UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
February 28, 2011
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from _____ to _____
Commission File Number
000-51755
CHINA RUNJI CEMENT INC.
(Exact name of Registrant as specified in its charter)
Delaware
|
|
98-0533824
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.)
|
Xian Zhong Town, Han Shan County
Chao Hu City, An Hui Province, People’s Republic of China
(Address of principal executive offices)
(86) 565 4219871
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
o
Accelerated Filer
o
Non-accelerated Filer
o
Smaller Reporting Company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
o
No
x
State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: April 19, 2011, 78,832,064 shares.
CHINA RUNJI CEMENT INC.
Form 10-Q for the period ended February 28, 2011
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
|
3
|
Item 1. Financial Statements
|
3
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
|
4
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
16
|
Item 4. Controls and Procedures
|
16
|
PART II - OTHER INFORMATION
|
17
|
Item 1. Legal Proceedings
|
17
|
Item 1A. Risk Factors
|
17
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
18
|
Item 3. Defaults Upon Senior Securities
|
18
|
Item 4. [Removed and Reserved]
|
18
|
Item 5. Other Information
|
18
|
Item 6. Exhibits
|
19
|
SIGNATURES
|
20
|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our unaudited consolidated interim financial statements for the three and six month periods ended February 28, 2011 form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.
China Runji Cement Inc.
|
Condensed Consolidated Balance Sheets
|
(UNAUDITED)
|
ASSETS
|
|
February 28
,
2011
|
|
|
August 31, 2010
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,453,459
|
|
|
$
|
683,545
|
|
Accounts receivable, net of allowance for doubtful account of
$1,839,756 and $193,339 as of February28, 2011 and August, 31, 2010 respectively
|
|
|
7,387,186
|
|
|
|
9,364,751
|
|
Accounts receivable from related party
|
|
|
437,119
|
|
|
|
212,374
|
|
Advances to suppliers
|
|
|
-
|
|
|
|
826,994
|
|
Inventory
|
|
|
3,050,678
|
|
|
|
2,090,248
|
|
Other receivables
|
|
|
4,596,496
|
|
|
|
1,678,279
|
|
Due from related party
|
|
|
3,038,000
|
|
|
|
-
|
|
Other current assets
|
|
|
212,655
|
|
|
|
294,420
|
|
Total current assets
|
|
|
20,175,593
|
|
|
|
15,150,611
|
|
|
|
|
|
|
|
|
|
|
Advance for purchase of fixed assets
|
|
|
625,794
|
|
|
|
467,225
|
|
Property, plant and equipment, net
|
|
|
55,161,835
|
|
|
|
54,801,428
|
|
Mineral exploration right
|
|
|
3,555,732
|
|
|
|
3,513,196
|
|
Deferred assets
|
|
|
1,529,342
|
|
|
|
844,272
|
|
Total assets
|
|
$
|
81,048,296
|
|
|
$
|
74,776,732
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
20,013,065
|
|
|
$
|
23,805,922
|
|
Short-term loans
|
|
|
13,516,727
|
|
|
|
14,094,478
|
|
Long-term loan-current portion
|
|
|
1,974,700
|
|
|
|
236,148
|
|
Due to related parties
|
|
|
8,480,302
|
|
|
|
10,625,700
|
|
Taxes payable and other
|
|
|
2,660,125
|
|
|
|
970,841
|
|
Total current liabilities
|
|
|
46,644,919
|
|
|
|
49,733,089
|
|
Deferred income
|
|
|
816,114
|
|
|
|
-
|
|
Long-Term loan
|
|
|
2,194,955
|
|
|
|
-
|
|
Total liabilities
|
|
|
49,655,988
|
|
|
|
49,733,089
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock: 20,000,000 shares authorized,
|
|
|
-
|
|
|
|
-
|
|
$0.0001 par value, No shares issued and
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
|
|
|
|
|
|
Common stock: 200,000,000 shares authorized,
|
|
|
7,883
|
|
|
|
7,883
|
|
$0.0001 par value, 78,832,064 shares issued
|
|
|
|
|
|
|
|
|
and outstanding
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
15,984,108
|
|
|
|
15,984,109
|
|
Accumulated other comprehensive income
|
|
|
3,560,371
|
|
|
|
2,623,937
|
|
Retained earnings
|
|
|
11,839,946
|
|
|
|
6,427,714
|
|
Total Stockholders' Equity
|
|
|
31,392,308
|
|
|
|
25,043,643
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
81,048,296
|
|
|
$
|
74,776,732
|
|
China Runji Cement, Inc.
|
Condensed Consolidated Statements of Operations and Comprehensive Income
|
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
17,041,517
|
|
|
$
|
11,667,963
|
|
|
$
|
37, 843,194
|
|
|
$
|
22,598,664
|
|
Cost of goods sold
|
|
|
11,383,143
|
|
|
|
10,701,769
|
|
|
|
2 5,451,133
|
|
|
|
20,926,959
|
|
Gross profit
|
|
|
5,658,374
|
|
|
|
966,194
|
|
|
|
12,392,061
|
|
|
|
1,671,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
108,285
|
|
|
|
47,782
|
|
|
|
169,818
|
|
|
|
134,429
|
|
G&A expenses:
|
|
|
3,419,559
|
|
|
|
971,417
|
|
|
|
4,231,486
|
|
|
|
1,636,363
|
|
Total operating expenses
|
|
|
3,527,844
|
|
|
|
1,019,199
|
|
|
|
4,401,304
|
|
|
|
1,770,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,130,530
|
|
|
|
(53,005
|
)
|
|
|
7,990,757
|
|
|
|
(99,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(326,777
|
)
|
|
|
(232,682
|
)
|
|
|
(621,817
|
)
|
|
|
(454,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government subsidies/grants
|
|
|
364,986
|
|
|
|
466,085
|
|
|
|
364,986
|
|
|
|
2,341,421
|
|
Other Income (expenses)
|
|
|
(18,690
|
)
|
|
|
4,042
|
|
|
|
(6,993
|
)
|
|
|
67
|
|
Income before income taxes
|
|
|
2,150,049
|
|
|
|
184,440
|
|
|
|
7,726,933
|
|
|
|
1,787,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes expense (benefit)
|
|
|
920,476
|
|
|
|
(478
|
)
|
|
|
2,314,702
|
|
|
|
402,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,229,573
|
|
|
$
|
184,918
|
|
|
$
|
5,412,231
|
|
|
$
|
1,384,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
387,496
|
|
|
|
(39,048
|
)
|
|
|
936,434
|
|
|
|
15,511
|
|
Comprehensive income
|
|
|
1,617,069
|
|
|
|
145,870
|
|
|
|
6,348,665
|
|
|
|
1,400,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
$
|
0.07
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
78,832,064
|
|
|
|
78,832,064
|
|
|
|
78,832,064
|
|
|
|
78,832,064
|
|
China Runji Cement, Inc.
