The Company’s consolidated financial statements include the accounts of its controlled subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.
As of September 30, 2011 and December 31, 2010, the Company had restricted cash of $ 3,601,315 and $304,540, respectively. These restricted cash balances are reserved for settlement of trade notes payable in connection with inventory purchases. The cash held in custody by bank issuing the trade notes payable is restricted as to withdrawal or use, and is currently earning interest.
Loans to third parties primarily consist of goodfaith non-interest bearing advances given to third parties and payable on demand. Loan to third parties outstanding as of September 30, 2011 and December 31, 2010 were $3,962,594 and $3,224,210, respectively.
Dividends receivable as of September 30, 2011 and December 31, 2010 were $271,863 and $524,400, respectively, representing income receivable from Anyang Petro China and Ancai exhibited in Note 11.
Depreciation expense for three months ended September 30, 2011 and 2010 was $130,871 and $103,889 respectively. Depreciation expense for the nine months ended September 30, 2011 and 2010 was $299,265 and $213,829 respectively. For the nine months ended September 30, 2011 and 2010, amortization of equipment under capital lease included in depreciation expense was $10,468 and $-0-, respectively.
The Company leases certain machineries under agreements that are classified as capital leases. The cost of equipment under capital leases is included in the property and equipment and was $324,390 and $-0- as of September 30, 2011 and December 31, 2010, respectively. Accumulated amortization of the leased machinery as of September 30, 2011 and 2010 was $10,468 and $-0-, respectively. Amortization of assets under capital leases is included in depreciation expense.
The future minimum lease payments required under the capital leases and the present values of the net minimum lease payments as of September 30, 2011 are as follows:
Deferred income tax asset of $53,764 and $52,114 as of September 30, 2011 and December 31, 2010 arose from unused tax loss carry-forwards that management considers more likely than not that it will be realized through future operations. The tax loss carry-forwards are available for offset against future taxable income over the next five years.
As of September 30, 2011, available-for-sale securities consist of the following:
As the above company is a private company whose shares are not quoted or traded in an active market, management has determined that it is not practicable to estimate their fair value reliably. Therefore, the investment in the above company is stated at cost less any impairment losses. No events or changes in circumstances have been identified that potentially would have a significant adverse effect on the fair value of investment in the above company. As of September 30, 2011, there was no allowance for impairment loss.
Anyang Dingran Gas Co., Ltd was incorporated on July 12, 2010, with a registered capital of $8 million, which was invested by Ancai Hi-tec Corporation, Antai Investment Co., Ltd., and Anyang Prosperous. Anyang Prosperous invested $3.04 million for its 38% equity interest in Anyang Dingran. It mainly engaged in the investment and operation in CNG and LNG stations. Through the CNG pipeline of branch of Henan, which can support 0.21billion M3 CNG per year, it will construct mother stations and standard stations, and now it was operated by the above three parties. Therefore, Anyang Dingran has been accounted for using the cost method instead of the equity method. For the nine months ended September 30, 2011 and 2010, no dividend income was distributed from Anyang Dingran.
Although the Company held 34% ownership interest in Anyang PetroChina, the Company did not have significant influence over Anyang PetroChina. According to an agreement between the Company and the other shareholder of Anyang PetroChina, namely China National Petroleum Corporation (“China National Petroleum”), the Company has assigned the full power and right of management of Anyang PetroChina to China National Petroleum for the period until December 31, 2009. In return, the Company has been entitled to 10% of the cost of its investment in Anyang PetroChina in the form of a fixed “dividend” each year regardless of the actual performance of Anyang PetroChina for the period until December 31, 2009. Therefore, Anyang PetroChina has been accounted for using the cost method instead of the equity method. For the nine months ended September 30, 2011 and 2010, dividend income of $247,279 and $235,343, respectively, from Anyang Petro China was included in other income.
The Company acquired 15% of the shares of Ancai Energy Co., Ltd (“Ancai”), which was established on April 18, 2008 and was registered with capital of approximate $1.17million. Ancai is mainly engaged in the investment in the construction of long-distance pipeline and delivery networks for natural gas, and pipeline LPG and CNG filling stations. The Jiaozuo-Anyang branch of the West-East natural gas transmission project had been built and put into operation in December 2003, which supplies natural gas to users in the cities of Jiaozuo, Xinxiang, Hebi, Anyang as well as industrial users. The project is not just an industrial project, but also a state key infrastructural project for clean energy. Almost 15 million people in Northern Henan can benefit from the project, which plays an important role in local industry and ecological environment. The
investment made on Ancai will provide steady and qualified natural gas for the network of CNG filling stations that belong to the company and Henan Transport Authority, developing a stable market of filling stations which takes Ancai mother station as its center. Ancai has been accounted for using the cost method instead of the equity method. For the nine months ended September 30, 2011 and 2010, dividend of $2,112 and $-0- respectively, from Ancai was included in other income.
As of September 30, 2011, Ancai Group Inc, the 70% shareholder of Ancai, is responsible for the management of Ancai.
Accounts payable and accrued expenses as of September 30, 2011 and December 31, 2010 consist of the following:
The carrying values of accounts payable and accrued expenses approximate their fair values due to the short-term nature of these obligations.
Loans from third parties as of September 30, 2011 and December 31, 2010 consist of the following:
The proceeds of these loans were utilized as working capital. These loans are good-faith, unsecured, and non-interest bearing.
The Company being incorporated in the State of Nevada is not subject to any income tax according to the rules and regulations of the State of Nevada. Before January 1, 2008, the Company’s subsidiaries in the PRC were generally subject to PRC enterprise income tax at 33%. On March 16, 2007, the PRC government promulgated a new tax law, China’s Unified Corporate Income Tax Law (“New CIT Law”), which took effect from January 1, 2008. Under the New CIT Law, foreign-owned enterprises as well as domestic companies are subject to a unified tax rate of 25%. Accordingly, the Company’s subsidiaries in the PRC have been subject to the PRC corporate income tax at a rate of 25% on their taxable income arising in the PRC commencing from January 1, 2008. Meanwhile, according to Rule 28 of New CIT Law, income tax of small low-profit enterprises is subject to the reduced rate of 20%. Changzhi Company as one of the Company’s subsidiaries meets the conditions of small low-profit enterprises, so Changzhi Company’s income tax rate of 20% in 2009.The effect of this change in tax rate has been reflected in the calculation of deferred income tax assets as of December 31, 2007 and thereafter.
