DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD
INDEX TO
FINANCIAL STATEMENTS
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Page
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Report
of Independent Registered Public Accounting Firm
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F-2
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Balance
Sheets as of September 30, 2009 (Unaudited)
and December 31, 2008 (Audited)
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F-3
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Statements
of Income for the nine months ended September 30,
2009 (Unaudited) and the Year Ended December 31,
2008 (Audited)
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F-4
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Statements
of Shareholders’ Equity for the nine months ended September 30,
2009 (Unaudited) and the Year Ended December 31,
2008 (Audited)
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F-5
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Statements
of Cash Flows for the nine months ended September 30,
2009 (Unaudited) and the Year Ended December 31, 2008
(Audited)
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F-6
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Notes
to Financial Statements September 30, 2009 and December 31,
2008
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F-7
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Dalian
Dongtai Organic Waste Treatment Co., Ltd.
We have
audited the accompanying balance sheet of
Dalian Dongtai Organic Waste
Treatment Co., Ltd
. as of December 31, 2008 and the related statements of
income and other comprehensive income, shareholders’ equity, and cash flows for
the year ended December 31, 2008. These financial statements are the
responsibility of the company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Dalian Dongtai Organic Waste
Treatment Co., Ltd. as of December 31, 2008, and the results of its operations
and its cash flows for the year ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Jewett, Schwartz, Wolfe & Associates
Hollywood,
Florida
March 23,
2010
200 South
Park Road, SUITE 150 ● HOLLYWOOD, FLORIDA 33021 ● TELEPHONE (954) 922-5885 ● FAX
(954) 922-5957
MEMBER –
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS ● FLORIDA INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
PRIVATE
COMPANIES PRACTICE SECTION OF THE AICPA ●REGISTERED WITH THE PUBLIC COMPANY
ACCOUNTING OVERSIGHT BOARD OF THE
SEC
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
BALANCE
SHEETS
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September 30,
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December 31,
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2009
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2008
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(Unaudited)
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(Audited)
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ASSETS
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Current
assets
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Cash
and cash equivalents
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$
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4,298,231
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$
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21,987
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Construction
reimbursement receivable
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443,170
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-
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Other
receivable
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7,170
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2,975
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Inventories
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7,674
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3,724
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Advances
to suppliers
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52,010
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-
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Related
party receivable
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373,561
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-
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Total
current assets
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5,181,816
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28,686
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Property,
plant and equipment, net
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116,078
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25,546
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Construction
in progress
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12,926,500
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7,179,155
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Other
assets
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150,854
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-
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TOTAL
ASSETS
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$
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18,375,248
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$
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7,233,387
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities
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Construction
projects payable
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$
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212,327
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$
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81,809
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Related
party payable
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27,758
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1,256,599
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Other
payable
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20,366
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1,886
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Long-term
loan-current portion
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1,340,424
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-
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Total
current liabilities
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1,600,875
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1,340,294
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Long-term
loan
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11,111,599
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-
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Government
subsidy
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146,494
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146,573
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TOTAL
LIABILITIES
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12,858,968
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1,486,867
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Commitments
and contingencies
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Shareholders'
equity
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Paid-in
capital
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5,244,236
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5,244,236
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Cumulated
other comprehensive income
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604,053
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607,358
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Accumulated
deficit
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(332,009
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(105,074
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)
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Total
shareholders' equity
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5,516,280
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5,746,520
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TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
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$
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18,375,248
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$
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7,233,387
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See notes
to Financial Statements.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
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For the Period Ended
September 30, 2009
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For the Year Ended
December 31, 2008
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(Unaudited)
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(Audited)
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Operating
revenue
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-
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-
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Costs
of revenue
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-
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-
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Gross
profit
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-
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-
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Operating
expenses
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General
and administrative expenses
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320,336
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55,536
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Total
operating expenses
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320,336
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55,536
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Operating
loss
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(320,336
