UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 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 September
30, 2011
OR
¨
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: 0-20532
CHINA BIO-ENERGY CORP.
(Exact name of registrant as specified
in its charter)
Delaware
|
|
74-2559866
|
(State or Other Jurisdiction of
|
|
(I.R.S. Employer
|
Incorporation)
|
|
Identification No.)
|
Pudong Building,
2
nd
Floor, Jiulong Avenue, Longwen District
Zhangzhou City, Fujian
Province
363000, China
(Address of Principal Executive Offices)
86-596 2967018
(Registrant’s telephone number)
Securities registered under Section 12(b)
of the Exchange Act:
None
Securities registered under Section 12(g)
of the Exchange Act:
Common Stock, no par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has
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
¨
No
£
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
¨
No
x
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 definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b–2
of the Exchange Act. (Check one):
Large accelerated
filer
¨
Accelerated
filer
¨
Non–Accelerated
filer
¨
Smaller Reporting
Company
¨
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes
¨
No
¨
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
|
|
Outstanding at September 30, 2011
|
Common stock, par value $0.001
|
|
28,791,267
|
China Bio-Energy Corp.
TABLE OF CONTENTS
|
|
Page Numbers
|
PART I - FINANCIAL INFORMATION
|
2
|
|
|
Item 1.
|
Condensed Consolidated Financial Statements (unaudited)
|
2
|
|
Condensed
Consolidated Balance Sheets
|
4 - 5
|
|
Unaudited Condensed Consolidated Statements of Operations
|
6
|
|
Unaudited Condensed
Consolidated Statement of Cash Flows
|
7
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
9 - 24
|
Item 2.
|
Management’s Discussion & Analysis of Financial Condition & Results of Operations
|
25
|
Item 3
|
Quantitative and Qualitative Disclosures About Market Risk
|
30
|
Item 4.
|
Controls and Procedures
|
30
|
|
|
PART II - OTHER INFORMATION
|
|
|
|
Item 1.
|
Legal Proceedings
|
32
|
Item1A.
|
Risk Factors
|
32
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
32
|
Item 3.
|
Defaults Upon Senior Securities
|
32
|
Item 4.
|
Mine Safety Disclosures
|
32
|
Item 5
|
Other Information
|
32
|
Item 6.
|
Exhibits
|
33
|
|
|
|
SIGNATURES
|
33
|
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
China Bio-Energy Corp.
Consolidated Financial statements
September 30, 2011 and December 31, 2010
(Stated in US Dollars)
China Bio-Energy Corp.
|
|
|
|
Contents
|
Pages
|
|
|
Consolidated Balance Sheets
|
4 – 5
|
|
|
Consolidated Statements of Income
|
6
|
|
|
Consolidated Statements of Cash Flows
|
7
|
|
|
Consolidated Statements of Stockholders’ Equity
|
8
|
|
|
Notes to Financial Statements
|
9 – 24
|
China Bio-Energy Corp.
Consolidated Balance Sheets
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
|
|
Note
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
[Unaudited]
|
|
|
[Audited]
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2D
|
$
|
|
|
4,481,513
|
|
|
$
|
2,253,976
|
|
Restricted cash
|
|
|
3
|
|
|
|
296,016
|
|
|
|
259,228
|
|
Accounts receivable,
net
|
|
|
2E, 4
|
|
|
|
2,623,003
|
|
|
|
1,454,614
|
|
Other Receivable
|
|
|
|
|
|
|
2,022,869
|
|
|
|
-
|
|
Inventory
|
|
|
2F, 5
|
|
|
|
882,371
|
|
|
|
1,131,229
|
|
Prepaid expenses
|
|
|
|
|
|
|
1,365,701
|
|
|
|
525,843
|
|
Total current assets
|
|
|
|
|
|
|
11,671,473
|
|
|
|
5,624,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment,
net
|
|
|
2G, 6
|
|
|
|
3,203,879
|
|
|
|
3,147,022
|
|
Construction in progress
|
|
|
|
|
|
|
96,358
|
|
|
|
-
|
|
Intangible assets,
net
|
|
|
2H, 7
|
|
|
|
3,333,824
|
|
|
|
3,236,591
|
|
Deposits
|
|
|
|
|
|
|
3,124
|
|
|
|
266,266
|
|
Total non-current assets
|
|
|
|
|
|
|
6,637,185
|
|
|
|
6,649,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
$
|
18,308,658
|
|
|
$
|
12,274,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
8
|
$
|
|
|
468,618
|
|
|
$
|
453,734
|
|
Accounts payable and accruals
|
|
|
9
|
|
|
|
468,932
|
|
|
|
390,240
|
|
Taxes payable
|
|
|
10
|
|
|
|
235,684
|
|
|
|
9,261
|
|
Total current liabilities
|
|
|
|
|
|
|
1,173,234
|
|
|
|
853,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party payable
|
|
|
11
|
|
|
|
76,260
|
|
|
|
1,678,877
|
|
Total non-current liabilities
|
|
|
|
|
|
|
76,260
|
|
|
|
1,678,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
$
|
1,249,494
|
|
|
$
|
2,532,112
|
|
See Accompanying Notes to the Financial
Statements.
