LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT CO. LTD.
FINANCIAL STATEMENTS
September 30 2011 and 2010
(Unaudited)
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FINANCIAL STATEMENTS | |
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Report of Independent Registered Public Accounting Firm | F-1 |
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Balance Sheets | F-2 |
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Statements of Operations | F-3 |
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Statements of Changes in Stockholders' Equity | F-4 |
Statements of Cash Flows | F-5 |
Notes to Financial Statements | F-6 |
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Stan J.H. Lee, CPA
2160 North Central Rd, Suite 209*Fort Lee*NJ 07024
P.O. Box 436402* San Diego*CA* 92143-9402
619-623-7799 Fax 619-564-3408 E-mail) stan2u@gmail.com
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
LIAONING DINGXU ECOLOGICAL
AGRICULTURE DEVELOPMENT CO. LTD.
We have reviewed the accompanying balance sheets of LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT CO. LTD. (the Company) as of September 30, 2011 and 2010, and the related condensed statements of operations, and cash flows for the nine-months periods then ended. These financial statements are the representation of the management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) , the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
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__________________
Stan J.H. Lee, CPA
Fort Lee, NJ
December 5, 2011
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Liaoning Dingxu Ecological Agriculture Development Co. Ltd.---Statement of Cash Flows | | | |
| For the nine-months ended September 30, 2011 | | For the nine-months ended September 30, 2010 |
| ( in USD) | | ( in USD) |
| (Unaudited) | | (Unaudited) |
Cash Flows From | | | |
Operating Activities | | | |
Net income/(loss) | 909,159 | | (221,863) |
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| | | |
Adjustments to reconcile net income to net cash (used in) operations | | | |
Depreciation provided | 47,998 | | - |
Land use rights amortisation provided | 33,781 | | - |
Prepaid lease amortisation provided | 17,591 | | - |
Changes in operating assets and liailities | | | |
Increase of inventories | (1,674) | | - |
Decrease/(increase) of other receivable | 22,271 | | (51,646) |
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Net Cash provided by (used in) operating operations | 1,029,125 | | (273,509) |
Cash Flows From Investing Activities | | | |
Investing Activities | | | |
Acquisition of property, plant and equipment | (6,949,603) | | (63,469) |
Acquisition of land use rights | (1,678,290) | | (304,669) |
Long term prepayment for leasing of land | (1,002,681) | | - |
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Net cash used by investing activities | (9,630,573) | | (368,137) |
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Cash Flows From | | | |
Financing Activities | | | |
Capital injection | 6,953,458 | | - |
Current account with a related party | 2,139,392 | | 862,660 |
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Net cash provided by financing activities | 9,092,850 | | 862,660 |
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Effect of foreign exchange rate changes on cash and cash equivalents | 873 | | 3,512 |
Net increase | 492,275 | | 224,525 |
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Cash at the Beginning of the Period: | 72,541 | | 10,868 |
Cash at the End of the Period | 564,815 | | 235,394 |
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Supplemental Disclosures of Cash Flow Information | | | |
Interest paid | - | | - |
Income taxes paid | - | | - |
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See Notes to Financial Statements | | |
LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT CO. LTD.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011 and 2010
(UNAUDITED)
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Liaoning Dingxu Ecological Agriculture Development Co. Ltd. (the "Company") was incorporated under the laws of the People’s Republic of China on August 6th, 2009. The Company is primarily engaged in the growing and selling of agriculture products in China.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The company maintains its books and accounting records in Renminbi (“RMB”), and its reporting currency is United States dollars.
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Cost of finished goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity.
REVENUE RECOGNITION
Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectibility is reasonably assured.
The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is the RMB and the RMB is not freely convertible into foreign currencies. The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional
currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities translated at exchange rates at the balance sheet date, revenue and expenses are translated at the average exchange rates for the period, and members' equity is translated at historical exchange rates. Translation adjustments are included in accumulated other comprehensive income, a component of members’ equity.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.
TAXATION
Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the county of operations.
The Company does not accrue United States income tax since it has no operating income in the United States. The Company is organized and located in the PRC and do not conduct any business in the United States.
Enterprise income tax
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from corporate income tax from 2010 to 2012. Accordingly, the company statutory rate was 0% and 0% for the periods ended September 30, 2011 and 2010.
Value added tax
The Provisional Regulations of The People’s Republic of China Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.
In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT for the periods ended September 30, 2011 and 2010.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
NOTE 3.PROPERTY, PLANT and EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:
Building and constructions
20 years
Plant
5-10 years
Office equipment
3-5 years
Vehicles
4 years
Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.
Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.
Property, Plant and Equipment at August 31, 2011 consists of the following:
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| | September 30, 2011 | September 30, 2010 |
| US$ | US$ |
Building and constructions | | 4,499,780 | - |
Plant | | 231,340 | - |
Office equipment | | 49,724 | - |
Vehicles | | 41,977 | |
| | 4,822,821 | |
Less: Accumulated depreciation | | 48,732 | - |
Property, plant and equipment, net | | 4,774,089 | - |
Construction in progress | | 1,331,421 | 294,670 |
| | 6,105,510 | 294,670 |
For the periods ended September 30, 2011 and 2010, the Company recorded depreciation of US$47,998 and nil, respectively.
NOTE 4. LAND USE RIGHTS
The Company states land use rights at cost less accumulated amortization. The land use rights are amortized on straight line method during the contract period, varying from 47 to 50 years. Amortization expense of US$33,781 and nil for the periods ended September 30, 2011 and 2010 were recorded, respectively. As of September 30, 2011 and 2010, the value of land use rights are US$3,215,296 and nil.
NOTE 5. LONG TERM PREPAID LEASE
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.
The Company records lease payments at cost less accumulated amortization and amount that to be amortized within one year. The amount to be amortized within one year is recorded as current portion of prepaid leases. As China’s regulations prohibit companies from acquiring land use right of farmlands, the Company entered into long term agreements with certain unrelated parties to rent land. The rental payments for the entire contract period are prepaid at the inception of leases and the payment amount was US$1,022,833. The rental payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years
Lease expense of US$17,591 and nil were recorded for the periods ended September 30, 2011 and 2010.