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)
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(55,536
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)
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Other
income
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Interest
income
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5,578
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5,060
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Other
income
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87,823
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43,180
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Total
other income
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93,401
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48,240
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Net
loss from continuing operations before income tax
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(226,935
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)
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(7,296
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)
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Income
tax expense
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-
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-
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Net
loss
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$
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(226,935
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)
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$
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(7,296
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)
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Foreign
currency translation adjustment
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(3,305
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)
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379,624
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Comprehensive
income (loss)
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$
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(230,240
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)
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$
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372,328
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See notes
to Financial Statements.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
STATEMENTS
OF SHAREHOLDERS' EQUITY
FOR
THE PERIOD ENDED SEPTEMBER 30, 2009, AND THE YEAR ENDED DECEMBER
31, 2008
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Paid-in
capital
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Other
Comprehensive
Income
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Accumulated
Deficit
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Total
Shareholders'
Equity
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Balance
at December 31, 2007
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$
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5,244,236
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$
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227,734
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$
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(97,778
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)
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$
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5,374,192
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Foreign
currency translation adjustment
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-
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379,624
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-
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379,624
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Net
loss for the year ended December 31, 2008
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-
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-
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(7,296
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)
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(7,296
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)
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Balance
at December 31, 2008
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|
5,244,236
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607,358
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(105,074
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)
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|
|
5,746,520
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|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
(3,305
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)
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|
|
-
|
|
|
|
(3,305
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)
|
Net
loss for the period ended September 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
(226,935
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)
|
|
|
(226,935
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)
|
Balance
at September 30, 2009
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|
$
|
5,244,236
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|
|
$
|
604,053
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|
|
$
|
(332,009
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)
|
|
$
|
5,516,280
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|
See notes
to Financial Statements
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
STATEMENTS
OF CASH FLOWS
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For the Period Ended
September 30, 2009
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For the Year Ended
December 31, 2008
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(Unaudited)
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|
|
(Audited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(226,935
|
)
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|
$
|
(7,296
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)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
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|
|
|
|
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Depreciation
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|
7,821
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|
|
|
5,819
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|
Government
subsidy recognized as income
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|
|
-
|
|
|
|
(43,052
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)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
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|
Inventories
|
|
|
(3,949
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)
|
|
|
(3,657
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)
|
Other
receivables
|
|
|
(4,193
|
)
|
|
|
13,357
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|
Advance
to suppliers
|
|
|
(51,967
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)
|
|
|
-
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|
Other
asset
|
|
|
(150,727
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)
|
|
|
-
|
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Construction
projects payable
|
|
|
130,454
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|
|
|
9,917
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|
Other
payable
|
|
|
18,464
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|
|
|
(533
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)
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Net
cash used in operating activities
|
|
|
(281,032
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)
|
|
|
(25,445
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)
|
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|
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|
|
|
|
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Cash
flows from investing activities
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|
|
|
|
|
|
|
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Purchase
of property and equipment
|
|
|
(98,292
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)
|
|
|
(7,341
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)
|
Construction
in progress
|
|
|
(6,186,847
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)
|
|
|
(2,463,199
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)
|
Net
cash used in investing activities
|
|
|
(6,285,139
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)
|
|
|
(2,470,540
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)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from long-term loan
|
|
|
12,441,634
|
|
|
|
-
|
|
Due
from related party
|
|
|
(373,249
|
)
|
|
|
-
|
|
Repayment
from related party
|
|
|
-
|
|
|
|
290,443
|
|
Proceeds
from related party loan
|
|
|
-
|
|
|
|
1,209,033
|
|
Repayment
of related party loan
|
|
|
(1,229,526
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
10,838,859
|
|
|
|
1,499,476
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash
|
|
|
3,556
|
|
|
|
50,140
|
|
|
|
|
|
|
|
|
|
|
Net
increase(decrease) in cash and cash equivalents
|
|
|
4,276,244
|
|
|
|
(946,369
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
21,987
|
|
|
|
968,356
|
|
Cash
and cash equivalents, end of period
|
|
$
|
4,298,231
|
|
|
$
|
21,987
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
375,392
|
|
|
$
|
-
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See notes
to Financial Statements
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
1. Nature of
operations
Dalian
Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai Organic”) was incorporated
on March 2, 2007 as a joint venture by Dalian Dongtai Industrial Waste Treatment
Co., Ltd. (“Dalian Dongtai”), Dalian Sandaoke Chemical Inc. (“Sandaoke”), and
Dalian Lida Environmental Engineering Co., Ltd. (“Lida”), which owns interest of
49%, 15%, and 36% respectively, in Dalian, the People’s Republic of China
(“PRC”).