On December 3, 2010, the board of directors approved to issue 500,000 shares of the Company’s common stock to Mr. Zhijun Liu, the consultant of the Company for one year consultant service fee. The fair value on December 3, 2010 was $50,000 based on the quoted price of the Company’s common stock on that day. Total share-based payments recognized in income statement for the nine months ended September 30, 2011 and 2010 were $37,500 and $-0-, respectively.
The Company presents earnings per share on a basic and diluted basis. Basic earnings per share have been computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted earnings per share have been computed by dividing net earnings plus convertible preferred dividends and interest expense (after-tax) on convertible debt by the weighted average number of common shares outstanding including the dilutive effect of equity securities. The weighted average number of common shares calculated for diluted EPS excludes the potential common stock that would be exercised under the options and warrants granted to officers because the inclusion of the potential shares from these options and warrants would cause an anti-dilutive effect by increasing the net earnings per share.
On February 22, 2011, the Company effectuated a 1 for 100 reverse stock split of its common stocks. All references to number of shares, except shares authorized, and to per share information in the consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.
As of September 30, 2011 and December 31, 2010, 100% of the Company’s cash included cash on hand and deposits in accounts maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of bank failure. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
As of September 30, 2011 and December 31, 2010, no single customer accounted for more than 10% of the company’s accounts receivable.
The following is supplemental information relating to the consolidated statements of cash flows:
The Company has entered into several tenancy agreements for the lease of land and equipment for the purpose of its gas stations. The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of September 30, 2011 are as follows:
ASC 280-10 (formerly SFAS 131), “Disclosure about Segments of an Enterprise and Related Information” requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance.
The Company has re-evaluated the structure of its organization and has determined, based on the requirements of SFAS 131, that the Company has the following three reportable segments, identified based on the nature of products, the type or class of customers, and the methods used to distribute the Company’s products:
During the ended September 30, 2011, all of the Company’s operations were carried out in one geographical segment – China.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. Forward looking statements are identified by words and phrases such as “anticipate”, “intend”, “expect” and words and phrases of similar import. We caution investors that forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future performance. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements due to risks, uncertainties and assumptions that are difficult to predict, including those set forth in Item 1A above. We encourage you to read those risk factors carefully along with the other information provided in this Report and in our other filings with the SEC before deciding to invest in our stock or to maintain or change your investment. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law.
You should read this MD&A in conjunction with the Consolidated Financial Statements and Related Notes in Item 1.
Unless otherwise noted, all currency figures in this filing are in U.S. dollars. References to "Yuan" or "RMB" are to the Chinese Yuan (also known as the Renminbi). According to Bank of China, as of September 30, 2011, RMB1: US$0.1565.
OVERVIEW
Our new primary business operations include: retail sales of CNG and operation of CNG filling stations; retail sales of LPG and operation of LPG filling stations; and wholesale of LPG and CNG. Our primary business is carried out by Origin Orbit through Anyang Prosperous and Anyang Top. Along with the reform and opening up and China's sustained economic growth and rising consumption level, the gas industry as the basis of the energy industry, has been in a sustained and rapid development process, including LPG and CNG, and other clean gas consumption. With China's sustained and rapid economic growth, and increasing social environmental awareness, clean, renewable energy has been encouraging by industrial policy. "The People's Republic of China National Economic and Social Development of the 12 th Five-Year Plan" clearly declaim that accelerating the development of new energy used vehicles and other strategic emerging industries, adjusting and optimizing the energy structure, promoting diversified clean energy development, increasing oil and gas exploration and development, and promoting rapid growth in natural gas production.
LPG, CNG and other clean energy will play an important role in future, there will be immense room for development and a very good development prospects. We plan to add 7 stations in 2011, 15 new stations in 2012, which will be the highlights of the Company.
In the remainder of this filing and its exhibits, “we, us or our” refers to China Prosperous Clean Energy Corporation, Origin Orbit, Anyang Prosperous and Anyang Top, collectively. The results of operations discussed below are the consolidated results of reflect the results of China Prosperous Clean Energy Corporation, Origin Orbit, Anyang Prosperous and Anyang Top.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management’s discussion and analysis.
Basis of Consolidation
These consolidated financial statements include the financial statements of CHPC and its subsidiaries. All significant inter-company balances and transactions have been eliminated on consolidation.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. Up to September 30, 2011, there was no accounts receivable reserve.
Available-for-sale Investments
Available-for-sale investments are equity securities which the Company does not intend to sell in the near term. The investees are private companies and do not have a quoted market price in an active market, so the fair value of available-for-sale investment cannot be practicably estimated are stated in the balance sheet using the cost method. Temporary impairments of costs of such available-for-sale investments are reported in other comprehensive income, where as other than temporary impairments are reflected in earnings.
Goodwill
The Company accounts for acquisitions of business in accordance with SFAS No. 141 “Business Combinations”, which may result in the recognition of goodwill. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method. Goodwill is not subject to amortization but will be subject to periodic evaluation for impairment. Goodwill is stated in the condensed consolidated balance sheet at cost less accumulated impairment loss, if any.
Asset Impairment
(a) Long-lived Assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups.
(b) Goodwill
The Company evaluates, on at least an annual basis, the carrying amount of goodwill to determine whether current events and circumstances indicate that such carrying amount may no longer be recoverable. To accomplish this, the Company compares the estimated fair value of its reporting units to their carrying amounts. If the carrying value of a reporting unit exceeds its estimated fair value, the Company compares the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying value over the fair value is charged to earnings. The Company’s fair value estimates are based on numerous assumptions and it is possible that actual fair value will be significantly different than the estimates.
