not expect that the adoption of ASU 2013-02 will have a material impact on its consolidated financial statements.
NOTE - 4
ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
Account receivable, at cost
|
|
$
|
31,039,657
|
|
|
$
|
54,317,439
|
|
|
Less: allowance for doubtful accounts
|
|
|
(155,198
|
)
|
|
|
(271,587
|
)
|
|
Account receivable, net
|
|
$
|
30,884,459
|
|
|
$
|
54,045,852
|
|
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
Changes in the allowance for doubtful accounts are as follows:
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
271,587
|
|
|
$
|
344,943
|
|
|
Reversal of doubtful accounts
|
|
|
(116,389
|
)
|
|
|
(73,356
|
)
|
|
Amounts written off
|
|
|
-
|
|
|
|
-
|
|
|
Ending balance
|
|
$
|
155,198
|
|
|
$
|
271,587
|
|
NOTE - 5
INVENTORIES
Inventories consisted of the following:
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
62,465,039
|
|
|
$
|
33,337,600
|
|
|
Work-in-process
|
|
|
2,949,851
|
|
|
|
2,646,855
|
|
|
Finished goods
|
|
|
221,807
|
|
|
|
269,440
|
|
|
Packaging materials
|
|
|
138,443
|
|
|
|
161,118
|
|
|
Total
|
|
$
|
65,775,140
|
|
|
$
|
36,415,013
|
|
For the period ended June 30, 2013 and December 31, 2012, the Company recorded no allowance for slow-moving and obsolete inventories.
NOTE - 6
CONSTRUCTION IN PROGRESS
In November 2012, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #1”) in relation to the construction of staff
dormitories
at our new cold storage facility. The construction was completed in June 2013. Accordingly, the Company transferred approximately $1.16 million of construction in progress to property, plant and equipment and paid a total of approximately $1.13 million in construction costs as at June 30, 2013.
Hence the aggregate retention payments related to the Third Party Contractor #1 are approximately $0.03 million as of June 30, 2013.
In 2010, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #2”) in relation to the construction of a cold storage facility. A supplementary agreement was entered into between Mingxiang and the Third Party Contractor #2 in September 2011 related to additional gross areas, machineries and equipment required for the facility. The facilities commenced operations in July 2012. Accordingly, the Company transferred approximately $25.0 million of construction in progress to property, plant and equipment after commencement of operations and paid a total of approximately $24.2 million in construction costs as at June 30, 2013. The aggregated retention payments related to the Third Party Contractor #2 are approximately $0.8 million as of June 30, 2013.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
NOTE - 7
SHORT-TERM BORROWINGS
The Company’s wholly-owned subsidiary, Mingxiang, obtained short-term bank loans in the aggregate amount of $8,760,375 as of December 31, 2012, from the Agricultural Bank of China and the China Construction Bank, registered financial institutions in the PRC. During the first half of 2013, we have fully repaid the outstanding short-term bank loans in the aggregate amount of about $8.8 million to the Agricultural Bank of China and the China Construction Bank, respectively, and obtained new short-term bank loans in the aggregate amount of about $19.0 million from the
Agricultural Development Bank of China, the China Construction Bank and
the Agricultural Bank of China
,
registered financial institutions in the PRC. As of June 30, 2013, the short-term bank loans were in the aggregate amount of $19,291,453. The weighted average effective interest rate per annum was 6.20% and 6.23% for the period ended June 30, 2013 and 2012, respectively, payable monthly. Interest expenses for the three and six months ended June 30, 2013 and 2012 were $
298,498
, $
510,012
and $105,815, $141,121, respectively and none of the interest incurred was capitalized. The short-term loans are due by December, 2013, January and February, 2014, respectively.
NOTE - 8
NON-CONTROLLING INTERESTS
Non-controlling interests consisted of the following:
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
20% share of equity interest in Xianghe
|
|
$
|
512,039
|
|
|
Less: advance to a non-controlling shareholder of a subsidiary
|
|
|
(155,899
|
)
|
|
Net amount
|
|
$
|
356,140
|
|
Advance to a non-controlling shareholder of the Company’s subsidiary, Xianghe, was unsecured, interest free and repayable on demand.