Dongtai
Organic is the first sludge treatment plant in China that adopts anaerobic
fermentation technology, with a designed production capacity of 600
tons/day. It is designed and built in the mode
of Build-Operate-Transfer (“BOT”), with an operating period of 20 years by
Dalian Municipal Government. According to the BOT contract signed with City
Construction Bureau of Dalian, the local government is responsible for providing
municipal sludge to Dongtai Organic for waste treatment and disposition at
a predetermined price. In addition to sludge treatment services, Dongtai Organic
generates revenues from sales of biogas, a byproduct of the sludge treatment
process, to Dalian Gas Company.
2. Basis of
Presentation
The
accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”). This
basis differs from that used in the statutory accounts of Dongtai Organic, which
were prepared in accordance with the accounting principles and relevant
financial regulations applicable to enterprises in PRC. All necessary
adjustments have been made to present the financial statements in accordance
with US GAAP.
3. Summary of Significant
Accounting Policies
Use of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.
Foreign currency
translation
As of
September 30, 2009, and December 31, 2008, the accounts of Dongtai Organic were
maintained, and the financial statements were expressed in Chinese Yuan Renminbi
(“RMB”). Such financial statements were translated into U.S. dollars (“USD”) in
accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) Topic 830 Foreign Currency Matters with RMB as
the functional currency. According to the Statement, all assets and liabilities
were translated at the exchange rate as of the balance sheet date; stockholders’
equity was translated at the exchange rates prevailing at the time of the
transactions; Revenues, costs, and expenses were translated at the weighted
average exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with ASC Topic 220
Comprehensive Income.
Cash and cash
equivalents
Cash and
cash equivalents include cash on hand and cash on deposit, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
Accounts and other
receivables
Accounts
and other receivables are recorded at net realizable value consisting of the
carrying amount less an allowance for uncollectible accounts, as needed. At
current stage, the Company does not maintain reserves for potential credit
losses on accounts receivable, as the payments are guaranteed by Dalian
Municipal Government per BOT contractual agreement.
Advances to
suppliers
Dongtai
Organic makes advances to certain vendors for purchase of its material or
equipment. The advances to suppliers are interest free and
unsecured.
Inventories
Inventories
are comprised of medicament that is used in the sludge treatment process,
maintenance and repair materials, and low value consumables, etc.
Inventories
are stated at the lower of cost, as determined on a first-in, first-out basis,
or market. Management compares the cost of inventories with the market value,
and allowance is made for writing down the inventories to their market value, if
lower.
Property, plant and
equipment
Property,
plant and equipment (“PP&E”) are stated at cost, less accumulated
depreciation and impairment. Expenditures for maintenance and repairs, which are
not considered improvements and do not extend the useful life of PP&E, are
expensed as incurred; additions, renewals and betterments are capitalized. When
PP&E are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
included in the statement of operations.
Depreciation
is provided to recognize the cost of PP&E in the results of operations.
Dongtai Organic calculates depreciation using the straight-line method with
estimated useful life as follows:
|
|
Useful
Life
|
Buildings
|
|
20
Years
|
Machinery
|
|
10-14
Years
|
Vehicles
|
|
5
Years
|
Office
equipment
|
|
3-5
Years
|
Impairment of long-lived
assets
In
accordance with ASC Topic 360 “Accounting for the Impairment or Disposal of Long
Lived Assets”, certain assets such as property, plant, and equipment, and
purchased intangibles, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Intangible assets are tested for impairment annually.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
There were no events or changes in circumstances that necessitated a review of
impairment of long lived assets as of September 30, 2009, and December 31, 2008,
respectively.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
Revenue
recognition
The
Company recognizes revenues in accordance with the guidance in the Securities
and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104.
