Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2013 |
Economic and Political Risks [Policy Text Block] | ' |
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(a) Economic and Political Risks |
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The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC economy. |
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Our operations are conducted mainly in the PRC. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in Renminbi (“RMB”), which is our functional currency. Accordingly, our operation results are affected by changes in the exchange rate between the U.S. dollar and those currencies. |
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The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s performance 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, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. |
Fair Value of Financial Instruments [Policy Text Block] | ' |
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(b) Fair Value of Financial Instruments |
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ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. |
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These tiers include: |
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• | Level 1—defined as observable inputs such as quoted prices in active markets; | | | | | | | | | | | |
• | Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and | | | | | | | | | | | |
• | Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. | | | | | | | | | | | |
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As of September 30, 2013, our assets, measured at fair value, on a recurring basis, subject to the disclosure requirements of ASC 820, were as follows: |
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| | Fair Value Measurements at Reporting Date Using Quoted Prices in | |
| | | | | | | | | | | Significant | |
| | Carrying value as | | | Active Markets for | | | Significant Other | | | Unobservable | |
| | of September 30, | | | Identical Assets | | | Observable Inputs | | | Inputs | |
| | 2013 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
Cash and cash equivalents | $ | 12,448,344 | | $ | 12,448,344 | | | - | | | - | |
Restricted cash | | 11,384,036 | | | 11,384,036 | | | - | | | - | |
Warrants | | 14,852,005 | | | - | | | - | | | 14,852,005 | |
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Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. Restricted cash represents time deposits on account, some of which is used to secure short-term bank loans and notes payable. The original cost of these assets approximates fair value due to their short term maturity. |
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Warrants which are accounted as liabilities, are treated as derivative instruments, which will be measured at each reporting date for their fair value using Level 3 inputs. Also see Note 6 section (s). |
Cash and Cash Equivalents [Policy Text Block] | ' |
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(c) Cash and Cash Equivalents |
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The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents. |
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Restricted cash, as of September 30, 2013 and December 31, 2012, represents time deposits on account, some of which are used to secure short-term bank loans and notes payable. As of September 30, 2013, our restricted cash was as follows: |
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Purpose | | Amount | | | | | | | | | | |
Used to secure note payable (also see Note 15) | $ | 11,381,149 | | | | | | | | | | |
Used to secure short-term bank loans (also see Note 14) | | - | | | | | | | | | | |
Pure time deposits | | 2,887 | | | | | | | | | | |
Total | | 11,384,036 | | | | | | | | | | |
Inventories [Policy Text Block] | ' |
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(d) Inventories |
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Inventories are stated at the lower of cost or net realizable value (market value). The cost of raw materials is determined on a weighted average basis. The cost of finished goods is also determined on a weighted average basis and includes direct materials, direct labor and an appropriate proportion of overhead. |
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Net realizable value is based on estimated selling prices, less any further costs expected to be incurred and related completion and selling expenses. |
Accounts Receivable [Policy Text Block] | ' |
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(e) Accounts Receivable |
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Accounts receivable are recognized and carried at net realizable value. An allowance for doubtful accounts is recorded in periods where we determine a loss is probable, based on our assessment of specific factors such as troubled collection, historical experience, accounts aging, ongoing business relation and other factors. Accounts are written off after an exhaustive collection effort. If accounts receivable are to be provided for, or written off, they are recognized in the consolidated statement of operations within operating expenses line item. As of September 30, 2013 and December 31, 2012, the Company recorded no allowance for doubtful accounts. This determination was made per our management's judgment, which was based on their best knowledge. |
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As of September 30, 2013 and December 31, 2012, the longest credit term used, in connection with certain selected customers, was 90 days. |
Note receivable [Policy Text Block] | ' |
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(f) Note receivable |
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Notes receivable represents short-term loans to third parties with the maximum term of one year. Interest income is recognized, on an accrual basis, in accordance with each agreement between a borrower and the Company. If notes receivable are provided for, or written off, such notes are recognized in the relevant year that the loan default is probable (management is reasonably certain and losses can be reasonably estimated). The Company recognizes income if the written-off loan is recovered at a future date. In case of foreclosure procedures or legal actions, the Company provides accrual for related foreclosure and litigation expenses. |
Prepayments [Policy Text Block] | ' |
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(g) Prepayments |
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Prepayments represent cash paid in advance to suppliers. As of September 30, 2013, prepayments included cash paid advances to raw material and equipments suppliers, and prepaid expenses, such as water and electricity fees. |
Plant and Equipment [Policy Text Block] | ' |
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(h) Plant and Equipment |
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Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows: |
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Buildings | 30 years | | | | | | | | | | | |
Machinery and equipment | 10 years | | | | | | | | | | | |
Office equipment | 5 years | | | | | | | | | | | |
Motor vehicles | 5 years | | | | | | | | | | | |
Molds | 5 years | | | | | | | | | | | |
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The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renewals and betterments are capitalized. |
Construction in Progress [Policy Text Block] | ' |
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(i) Construction in Progress |