|
Condensed Consolidated Statements of Cash Flows
|
(UNAUDITED)
|
|
For six months ended February 28,
|
|
|
|
2011
|
|
|
2010
|
|
Operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
5,412,231
|
|
|
$
|
1,384,852
|
|
Adjustments to reconcile net income
|
|
|
|
|
|
|
|
|
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
1,621,200
|
|
|
|
-
|
|
Amortization
|
|
|
364,401
|
|
|
|
217,554
|
|
Depreciation expense
|
|
|
2,900,357
|
|
|
|
2,461,020
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable and notes receivable
|
|
|
442,453
|
|
|
|
(61,770
|
)
|
Prepaid Expense and other receivables
|
|
|
(1,567,074
|
)
|
|
|
(453,837
|
)
|
Inventory
|
|
|
(877,558
|
)
|
|
|
(36,976
|
)
|
Deferred assets
|
|
|
(523,350
|
)
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
|
|
(4,149,165
|
)
|
|
|
4,803,604
|
|
Deferred revenue
|
|
|
806,980
|
|
|
|
-
|
|
Tax payable
|
|
|
1,636,881
|
|
|
|
(120,859
|
)
|
Net cash provided by operating activities
|
|
|
6,067,356
|
|
|
|
8,193,588
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Cash paid for property, plant and equipment additions
|
|
|
(1,984,644
|
)
|
|
|
(5,887,397
|
)
|
Net cash used in investing activities
|
|
|
(1,984,644
|
)
|
|
|
(5,887,397
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Short term loan proceeds
|
|
|
-
|
|
|
|
877,475
|
|
Short term loan (repayment)
|
|
|
(1,051,400
|
)
|
|
|
(877,475
|
)
|
Financing cost
|
|
|
(255,340
|
)
|
|
|
-
|
|
Borrowings from third parties
|
|
|
1,178,965
|
|
|
|
-
|
|
Repayment to third parties
|
|
|
(600,800
|
)
|
|
|
-
|
|
Cash loaned to related parties
|
|
|
(3,004,000
|
)
|
|
|
-
|
|
Borrowing from related parties
|
|
|
784,651
|
|
|
|
-
|
|
(Repayments) of due to related parties
|
|
|
(4,280,700
|
)
|
|
|
(1,642,307
|
)
|
Proceeds from loan
|
|
|
4,205,600
|
|
|
|
-
|
|
Payments of loan
|
|
|
(324,263
|
)
|
|
|
(355,307
|
)
|
Net cash used in financing activities
|
|
|
(3,347,287
|
)
|
|
|
(1,997,614
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
34,489
|
|
|
|
(567
|
)
|
Increase in cash and cash equivalents
|
|
|
769,914
|
|
|
|
308,010
|
|
Cash and cash equivalents, beginning of year
|
|
|
683,545
|
|
|
|
752,952
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,453,459
|
|
|
$
|
1,060,962
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
Interest Paid
|
|
|
320,778
|
|
|
|
316,471
|
|
Income taxes paid
|
|
|
548,646
|
|
|
|
402,307
|
|
Transfer of CIP to fixed assets
|
|
|
32,862
|
|
|
|
11,122.965
|
|
Transfer of liabilities to related party
|
|
|
1,952,600
|
|
|
|
-
|
|
CHINA RUNJI CEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2011
(UNAUDITED)
NOTE 1 – ORGANIZATION AND BUSINESS
China Runji Cement Inc. and our wholly owned subsidiaries (“we”, “us”, “our” or the Company) are a leading producer and distributor of cement, primarily in An Hui Province of central China and neighboring locations. Anhui Province Runji Cement Co. Ltd. (“Anhui Runji”) is our operating subsidiary located in Xianzong Town, An Hui province, China, where the factory occupies an area of 418 mu
(
approximately 69 acres)
, and its limestone mine comprises an area of 1,000 mu
(approximately 165 acres)
. The Anhui Runji factory, limestone reserve and storing mine together comprise an area of approximately 50,000 square meters.
At present, the Company has one cement production line and one cement clinker production line. The production capacity of each line amounts to 2,500 tons per day and one million tons per year. Presently, the Company mainly focuses production on Runji Brand cement P.II52.5, P.O42.5, P.O32.5 P.C32.5 as well as cement clinker. P.II52.5 is a high grade, high strength cement that is made for Anhui and Jiangsu Provinces and the region north of the Yangtze River and is used in large infrastructure projects. The cement clinker is the semi-finished ingredient of cement, which is able to be processed into different categories of cement products.
The Company produces cement through the advanced dry production process, an energy-efficient and environmentally friendly cement production technique. Although the Chinese government has mandated the elimination of 250 million tons of outdated cement production capacity by 2010, only 60% of the total output in the region is currently produced by dry process. The Company has a rigorous quality control system and received ISO9001 quality system certification and international accreditation in March 2006. In addition, our Company passed the national GB/T 19001-2000 standard authentication. The Company’s pollution control exceeds the national standard and received “green building material” certification in 2007.
The Company has an abundant supply of high quality raw materials. The Company has obtained a 30 year mining right for 87 million tons of limestone reserve, which can supply two cement clinker production lines with a daily output of 2,500 tons for 40 years.
Presently, the Company is one of the largest cement producers and distributors in the north Yangtze region of Anhui, with a 10% market share within a 100 mile radius of its facility. The Company is the only producer of P.II52.5 cement (the highest quality cement) in the north Yangtze region of Anhui and Jiangsu Provinces, with 70% market share within a 100 miles radius of its facility. Annual production capacity of the Company is two million tons cement and cement clinker. The Company’s main market for cement is in Hefei (Anhui Province), with total sales of 750 thousand tons, representing 75% of our total annual cement production and an additional 25% is sold in Chaohu and its surrounding areas, Moreover, the Company’s main cement clinker market is in Chaohu with total sales of 800 thousand tons in the area, representing 80% of our total annual cement clinker production, and an additional 20% is sold in Hefei.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Ren Ji Cement Investment Co., Ltd (a BVI corporation), Ren Ji Cement Company Limited (a Hong Kong corporation) and Anhui Province Runji Cement Co., Ltd. (a PRC corporation), and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the interim financial statements reflect all normal adjustments that are necessary to provide a fair presentation of the financial results for the interim periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. The condensed consolidated balance sheet as of August 31, 2010 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of the Company’s financial position, operating results, risk factors, and other matters, please refer to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2010.
All significant inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management judgment and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, our company analyzes the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness or weakening in economic trends could have a significant impact on the collectability of receivables and our company’s operating results. The allowance of doubtful account is accrued based on the AR identified uncollectible. The allowances for doubtful accounts are $1,839,756 and $193,339 as of February 28, 2011 and August 31, 2010 respectively.
Revenue recognition
The Company recognizes revenue when the significant risks and rewards of ownership have been transferred pursuant to PRC law, including such factors as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, sales and value-added tax laws have been complied with, and collectability is reasonably assured. The Company generally recognizes revenue when its products are shipped. The Company’s standard payment terms are 90 days. If a customer’s payment terms exceed 12 months, revenue will be recognized once payments become due and payable.
NOTE 3 – ACCOUNTS RECEIVABLE
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Notes Receivable
|
|
$
|
880,310
|
|
|
$
|
138,118
|
|
Accounts Receivable –Trade
|
|
|
8,346,511
|
|
|
|
9,419,972
|
|
Accounts Receivable from related party
|
|
|
437,119
|
|
|
|
212,374
|
|
Allowance for Doubtful Accounts
|
|
|
(1,839,635
|
)
|
|
|
(193,339
|
)
|
|
|
$
|
7,824,305
|
|
|
$
|
9,577,125
|
|
The accounts receivable from related party was $437,119 and $212,374 at February 28, 2011 and August 31, 2010 respectively. The related party is an entity controlled by the President and CEO of the Company.
The accounts receivable amount of $3,810,952 and $2,539,569 at February 28, 2011 and August 31, 2010, respectively, is used as a securitization for the ICBC Hanshan bank loan.
NOTE 4 – INVENTORY
Inventory consists of the following:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
$
|
1,719,859
|
|
|
$
|
741,645
|
|
Packaging Materials
|
|
|
25,680
|
|
|
|
27,258
|
|
Semi-Finished Goods
|
|
|
389,282
|
|
|
|
599,178
|
|
Finished Goods
|
|
|
915,857
|
|
|
|
722,167
|
|
|
|
$
|
3,050,678
|
|
|
$
|
2,090,248
|
|
NOTE 5 – ADVANCES TO SUPPLIERS
Advances to suppliers consist of the following:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
Advances to suppliers
|
|
$
|
-
|
|
|
$
|
826,994
|
|
Advance for purchase of fixed assets
|
|
|
625,794
|
|
|
|
467,225
|
|
Advances
|
|
$
|
625,794
|
|
|
$
|
1,294,219
|
|
Advances to suppliers represent amounts prepaid for raw materials. Advances for purchase of fixed assets represents amounts prepaid for the purchase of fixed assets. The advances are applied against amounts due to the supplier as the materials are received.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Building
|
|
$
|
33,634,045
|
|
|
$
|
32,320,411
|
|
Equipment & machinery
|
|
|
41,929,732
|
|
|
|
39,325,188
|
|
Automobiles
|
|
|
327,501
|
|
|
|
319,917
|
|
Other equipment
|
|
|
32,177
|
|
|
|
31,092
|
|
Computer equipment
|
|
|
34,127
|
|
|
|
32,977
|
|
Construction in progress
|
|
|
-
|
|
|
|
32,114
|
|
Total property, plant and equipment (gross)
|
|
|
75,957,582
|
|
|
|
72,061,699
|
|
Accumulated depreciation
|
|
|
(20,795,747)
|
|
|
|
(17,260,271)
|
|
Total property, plant and equipment (net)
|
|
|
55,161,835
|
|
|
|
54,801,428
|
|
NOTE 7 –MINERAL EXPLORATION RIGHTS
Tangibles include the following:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
Terms
|
|
|
|
|
|
|
|
|
Mineral exploration right-Shihuishi
|
|
$
|
3,367,195
|
|
|
$
|
3,316,634
|
|
30 years
|
Mineral exploration right-Shayan
|
|
|
188,537
|
|
|
|
196,562
|
|
10 years
|
Total
|
|
$
|
3,555,732
|
|
|
$
|
3,513,196
|
|
|
The total amortization expenses related to the mineral exploration rights assets are $80,061 and $39,498 for the six months ended February 28, 2011 and 2010, respectively.