NOTE - 9
INCOME TAXES
For the period ended June 30, 2013 and 2012, the local (“United States of America”) and foreign components of loss before income taxes were comprised of the following:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Tax jurisdiction from:
|
|
|
|
|
|
|
|
– Local
|
|
$
|
-
|
|
|
$
|
-
|
|
|
– Foreign
|
|
|
(2,137,954
|
)
|
|
|
(3,475,622
|
)
|
|
Loss before income taxes
|
|
$
|
(2,137,954
|
)
|
|
$
|
(3,475,622
|
)
|
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
The provision for income taxes consisted of the following:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Current:
|
|
|
|
|
|
|
|
– Local
|
|
$
|
-
|
|
|
$
|
-
|
|
|
– Foreign
|
|
|
363,427
|
|
|
|
207,720
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
– Local
|
|
|
-
|
|
|
|
-
|
|
|
– Foreign
|
|
|
-
|
|
|
|
-
|
|
|
Income tax expense
|
|
$
|
363,427
|
|
|
$
|
207,720
|
|
The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has subsidiaries that operate in various countries: Hong Kong and the PRC that are subject to tax in the jurisdictions in which they operate, as follows:
United States of America
China Marine is registered in the State of Nevada and is subject to United States tax law.
As of June 30, 2013, China Marine incurred $30,379 of net operating loss carryforwards available for federal tax purposes that may be used to offset future taxable income and will begin to expire in 2028, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $10,481 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
Hong Kong
The Company’s subsidiary, Ocean Technology, is subject to Hong Kong Profits Tax at the statutory rate of 16.5% on its assessable income for the period ended June 30, 2013 and 2012, respectively. As of June 30, 2013, Ocean Technology incurred $921,505 of net operating loss carryforwards available for income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $152,048 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
The PRC
The Company generated all of its net income from subsidiaries operating in the PRC for the period ended June 30, 2013 and 2012. Rixiang, Jixiang, Mingxiang, Xianghe and Xianglin are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a unified income tax rate of 25%.
Mingxiang received a notice of recognition as an enterprise of new and high technology in July 2009, which was jointly issued by the Science and Technology Department of Fujian, the Finance Department of Fujian, the State Tax Bureau of Fujian and the Local Taxation Bureau of Fujian for the Company engaged in advanced food processing technologies for Fujian province. As a new and high technology company, Mingxiang was qualified for a reduced tax rate of 15% on its assessable income for the period of three years, which expired on July 30, 2012.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
The reconciliation of income tax rate to the effective income tax rate for the period ended June 30, 2013 and 2012 is as follows:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes from PRC subsidiaries
|
|
$
|
(2,059,107
|
)
|
|
$
|
(3,395,253
|
)
|
|
Statutory income tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
|
Income tax expense at statutory tax rate
|
|
|
(514,777
|
)
|
|
|
(848,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect from Tax Holiday
|
|
|
-
|
|
|
|
207,389
|
|
|
Tax effect on net operating losses from PRC subsidiaries
|
|
|
348,446
|
|
|
|
504,944
|
|
|
Tax effect on non-taxable income
|
|
|
-
|
|
|
|
11,128
|
|
|
Tax effect on non-deductible expenses
|
|
|
529,758
|
|
|
|
333,072
|
|
|
Income taxes at effective rate
|
|
$
|
363,427
|
|
|
$
|
207,720
|
|
As of June 30, 2013, the PRC operation incurred $131,046 of net operating loss carryforwards available for income tax purposes that may be used to offset future taxable income and will begin to expire in 5 years from the year of incurrence, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $32,762 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future. The entities in the PRC do not file a consolidated return, so only the entity that generated the losses can utilize them.