Revenue Recognition
Revenue is recognized when the following 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 recognized net of sales discounts and returns at the time when the merchandise is sold to the customer. Based on historical experience, management estimates that sales returns are immaterial and has not made allowance for estimated sales returns.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of 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. 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 deductibility is uncertain.
On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This Interpretation also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The adoption of FIN 48 has not resulted in any material impact on the Company’s financial position or results.
Foreign Currency
The Company uses the United States dollars (“US Dollar” or “US$” or “$”) for financial reporting purposes. The Company maintains the books and records in its functional currency, Chinese Renminbi (“RMB”), being the primary currency of the economic environment in which its operations are conducted. In general, the Company translates its assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.
The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the condensed consolidated financial statements were as follows:
| | September 30, 2011 | December 31, 2010 |
Balance sheet items, except for paid-in capital and retained earnings as of the end of period | RMB1: US$0.15650 | RMB1: US$0.14970 |
| |
| | Three months ended September 30, 2011 | Three months ended September 30, 2010 |
Amounts included in the statements of income, statements of stockholders’ equity and statements of cash flows for the period | RMB1: US$0.15618 | RMB1: US$0.14790 |
| |
| | Nine months ended September 30, 2011 | Nine months ended September 30, 2010 |
Amounts included in the statements of income, statements of stockholders’ equity and statements of cash flows for the period | RMB1: US$0.15414 | RMB1: US$0.14710 |
Segment Information
ASC 280-10 (formerly SFAS 131), “Disclosure about Segments of an Enterprise and Related Information” requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance.
The Company has re-evaluated the structure of its organization and has determined, based on the requirements of ASC 280-10, that the Company has the following three reportable segments, identified based on the nature of products, the type or class of customers, and the methods used to distribute the Company’s products:
1)Retail sales of Compressed Natural Gas (“CNG”) through operation of CNG filling stations;
2)Retail sales of Liquefied Petroleum Gas (“LPG”) through operation of LPG filling stations; and
3)Wholesale of CNG and LPG
Recent Accounting Pronouncements
In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-17, Revenue Recognition—Milestone Method (Topic 605) – Revenue Recognition (ASU 2010-17). ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 is effective for us in fiscal 2012 and should be applied prospectively. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued the following ASC Updates:
ASU No. 2010-01— Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. This Update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009 with retrospective application.
ASU No. 2010-02— Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This Update amends Subtopic 810-10 and related guidance to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; and (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a noncontrolling interest in an entity, but does not apply to: (i) sales of in substance real estate; and (ii) conveyances of oil and gas mineral rights. The amendments in this Update are effective beginning in the period that an entity adopts FAS 160 (now included in Subtopic 810-10).
ASU No. 2010-06— Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This Update amends Subtopic 820-10 that requires new disclosures about transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. This Update also amends Subtopic 820-10 to clarify certain existing disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010.
The Company expects that the adoption of the above Updates issued in January 2010 did not and will not have any significant impact on its financial position and results of operations.
In January 2010, the FASB expanded the disclosure requirements for fair value measurements relating to the transfers in and out of Level 2 measurements and amended the disclosure for the Level 3 activity reconciliation to be presented on a gross basis. In addition, valuation techniques and inputs should be disclosed for both Levels 2 and 3 recurring and nonrecurring measurements. The new requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about the Level 3 activity reconciliation which are effective for fiscal years beginning after December 15, 2010. The Company adopted the new disclosure requirements on January 1, 2010 except for the disclosure related to the Level 3 reconciliation, which will be adopted on January 1, 2011. The adoption will not have an impact on its consolidated financial condition, results of operations or cash flows.
In October 2009, the FASB issued an amendment to the accounting and disclosure for revenue recognition. The amendment modifies the criteria for recognizing revenue in multiple element arrangements. Under the guidance, in the absence of vendor-specific objective evidence (“VSOE”) or other third party evidence (“TPE”) of the selling price for the deliverables in a multiple-element arrangement, this amendment requires companies to use an estimated selling price (“ESP”) for the individual deliverables. Companies shall apply the relative-selling price model for allocating an arrangement’s total consideration to its individual deliverables. Under this model, the ESP is used for both the delivered and undelivered elements that do not have VSOE or TPE of the selling price. The guidance is effective for the fiscal year beginning on or after June 15, 2010, and will be applied prospectively to revenue arrangements entered into or materially modified after the effective date. The Company intends to adopt the new guidance prospectively beginning January 1, 2011 and is currently evaluating the impact the adoption will have on its consolidated financial statements.
On July 1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched the FASB Accounting Standards Codification (“ASC”), which has become the single official source of authoritative nongovernmental US GAAP, in addition to guidance issued by the Securities and Exchange Commission. The ASC is designed to simplify US GAAP into a single, topically ordered structure. All guidance contained in the ASC carries an equal level of authority. The ASC is effective for all interim and annual periods ending after September 15, 2009.
On July 1, 2009, the Company adopted the accounting and disclosure requirements of Statement of Financial Accounting Standard (“SFAS”) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51, which is now included with ASC Topic 810 Consolidation. This standard establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. On a prospective basis, any changes in ownership will be accounted for as equity transactions with no gain or loss recognized on the transactions unless there is a change in control.
RESULTS OF OPERATIONS
The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the three months ended September 30, 2011 and 2010.