China Bio-Energy Corp.
Consolidated Balance Sheets
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
|
Note
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
[Unaudited]
|
|
|
[Audited]
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 100,000,000 shares authorized; 28,791,267 and 27,312,515 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively
|
|
|
|
$
|
28,791
|
|
|
$
|
27,313
|
|
Additional paid-in capital
|
|
|
|
|
5,481,042
|
|
|
|
931,026
|
|
Statutory reserves
|
|
2L, 15
|
|
|
898,271
|
|
|
|
898,271
|
|
Retained earnings
|
|
|
|
|
9,912,184
|
|
|
|
7,592,577
|
|
Accumulated other comprehensive income
|
|
|
|
|
738,876
|
|
|
|
293,470
|
|
Total stockholders’ equity
|
|
|
|
$
|
17,059,164
|
|
|
$
|
9,742,657
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
|
|
$
|
18,308,658
|
|
|
$
|
12,274,769
|
|
See Accompanying Notes to the Financial
Statements.
China Bio-Energy Corp.
Unaudited Consolidated Statements of Income
For the three and nine months ended September
30, 2011 and 2010
(Stated in US Dollars)
|
|
|
Note
|
|
Three months ended September 30
|
|
|
Nine months ended September 30
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
2N
|
|
$
|
10,944,633
|
|
|
$
|
9,852,715
|
|
|
$
|
30,378,570
|
|
|
$
|
24,641,197
|
|
Cost of revenue
|
|
|
2O
|
|
|
8,549,203
|
|
|
|
6,666,967
|
|
|
|
23,244,712
|
|
|
|
17,804,186
|
|
Gross profit
|
|
|
|
|
|
2,395,430
|
|
|
|
3,185,748
|
|
|
|
7,133,858
|
|
|
|
6,837,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
|
|
|
180,158
|
|
|
|
11,455
|
|
|
|
539,073
|
|
|
|
176,309
|
|
General and administrative expenses
|
|
|
|
|
|
327,595
|
|
|
|
326,457
|
|
|
|
1,422,089
|
|
|
|
1,078,284
|
|
Total operating expenses
|
|
|
|
|
|
507,753
|
|
|
|
337,912
|
|
|
|
1,961,162
|
|
|
|
1,254,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
1,887,677
|
|
|
|
2,847,836
|
|
|
|
5,172,696
|
|
|
|
5,582,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
(2,060
|
)
|
|
|
-
|
|
|
|
(79,577
|
)
|
|
|
-
|
|
Share compensations
|
|
|
17
|
|
|
(18,750
|
)
|
|
|
(29
|
)
|
|
|
(2,205,990
|
)
|
|
|
(29
|
)
|
Interest income
|
|
|
|
|
|
49,023
|
|
|
|
3,367
|
|
|
|
59,132
|
|
|
|
6,552
|
|
Interest expenses
|
|
|
|
|
|
(9,599
|
)
|
|
|
(4,363
|
)
|
|
|
(26,320
|
)
|
|
|
(4,363
|
)
|
Total other income/(expenses)
|
|
|
|
|
|
18,614
|
|
|
|
(1,025
|
)
|
|
|
(2,252,755
|
)
|
|
|
2,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income
|
|
|
|
|
|
1,906,291
|
|
|
|
2,846,811
|
|
|
|
2,919,941
|
|
|
|
5,584,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for income tax
|
|
|
2K, 12
|
|
|
191,046
|
|
|
|
463,008
|
|
|
|
600,334
|
|
|
|
805,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
|
|
$
|
1,715,245
|
|
|
$
|
2,383,803
|
|
|
$
|
2,319,607
|
|
|
$
|
4,779,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
2P, 16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.18
|
|
Diluted
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
28,783,575
|
|
|
|
27,312,515
|
|
|
|
28,170,066
|
|
|
|
27,312,515
|
|
Diluted
|
|
|
|
|
|
28,783,575
|
|
|
|
27,312,515
|
|
|
|
28,170,066
|
|
|
|
27,312,515
|
|
See Accompanying Notes to the Financial
Statements.