Tax Holiday
Loss before income tax expense was $2,137,954 and $3,475,622 for the period ended June 30, 2013 and 2012 and was mainly attributed to subsidiaries with operations in China. Income tax related to China income for the period ended June 30, 2013 and 2012 was $363,427 and $207,720. The combined pro forma effects of the income tax expense exemptions and reductions available to us are as follows:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount of tax holiday effect
|
|
$
|
-
|
|
|
$
|
(207,389
|
)
|
|
Tax holiday effect on basic losses per share
|
|
$
|
-
|
|
|
$
|
(0.007
|
)
|
|
Tax holiday effect on diluted losses per share
|
|
$
|
-
|
|
|
$
|
(0.007
|
)
|
NOTE - 10
SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a)
Business information
The Company’s chief operating decision maker has been identified as the chairman, Mr. Liu, who reviews consolidated results when making decisions about allocating resources and assessing the performance of the Company. Based on this assessment, the Company has determined that it has three operating and reporting segments for the period ended June 30, 2013 and 2012 which are processed seafood products, marine catch and algae-based beverage products.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the period ended June 30, 2013 and 2012.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
Summarized financial information concerning the Company’s reportable segments is shown in the following table for the three and six months ended June 30, 2013 and 2012:
|
|
|
Three Months Ended June 30, 2013
|
|
|
|
|
Processed seafood products
|
|
|
Marine catch
|
|
|
Algae-based
beverage products
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
9,798,962
|
|
|
$
|
9,125,015
|
|
|
$
|
8,363,640
|
|
|
$
|
27,287,617
|
|
|
Cost of revenue
|
|
|
(7,357,758
|
)
|
|
|
(8,140,078
|
)
|
|
|
(5,104,318
|
)
|
|
|
(20,602,154
|
)
|
|
Gross profit
|
|
$
|
2,441,204
|
|
|
$
|
984,937
|
|
|
$
|
3,259,322
|
|
|
$
|
6,685,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure for long-lived assets
|
|
$
|
-
|
|
|
$
|
784,013
|
|
|
$
|
-
|
|
|
$
|
784,013
|
|
|
|
Three Months Ended June 30, 2012
|
|
|
|
Processed seafood products
|
|
Marine catch
|
|
Algae-based beverage products
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
10,657,284
|
|
|
$
|
38,334,101
|
|
|
$
|
12,292,806
|
|
|
$
|
61,284,191
|
|
|
Cost of revenue
|
|
|
(7,630,558
|
)
|
|
|
(37,086,105
|
)
|
|
|
(7,592,003
|
)
|
|
|
(52,308,666
|
)
|
|
Gross profit
|
|
$
|
3,026,726
|
|
|
$
|
1,247,996
|
|
|
$
|
4,700,803
|
|
|
$
|
8,975,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure for long-lived assets
|
|
$
|
-
|
|
|
$
|
532,095
|
|
|
$
|
-
|
|
|
$
|
532,095
|
|
|
|
Six Months Ended June 30, 2013
|
|
|
|
Processed seafood products
|
|
Marine catch
|
|
Algae-based beverage products
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
21,461,384
|
|
|
$
|
9,380,940
|
|
|
$
|
17,930,156
|
|
|
$
|
48,772,480
|
|
|
Cost of revenue
|
|
|
(15,475,636
|
)
|
|
|
(8,417,728
|
)
|
|
|
(10,948,627
|
)
|
|
|
(34,841,991
|
)
|
|
Gross profit
|
|
$
|
5,985,748
|
|
|
$
|
963,212
|
|
|
$
|
6,981,529
|
|
|
$
|
13,930,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure for long-lived assets
|
|
$
|
-
|
|
|
$
|
1,024,251
|
|
|
$
|
-
|
|
|
$
|
1,024,251
|
|
|
|
Six Months Ended June 30, 2012
|
|
|
|
Processed seafood products
|
|
Marine catch
|
|
Algae-based beverage products
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
20,560,387
|
|
|
$
|
38,334,101
|
|
|
$
|
17,473,632
|
|
|
$
|
76,368,120
|
|
|
Cost of revenue
|
|
|
(14,901,293
|
)
|
|
|
(37,086,105
|
)
|
|
|
(10,806,254
|
)
|
|
|
(62,793,652
|
)
|
|
Gross profit
|
|
$
|
5,659,094
|
|
|
$
|
1,247,996
|
|
|
$
|
6,667,378
|
|
|
$
|
13,574,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure for long-lived assets
|
|
$
|
6,868
|
|
|
$
|
1,124,690
|
|
|
$
|
-
|
|
|
$
|
1,131,558
|
|
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
Expenditure for long-lived assets incurred for the period ended June 30, 2013 and 2012 mainly relates to the construction of a cold storage facility and related staff dormitories which are used to store the Company’s inventory for marine catch and processed seafood products, provide marine catch cold storage services and marine catch ice making.