Profit & Loss for the quarter ended September 30, 2011 and 2010
| | | For the quarter ended September 30, 2011 | | | For the quarter ended September 30, 2010 | | | Changes | |
| | | Amount | | Percentage of Revenue | | | Amount | | Percentage of Revenue | | | Amount | | Percentage | |
| | | $ | | (%) | | | $ | | (%) | | | $ | | $(%) | |
| Sales | | $ | 8,213,554 | | 100.00 | % | | | 6,739,042 | | 100.00 | % | | | 1,474,512 | | 21.88 | % |
| | | | | | | | | | | | | | | | | | | |
| Cost of Sales | | | 6,964,280 | | 84.79 | % | | | 5,746,539 | | 85.27 | % | | | 1,217,741 | | 21.19 | % |
| | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | 1,249,274 | | 15.21 | % | | | 992,503 | | 14.73 | % | | | 256,771 | | 25.87 | % |
| | | | | | | | | | | | | | | | | | | |
Operating Expenses： | | | 1,003,758 | | 12.22 | % | | | 643,550 | | 9.55 | % | | | 360,209 | | 55.97 | % |
| | | | | | | | | | | | | | | | | | | |
| Selling Expenses | | | 629,545 | | 7.66 | % | | | 432,372 | | 6.42 | % | | | 197,173 | | 45.60 | % |
| | | | | | | | | | | | | | | | | | | |
| General & Administrative Expenses | | | 374,213 | | 4.56 | % | | | 211,178 | | 3.13 | % | | | 163,035 | | 77.20 | % |
| | | | | | | | | | | | | | | | | | | |
| Income from Operations | | | 245,516 | | 2.99 | % | | | 348,953 | | 5.18 | % | | | (103,438) | | (29.64 | %) |
| | | | | | | | | | | | | | | | | | | |
Other Income (Expenses)： | | | 73,385 | | 0.89 | % | | | 72,657 | | 1.08 | % | | | 728 | | 1.00 | % |
| | | | | | | | | | | | | | | | | | | |
| Investment Income | | | 83,529 | | 1.02 | % | | | 79,100 | | 1.17 | % | | | 4,429 | | 5.60 | % |
| | | | | | | | | | | | | | | | | | | |
| Interest Expense | | | (8,299) | | (0.10 | %) | | | (4,827) | | (0.07 | %) | | | 3,472 | | 71.93 | % |
| | | | | | | | | | | | | | | | | | | |
| Other Income (Expenses) | | | (1,845) | | (0.02 | %) | | | (1,616) | | (0.02 | %) | | | 229 | | 14.17 | % |
| | | | | | | | | | | | | | | | | | | |
| Income before Provision for Income Taxes | | | 318,901 | | 3.88 | % | | | 421,611 | | 6.26 | % | | | (102,710) | | (24.36 | %) |
| | | | | | | | | | | | | | | | | | | |
| Provision for Income Taxes | | | 100,488 | | 1.22 | % | | | 60,834 | | 0.90 | % | | | 39,654 | | 65.18 | % |
| | | | | | | | | | | | | | | | | | | |
| Income before Noncontrolling Interest | | | 218,413 | | 2.66 | % | | | 360,777 | | 5.35 | % | | | (142,364) | | (39.46 | %) |
| | | | | | | | | | | | | | | | | | | |
| Noncontrolling Interest | | | (190) | | | % | | | (2,599) | | (0.04 | %) | | | 2,409 | | 92.69 | % |
| | | | | | | | | | | | | | | | | | | |
| Net Income | | | 218,603 | | 2.66 | % | | | 363,376 | | 5.39 | % | | | (144,773) | | (39.84 | %) |
| | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | | 140,267 | | 1.70 | % | | | 151,205 | | 2.17 | % | | | (6,482) | | (4.43 | %) |
| | | | | | | | | | | | | | | | | | | |
| Total Comprehensive Income | | | 358,706 | | 4.36 | % | | | 508,239 | | 7.56 | % | | | (151,255) | | (29.68 | %) |
Profit & Loss for the Nine months ended September 30, 2011 and 2010
| | | For the nine months ended September 30, 2011 | | | For the nine months ended September 30, 2010 | | Changes | |
| | | Amount | | Percentage of Revenue | | | Amount | | Percentage of Revenue | | Amount | | Percentage | |
| | | $ | | (%) | | | $ | | (%) | | $ | | (%) | |
| Sales | | | 24,613,106 | | 100.00 | % | | | 16,723,481 | | 100.00 | % | 7,889,625 | | 47.18 | % |
| | | | | | | | | | | | | | | | | |
| Cost of Sales | | | 21,002,418 | | 85.33 | % | | | 14,401,031 | | 86.11 | % | 6,601,387 | | 45.84 | % |
| | | | | | | | | | | | | | | | | |
| Gross Profit | | | 3,610,688 | | 14.67 | % | | | 2,322,450 | | 13.89 | % | 1,288,238 | | 55.47 | % |
| | | | | | | | | | | | | | | | | |
Operating Expenses： | | | 2,934,084 | | 11.92 | % | | | 1,807,392 | | 10.81 | % | 1,126,692 | | 62.34 | % |
| | | | | | | | | | | | | | | | | |
| Selling Expenses | | | 1,998,091 | | 8.12 | % | | | 1,244,261 | | 7.44 | % | 753,830 | | 60.58 | % |
| | | | | | | | | | | | | | | | | |
| General & Administrative Expenses | | | 935,993 | | 3.80 | % | | | 563,131 | | 3.37 | % | 372,862 | | 66.21 | % |
| | | | | | | | | | | | | | | | | |
| Income from Operations | | | 676,604 | | 2.75 | % | | | 515,058 | | 3.08 | % | 161,546 | | 31.36 | % |
| | | | | | | | | | | | | | | | | |
Other Income (Expenses)： | | | 143,407 | | 0.58 | % | | | 93,525 | | 0.56 | % | 49,882 | | 53.34 | % |
| | | | | | | | | | | | | | | | | |
| Investment Income | | | 249,391 | | 1.01 | % | | | 235,985 | | 1.41 | % | 13,406 | | 5.68 | % |
| | | | | | | | | | | | | | | | | |
| Interest Expense | | | (101,894) | | (0.41 | %) | | | (37,058) | | (0.22 | %) | 64,836 | | 174.96 | % |
| | | | | | | | | | | | | | | | | |
| Other Income (Expenses) | | | (4,090) | | (0.02 | %) | | | (105,402) | | (0.63 | %) | (101,312) | | (96.12 | %) |
| | | | | | | | | | | | | | | | | |
| Income before Provision for Income Taxes | | | 820,011 | | 3.33 | % | | | 608,583 | | 3.64 | % | 211,428 | | 34.74 | % |
| | | | | | | | | | | | | | | | | |
| Provision for Income Taxes | | | 220,882 | | 0.90 | % | | | 119,244 | | 0.71 | % | 101,637 | | 85.23 | % |
| | | | | | | | | | | | | | | | | |
| Income before Noncontrolling interest | | | 599,129 | | 2.43 | % | | | 489,339 | | 2.93 | % | 109,790 | | 22.44 | % |
| | | | | | | | | | | | | | | | | |
| Noncontrolling Interest | | | (3,836) | | (0.02 | %) | | | (2,661) | | (0.02 | %) | (1,175) | | (44.16 | %) |
| | | | | | | | | | | | | | | | | |
| Net Income | | | 602,965 | | 2.45 | % | | | 492,000 | | 2.94 | % | 110,965 | | 22.55 | % |
| | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | | 407,721 | | 1.66 | % | | | 180,872 | | 1.08 | % | 226,849 | | 125.42 | % |
| | | | | | | | | | | | | | | | | |
| Total Comprehensive Income | | | 1,010,686 | | 4.11 | % | | | 672,872 | | 4.02 | % | 337,814 | | 50.20 | % |
The “Results of Operations” discussed in this section merely reflect the information and results of Origin Orbit for the three months and nine months ended September 30, 2011 and 2010.