China Bio-Energy Corp.
Unaudited Consolidated Statements of Cash
Flows
For the three and nine months ended September
30, 2011 and 2010
(Stated in US Dollars)
|
|
Three months ended September 30
|
|
|
Nine months ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net Income
|
|
$
|
1,715,245
|
|
|
$
|
2,383,803
|
|
|
$
|
2,319,607
|
|
|
$
|
4,779,349
|
|
Adjustments to reconcile net income to net cash from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1,199
|
|
|
|
1,008
|
|
|
|
3,586
|
|
|
|
2,931
|
|
Depreciation
|
|
|
48,232
|
|
|
|
75,145
|
|
|
|
224,840
|
|
|
|
215,113
|
|
(Reversal)/ Provision for bad debt
|
|
|
(55,569
|
)
|
|
|
25,386
|
|
|
|
61,494
|
|
|
|
47,650
|
|
Share compensation
|
|
|
18,750
|
|
|
|
-
|
|
|
|
2,205,990
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in restricted cash
|
|
|
24,712
|
|
|
|
(40,322
|
)
|
|
|
(36,788
|
)
|
|
|
(40,322
|
)
|
(Increase)/decrease in accounts and other receivables
|
|
|
635,546
|
|
|
|
(843,072
|
)
|
|
|
(3,252,752
|
)
|
|
|
(995,127
|
)
|
(Increase)/decrease in inventories
|
|
|
738,094
|
|
|
|
7,841
|
|
|
|
248,858
|
|
|
|
(175,470
|
)
|
(Increase)/decrease in prepaid expenses and taxes
|
|
|
(840,680
|
)
|
|
|
(1,498,150
|
)
|
|
|
(839,859
|
)
|
|
|
(2,453,951
|
)
|
Increase/(decrease) in accounts payables and accruals
|
|
|
(744,871
|
)
|
|
|
(335,407
|
)
|
|
|
78,692
|
|
|
|
1,324,414
|
|
Increase/(decrease) in customer deposits
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Increase/(decrease) in taxes payables
|
|
|
235,684
|
|
|
|
(67,048
|
)
|
|
|
226,423
|
|
|
|
533,806
|
|
Net cash provided/(used) by operating activities
|
|
|
1,776,342
|
|
|
|
(290,816
|
)
|
|
|
1,240,091
|
|
|
|
3,238,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for purchases and construction of plant and equipment
|
|
|
(97,364
|
)
|
|
|
(143,826
|
)
|
|
|
(378,055
|
)
|
|
|
(342,590
|
)
|
Proceeds from disposal of equipment
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Payments for purchases of intangible assets
|
|
|
(30,544
|
)
|
|
|
-
|
|
|
|
(100,819
|
)
|
|
|
-
|
|
Proceeds from return of deposits
|
|
|
(30
|
)
|
|
|
1,981,423
|
|
|
|
263,142
|
|
|
|
957,244
|
|
Net cash provided/(used) by investing activities
|
|
|
(127,938
|
)
|
|
|
1,837,597
|
|
|
|
(215,732
|
)
|
|
|
614,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
2,345,504
|
|
|
|
-
|
|
Proceeds from borrowings from bank
|
|
|
14,884
|
|
|
|
447,888
|
|
|
|
14,884
|
|
|
|
447,888
|
|
Proceeds/(repayments) of related party loan
|
|
|
(725,101
|
)
|
|
|
(751,848
|
)
|
|
|
(1,602,617
|
)
|
|
|
(1,869,299
|
)
|
Net cash provided by financing activities
|
|
|
(710,217
|
)
|
|
|
(303,960
|
)
|
|
|
757,771
|
|
|
|
(1,421,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase of cash and cash equivalents
|
|
|
938,187
|
|
|
|
1,242,821
|
|
|
|
1,782,130
|
|
|
|
2,431,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash
|
|
|
145,988
|
|
|
|
154,946
|
|
|
|
445,406
|
|
|
|
159,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & cash equivalents at beginning of period
|
|
|
3,397,337
|
|
|
|
1,278,664
|
|
|
|
2,253,976
|
|
|
|
84,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & cash equivalents at end of period
|
|
$
|
4,481,512
|
|
|
$
|
2,676,431
|
|
|
$
|
4,481,512
|
|
|
$
|
2,676,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
55,577
|
|
|
$
|
3,367
|
|
|
$
|
60,065
|
|
|
$
|
6,552
|
|
Interest paid
|
|
|
17,951
|
|
|
|
(4,363
|
)
|
|
|
(26,748
|
)
|
|
|
(4,363
|
)
|
Income taxes paid
|
|
|
356,902
|
|
|
|
-
|
|
|
|
(610,106
|
)
|
|
|
-
|
|
See Accompanying Notes to the Financial
Statements.