NOTE 8 –DEFERRED ASSETS
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
Terms
|
|
|
|
|
|
|
|
|
Land acquisition compensation (compensating fee for mine and forest)
|
|
|
456,193
|
|
|
|
473,066
|
|
10 years
|
Planting fee in working place
|
|
|
172,863
|
|
|
|
221,363
|
|
3 years
|
Compensating fee for stone materials in Baxiong Village
|
|
|
14,013
|
|
|
|
14,531
|
|
10 years
|
Compensating fee for limekiln and drought land in Baxiong Village
|
|
|
12,186
|
|
|
|
12,637
|
|
10 years
|
Deferred inventory cost
|
|
|
529,273
|
|
|
|
-
|
|
|
Compensating fee for sandstone land in Qiaomai Village
|
|
|
97,617
|
|
|
|
100,839
|
|
10 years
|
Debt issue cost
|
|
|
247,197
|
|
|
|
21,836
|
|
2 years
|
Total deferred assets
|
|
$
|
1,529,342
|
|
|
$
|
844,272
|
|
|
In the second quarter of fiscal year 2011, the Company deferred approximately $0.8 million of revenue from a particular customer due to payment terms exceeding one year. Revenue from this customer will be recognized once payments become due and payable. As a result, approximately $0.5 million inventory costs were deferred and included in the deferred assets. Deferred costs will be amortized into cost of goods sold as revenue related to the applicable shipment is recognized.
The total amortization expenses related to the intangibles and deferred charges are $79,262 and $57,963 for the three months ended February 28, 2011 and 2010, respectively.
NOTE 9 – SHORT-TERM LOANS
Short term loans consist of:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Xian Zong Credit Bank
|
|
$
|
911,400
|
|
|
$
|
880,670
|
|
PuFa Bank WenHu business branch
|
|
|
4,405,100
|
|
|
|
4,256,568
|
|
ICBC Hanshan
|
|
|
1,974,700
|
|
|
|
2,953,564
|
|
Huishang Bank Sales Department
|
|
|
5,468,400
|
|
|
|
5,284,015
|
|
Runfeng company
|
|
|
757,127
|
|
|
|
737,661
|
|
|
|
$
|
13,516,727
|
|
|
$
|
14,094,478
|
|
The details for the Company’s bank loans at February 28, 2011 are as follows:
|
Borrowing bank
|
|
Amount
|
|
|
Starting date
|
|
|
Maturity date
|
|
|
Interest rate (monthly)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Xian Zong Credit Bank
|
|
|
899,361
|
|
|
|
2010-11-22
|
|
|
|
2011-11-22
|
|
|
|
0.834
|
%
|
**
|
PuFa Bank WenHu business branch
|
|
|
4,346,914
|
|
|
|
2010-05-05
|
|
|
|
2011-04-27
|
|
|
|
0.5310
|
%
|
***
|
ICBC Hanshan
|
|
|
1,948,616
|
|
|
|
2010-03-15
|
|
|
|
2011-03-15
|
|
|
|
0.6058
|
%
|
****
|
Huishang Bank Sales Department
|
|
|
5,396,169
|
|
|
|
2010-07-22
|
|
|
|
2011-07-21
|
|
|
|
0.5310
|
%
|
|
Runfeng Company
|
|
|
749,163
|
|
|
|
2010-05-26
|
|
|
|
2011-05-25
|
|
|
|
0.8835
|
%
|
____________
*
|
The loan from the Xian Zong Credit Bank was pledged in collateral of machine equipment in value of RMB 24,025,000.
|
|
|
**
|
The loan from the Wenhu branch of PuFa Bank was pledged in collateral of the Company’s building and land user right.
|
|
|
***
|
The loan from the Hanshan branch of ICBC Bank is securitized by an accounts receivable balance of $3,810,952 and $2,539,569 at February 28, 2011 and August 31, 2010 respectively.
|
|
|
****
|
The loan from the sales department of Huishang Bank was guaranteed by Anhui Province Credit Guarantee (Group) Co., Ltd.
|
NOTE 10 –DUE TO RELATED PARTIES
(a) Names and relationship of related parties
|
Existing relationships with the Company
|
|
|
Nanjing Hongren
|
A company controlled by shareholder
|
|
|
Nanjing Runji
|
A company controlled by shareholder
|
|
|
Zhao, Shouren
|
Shareholder & president & CEO of the Company
|
|
|
Yang, Xuanjun
|
Shareholder of the Company
|
(b) Due to Related Parties (S/T) consists of the following:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Due to related party – Nanjing Hongren
|
|
$
|
2,112,943
|
|
|
|
5,622,218
|
|
Due to related party – Nanjing Runji
|
|
|
6,149,238
|
|
|
|
4,424,912
|
|
Due to related party – Zhao, Shouren
|
|
|
61,691
|
|
|
|
59,611
|
|
Due to related party – Yang, Xuanjun
|
|
|
151,900
|
|
|
|
515,677
|
|
Miscellaneous
|
|
|
4,530
|
|
|
|
3,282
|
|
|
|
$
|
8,480,302
|
|
|
|
10,625,700
|
|
The above amounts due to related parties represent loans payable, are short-term loans that are unsecured and non-interest bearing, and the loans’ use will depend on the Company’s business operations.
NOTE 11 – LONG-TERM LOAN
The Company entered into two sale-leaseback transactions during the second quarter of fiscal year 2011. Because the Company retains substantially all of the benefits and risks incident to the ownership of the equipments sold, the transactions are accounted for as a financing, The Company reports the sales proceeds as a loan, continues to report the equipments sold as assets, and continus to depreciate the equipments.
The details for the Company’s long-term loan are as follows:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Long-term loan –current portion
|
|
$
|
1,974,700
|
|
|
$
|
236,148
|
|
Long-term loan –non-current portion
|
|
|
2,194,955
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,169,655
|
|
|
$
|
236,148
|
|
Leasing Company
|
|
Amount
(USD)
|
|
|
Starting date
|
|
|
Maturity date
|
|
|
Interest rate (
annually
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Anhui Xingtai Leasing Co., Ltd.
|
|
|
3,341,800
|
|
|
|
2010-
12
-22
|
|
|
|
2013-12
-
22
|
|
|
|
6.72
|
%
|
** Anhui Branch, Guodi Financing & Leasing Co., Ltd.
|
|
|
1,974,700
|
|
|
|
201
1
-0
1
-
27
|
|
|
|
201
3
-0
1
-2
6
|
|
|
|
6.24
|
%
|
*
The amount from Anhui Xingtai Leasing Co., Ltd. was pledged in collateral of machine equipment in value of $3,341,800.
|
**
The amount from the Anhui Branch, Guodi Financing & Leasing Co., Ltd. was pledged in collateral of machine equipment in value of $1,974,700.
|
NOTE 12 – COMMITMENTS AND CONTINGECIES
Social insurance for employees
According to the prevailing laws and regulations of the PRC, the Company is required to cover its employees with medical, retirement and unemployment insurance programs. Management believes that due to the transient nature of its employees, the Company does not need to provide all employees with such social insurances, and has paid the social insurances for the Company’s employees who have completed three months’ continuous employment with the Company.
In the event that any current or former employee files a complaint with the PRC government, the Company may be subject to making up the social insurances as well as administrative fines. As the Company believes that these fines would not be material, no provision has been made in this regard.
Tax issues
We wouldn't restate the consolidated balance sheets in the amended 10-K due to immaterial impact on current liabilities. We wouldn't restate consolidated statements of cash flows due to immaterial impact on cash flows from financing activities.
The Company does not have any operating leases and other long-term commitments.