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Construction in progress represents the direct costs of construction, the acquisition cost of buildings, or machinery and design fees. Capitalization of these costs ceases, and the construction in progress is transferred to plant and equipment, when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until the assets are completed and ready for their intended use. |
Land Use Rights [Policy Text Block] | ' |
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(j) Land Use Rights |
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According Chinese laws, land in the PRC is owned by the government and land ownership rights cannot be sold to an individual or to a private company. However, the government grants the user a “land use right” to use the land. The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years. |
Accounting for the Impairment of Long-Lived Assets [Policy Text Block] | ' |
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(k) Accounting for the Impairment of Long-Lived Assets |
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The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in Statement of Financial Accounting Standards (“SFAS”) No. 144 (now known as "ASC 360"). The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. |
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During the reporting period, no impairment loss was recognized. |
Revenue Recognition [Policy Text Block] | ' |
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(l) Revenue Recognition |
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Revenue represents the invoiced value of goods sold. Revenue is recognized when we ship the goods to our customers. Revenue is recognized when all of the following criteria are met: |
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Persuasive evidence of an arrangement exists; |
Delivery has occurred or services have been rendered; |
The seller’s price to the buyer is fixed or determinable; and |
Collectability is reasonably assured. |
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Research and Development [Policy Text Block] | ' |
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(m) Research and Development |
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Expenditures relating to the development of new products and processes, including significant improvement to existing products, are expensed as incurred. Research and development expenses were $1,863,020 and $2,006,269 for the nine months ended September 30, 2013 and 2012, respectively. |
Government Grant [Policy Text Block] | ' |
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(n) Government Grant |
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Grants received from the PRC Government for assisting in the Company’s technical research and development efforts are recognized when the proceeds are received or collectible. |
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For the nine months ended September 30, 2013 and 2012, $60,884 and $45,942, respectively, was received from the PRC government. |
Income Taxes [Policy Text Block] | ' |
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(o) Income Taxes |
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The Company accounts for income tax using an asset and liability approach, which allows for the recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The accounting for deferred tax calculation represents the management’s best estimate on the most likely future tax consequences of events that have been recognized in our financial statements or tax returns and related future anticipation. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain. |
Foreign Currency Translation [Policy Text Block] | ' |
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(p) Foreign Currency Translation |
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The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. |
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Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year, which was obtained from website: http://www.oanda.com |
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| September 30, | December 31, | September 30, | | | | | | | | | |
| 2013 | 2012 | 2012 | | | | | | | | | |
Period end RMB : USD exchange rate | 6.1514 | 6.3161 | 6.334 | | | | | | | | | |
Average RMB : USD exchange rate | 6.2215 | 6.3198 | 6.3275 | | | | | | | | | |
Comprehensive Income [Policy Text Block] | ' |
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(q) Comprehensive Income |
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Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation changes. |
Stock Option Cost [Policy Text Block] | ' |
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(r) Stock Option Cost |
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The Company’s stock option cost is recorded in accordance with ASC 718 and ASC 505. |
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The fair value of stock options is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the option. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. |
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Stock option expense recognized is based on awards expected to vest, and there were no estimated forfeitures. ASC standards requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates. |
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The stock based compensation expense for the period ended September 30, 2013 was $0. See Note 18. |
Warrant Cost [Policy Text Block] | ' |
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(s) Warrant Cost |
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The Company’s warrant costs are recorded in liabilities and equities respectively in accordance with ASC 480, ASC 505 and ASC 815. |
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The fair value of a warrant, which is classified as a liability, is estimated using the Black-Scholes-Merton model and the lattice valuation model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the warrant is based on the U.S. Treasury yield curve in effect at the time of measurement. The warrants, which are freestanding derivatives and are classified as liabilities on the balance sheet, will be measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair values were recognized in expenses. |
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The Company determined that the fair value of equity based warrants, which are not considered derivatives under ASC 815, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. |
Goodwill [Policy Text Block] | ' |
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(t) Goodwill |
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We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. |
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Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We first assess qualitative factors to determine whether it is more likely than not that goodwill is impaired. If the more likely than not threshold is met, we perform a quantitative impairment test. At September 30, 2013, the Company determined that goodwill was not impaired. |
Intangible assets [Policy Text Block] | ' |
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(u) Intangible assets |
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Intangible assets consist of tradename and customer relations associated with the purchase price allocation of Yongkang Scrou Electric Co.. Such assets are being amortized over their estimated useful lives of 9.7 years. Intangible assets are amortized as of September 30, 2013. |