China Bio-Energy Corp.
Unaudited Consolidated Statements of Stockholders’
Equity
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
Of
|
|
|
Common
|
|
|
paid in
|
|
|
Statutory
|
|
|
Retained
|
|
|
comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
stock
|
|
|
Capital
|
|
|
reserve
|
|
|
Earnings
|
|
|
income
|
|
|
Total
|
|
Balance at January 1, 2010
|
|
|
27,312,515
|
|
|
$
|
27,313
|
|
|
$
|
926,026
|
|
|
$
|
-
|
|
|
$
|
2,817,808
|
|
|
$
|
26,757
|
|
|
$
|
3,797,904
|
|
Capital contribution from shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,673,040
|
|
|
|
-
|
|
|
|
5,673,040
|
|
Appropriations of retained earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
898,271
|
|
|
|
(898,271
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
266,713
|
|
|
|
266,713
|
|
Balance at December 31, 2010
|
|
|
27,312,515
|
|
|
$
|
27,313
|
|
|
$
|
931,026
|
|
|
$
|
898,271
|
|
|
$
|
7,592,577
|
|
|
$
|
293,470
|
|
|
$
|
9,742,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
|
27,312,515
|
|
|
$
|
27,313
|
|
|
$
|
931,026
|
|
|
$
|
898,271
|
|
|
$
|
7,592,577
|
|
|
$
|
293,470
|
|
|
$
|
9,742,657
|
|
Issuance of common stock
|
|
|
1,478,752
|
|
|
|
1,478
|
|
|
|
2,204,512
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,205,990
|
|
Capital contribution from shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
2,345,504
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,345,504
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,319,607
|
|
|
|
-
|
|
|
|
2,391,607
|
|
Appropriations of retained earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
445,406
|
|
|
|
445,406
|
|
Balance at September 30, 2011
|
|
|
28,791,267
|
|
|
$
|
28,791
|
|
|
$
|
5,481,042
|
|
|
$
|
898,271
|
|
|
$
|
9,912,184
|
|
|
$
|
738,876
|
|
|
$
|
17,059,164
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
Total
|
|
Net income/(loss)
|
|
$
|
2,319,607
|
|
|
$
|
5,673,040
|
|
|
$
|
7,992,647
|
|
Foreign currency translation adjustment
|
|
|
445,406
|
|
|
|
266,713
|
|
|
|
712,119
|
|
|
|
$
|
2,765,013
|
|
|
$
|
5,939,753
|
|
|
$
|
8,704,766
|
|
See Accompanying Notes to the Financial
Statements.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
1.
|
The Company and Principal Business Activities
|
|
A.
|
Organization and Structure
|
I. Ultimate Holding Company
|
a.)
|
China Bio-Energy Corp. (the “Company”) formerly known as China INSOnline Corp. was
incorporated on December 23, 1988 as a Delaware corporation. It became a shell company in June 2010 as a result of winding down
all operations.
|
II. Intermediary Holding Companies
|
a.)
|
Ding Neng Holdings Ltd. (“Ding Neng Holdings”) is an investment holding company that
was incorporated under the laws of British Virgin Islands (“BVI”) on October 20, 2010.
|
|
b.)
|
Ding Neng Bio-technology Co., Ltd. (“Ding Neng HK”) was incorporated under the laws
of Hong Kong on September 10, 2010. Ding Neng HK does not have any operations. Its sole purpose is to act as an intermediary holding
company. Ding Neng HK is wholly-owned by Ding Neng Holdings.
|
|
c.)
|
On November 2, 2010, under the laws of the People’s Republic of China (“PRC”),
Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“WOFE”) was incorporated as a wholly-foreign owned entity. The
WOFE is wholly-owned by Ding Neng HK.
|
The WOFE does not conduct operations.