NOTE 13 – INCOME TAXES
The Company’s Chinese Enterprise Income Tax (“EIT”) rate is 25%,
|
|
Six
months
ended
28-Feb-11
|
|
|
Six
months
ended
28-Feb-10
|
|
Income Taxes
|
|
$
|
2,314,702
|
|
|
$
|
402,769
|
|
A reconciliation between the income tax computed at the U.S. statutory rate and the Company’s provision for income tax is as follows:
|
Six months ended
|
|
|
February 28,
|
|
February 28,
|
|
|
2011
|
|
2010
|
|
U.S. statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Foreign income not recognized in the U.S.
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
PRC preferential enterprise income tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Others permanent differences
|
|
|
5
|
%
|
|
|
(2)
|
%
|
Provision for income tax
|
|
|
30
|
%
|
|
|
23
|
%
|
There are no significant temporary differences between book and tax income. The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises have completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings, which may lead to additional tax liabilities.
The Company’s corporate income tax liability is $2,460,033 and $651,263 as of February 28, 2011 and August 31, 2010, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "US$" refer to United States dollars and all references to "common shares" refer to the common shares in our capital stock.
As used in this quarterly report the terms "we", "us" and "our” and “our company" mean China Runji Cement Inc. a Delaware corporation and our subsidiaries Ren Ji Cement Investment Company Limited, Ren Ji Cement Company Limited and Anhui Province Runji Cement Company Limited unless otherwise indicated.
Corporate Overview
Our company was incorporated as FitMedia Inc., a Delaware company, on August 30, 2004. FitMedia was a development stage company that planned to sell prenatal yoga DVDs through small retail stores and others and it also planned to sell its fitness DVDs through its Internet site
www.fitmedia.net
. It completed its prenatal yoga DVD for sale and began marketing it in January 2007.
In October 2007, the management of FitMedia determined that it was in the best interests of the stockholders of FitMedia to agree to a share exchange with Anhui Province Runji Cement Company Limited, a Chinese company that is engaged in the business of distributing cement across many provinces in mainland China. As part of the share exchange and reverse merger, FitMedia ceased engaging in the health and fitness business.
On October 9, 2007, FitMedia entered into a share exchange agreement by and among FitMedia, Timothy Crottey, the president and majority shareholder of FitMedia, Shouren Zhao, a citizen and resident of the People’s Republic of China and owner of 100% of the share capital of Ren Ji Cement Investment Company Limited; Ren Ji Cement Investment Company., Ltd., a British Virgin Islands corporation and owner of 100% of the share capital of Ren Ji Cement Company Limited; Ren Ji Cement Company Limited, a corporation organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China and owner of 100% of the share capital of Anhui Province Runji Cement Co., Ltd.; and Anhui Province Runji Cement Co., Ltd., a corporation organized under the laws of the People’s Republic of China. For purposes of the share exchange agreement, Renji Investment, HK Renji and Anhui Runji were referred to as the “Renji Subsidiaries.” Upon closing of the share exchange transaction contemplated under the Exchange Agreement on November 1, 2007, the Mr. Zhao transferred all of his share capital in Renji Investment to FitMedia in exchange for
an aggregate of 55,000,000 shares of common stock of the FitMedia, thus causing the Renji Subsidiaries to become direct and indirect wholly-owned subsidiaries of FitMedia.
On October 9, 2007, FitMedia entered into a stock purchase agreement by and among FitMedia, Mr. Crottey, and Mr. Zhao, pursuant to which the Mr. Zhao, as purchaser, at closing on November 1, 2007, acquired 18,500,000 shares of common stock of FitMedia from Mr. Crottey for $540,000.
In addition, pursuant to the terms and conditions of the share exchange agreement:
§
|
Demand and piggy-back registration rights were granted to Mr. Zhao with respect to shares of our company’s restricted common stock to be acquired by him at closing in a Regulation S offering.
|
§
|
On the closing date, the current officers of FitMedia resigned from such positions and the persons chosen by Anhui Runji were appointed as the officers of FitMedia, notably Shouren Zhao, as chairman, chief executive officer and president and Yichun Jiang as chief financial officer.
|
§
|
On the closing date, Mr. Crottey resigned from his position as a director effective upon the expiration of the ten day notice period required by Rule 14f-1, at which time additional persons designated by Anhui Runji were appointed as directors of FitMedia, notably Liming Bi and Xuanjun Yang.
|
§
|
On the closing date, FitMedia paid and satisfied all of its liabilities as of the closing.
|
§
|
As of the closing, the parties consummated the transactions contemplated by the stock purchase agreement.
|
On January 8, 2008, FitMedia changed its name to China Runji Cement Inc. and increased its authorized common stock from 80,000,000 shares to 200,000,000 shares.
As a result of the closing of the share exchange, our company became the owner of a leading cement production and distribution company in mainland China through its ownership of Anhui Runji. Using cost effective production techniques, while building a strong brand image, Anhui Runji is a strong competitor in the central China cement market.
Anhui Runji is a producer and distributor of cement, primarily in An Hui Province of central China and neighboring locations, which was founded in December 2003. Its initial capital was 60,000,000 RMB and there were two founding shareholders who owned such capital in a ratio of 60% to 40%. Anhui Runji is located in Xianzong Town, Hanshan County, An Hui Province, where the factory occupies an area of 68.97 acres (418 mu), and its limestone open-pit mine comprises an area of 165 acres (1,000 mu) (1 mu equals 0.165 acre). The Anhui Runji factory, limestone open-pit mine and storing mine together comprise an area of approximately 50,000 square meters.
Description of Business
Our company and our wholly owned subsidiaries are a leading producer and distributor of cement, primarily in An Hui Province of central China and neighboring locations. Anhui Province Runji Cement Co. Ltd. is our operating subsidiary
.
Our offices are currently located at Xian Zhong Town, Han Shan County, Chao Hu City, Anhui Province, People’s Republic of China, 23181. Our telephone number is 86-565-4219871.
At present, our company has one cement production line and one cement clinker production line. The production capacity of each line amounts to 2,500 tons per day and one million tons per year. Presently, we mainly focus production on Runji Brand cement P.II52.5, P.O42.5, P.O32.5, P.C32.5 as well as cement clinker. P.II52.5 is a high grade, high strength cement that is made for Anhui and Jiangsu Provinces and the region north of the Yangtze River and is used in large infrastructure projects. The cement clinker is the semi-finished ingredient of cement, which is able to be processed into different categories of cement products.
Our company produces cement through the advanced dry production process, an energy efficient and environmentally friendly cement production technique. Although the Chinese government has mandated the elimination of 250 million tons of outdated cement production capacity by 2010, only 60% of the total output in the region is currently produced by dry process. Our company has a rigorous quality control system and received ISO9001 quality system certification and international accreditation in March 2006. In addition, our company passed the national GB/T 19001-2000 standard authentication. Our company’s pollution control exceeds the national standard and received “green building material” certification in 2007.
The open-pit mine from which we extract limestone, as a raw material for cement production, is owned by the Chinese government. We have a mining right certificate (Cert No. 3400000510011) issued by the Anhui Province Land and Resources Bureau to Anhui Province Runji Cement Co., Ltd. to explore and exploit the mineral deposits for a period of 30 years from January 2005 to January 2035. Prior to the expiration of our current mining rights certificate, we have the right to apply to the government for an extension of mining rights.
The name of the open-pit mine from which we extract limestone is Anhui Province Hanshan County Xianzong Yaotou Mountain limestone mine and it comprises an area of 176.41 acres. Our mining claim is a national claim that allows us to extract up to 1.8 million tons annually during the 30-year mining rights period. For the mining rights to the mineral deposits located near our production plant we pay approximately RMB 25 million to the government annually.
Our company has an abundant supply of high quality raw materials. Our company has obtained a 30 year mining right for 87 million tons of limestone reserve, which can supply two cement clinker production lines with a daily output of 2,500 tons for 40 years.
Presently, our company is one of the largest cement producers and distributors in the north Yangtze region of Anhui, with a 10% market share within a 100 mile radius of its facility. Our company is the only producer of P.II52.5 cement (the highest quality cement) in the north Yangtze region of Anhui and Jiangsu Provinces, with 70% market share within a 100 miles radius of its facility. Annual production capacity of our company is two million tons cement and cement clinker. Our company’s main market for cement is in Hefei (Anhui Province), with total sales of 750 thousand tons, representing 75% of our total annual cement production and an additional 25% is sold in Chaohu and its surrounding areas, Moreover, our company’s main cement clinker market is in Chaohu with total sales of 800 thousand tons in the area, representing 80% of our total annual cement clinker production, and an additional 20% is sold in Hefei.