SALES
Historical Financial Information for the quarter ended September 30, 2011 and for the quarter ended September 30, 2010:
| | | For the quarter ended September 30, 2011 | | | For the quarter ended September 30,2010 | | Change in Percentage (%) |
| Sales | | $ | 8,213,554 | | | $ | 6,739,042 | | 21.88% |
| Net income | | $ | 218,603 | | | $ | 363,376 | | （39.84）% |
| Net Income as a percentage of sales | | $ | 2.66% | | | $ | 5.39% | | (50.28%) |
The Company’s consolidated sales increased to $ 8,213,554 for the quarter ended September 30, 2011, a 21.88% increase from $6,739,042 reported for the quarter ended September 30, 2011. The increase in revenue resulted primarily from the following factors:
| 1) | The three new natural gas filling stations of the Company located in Anyang, Linyng, Weifang have been put into operation in this quarter, along with the increase of filling stations, sales volume increased by 17.03% compared with the same quarter of last year. |
| 2) | The retail prices of natural gas filling stations of the Company have been adjusted upwards along with China's domestic retail prices of crude oil. The average retail prices increased by 21.58% compared with the same quarter of last year. |
Our consolidated net income decreased by 39.84% to $ 218,603for the quarter ended September 30, 2011, as compared to $363,376 for the quarter ended September 30, 2011. This decrease was attributable to:
Though we adopt the centralized purchasing policy and choose the provider from different channel, because of the effect of increasing CNG price to us, and finally increase of cost of sales was more than sales, and caused the falling of gross profit..
Revenues breakdown by segments for the quarter ended September 30, 2011 and for the quarter ended September 30, 2010(in US Dollar)
| Items | | For the quarter ended September 30, 2011 ($) | | | Percentage (%) | | | For the quarter ended September 30, 2010 ($) | | | Percentage (%) | | | Change in Amount ($) | | | Change In Percentage (%) | |
| CNG retail | | | 4,933,218 | | | | 20.04 | % | | | 5,383,731 | | | | 32.19 | % | | | (450,513 | ) | | | (0.84 | )% |
| LPG retail | | | 218,015 | | | | 0.89 | % | | | 512,438 | | | | 3.06 | % | | | (294,423 | ) | | | (57.46 | )% |
| CNG and LPG wholesale | | | 14,693,777 | | | | 59.70 | % | | | 8,872,819 | | | | 53.06 | % | | | 5,820,958 | | | | 65.60 | % |
| Others | | | 4,768,096 | | | | 19.37 | % | | | 1,954,493 | | | | 11.69 | % | | | 2,813,603 | | | | 144 | % |
| TOTAL | | | 24,613,106 | | | | 100.00 | % | | | 16,723,481 | | | | 100.00 | % | | | 7,889,625 | | | | 47.18 | % |
The CNG retail for the quarter ended September 30, 2011 was decreased by 0.84% as compared to the quarter ended September 30, 2010. This was mainly due to:
| 1) | Pursuant to the "The Guideline Catalog of Industrial Structure Adjustment (2007)" issued by National Development and Reform Commission (NDRC) new and clean energy vehicles were officially listed among the “encouraged products” and CNG/petroleum dual-fuel automobiles, a major type of clean energy vehicles, are staged for full promotion by NDRC, which lead to the significant increase in our CNG retail sales; |
| 2) | In July 2010, one new CNG filling station in Anyang, in 2011 one in Weifang, and the other one in Linying were put into operation, which contributed to the increase in CNG retail sales; |
| 3) | The retail prices of natural gas have been adjusted upwards along with China's domestic retail prices of crude oil. |
LPG retail sales fell by 57.46% compared to the same quarter of 2010. This was mainly due to the shift of favorable policy preference from LPG/gas dual-fueled vehicles to CNG/gas dual-fueled vehicles by central and local governments. As a result, our main LPG retail customers, taxis and city buses, have been converted to CNG dual-fuel vehicles, at the same time, because of the city planning of Handan, one of our LPG stations was ceased to work, which caused the decrease in our existing LPG retail sales.
CNG and LPG wholesales increased 65.6% compared to the same quarter of 2010. Along with China's rapid economic growth, CNG and LPG wholesale market gradually resumed and our sales market was basically steady.