(b)
Geographic information
The Company’s operations are located in two main geographical areas. The Company’s sales by geographical market are analyzed as follows:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Revenue, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The PRC
|
|
$
|
27,287,617
|
|
|
$
|
60,238,229
|
|
|
$
|
48,772,480
|
|
|
$
|
75,322,158
|
|
|
Asia
|
|
|
-
|
|
|
|
1,045,962
|
|
|
|
-
|
|
|
|
1,045,962
|
|
|
Total revenue, net
|
|
$
|
27,287,617
|
|
|
$
|
61,284,191
|
|
|
$
|
48,772,480
|
|
|
$
|
76,368,120
|
|
All the Company’s long-lived assets are located in the PRC in both periods.
NOTE - 11
CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a) Major customers
The followings are tables summarizing the revenue from customers that individually represents greater than 10% of the total revenue for the six months ended June 30, 2013 and 2012 and their outstanding balances as at period-end dates.
|
|
|
Six Months Ended June 30, 2013
|
|
|
Customer
|
|
Revenue
|
|
|
Percentage
of total
revenue
|
|
|
Accounts receivable, net
|
|
|
Percentage of
total accounts
receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
9,184,264
|
|
|
|
19
|
%
|
|
$
|
10,290,108
|
|
|
|
33
|
%
|
|
Customer B
|
|
|
9,130,388
|
|
|
|
19
|
%
|
|
|
7,807,754
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
18,314,652
|
|
|
|
38
|
%
|
|
$
|
18,097,862
|
|
|
|
58
|
%
|
|
|
|
Six Months Ended June 30, 2012
|
|
|
|
|
Revenue
|
|
|
Percentage
of total
revenue
|
|
|
Accounts receivable, net
|
|
|
Percentage of
total accounts
receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer C
|
|
$
|
22,290,359
|
|
|
|
29
|
%
|
|
$
|
25,163,353
|
|
|
|
44
|
%
|
|
Customer D
|
|
|
16,575,711
|
|
|
|
22
|
%
|
|
|
17,359,628
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
38,866,070
|
|
|
|
51
|
%
|
|
$
|
42,522,981
|
|
|
|
74
|
%
|
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
(b) Major vendors
The followings are tables summarizing the purchases from vendor that individually represents more than 10% of the total purchases for the six months ended June 30, 2013 and their outstanding balances as at period-end dates.
|
|
|
Six Months Ended June 30, 2013
|
|
|
Vendor
|
|
Purchases
|
|
|
Percentage
of total purchases
|
|
|
Accounts payable, trade
|
|
|
Percentage of total accounts payable, trade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor A
|
|
$
|
12,854,308
|
|
|
|
26
|
%
|
|
$
|
81,789
|
|
|
|
2
|
%
|
|
Vendor B
|
|
|
10,141,282
|
|
|
|
20
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Vendor C
|
|
|
9,588,556
|
|
|
|
19
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Vendor D
|
|
|
5,511,526
|
|
|
|
11
|
%
|
|
|
154,965
|
|
|
|
5
|
%
|
|
Vendor E
|
|
|
5,440,109
|
|
|
|
11
|
%
|
|
|
103,128
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,535,781
|
|
|
|
87
|
%
|
|
$
|
339,882
|
|
|
|
10
|
%
|
For the six months ended June 30, 2012, one vendor represented more than 10% of the Company’s total purchases. This vendor accounted for 71% of the Company’s total purchases amounting to $35,934,717, with $nil of accounts payable.
(c) Credit risk
Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(d) Exchange rate risk
The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates against US$, the value of the RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivatives or other financial instruments that expose to substantial exchange rate risk.