Summary of the Operations of Anhui Runji
Our company’s net sales to customers for the six months ended February 28, 2011 and February 28, 2010, were $37,843,194
and $22,598,664, respectively.
Our Business Plan
§
|
We plan to raise adequate capital over the next five years for expansion and growth.
|
§
|
We invested over USD$50 million to build up one cement production line with daily production of 2,500 tons and one cement clinker production line with daily production of 2,500 tons. The newly invested cement clinker production line was put into production in October 2008.
|
§
|
We invested USD$10 million to establish a waste heat power generator system to convert waste heat into electricity, which was put into operation on October 25, 2009, in order to realize significant savings on electricity costs, to improve our margins and reduce reliance on outside power sources. From October 25, 2009 to February 28, 2011, the waste heat power generator system has generated electricity of 50.53 million kilowatt-hours and saved us USD$4.93 million in electricity costs.
|
Growth Strategy
Our vision is to be the leading producer of cement and cement products in An Hui Province as well as surrounding provinces and cities. Management intends to grow our company’s business by pursuing the following strategies:
§
|
Grow capacity and capabilities in line with market demand increases;
|
§
|
Enhance leading-edge technology through continuous innovation, research and study;
|
§
|
Continue to improve operational efficiencies;
|
§
|
Build a strong market reputation to foster and capture future growth in China.
|
Government Regulations
Our business is regulated in various ways as follows:
1.
|
Cement Industry Development Policy enacted by the National Development and Reform Commission on October 17, 2006.
|
2.
|
Notification regarding rate of tax refund enacted by the Ministry of Finance, National Development and Reform Commission, Department of Commerce, General Administration of Customs and State Administration of Taxation on September 14, 2006.
|
3.
|
National Resource Integration Management Methodology enacted by the National Development and Reform Commission, Ministry of Finance and State Administration of Taxation on September 7, 2006.
|
4.
|
Cement industry special legislation enacted by the National Development and Reform Commission on October 17, 2006.
|
5.
|
Several policy opinions for the cement industry unanimously enacted by the National Development and Reform Commission, Ministry of Finance, Ministry of Land and Resources, Ministry of Construction, Department of Commerce, People's Bank of China, General Administration of Quality Supervision, and National and State Environmental Protection Administration on April 13, 2006.
|
6.
|
Notification regarding energy-saving and pollution emission comprehensive working plan enacted by the China National Council in June 3, 2007.
|
7.
|
Anhui Province Bulk Cement “Eleventh-Five” Development Plan enacted by Anhui Provincial Government in July 9, 2007.
|
8.
|
Anhui Province Industrial Economy “Eleventh-Five” Development Plan enacted by Anhui Provincial Government in August 13, 2007.
|
9.
|
Standardization Implement Policy enacted by the National Development and Reform Commission on January 23, 2008.
|
10.
|
Anhui Province Bulk Cement and Premix Concrete Development Policy (Protocol) published by Anhui Provincial Government in October 27, 2008 and under asking for public comments.
|
11.
|
Document to Promote Corporate Merger and Restructuring issued by China’s State Council on September 6, 2010.
|
We have all permits and other authorizations necessary to operate our open-pit mine and our limestone reserve has never been denied an operating permit. Our permits and authorizations are eligible for renewal upon application to the government.
Results of Operations for the Three and Six Month Periods Ended February 28, 2011 and 2010
The following discussion should be read in conjunction with the financial statements included in this report.
Comparison of Three Months Ended February 28, 2011 and February 28, 2010 (Unaudited)
|
For the three months ended
|
|
For the three months ended
|
|
February 28,2011
|
|
February 28,2010
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
% of revenues
|
|
Amount
|
|
% of revenues
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
17,041,517
|
|
|
|
|
11,667,963
|
|
|
Cost of goods sold
|
|
(11,383,143)
|
|
-66.8%
|
|
|
(10,701,769)
|
|
-91.7%
|
Gross profit
|
|
5,658,374
|
|
33.2%
|
|
|
996,194
|
|
8.3%
|
Operating costs and expenses
|
|
(3,527,844)
|
|
-20.7%
|
|
|
(1,019,199)
|
|
-8.7%
|
Other income
|
|
19,519
|
|
0.11%
|
|
|
237,445
|
|
2.0%
|
Income before income taxes
|
|
2,150,049
|
|
12.6%
|
|
|
184,440
|
|
1.58%
|
Income taxes expense (benefit)
|
|
920,476
|
|
5.4%
|
|
|
(478)
|
|
-0.00%
|
Net income
|
|
1,229,573
|
|
7.2%
|
|
|
184,918
|
|
1.6%
|
Other comprehensive income
|
|
387,496
|
|
2.3%
|
|
|
(39,048)
|
|
-0.3%
|
Comprehensive income
|
$
|
1,617,069
|
|
9.5%
|
|
|
145,870
|
|
1.3%
|
Revenues
We generated all of our revenue primarily by selling cement products and cement clinkers. Roughly 51% of revenues are derived from cement clinkers. Revenues increased by $5,373,554 or 6% to $17,041,517 for the three months ended February 28, 2011 from $11,667,963 for the three months ended February 28, 2010. The increase is due to the increase in retail prices of cement products, representing a growth of $26.3 or 85% over last year.
The breakdown of our revenue and volume is shown as follows:
Revenue Comparison of Three Month Ended February 28, 2011 and February 28, 2010 (Unaudited)
|
For the Three Months Ended
|
|
|
28-Feb-11
|
|
28-Feb-10
|
|
Difference
|
|
|
|
|
|
|
|
|
cement
|
|
$
|
8,736,326
|
|
|
|
4,912,869
|
|
|
|
3,823,457
|
|
cement clinker
|
|
|
8,305,191
|
|
|
|
6,755,094
|
|
|
|
1,550,097
|
|
Total
|
|
$
|
17,041,517
|
|
|
|
11,667,963
|
|
|
|
5,373,554
|
|
Sales Volume Comparison of Three Months Ended February 28, 2011 and February 28, 2010 (Unaudited)
|
For the Three Months Ended
|
|
|
28-Feb-11
|
|
28-Feb-10
|
|
Difference
|
|
|
tons
|
|
tons
|
|
|
|
cement
|
|
|
146,108
|
|
|
|
160,852
|
|
|
|
-14,744
|
|
cement clinker
|
|
|
149,815
|
|
|
|
257,088
|
|
|
|
-107,273
|
|
Sales Volume
|
|
|
295,923
|
|
|
|
417,940
|
|
|
|
-122,017
|
|
Cost of Goods Sold
Our cost of goods sold for the three months ended February 28, 2011 was $11,383,143, an increase of $681,374 or approximately 6.3% compared to $10,701,769 for the three months ended February 28, 2010. This is attributed to increased production costs over last year, an increase of $9.3 or 32.7%.
|
For the Three Months Ended
|
|
|
28-Feb-11
|
|
28-Feb-10
|
|
Difference
|
|
|
|
|
|
|
|
|
cement
|
|
|
5,489,230
|
|
|
|
4,326,906
|
|
|
|
1,162,324
|
|
cement clinker
|
|
|
5,893,913
|
|
|
|
6,374,858
|
|
|
|
-480,945
|
|
Total
|
|
$
|
11,383,143
|
|
|
|
10,701,764
|
|
|
|
681,379
|
|
Gross Profit and Gross Margin
Our gross profit increased by $4,692,180 or approximately 486% to $5,658,374 for the three months ended February 28, 2011 from $966,194 for the three months ended February 28, 2010. The increase was primarily due to an increase in the retail price for cement products.
