OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America.
Basis of Consolidation
The consolidated financial statements include the financial statements
of the Company and its subsidiaries.
All significant inter-company balances and transactions within the
Company and subsidiary have been eliminated upon consolidation.
Cash and Cash Equivalents
For purposes of the Consolidated Statement
of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.
Managements Use of Estimates
The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities
at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue is recognized at the time the product
is delivered and title has passed to the customer. Cash discounts are recognized as an expense in the period in which it actually
occurs. Sales allowances are recorded as a reduction of revenue in the period in which they occur. Revenue is presented
net of returns.
Comprehensive Income (Loss)
The Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 130 (FASB ASC 220), Reporting Comprehensive Income,
which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial
Assets and liabilities denominated in respective
functional currencies are translated into United States Dollars at the exchange rate as of the balance sheet date. The
share capital and retained earnings are translated at exchange rates prevailing at the time of the transactions. Revenues, costs,
and expenses denominated in respective functional currencies are translated into United States Dollars at the weighted average
exchange rate for the period. The effects of foreign currencies translation adjustments are included as a separate component of
accumulated other comprehensive income.
Companys Future Operations Are Dependent
on Foreign Operations
The Companys future operations and earnings
will depend on the results of the Companys operations in China. There can be no assurance that the Company will be able
to successfully conduct such operations, and a failure to do so would have a material adverse effect on the Companys financial
position, results of operations, and cash flows.
Also, the success of the Companys operations
will be subject to numerous contingencies, some of which are beyond managements control. These contingencies include general
and regional economic conditions, prices for the Companys products, competition, and changes in regulation. Since the Company
is dependent on international operations, specifically those in China, the Company will be subject to various additional political,
economic, and other uncertainties. Among other risks, the Companys operations will be 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.
Accounts receivable are stated at estimated
net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for
uncollectible accounts. In determining the collectability of the account, historical trends are evaluated and specific
customer issues are reviewed to arrive at appropriate allowance which is 90 days. Bad debt provision is made if fail to collect
the balance after the allowance period. And the uncollectable amount last more than one year, it will automatically account for
Inventory includes raw material, package material,
low-value consumables and merchandise. The Company adopts perpetual inventory system and inventories are recorded at actual cost. Raw
material, package material and merchandise are priced at cost upon acquisition, and with the weighted average method upon issuance
and shipment. Low-value consumables are amortized at 50% of the amount upon application and amortized an additional 50% upon obsolescence.
Property, Plant, and Equipment
Property, plant, and equipment are recorded
at cost, less accumulated depreciation and impairment. Repairs and maintenance expenditures, which are not considered
improvements and do not extend the useful life of property, plant, and equipment, are expensed as incurred. The cost and related
accumulated depreciation, applicable to sold or no longer in service property, plant, and equipment, are eliminated from the accounts
and any gain or loss is included in the statement of operations.
Depreciation is calculated to write-off the
cost or basis of the property, plant, and equipment over their estimated useful lives for the date on which they become fully operational
and after taking into account their estimated residual values (salvage value), using the straight-line method, at the following
rates per year:
||Straight-line for 5 to 20 years with a 3% salvage value|
||Straight-line for 20 years with a 5% salvage value|
The Company recognizes an impairment loss on
property, plant, and equipment when evidence, such as the sum of expected future cash flows (undiscounted and without interest
charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation,
and when the carrying amount of the asset cannot be realized through sale. Measurement of the impairment loss is based
on the fair value of the assets.
Income taxes are provided in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 (FASB ASC 740), Accounting for Income Taxes. A
deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating
loss carry forwards.
Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that, and some portion or the entire deferred tax asset
will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates
on the date of enactment.
Earnings (Loss) Per Common
Basic earnings (loss) per share are computed by dividing
the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially
dilutive common shares outstanding during the period.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated
balance sheet for cash, accounts receivable, accounts payable, and loans payable approximate fair value based on the short-term
maturity of these instruments. The carrying value of the Companys long-term debt approximated its fair value
based on the current market conditions for similar debt instruments.
Impairment of Long-Lived Assets
The Company evaluated the recoverability of
its property and equipment, and other assets in accordance with Statements of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets to be Disposed of, which requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets
or the business to which such intangible assets relate.
Employee stock-based compensation is accounted
for in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and the FASB interpretations thereof. Pursuant to those accounting pronouncements, compensation is recorded
for share options granted to employees at the date of grant based on the difference between the exercise price of the options and
the market value of the underlying shares at that date. Due to the terms of the grants, the fair value of the compensation in accordance
with SFAS No. 123R, "Accounting for Stock-Based Compensation" approximates the values computed in accordance with
APB No. 25. Stock-based compensation to non-employees is accounted for in accordance with SFAS No. 123R. Under both accounting
pronouncements, as part of the necessary computations, management is required to estimate the fair value of the underlying shares.
Fair value has generally been determined by management, as the price at which the Company's shares were issued at the most recent
prior placement of the Company's Common Stock. Since the Company was approved for listing on the Over the Counter Bulletin Board
- fair value is determined according to stock market price. The timing of the grant and measurement of stock-based awards
will not have a material effect on the Company's results of operations and financial position. Since no stock-based
SFAS No. 165 established general standards
of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued
or available to be issued (subsequent events). An entity is required to disclose the date through which subsequent
events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued.
SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result
in significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim or annual
periods ending after June 15, 2009 and did not impact the Companys financial statements. The Company evaluated for
subsequent events through the issuance date of the Companys financial statements.
Recently Issued 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 consolidated financial condition or the consolidated results of its operations.
In May 2011, FASB issued Accounting Standards
Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 changes the
wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about
fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair
value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied
prospectively. The Company anticipates that the adoption of this standard will not materially expand its financial statement
In June 2011, FASB issued ASU No. 2011-05,
Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income (ASU 2011-05),
which amends current comprehensive income guidance. This accounting update eliminates the option to present the components
of other comprehensive income as part of the statement of shareholders equity. Instead, the Company must report comprehensive
income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive
income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the
interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company is reviewing
ASU 2011-05 to ascertain its impact on the Companys financial position, results of operations or cash flows as it only requires
a change in the format of the current presentation.
In September 2011, the FASB issued ASU 2011-08
which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current
two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is
more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test
is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011. We do not expect that the adoption of
this standard will have a material impact on our results of operations, cash flows or financial condition.
In December 2011, FASB issued Accounting Standards
Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities to enhance disclosure requirements
relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding
assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists,
or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective
and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures,
as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows
or financial condition.