“Others” increased by 144%, it is mainly because of the recovery of LPG market, and the sales of DME ,which can be blended with LPG, was increased too.
COST OF SALES (COS)
COS for the quarter ended September 30, 2011 was $6,964,280 which is 84.79% of total revenues and represents a 21.29% increase as compared to$5,746,539 and 85.27% of total revenues for the quarter ended September 30, 2010. The increase in COS as a percentage of total revenue was primarily because:
1) Along with the increase in sales, COS increased too.
2) we has taken centralized purchasing to obtain lower prices of raw materials and multiple channels to choose providers, which increased our profitability.
COS as a percentage of sales may fluctuate in the future. This fluctuation may primarily be due to changes in the price of our procurement price and selling price, which can have a significant impact on the COS. The Company will adopt proper measures to reduce fluctuations in the COS. These measures includes: centralized purchasing to obtain lower prices of raw materials, maintaining long-term stable cooperative relations with the existing gas source suppliers, increasing the development of new gas suppliers, and solving gas supply problems and reducing the cost of sales by way of joint venture and self-built CNG mother stations.
GROSS PROFIT MARGIN
Gross Profit Margin of major products in 2011and 2010 (for the quarter ended September 30):
| Gross Margin | | 2011 | | | 2010 | | Comparisons |
| TOTAL | | | 15.21% | | | | 14.73% | | 0.48% |
| CNG Retail | | | 39.29% | | | | 36.65% | | 2.64% |
| CNG Wholesale | | | | | | | | | |
| LPG Retail | | | 8.61% | | | | 16.07% | | (7.46) |
| LPG Wholesale | | | 3.43% | | | | 1.08% | | 2.35% |
Raw Material Procurement
We were able to maintain relatively low purchase price even given the strong fluctuation of LPG price.
Average Price of Raw Material in the quarter ended September 30, 2011and 2010 (net of tax)
Quarter Ended September 30 | | Retail LPG (per ton) | | | Wholesale LPG (per ton) | | | CNG (per cube) | |
| | | | | | | | | | | | | |
| 2010 | | $ | 742.04 | | | $ | 685.69 | | | $ | 0.32 | |
| | | | | | | | | | | | | |
| 2011 | | $ | 889.73 | | | $ | 744.13 | | | $ | 0.42 | |
SELLING EXPENSES
Selling expenses for the quarter ended September 30, 2011 mainly included the salary of sales personnel and transportation cost. In the second quarter of 2011, selling expenses amounted to $ 629,545, representing7.66% of total sales. The retail business sells its product through its own retail outlets whereas the wholesale business sells its product in the domestic market through direct distribution. The major component of selling expenses is transportation cost. The company mainly uses tank trucks to transport its products. In the third quarter of 2011, the transportation cost increased 93.55% to approximately $336,375 compared with approximately $173,789 in the same quarter 2010.
The selling expenses for the quarter ended September 30, 2011 increased by 45.60% as compared to $432,372 for the quarter ended September 30, 2010. The main reason is that along with the increase in LPG wholesale, the related transportation cost increased by 93.55%.
GENERAL AND ADMINISTRATIVE EXPENSES
The general and administrative expenses for the quarter ended September 30, 2011, mainly included the salary and welfare of the management personnel and office related expenses $374,213, which accounted for 4.56% of total sales. For the quarter ended September 30, 2010, the general and administrative expense was $211,178, accounted for 3.13% of total sales, which represents a 77.20% increase. The reason of the increase was that:
1) In December, 2010, a technical services agreement was entered between Liu Zhijun and the Company,according to the agreement, service charge of $12,501 was accounted in this quarter.
2) Linying was put into operation in July 2011, general and administrative expenses and depreciation allowances increased, so the related office expenses increased.
FINANCING COSTS
The financial expenses mainly consisted of interest expenses and bank charges. For the quarter ended September 30, 2011, interest expenses was $8,299, representing 0.10% of total sales. For quarter ended September 30, 2010, it was $4,827 representing0.07% of total sales.
The main reason for the increase of the $3,472 in interest expenses, which represents a 6.40% in crease as compared to $4,827 for the quarter ended September 30, 2010, this was mainly due to: 1) Bank of China increased the interest rate. 2) In November 2010, Anyang Prosperous acquired a one-year loan from Zhengzhou Guoji Road Branch of Shanghai Pudong Development Bank.
INCOME FROM OPERATIONS
The Company's consolidated operating income for the quarter ended September 30, 2011 decreased by 29.64% to $245,516, from $348,954 reported for the quarter ended September 30, 2010. This was mainly due to:
(a) Along with the increase of sales volume, and the related. increased too, meanwhile, since Linying Company was put into trail operation, which resulted the increase of operating expense.
We believe income from operations will show further improvements as we will continue building new CNG filling stations with further revenue source, aided by prudent cost controls on both the production and operating components of our business. We anticipate further improvements in cost of sales, increased sales and market share. Thus, while management expects this factor to favorably benefit gross and operating income, we also anticipate that with the addition of quality members to management, efficiency will be enhanced, which will also improve margins.
We are positive about the future increase in the net income as it will benefit from the following factors:
| a) | We will continue building new CNG filling stations as to expand our market share, such as Linying mother station that was completed in June 2010, and put into operation in July, 2011. The second gas station in Changzhi will be completed by the end of 2011; One LPG station in Anyang was changed into CNG station and was put into operation in June 2011. | |
| b) | The Company will take proper measures to reduce fluctuations in the COS. These measures includes: centralized purchasing to obtain lower prices of raw materials, maintaining long-term stable cooperative relations with the existing gas source suppliers, increasing the development of new gas suppliers, and solving gas supply problems and reducing the cost of sales by way of joint venture and self-built CNG mother stations. | |
| c) | We are also looking forward to reorganization and optimization of existing management processes, improvement of internal management, increase management efficiency and reduction of administrative costs, which will lead to the increase of our profits. | |
NET INCOME
The net income for the quarter ended September 30, 2011 was $218,413 and 2.66% of sales, comparing to $363,376 and 5.39% in the same quarter in 2010. The main reason of the decrease was that the CNG retail price increased less than purchasing cost of CNG, and gross margin increased.