Operating Expenses
Our operating expenses for the three month periods ending February 28, 2011 and 2010 are outlined in the table below:
|
|
For the Three Months Ended
|
|
|
|
28-Feb-11
|
|
|
28-Feb-10
|
|
|
Difference
|
|
Selling expenses
|
|
$
|
108,285
|
|
|
$
|
47,782
|
|
|
$
|
60,503
|
|
G &A expenses
|
|
|
3,419,559
|
|
|
|
971,417
|
|
|
$
|
2,448,142
|
|
Operating expenses for the three month period ended February 28, 2011 increased by $2,508,645 or approximately 246.1% to $3,527,844 from $1,019,199 for the same corresponding period in 2010. The increase was primarily a result of an increase in general and administrative expenses, bad debt $1,621,200 and repairs and maintenance expenses $932,165 and consulting expense $138,184.
Income before Income Taxes
Our income before income taxes increased to $2,150,049 in the three months ended February 28, 2011 from $184,440 in the same period in 2010. This increase was due to increase in our gross profit.
Income Tax
Income tax increased to $920,476 in the three months ended February 28, 2011 from $ (478) in the same period in 2010 as we had a higher taxable income.
Interest Expenses
Our interest expense for the three months ended February 28, 2011 and February 28, 2010 was $326,777 and $232,682, respectively. The increased interest expense of $94,095 was due mainly to finance lease charges.
Comparison of Six Months Ended February 28, 2011 and February 28, 2010 (Unaudited)
|
For the Six Months Ended
|
|
For the Six Months Ended
|
|
February 28,2011
|
|
February 28,2010
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
%
of revenues
|
|
Amount
|
|
%
of revenues
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
37,843,194
|
|
|
|
|
22,598,664
|
|
|
Cost of goods sold
|
|
(25,451,133)
|
|
67.3%
|
|
|
(20,926,959)
|
|
92.6%
|
Gross profit
|
|
12,392,061
|
|
32.8%
|
|
|
1,671,705
|
|
7.4%
|
Operating costs and expenses
|
|
(4,401,304)
|
|
11.64%
|
|
|
(1,770,792)
|
|
7.8%
|
Other income (expenses)
|
|
(263,824)
|
|
0.7%
|
|
|
1,886,708
|
|
8.3%
|
Income before income taxes
|
|
7,726,933
|
|
20.4%
|
|
|
1,787,621
|
|
7.9%
|
Income taxes expense
|
|
(2,314,702)
|
|
6.1%
|
|
|
(402,769)
|
|
1.8%
|
Net income
|
|
5,412,231
|
|
14.3%
|
|
|
1,384,852
|
|
6.1%
|
Other comprehensive income
|
|
936,434
|
|
2.5%
|
|
|
15,511
|
|
0.1%
|
Comprehensive income
|
$
|
6,348,665
|
|
17.1%
|
|
|
1,400,363
|
|
6.2%
|
Revenues
We generated all of our revenue primarily by selling cement products and cement clinkers. Roughly 51% of revenues are derived from cement clinkers. Revenues increased by $15,244,530 or 67.5% to $37,843,194 for the six months ended February 28, 2011 from $22,598,664 for the same corresponding period in 2010. The increase is due to the increase in retail prices of cement products, representing a growth of $19.2 or 67% over the same period of 2010.
The breakdown of our revenue and volume is shown as follows:
Revenue Comparison of Six Months Ended February 28, 2011 and February 28, 2010 (Unaudited)
|
For the Six Months Ended
|
|
|
28-Feb-11
|
|
28-Feb-10
|
|
Difference
|
|
|
|
|
|
|
|
|
cement
|
|
$
|
18,988,037
|
|
|
|
9,772,821
|
|
|
|
9,215,216
|
|
cement clinker
|
|
|
18,855,157
|
|
|
|
12,825,843
|
|
|
|
6,029,314
|
|
Total
|
|
$
|
37,843,194
|
|
|
|
22,598,664
|
|
|
|
15,244,530
|
|
Sales Volume Comparison of Six Months Ended February 28, 2011 and February 28, 2010 (Unaudited)
|
For the Six Months Ended
|
|
|
28-Feb-11
|
|
28-Feb-10
|
|
Difference
|
|
|
tons
|
|
tons
|
|
tons
|
|
cement
|
|
|
374,489
|
|
|
|
303,888
|
|
|
|
70,601
|
|
cement clinker
|
|
|
405,616
|
|
|
|
495,155
|
|
|
|
-89,539
|
|
Sales Volume
|
|
|
780,105
|
|
|
|
799,043
|
|
|
|
-18,938
|
|
Operating Expenses
Our operating expenses for the three and six month periods ending February 28, 2011 and 2010 are outlined in the table below:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
28-Feb-11
|
|
|
28-Feb-10
|
|
|
Difference
|
|
|
28-Feb-11
|
|
|
28-Feb-10
|
|
|
Difference
|
|
Selling expenses
|
|
$
|
108,285
|
|
|
$
|
47,782
|
|
|
$
|
60,503
|
|
|
$
|
169,818
|
|
|
$
|
134,429
|
|
|
$
|
35,389
|
|
G &A expenses
|
|
|
3,419,559
|
|
|
|
971,417
|
|
|
|
2,448,142
|
|
|
|
4,231,486
|
|
|
|
1,636,363
|
|
|
|
2,595,123
|
|
Operating expenses for the three month period ended February 28, 2011 increased by $2,508,645 to $3,527,844 or approximately 246% from $1,019,199 for the same corresponding period in 2010. The increase was primarily a result of an increase in general and administrative expenses.
Operating expenses for the six month period ended February 28, 2011 increased by $2,630,512 or approximately 148.6% to $4,401,304 from $1,770,792 for the same corresponding period in 2010. The increase was primarily a result of an increase in general and administrative expenses, including bad debt $1,621,200 and repairs and maintenance expenses $932,165and consulting expense $138,184.
Cost of Goods Sold
Our cost of goods sold for the six months ended February 28, 2011 was $25,451,133, compared to $20,926,959 for the six months ended February 28, 2010, an increase of $4,524,174 or approximately 21.62%. This is attributed to increased production costs over last year, an increase of $5.4 or 20.5%.
|
For the Six Months Ended
|
|
|
28-Feb-11
|
|
28-Feb-10
|
|
Difference
|
|
|
|
|
|
|
|
|
cement
|
|
|
12,371,542
|
|
|
|
8,900,080
|
|
|
|
3,471,462
|
|
cement clinker
|
|
|
13,079,591
|
|
|
|
12,026,879
|
|
|
|
1,052,712
|
|
Total
|
|
|
25,451,133
|
|
|
|
20,926,959
|
|
|
|
4,524,174
|
|
Gross Profit and Gross Margin
Our gross profit increased by $10,720,356 or approximately 641% to $12,392,061 for the six months ended February 28, 2011 from $1,671,705 for the six months ended February 28,, 2010. The increase was primarily due to an increase in the retail price for cement products.
Operating Expenses
Total operating expenses for the six months ended February 28, 2011 was $4,401,304, compared to $1,770,792 for the six months ended February 28, 2010, an increase of $2,630,512 or approximately 148.6%. The increase was mainly due to bad debt $1,621,200 and repairs and maintenance expenses $932,165 and consulting expense $138,184.
Income before Income Taxes
Our income before income taxes increased to $7,726,933 in the six months ended February 28, 2011 from 1,787,621 in the same period in 2010. This increase was due to increase in our gross profit.
Income Tax
Income tax increased to $2,314,702 in the six months ended February 28, 2011 from 402,769 in the same period in 2010 as we had higher taxable income.
Interest Expenses
Our interest expense for the six months ended February 28, 2011 and February 28, 2010 was $621,817 and $454,780, respectively. The increased interest expense of $167,037 was due mainly to finance lease charges.
Net Income
In the six months ended February 28, 2011, we generated net income of $5,412,231, compared to $1,384,852 in the same period in 2010. The increase was primarily attributable to the increase in revenue and decrease of cost.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
|
|
For the six months ended
|
|
|
|
February 28,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
6,067,356
|
|
|
|
8,193,588
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,984,644
|
)
|
|
|
(5,887,397
|
)
|
Net cash (used in) financing activities
|
|
|
(3,347,287
|
)
|
|
|
(1,997,614
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
34,489
|
|
|
|
(567
|
)
|
Net increase in cash and cash equivalents
|
|
|
769,914
|
|
|
|
308,010
|
|
Cash and cash equivalents at beginning of the year
|
|
|
683,545
|
|
|
|
752,952
|
|
Cash and cash equivalents at end of the year
|
|
|
1,453,459
|
|
|
|
1,060,962
|
|
Operating activities
Net cash flows provided by operating activities for the six months ended February 28, 2011 and February 28, 2010 were $6,067,356 and $8,193,588, respectively. This was primarily due to an increase to accounts receivable and advances to suppliers.