Revenue is recognized when persuasive evidence of an arrangement exists, when
the selling price is fixed or determinable, when delivery occurs and when
collection is probable.
Revenues
are primarily generated from sludge treatment service paid by local government
and sales of biogas paid by Dalian Gas Company. Sludge treatment fee is
recognized as treatment services are rendered, when there is reasonable
assurance that we have complied with all conditions stipulated in BOT
contractual agreement. Biogas
delivery is
typically conveyed via pipeline, sales revenues are recognized when customers
take possession of goods in accordance with the terms of purchase order
agreements that evidence agreed upon pricing and when collectability is
reasonably assured.
|
·
|
Grants
related to revenue, such as certain export subsidies and price control
subsidies, should be recognized in the period of the related
events.
|
|
·
|
Grants
to reimburse current expenditures, such as research and development costs,
wages, training costs and transportation costs, should be treated as a
reduction of current or future related expense, depending on when the
related expense is recognized.
|
|
·
|
Grants
related to developing property, such as timberlands, or mineral reserves,
should be recognized over the useful lives of the
assets.
|
Government
grants are received at a discretionary amount as determined by the local PRC
government. The Company follows the guideline of the AICPA Issues Paper in
accounting for grants as revenues. In general, government grants for revenues
and/or expenses should be recognized in income when the related revenue or
expense is recorded. Grants related to property or equipment should be
recognized over the useful lives of the related asset. Funds received before the
conditions of the grant are met should be recorded as deferred
revenue.
Income
taxes
Dongtai
Organic applies ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates, applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Local PRC income
tax
Dongtai
Organic is subject to the PRC Enterprise Income Tax (“EIT”) at a rate of 25% on
its net income. The PRC EIT Law stipulates that enterprises that engage in
municipal sludge treatment business are eligible for special EIT treatment.
According to such rules, Dongtai Organic is entitled to a three-year EIT
exemption starting whenever it receives the first operation revenue, and another
50% off of the normal rate for the next three years.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
Statement of cash
flows
In
accordance with ASC Topic 230 Statement of Cash Flows, cash flows from Dongtai
Organic’s operations are calculated based upon the local currencies. As a
result, amounts related to assets and liabilities reported on the statement of
cash flows will not necessarily agree with changes in the corresponding balances
on the balance sheet.
Recent accounting
pronouncements
In the
third quarter of 2009, The Company adopted the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 105 as the
single official source of authoritative, nongovernmental generally accepted
accounting principles in the United States. On the effective date, all
then-existing non-SEC accounting literature and reporting standards were
superseded and deemed nonauthoritative. The adoption of this pronouncement did
not have a material impact on our financial statements; however, the ASC
affected the way we reference authoritative guidance in our financial
statements.
In August
2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10,
“Fair Value Measurements and Disclosures—Overall”. The update provides
clarification that in circumstances, in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the techniques provided for in this
update. The amendments in this ASU clarify that a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the liability and
also clarifies that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements. The guidance provided in this ASU is effective for the first
reporting period, including interim periods, beginning after
issuance. The adoption of this standard did not have a material
impact on the Company’s financial position and results of
operations
In
September 2009, the FASB has published ASU 2009-12, “Fair Value Measurements and
Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10,
“Fair Value Measurements and Disclosures – Overall”, to permit a reporting
entity to measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). This ASU also
requires new disclosures, by major category of investments including the
attributes of investments within the scope of this amendment to the
Codification. The guidance in this update is effective for interim and annual
periods ending after December 15, 2009. Early application is permitted.
The Company is in the
process of evaluating the impact of this standard on its financial position and
results of operations.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
In
October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic
605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit.
Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue
Recognition-Multiple-Element Arrangements”, for separating consideration in
multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or (c)
estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method and also
requires expanded disclosures. The guidance in this update is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
The adoption of this standard is not expected to have a material impact on the
Company’s financial position and results of operations.
In
October 2009, the FASB has published ASU 2009-14, “Software (Topic 985)-Certain
Revenue Arrangements that Include Software Elements” and changes the accounting
model for revenue arrangements that include both tangible products and software
elements. Under this guidance, tangible products containing software components
and nonsoftware components that function together to deliver the tangible
product's essential functionality are excluded from the software revenue
guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition,
hardware components of a tangible product containing software components are
always excluded from the software revenue guidance. The guidance in
this ASU is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The adoption of this standard is not expected
to have any impact on the Company’s financial position and results of
operations.
4. Construction
reimbursement receivable
Dongtai
Organic commenced trial production in March 2009, as the development of plans to
bring the integrated anaerobic fermentation system necessary for its intended
use. As of September 30, 2009, Dongtai Organic aggregately
disposed 22,409 tons of municipal sludge, and recorded a construction
reimbursement receivable of $443,170. Payments are to be processed by Dalian
Municipal Government per BOT contractual agreement as a reimbursement of current
related expense. Therefore, Dongtai Organic accounted the reimbursement as a
reduction of current period construction cost.
5. Other
assets
Other
assets in the amount of $150,835 is comprised of value added tax (“VAT”)
credit., VAT is a turnover tax levied on all units and individuals engaged in
the sale of goods, the provision of processing, repair and replacement services
(together referred to as "taxable labor services") and the importation of goods
to the PRC.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
6. Property, plant and
equipment
|
|
September
30,
2009
|
|
|
December 31,
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Machinery
and equipment
|
|
$
|
81,085
|
|
|
$
|
-
|
|
Office
equipment
|
|
|
34,472
|
|
|
|
17,192
|
|
Vehicles
|
|
|
15,393
|
|
|
|
15,401
|
|
|
|
|
130,950
|
|
|
|
32,593
|
|
Less
accumulated depreciation
|
|
|
(14,872
|
)
|
|
|
(7,047
|
)
|
Total
property and equipment, net
|
|
|
116,078
|
|
|
|
25,546
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
12,926,500
|
|
|
|
7,179,155
|
|
Total
|
|
$
|
13,042,578
|
|
|
$
|
7,204,701
|
|
Construction
in progress consists of construction expenditure, equipment procurement,
capitalized interest expense, relevant miscellaneous expenditures, and other
costs. The key components of the facility are 12 anaerobic fermentation tanks
for sludge disposition, and a pipeline which deliver the biogas to gas station
operated by Dalian Gas Company.
7. Long-term
loan
As of
September 30, 2009, the long-term loan balance represents a secured loan from
China Merchants Bank. The following table identifies the material terms of the
loan:
Effective Date
|
|
Maturity
|
|
Type
|
|
Annual
Interest Rate
|
|
Principal
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
01-08-2009
|
|
01-07-2017
|
|
Secured
|
|
Above
5 years Benchmark Floating Interest Rate set by the People’s Bank of China
+ 5%;
Adjustable
every 6 months.
|
|
$
|
12,452,023
|
|
According
to the contract, the loan is exclusively used for Dongtai Organic’s facility
construction. The manufacturing machinery and the BOT franchise right of Dongtai
Organic is pledged as collateral.
The
principal of the loan will be repaid by installments. The following table shows
the installment schedule:
Year
|
|
Amount
|
|
2010
|
|
$
|
1,787,232
|
|
2011
|
|
|
1,787,232
|
|
2012
|
|
|
1,787,232
|
|
2013
|
|
|
1,787,232
|
|
2014
|
|
|
1,787,232
|
|
Thereafter
|
|
|
3,515,869
|
|
Total
|
|
$
|
12,452,023
|
|
As of
September 30, 2009, the installments amounting to $1,340,424 will be due within
one year.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
8. Government
subsidy
As of
September 30, 2009 and December 31, 2008, the government subsidy represents a
subsidy received from the local government of Dalian with the amount of RMB1
million (approximately $146,494) in 2007. The subsidy is to be exclusively used
to purchase biogas purification machinery.