ACCOUNT RECEIVABLE
Account receivable balance as of September 30, 2011 and December 31, 2010 was $693,205 and $541,809, respectively The average turnover rate of account receivable is 40 times, or 9 days.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity had been cash generated from operations. Historically, the primary liquidity requirements were for capital expenditures and working capital and investments. Our contractual obligations, commitments and debt service requirements over the next several years are insignificant.
Our primary source of liquidity will continue to be cash generated from operations as well as existing cash on hand. If our current cash and cash equivalents and cash generated from operations will not satisfy our expected working and other capital requirements for the foreseeable future based on current business strategy and expansion plan, we will have available resources to meet both our short-term and long-term liquidity requirements, including debt service. If our cash flow from operations is insufficient to fund our debt service and other obligations, we may choose to use other means available to us such as to increase our borrowings under our lines of credit, reduce or delay capital expenditures, seek additional capital or seek to restructure or refinance our indebtedness.
As of September 30, 2011 and December 31, 2010, the Company had cash and cash equivalents of approximately $1,346,494 and $ 3,806,939 respectively.
The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2011 and 2010:
| Cash provided by (used in): | | Nine months ended September 30, 2011 | | | Nine months ended September 30, 2010 | | | Change | |
| | | | | | | | | Amount | | | Percentage | |
| | | ($) | | | ($) | | | ($) | | | (%) | |
| | | | | | | | | | | | | |
| Operating Activities | | | 4,095,263 | | | | 3,733,000 | | | | 362,263 | | | | 9.70 | % |
| | | | | | | | | | | | | | | |
| Investing Activities | | | (2,244,939 | ) | | | (2,341,514 | ) | | （96,575） | | | | (4.12 | %) |
| | | | | | | | | | | | | | | |
| Financing Activities | | | (4,453,491 | ) | | | 2,443,487 | | | | (6,896,978 | ) | | | (282.26 | )% |
Net cash flow provided by operating activities was $4,095,263 in the nine months ended September 30, 2011, as compared to net cash flow provided by operating activities of $3,733,000 in the nine months ended September 30, 2010, representing a increase of $362,263 or 9.70%. Along with the recovery of Chinese economy, we will maintain long-term stable cooperative relations with our existing gas source suppliers, increase the development of new gas suppliers, solve gas supply problems and reduce cost of sales by way of joint venture and self-built CNG mother stations, so as to reduce fluctuations in the COS and by doing so, cash flow used in operating activities will meet our liquidity requirements.
The increase in net cash flow from operating activities was mainly due to: increase in net income, and in January 2011 Anyang Prosperous acquired a bank acceptance from Zhengzhou Guoji Road Branch of Shanghai Pudong Development Bank, which caused the increase of trade bills payable.
Net cash flow used in investing activities was ($2,244,939) for the nine months ended September 30, 2011, as compared to net cash used in investing activities of ($2,341,514) for the nine months ended September 30, 2010, representing a decrease of ($96,575) or (4.12%). The increase of net cash flow used in investing activities was mainly because of decrease in purchasing fixed assets.
Net cash flow provided by financing activities was ($4,453,491) for the nine months ended September 30, 2011 as compared to net cash provided by financing activities of $2,443,487 for the nine months ended September 30, 2010, representing a decrease of ($6,896,978) or (282.26%). This is mainly because we keep cash deposit in bank to get the Bank Bill.
We do not believe that inflation had a significant negative impact on our results of operations during 2011.
As of September 30, 2011, our total assets were $41,476,316and our total liabilities were $29,132,879. Our debt to total assets ratio, calculated as total liabilities (including short-term debt and payables) over total assets, was 0.70:1.
As of December 31, 2010, our total assets were $37,503,210 and our total liabilities were $26,167,175. Our debt to asset ratio, calculated as total liabilities (including short-term debt and payables) over total assets, was 0.70:1.
Based on past performance and current expectations, we believe our cash and cash equivalents, cash generated from operations, as well as future possible cash investments, will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for at least the next 12 months.
INCOME TAXES
The Company being incorporated in the State of Nevada is not subject to any income tax according to the rules and regulations of the State of Nevada. Before January 1, 2008, the Company’s subsidiaries in the PRC were generally subject to PRC enterprise income tax at 33%. On March 16, 2007, the PRC government promulgated a new tax law, China’s Unified Corporate Income Tax Law (“New CIT Law”), which took effect from January 1, 2008. Under the New CIT Law, foreign-owned enterprises as well as domestic companies are subject to a unified tax rate of 25%. Accordingly, the Company’s subsidiaries in the PRC have been subject to the PRC corporate income tax at a rate of 25% on their taxable income arising in the PRC commencing from January 1, 2008. Meanwhile, according to Rule 28 of New CIT Law, income tax of small low-profit enterprises is subject to the reduced rate of 20%. Changzhi Company as one of the Company’s subsidiaries meets the conditions of small low-profit enterprises. So Changzhi Company’s income tax rate was 20% in 2009.The effect of this change in tax rate has been reflected in the calculation of deferred income tax assets as of December 31, 2007 and thereafter.
The Company’s provision for income taxes consisted of:
| | | For the nine Months | |
| | | Ended September 30, | |
| | | 2011 | | | 2010 | |
| | | | | | | |
| Current – PRC | | $ | 220,882 | | | $ | 119,244 | |
| | | | | | | | | |
| Deferred | | $ | 220,882 | | | $ | 119,244 | |
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our Disclosure Controls were effective as of the end of the period covered by this report.