Our cash flow from operating activities changed significantly because we had increased allowance for doubtful accounts of $1,621,200 , as compared to $0 for the six months ended February 28, 2010, our net income increased by $4,027,379 to $5,412,231, accounts payable and accrued liabilities decreased by $8,952,769 to (4,149,165), amortization increased by $146,847, depreciation expense increased by $439,337, accounts receivable and notes receivables increased by $504,223, inventory decreased by $840,582, deferred assets increased by $806,980,tax payable increased by $1,757,740.
Investing activities
Net cash flows used in investing activities for the six months ended February 28, 2011 and February 28, 2010 were $1,984,644 and $5,887,397, respectively. This was due mainly to a decrease in property and plant and equipment additions.
Financing activities
Net cash flows used in financing activities for the six months ended February 28, 2011 and February 28, 2010 were $3,347,287 and $1,997,614, respectively. The increase is primarily due to repayment of short term loans and amounts due to related parties.
Short term loans consist of:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Xian Zong Credit Bank
|
|
$
|
911,400
|
|
|
$
|
880,670
|
|
PuFa Bank WenHu business branch
|
|
|
4,405,100
|
|
|
|
4,256,568
|
|
ICBC Hanshan
|
|
|
1,974,700
|
|
|
|
2,953,564
|
|
Huishang Bank Sales Department
|
|
|
5,468,400
|
|
|
|
5,284,015
|
|
Runfeng company
|
|
|
757,127
|
|
|
|
737,661
|
|
|
|
$
|
13,516,727
|
|
|
$
|
14,094,478
|
|
The details for the Company’s bank loans at February 28, 2011 are as follows:
|
|
Borrowing bank
|
|
Amount
|
|
|
Starting date
|
|
|
Maturity date
|
|
|
Interest rate (monthly)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Xian Zong Credit Bank
|
|
|
899,361
|
|
|
|
2010-11-22
|
|
|
|
2011-11-22
|
|
|
|
0.834
|
%
|
**
|
|
PuFa Bank WenHu business branch
|
|
|
4,346,914
|
|
|
|
2010-05-05
|
|
|
|
2011-04-27
|
|
|
|
0.5310
|
%
|
***
|
|
ICBC Hanshan
|
|
|
1,948,616
|
|
|
|
2010-03-15
|
|
|
|
2011-03-15
|
|
|
|
0.6058
|
%
|
****
|
|
Huishang Bank Sales Department
|
|
|
5,396,169
|
|
|
|
2010-07-22
|
|
|
|
2011-07-21
|
|
|
|
0.5310
|
%
|
|
|
Runfeng Company
|
|
|
749,163
|
|
|
|
2010-05-26
|
|
|
|
2011-05-25
|
|
|
|
0.8835
|
%
|
____________
*
|
The loan from the Xian Zong Credit Bank was pledged in collateral of machine equipment in value of RMB 24,025,000.
|
|
|
**
|
The loan from the Wenhu branch of PuFa Bank was pledged in collateral of the Company’s building and land user right.
|
|
|
***
|
The loan from the Hanshan branch of ICBC Bank is secured by an accounts receivable balance of $3,810,952 and $2,539,569 at February 28, 2011 and August 31, 2010 respectively.
|
|
|
****
|
The loan from the sales department of Huishang Bank was guaranteed by Anhui Province Credit Guarantee (Group) Co., Ltd.
|
Overall, we have funded most of our cash needs from inception through February 28, 2011 with operating activities and loans from related parties.
Short term loan proceeds decreased from $877,475 to $0 due to increase short term loan $877,475 last year.Short term loan (repayment) decreased from $(877,475) to $(1,051,400), the decrease is due to repayment of $173,925this quarter.
Due To Related Parties
(a) Names and relationship of related parties
|
Existing relationships with the Company
|
|
|
Nanjing Hongren
|
A company controlled by shareholder
|
|
|
Nanjing Runji
|
A company controlled by shareholder
|
|
|
Zhao, Shouren
|
Shareholder & president & CEO of the Company
|
|
|
Yang, Xuanjun
|
Shareholder of the Company
|
(b) Due to Related Parties (Short Term) consists of the following:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Due to related party – Nanjing Hongren
|
|
$
|
2,112,943
|
|
|
|
5,622,218
|
|
Due to related party – Nanjing Runji
|
|
|
6,149,238
|
|
|
|
4,424,912
|
|
Due to related party – Zhao, Shouren
|
|
|
61,691
|
|
|
|
59,611
|
|
Due to related party – Yang, Xuanjun
|
|
|
151,900
|
|
|
|
515,677
|
|
Miscellaneous
|
|
|
4,530
|
|
|
|
3,282
|
|
|
|
$
|
8,480,302
|
|
|
|
10,625,700
|
|
The above amounts due to related parties represent loans payable, are short-term loans that are unsecured and non-interest bearing, and the loans’ use will depend on our company’s business operations.
The details for our company’s long-term loan are as follows:
|
|
28-Feb-11
|
|
|
31-Aug-10
|
|
|
|
|
|
|
|
|
Long-term loan –current portion
|
|
$
|
1,974,700
|
|
|
$
|
236,148
|
|
Long-term loan –non-current portion
|
|
|
2,194,955
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,169,655
|
|
|
$
|
236,148
|
|
|
Leasing Company
|
|
Amount(USD)
|
|
|
Starting date
|
|
|
Maturity date
|
|
|
Interest rate (annually)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Anhui Xingtai Leasing Co., Ltd.
|
|
|
3,341,800
|
|
|
|
2010-
12
-22
|
|
|
|
2013-12
-
22
|
|
|
|
6.72
|
%
|
**
|
Anhui Branch, Guodi Financing & Leasing Co., Ltd.
|
|
|
1,974,700
|
|
|
|
201
1
-0
1
-
27
|
|
|
|
201
3
-0
1
-2
6
|
|
|
|
6.24
|
%
|
*
|
The amount from Anhui Xingtai Leasing Co., Ltd. was pledged in collateral of machine equipment in value of $3,341,800.
|
**
|
The amount from the Anhui Branch, Guodi Financing & Leasing Co., Ltd. was pledged in collateral of machine equipment in value of $1,974,700.
|
On February 28, 2011, we had cash and cash equivalents of $1,453,459 on hand. We anticipate raising funds through an equity or debt offering or with a strategic partner in the coming year.
During the second quarter ended February 28, 2011, our revenue has increased sharply because peak season of cement sales has come ahead of annual schedule. However, due to fierce competition in the cement sales, the allowance of doubtful account has increased to $1,839,635 as of February 28, 2011 from $193,339 as of August 31, 2010.
We estimate that our expenses over the next 12 months will be approximately $30,000,000 as described in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources.
Description
|
Target completion date or period
|
|
Estimated expenses
(USD$)
|
|
Machinery and equipment expenses
|
12 months
|
|
|
985,000
|
|
Property expenses
|
12 months
|
|
|
2,053,000
|
|
Selling expenses
|
12 months
|
|
|
300,000
|
|
Loans from related parties
|
12 months
|
|
|
10,300,000
|
|
Short term loans
|
12 months
|
|
|
4,242,000
|
|
Long term loans
|
12 months
|
|
|
8,000,000
|
|
Investor relations and capital raising
|
12 months
|
|
|
150,000
|
|
Management and operating costs
|
12 months
|
|
|
200,000
|
|
Legal and accounting fees
|
12 months
|
|
|
100,000
|
|
General and administrative
|
12 months
|
|
|
3,670,000
|
|
Total
|
|
|
|
30,000,000
|
|
We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing or with a strategic partner. We currently do not have any arrangements in place to complete any financings and there is no assurance that we will be successful in completing any financings. If we are not able to successfully complete any financings, we plan to obtain related party loans to meet our cash requirements. However, there is no assurance that any such financing will be available or if available, on terms that will be acceptable to us. We may not raise sufficient funds to fully carry out our business plan.
If cash flow improves through these efforts, management believes that we can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or improve our liquidity.