The
subsidies are initially recorded as deferred income. Upon the completion and
acceptance of the government subsidized projects, subsidies are recognized over
the useful lives of the related assets.
9. Related
party
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
Payable
|
|
|
Receivable
|
|
|
Payable
|
|
Dalian
Dongtai
|
|
$
|
-
|
|
|
$
|
27,758
|
|
|
$
|
-
|
|
|
$
|
1,256,599
|
|
Lida
|
|
$
|
373,561
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of
December 31, 2008, payables to Dalian Dongtai consist of principal balance of
approximately $1,231,220 (RMB8.4 million) as short term loans, and accrued
interest of $25,379. The loans are detailed as below:
|
Principal
|
|
|
Interest Rate (per
annum)
|
|
|
Effective
Date
|
|
|
Repayment
Date
|
|
|
$
|
586,295
|
|
|
|
4.5
|
%
|
|
|
04-24-2008
|
|
|
|
04-24-2009
|
|
|
|
146,574
|
|
|
|
4.5
|
%
|
|
|
07-29-2008
|
|
|
|
07-28-2009
|
|
|
|
58,630
|
|
|
|
8
|
%
|
|
|
10-29-2008
|
|
|
|
10-28-2009
|
|
|
|
439,721
|
|
|
|
8
|
%
|
|
|
11-13-2008
|
|
|
|
11-12-2009
|
|
|
$
|
1,231,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
September 30, 2009, receivable from Lida includes :(a) an unsecured short term
loan of $234,391 (RMB1.6 million) with interest rate of 6% per annum, effective
on August 1, 2009, and matured on April 30, 2010;(b) A short term loan of
$139,170(RMB0.95 million), effective on August 1, 2009 and mature on December
31, 2009. The loan is non interest bearing and the land use right of Lida is
pledged as collateral.
10. Non-operating
income
At the
end of 2007, Dongtai Organic received two subsidies, aggregately RMB300, 000
(approximately $43,180), from the Environmental Protection Bureau of Dalian. The
subsidies are to reimburse the research and development cost of Dongtai Organic
over the recycling and industrialization of city degradable organic
waste.
During
the period ended September 30, 2009, Dongtai Organic received two subsidies from
the Environmental Protection Bureau and Science & Technology Bureau of
Dalian, with the amount of RMB100,000 (approximately $14,637) and RMB500,000
(approximately $73,186), respectively. The subsidies are to reimburse the
research and development cost and the expenditures occurred during the trial
production process.
Government
grants towards current expenditures are recorded as revenue when there is
reasonable assurance that we have complied with all conditions necessary to
receive the grants, collectibility is reasonably assured, and as the
expenditures are incurred. As of September 30, 2009 and December 31, 2008, the
Company recognized revenue of $87,823 and $43,180,
respectively.
DALIAN
DONGTAI ORGANIC WASTE TREATMENT CO., LTD.
NOTES TO
FINANCIAL STATEMENTS
September
30, 2009 (Unaudited) and December 31, 2008 (Audited)
11. Commitment and
Contingency
Dongtai
Organic’s purchasing commitments are resulted from construction and equipment
procurement contracts.
As of
September 30, 2009 and December 31, 2008, the commitment for purchase is as
follows:
|
|
September 30,
2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Construction
|
|
$
|
1,585,524
|
|
|
$
|
1,907,001
|
|
Equipment
|
|
|
2,378,286
|
|
|
|
2,232,499
|
|
Total
|
|
$
|
3,963,810
|
|
|
$
|
4,139,500
|
|
12. Subsequent
events
On
December 16, 2009, Dalian Dongtai acquired 3% equity interest in Dongtai Organic
from Sandaoke, thereby increasing its ownership of Dongtai Organic to
52%.
In
December, 2009, the Company received a loan payment of $139,170(RMB0.95 million)
from Lida.