(e) Economic and political risks
Substantially all of the Company’s products are processed in the PRC. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the PRC and not typically associated with companies in North America and Western Europe. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in the PRC.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
NOTE – 12
COMMITMENTS AND CONTINGENCIES
(a)
Operating lease commitments
Ocean Technology leased certain office space under a non-cancellable operating lease agreement with a term of three years with fixed monthly rentals expiring on February 17, 2014, and generally not containing material renewal options. Total rent expenses for the six months ended June 30, 2013 and 2012 was $40,000, respectively. Future minimum rental payments due under the non-cancelable operating lease agreement are approximately $51,000 in total in the following twelve months.
During the first half of 2013, Mingxiang entered into a number of agreements with several independent suppliers in relation to the purchase of certain equipment and machineries for the cold storage facility. The equipment and machineries are expected to be operational in the second half of 2013. Total equipment and machinery costs are approximately $0.5 million. As of June 30, 2013, the Company recorded approximately $0.2 million as prepaid expenses and other current assets. Hence the aggregate contingent payments related to the independent suppliers are approximately $0.3 million as of June 30, 2013.
In November 2012, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #1”) in relation to the construction of staff
dormitories
at our new cold storage facility. The construction was completed in June 2013. Accordingly, the Company transferred approximately $1.16 million of construction in progress to property, plant and equipment and paid a total of approximately $1.13 million in construction costs as at June 30, 2013.
Hence the aggregate retention payments related to the Third Party Contractor #1 are approximately $0.03 million as of June 30, 2013.
In 2010, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #2”) in relation to the construction of a cold storage facility. A supplementary agreement was entered into between Mingxiang and the Third Party Contractor #2 in September 2011 related to additional gross areas, machineries and equipment required for the facility. The facilities commenced operations in July 2012. Accordingly, the Company transferred approximately $25.0 million of construction in progress to property, plant and equipment after commencement of operations and paid a total of approximately $24.2 million in construction costs as at June 30, 2013. The aggregated retention payments related to the Third Party Contractor #2 are approximately $0.8 million as of June 30, 2013.
As of June 30, 2013, Mingxiang was contingently liable as guarantor with respect to the loan of $485,972 (equivalent to RMB 3,000,000) to an unrelated third party, Shishi Han Jiang Hua Lian Knitting and Clothing Factory (“Han Jiang Hua Lian”). The term of this guarantee is for the period from November 2008 through December 2017. Pursuant to the loan agreement, Han Jiang Hua Lian will repay the loan by installments and be fully settled by December 31, 2017. Should Han Jiang Hua Lian fail to make its debt payments due at any time from the date of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late fees and penalties. The maximum potential amount of future payments that the Mingxiang is required to make under the guarantee is $485,972 (equivalent to RMB 3,000,000).
As of December 31, 2010, Mingxiang was contingently liable as guarantor with respect to the loans of $758,518 (equivalent to RMB 5,000,000) to an unrelated third party, Shishi Yu Ching Knitting and Clothing Company (“Yu Ching”). The term of this guarantee is for the period from January 2009 through January 2011. During 2011, Yu Ching repaid the principal amount of the loan in the amount of $758,518 (equivalent to RMB 5,000,000) but left the amount of loan interest unsettled due to a disagreement between Yu Ching and the creditor in relation to the calculation of the loan interest. Should Yu Ching fail to make its loan interest payments due at any time from the date of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late fees and penalties. As of June 30, 2013, Yu Ching has not repaid the interest portion of the debt.
CHINA MARINE FOOD GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
According to the Personal Guarantee Agreement between Mingxiang and Mr. Liu, CEO, Mr. Liu agreed to bear all liabilities and costs incurred from a direct claim by the creditor if either Han Jiang Hua Lian or Yu Ching fails to make payments to the creditor upon due dates.
In accordance with ASC 460-10 “
Guarantees
”, a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. Mingxiang did not receive any consideration for the guarantee and has determined the fair value of the indemnification to be insignificant. As of June 30, 2013, the Company has not recorded any liabilities under these guarantees.
NOTE – 13
SUBSEQUENT EVENT
In accordance with ASC 855 “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated all events or transactions that occurred after June 30, 2013 up through the date we issued the condensed consolidated financial statements. During this period, we did not have any material recognizable subsequent events.