Net Income
In the six months ended February 28, 2011, we generated net income of $5,412,231, compared to $1,384,852 in the same period in 2010. The increase was primarily attributable to the increase in revenue and decrease of cost.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
The discussion and analysis of our company’s financial condition presented in this section are based upon our company’s unaudited consolidated financial statements, which have been prepared in accordance with the generally accepted accounting principles in the United States. During the preparation of the financial statements we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, our company evaluates its estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. Our company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under current conditions. Actual results may differ from these estimates under different assumptions or conditions.
In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” our company identified the most critical accounting principles upon which its financial status depends. We determined that those critical accounting principles are related to the use of estimates, inventory valuation, revenue recognition, income tax and impairment of intangibles and other long-lived assets. We present these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.
Basis of Presentation
These accompanying condensed consolidated financial statements include the accounts of our company and its wholly owned subsidiaries, Ren Ji Cement Investment Co., Ltd., Ren Ji Cement Company Limited and Anhui Province Runji Cement Co., Ltd., and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the interim financial statements reflect all normal adjustments that are necessary to provide a fair presentation of the financial results for the interim periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. The condensed consolidated balance sheet as of August 31, 2010 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of our company’s financial position, operating results, risk factors, and other matters, please refer to our company's Annual Report on Form 10-K for the fiscal year ended August 31, 2010.
All significant inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2011 presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, our company has a concentration of credit risk related to these uninsured deposits.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management judgment and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, our company analyzes the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness or weakening in economic trends could have a significant impact on the collectability of receivables and our company’s operating results. The allowance of doubtful account is accrued based on the AR identified uncollectible. The allowances for doubtful accounts are $1,839,756and $193,339 as of February 28, 2011 and August 31, 2010 respectively.
Inventories
Inventories, which are primarily comprised of raw materials, packaging materials, semi-finished goods, and finished goods, are stated at the lower of cost or market, using the moving average (“MA”) method. Cost being determined on the basis of a moving average. Our company evaluates the need for reserves associated with obsolete, slow-moving and non-salable inventory by reviewing net realizable values on a periodic basis.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method, with an estimated 5% salvage value of original cost, over the estimated useful lives of the assets as follows:
Building
|
20 years
|
manufacturing machinery & equipment
|
8 years
|
electronic equipment & automobiles
|
5 years
|
office equipment
|
5 years
|
Expenditures for repairs and maintenance, which do not improve or extend the expected useful lives of the assets, are expensed as incurred while major replacements and improvements are capitalized.
When property or equipment is retired or disposed of, the cost and accumulated depreciation are removed from the accounts, with any resulting gains or losses being included in net income or loss in the year of disposition.
Construction in Progress
Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.
Impairment of Long-Lived Assets
Our company evaluates potential impairment of long-lived assets, in accordance with accounting principles generally accepted in the United States of America, which requires our company to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. Our company believes that long-lived assets in the accompanying balance sheets are appropriately valued at February 28, 2011.
Intangible Assets
Our company’s intangible assets are stated at cost less accumulated amortization and are mainly comprised of limestone and sandstone mining rights. Mining rights are related to mines our company occupies in Anhui Province, PRC and are being amortized on a straight-line basis over a period of 30 years.
Revenue Recognition
Our company recognizes revenue when the significant risks and rewards of ownership have been transferred pursuant to PRC law, including such factors as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, sales and value-added tax laws have been complied with, and collectability is reasonably assured. Our company generally recognizes revenue when its products are shipped. Our company’s standard payment terms are 90 days. If a customer’s payment terms exceed 12 months, revenue will be recognized once payments become due and payable.
New Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. Our company is required to apply this guidance prospectively for revenue arrangements entered into or materially modified after September 1, 2011; however, earlier application is permitted. Management is in the process of evaluating the impact of adopting this standard on our company’s financial statements.
We do not believe that there are any new pronouncements that have been recently issued that might have a material impact on its consolidated financial statements other than the one that was disclosed.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.
Item 4. Controls and Procedures
Disclosure Controls
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934
, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (our principal executive officer) and chief financial officer (our principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer (our principal executive officer) and chief financial officer (our principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2011. Based on the evaluation of these disclosure controls and procedures, and taking into account the changes we implemented in our control over financial reporting described below, our chief executive officer (our principal executive officer) and chief financial officer (our principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
During the fourth quarter of 2010, there is material weaknesses found in our internal controls. The material weakness relates to the lack of personnel with the appropriate knowledge of generally accepted accounting principles (GAAP) and SEC reporting experience, coupled with a lack of segregation of duties and minimal staffing. To remedy this material weakness, management is actively searching for competent candidates and working with outside consultants in the financial reporting process. The weakness existed for 6 months until the second quarter of 2011.
During the first six months of fiscal year 2011, we implemented the following measures to improve our internal control over financial reporting:
(1) Engaged outside consultants to assist in our assessment of the effectiveness of our company’s internal control over financial reporting; and also employed a new general manager with rich management experience in cement industry to strengthen our daily operation and management, as well as working with outside consultant in the reporting process.
(2) Developed and instituted new internal control procedures to strengthen our month-end close and financial reporting processes.
We believe these measures have strengthened our internal control over financial reporting and disclosure controls and procedures.
Our senior executives and our board of directors are committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity. This commitment has been and will continue to be communicated to and reinforced with our employees and to external stakeholders. And management believes the material weakness has remediated through the measures described above, and no longer exists as of February 28, 2011. So management concluded our internal control is effective as of the end of the second quarter of 2011.
In addition, under the direction of our board of directors, management will continue to review and make changes to the overall design of our internal control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting and our disclosure controls and procedures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 1A. Risk Factors
Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward-looking statements”. Such forward-looking statements include any projections and estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other “forward-looking statements” involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward-looking statements”.
Credit Risk
Our company is exposed to credit risk from its cash in bank, fixed deposits, bills and accounts receivable. The credit risk on cash in bank and fixed deposits is limited because the counterparties are recognized financial institutions. Bills and accounts receivable are subjected to credit evaluations.
Foreign Exchange Risk
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the Renminbi has no longer been pegged to the U.S. Dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market.
Because all of our earnings and cash assets are denominated in Renminbi, but our reporting currency is the U.S. dollar, fluctuations in the exchange rate between the U.S. dollar and the Renminbi will affect our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future that will be exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.
Most of our transactions are settled in Renminbi and U.S. dollars. In the opinion of the directors, we are not exposed to significant foreign currency risk.
Inflation
Inflationary factors, such as increases in the cost of raw materials and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.
Company’s Operations are All in China
All of our operations are conducted in China and are subject to various political, economic, and other risks and uncertainties inherent in conducting business in China. Among other risks, our company’s operations are subject to the risks of: restrictions on transfer of funds; quotas; domestic tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
No.
|
Description
|
|
|
(3)
|
Articles of Incorporation and Bylaws
|
3.1
|
Articles of Incorporation (Incorporated by reference to our Registration Statement on Form SB-2, filed on May 13, 2005).
|
3.2
|
Bylaws (Incorporated by reference to our Registration Statement on Form SB-2, filed on May 13, 2005).
|
(10)
|
Material Contracts
|
|
Share Exchange Agreement between our company Fitmedia, Shouren Zhao and Timothy Crottey (Incorporated by reference to our Current Report on Form 8-K filed on November 7, 2007).
|
|
Stock Purchase Agreement between Fitmedia, Shouren Zhao and Timothy Crottey (Incorporated by reference to our Current Report on Form 8-K filed on November 7, 2007).
|
(21)
|
List of Subsidiaries
|
21.1
|
Ren Ji Cement Investment Co., Ltd., incorporated in British Virgin Islands
|
21.2
|
Ren Ji Cement Company, Ltd. incorporated in Hong Kong
|
21.3
|
Anhui Province Runji Cement Co., Ltd. incorporated in China
|
(31)
|
Rule 13a-14(a) or Rule 15d-14(a) Certifications
|
31.1*
|
Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
|
31.2*
|
Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
|
(32)
|
Section 1350 Certifications
|
32.1*
|
Certification filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
|
32.2*
|
Certification filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
|
* Filed herewith.
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA RUNJI CEMENT INC.
|
|
|
|
|
|
|
Date: April 19, 2011
|
By:
|
/s/ Shouren Zhao
|
|
|
Shouren Zhao
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
Date: April 19, 2011
|
By:
|
/s/ Xiangfei Zeng
|
|
|
Xiangfei Zeng
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
|
|
20
China Runji Cement (GM) (USOTC:CRJI)
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