Changes in Internal Controls
We have also evaluated our internal controls for financial reporting, and there have been no change in our internal control over financial reporting or in other factors that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting subsequent to the date of last evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently we are not involved in any pending litigation or legal proceeding.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 19, 2008, Walter Brenner and Horst Balthes (the "Affiliate Sellers"), two major shareholders and affiliates of the Company consummated two Affiliate Stock Purchase Agreements (the "Affiliate Agreements") with Oracular Dragon. Pursuant to the terms and conditions of the Affiliate Agreements, Oracular Dragon acquired from the Affiliate Sellers a total 3,100,000 shares of common stock of the Company for a total price of $ 75,000. Also on September 19, 2008, a group of non-Affiliate Stockholders ("Non-Affiliate Sellers") of the Company consummated a Non-Affiliate Stock Purchase Agreement ("Non-Affiliate Agreement") with Oracular Dragon. Pursuant to the terms and conditions of the Non-Affiliate Agreement, Oracular Dragon acquired from the Non-Affiliate Sellers a total 1,424,231 shares of common stock of the Company for a total price of $ 271,586. As the result, Oracular Dragon acquired from Affiliate and Non-Affiliate Sellers a total 4,524,231 shares of common stock of the Company, representing approximately 73.7% of the total issued and outstanding shares of the Company.
Oracular Dragon is a company organized under the laws of British Virgin Islands and has its principal place of business in the People’s Republic of China. Oracular Dragon is neither a U.S Person, as such term is defined in Rule 902(k) of Regulation S, nor is it located within the United States.
On September 30, 2008, the Company entered a share exchange agreement ("Share Exchange Agreement”) under which the Company issued 5,865,000 shares of its common stock, par value $ 0.00001, to Oracular Dragon in exchange for all the issued and outstanding shares that Oracular Dragon owned in Origin Orbit Green Resource Company, Ltd. (“Origin Orbit”), the wholly-owned subsidiary of Oracular Dragon (“Share Exchange Transaction”).
The Share Exchange Transaction is the final part of a series of consecutive transactions including the Affiliate and Non-Affiliate Stock Purchase Transactions consummated on September 19, 2008 (“Stock Purchase Transactions”). The Share Exchange Transaction and Stock Purchase Transactions, combined together, were to ensure that the Company was able to acquire 100% of the beneficial ownership interest in Origin Orbit.
Origin Orbit is a holding company that, on April 4, 2007, acquired 100% of the capital stock of Anyang Prosperous Energy Technology Developing Co., Ltd. (“Anyang Prosperous”) and Anyang Top Energy Green Resources Co., Ltd. (“Anyang Top”), both of which were organized under the laws of the People’s Republic of China (“PRC”). Upon the acquisition of Origin Orbit, Anyang Prosperous and Anyang Top became our subsidiaries that we own through Origin Orbit.
Following the acquisition of Origin Orbit, we ceased all the metal exploring business. Our new primary business operations include: retail sales of CNG and operation of CNG filling stations; retail sales of LPG and operation of LPG filling stations; and wholesale of LPG and CNG. Our primary business is carried out by Origin Orbit through Anyang Prosperous and Anyang Top.
On October 14, 2008, we changed our legal name from “Acropolis Precious Metals, Inc.” to “China Prosperous Clean Energy Corporation”.
On December 03, 2010, we entered a Consulting Agreement with Mr. Zhijun Liu, who is a citizen and resident of the People’s Republic of China. Under the Consulting Agreement, Mr. Zhijun Liu will advise and assist us to identify potential merger and acquisition targets, expand business operations in North China (Beijing, Tianjin, Hebei Province, Shanxi Province and Inner Mongolia Autonomous Region, select and hire managerial talents, select and develop new clean energy products and develop market plans to improve the sales in company’s existing markets. The term of the Consulting Agreement is one year and the compensation for Mr. Zhijun Liu’s services is 500,000 shares of common stock of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
| Exhibit No. | | Description |
| | | |
| 3.1 | | Articles of Incorporation (1) |
| | | |
| 3.2 | | Bylaws (1) |
| | | |
| 10.1 | | Affiliate Stock Purchase Agreement between Walter Brenner and Oracular Dragon Capital Company, Ltd. (2) |
| | | |
| 10.2 | | Affiliate Stock Purchase Agreement between Horst Balthes and Oracular Dragon Capital Company, Ltd.(2) |
| 10.3 | | Non-Affiliate Stock Purchase Agreement (2) |
| | | |
| 10.4 | | Share Exchange Agreement, dated September 30, 2008, between Company and Oracular Dragon Capital Company, Ltd.(3) |
| | | |
| 10.5 | | Consulting Agreement between Company and Zhijun Liu (4) |
| | | |
| 31.1 | | Section 302 Certificate of Chief Executive Officer * |
| | | |
| 31.2 | | Section 302 Certificate of Chief Financial Officer * |
| | | |
| 32.1 | | Section 906 Certificate of Chief Executive Officer * |
| | | |
| 32.2 | | Section 906 Certificate of Chief Financial Officer * |
101 | | The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements. |
| | | 101.INS** XBRL Instance 101.SCH** XBRL Taxonomy Extension Schema 101.CAL** XBRL Taxonomy Extension Calculation 101.DEF** XBRL Taxonomy Extension Definition 101.LAB** XBRL Taxonomy Extension Labels 101.PRE** XBRL Taxonomy Extension Presentation |
* filed herewith
** XBRL information is furnished and not 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, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Incorporated by reference to the Form SB-2 registration statement filed on June 29, 2007.
(2) Incorporated by reference to the Report on Form 8-K as filed on June 20, 2008
(3) Incorporated by reference to the Report on Form 8-K as filed on September 30, 2008.
(4) Incorporated by reference to the Report on Form 8-K as filed on December 07, 2010
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: November 14, 2011 | CHINA PROSPEROUS CLEAN ENERGY CORPORATION |
| | |
| | /s/Hongjie Zhou |
| | Hongjie Zhou |
| | Acting Chief Financial Officer |