All operations are conducted through the operating entity Fujian Zhangzhou Ding Neng Bio-technology Co., Ltd. (“Ding Neng
Bio-tech”) via a variable interest entity agreement.
III. Operating Entity
All of the Company’s operations
are located in the PRC, and are conducted through its operating entity Ding Neng Bio-tech detailed below:
|
a.)
|
Ding Neng Bio-tech was incorporated under the laws of the PRC on December 8, 2006. It is located
in Zhangzhou city Fujian Province of PRC. Ding Neng Bio-tech engages in the production, refinement and distribution of bio-diesel
fuel in Southern China. Ding Neng Bio-tech operates a biodiesel manufacturing facility in Zhangzhou City. Currently the raw materials
used in Ding Neng Bio-tech’s production of biodiesel are refined animal fats and crude and refined vegetable oils.
|
|
B.
|
Variable Interest Entity Agreement
|
In November 2010, the WFOE entered
into a Consulting Service Agreement with Ding Neng Bio-tech, which entitles the WFOE to substantially all of the economic benefits
of Ding Neng Bio-tech in consideration of services provided by the WFOE to Ding Neng Bio-tech. In addition, the WFOE entered into
certain agreements with each of Xinfeng Nie, Sanfu Huang, and Shunlong Hu (the “Ding Neng Bio-tech shareholders”),
including an Option Agreement allowing the WFOE to acquire the shares of Ding Neng Bio-tech as permitted by PRC laws, a Voting
Rights Proxy Agreement that provides the WFOE with the voting rights of the Ding Neng Bio-tech shareholders and an Equity Pledge
Agreement that pledges the shares in Ding Neng Bio-tech to the WFOE. Effective control of Ding Neng Bio-tech was transferred to
the WFOE through these series of contractual arrangements without transferring legal ownership in Ding Neng Bio-tech to the WFOE
(the “Reorganization”). As a result, Ding Neng Bio-tech became a variable interest entity (“VIE”) and was
included in the consolidated group.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
C.
|
Share Exchange Agreements
|
On
December 6, 2010, the Company entered into an Amendment (the “Amendment”) to the Share Exchange Agreement dated November
12, 2010 with Ding Neng Holdings. The
Share Exchange Agreement and the Amendment provides
for an acquisition transaction (the “Acquisition”) in which the Company, through the issuance of 25,875,000 shares
of its common stock, par value $0.001, representing 90% of the issued and outstanding common stock immediately following the closing
of the Acquisition, acquired 100% of Ding Neng Holdings.
The closing of the Acquisition
took place on February 10, 2011 (the “Closing Date”). On the Closing Date, pursuant to the terms of the
Share Exchange Agreement as amended, the Company acquired all of the outstanding equity securities of Ding Neng Holdings from the
shareholders of Ding Neng Holdings; and the shareholders of Ding Neng Holdings transferred and contributed all of their issued
and outstanding shares of Ding Neng Holdings to the Company.
The share exchange transaction
has been accounted for as a recapitalization of Ding Neng Bio-tech where the Company (the legal acquirer) is considered the accounting
acquiree and Ding Neng Bio-tech (the legal acquiree) is considered the accounting acquirer. As a result of this transaction, the
Company is deemed to be a continuation of the business of Ding Neng Bio-tech. Accordingly, the financial data, included in the
accompanying consolidated financial statements for all periods prior to February 10, 2011, is that of the accounting acquirer,
Ding Neng Bio-tech. The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively
restated as if the share exchange transaction occurred as of the beginning of the first period presented.
|
2.
|
Significant Accounting Policies
|
The Company maintains its general
ledger and journals with the accrual method of accounting in accordance with PRC generally accepted accounting principles (“GAAP”).
For financial statement reporting purposes, the Company has converted its PRC GAAP financial statements to financial statements
that are presented in accordance with generally accepted accounting principles in the United States of America. The conversion
of the Company’s financial statements from presentation in accordance with PRC GAAP to US GAAP did not result in any reconciling
items on the accompanying financial statements.
The financial statements and
accompanying notes are representations of management.
|
B.
|
Principles of consolidation
|
The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant inter-company balances such as due to/due from, investment
in subsidiaries, and subsidiaries’ capitalization have been eliminated.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
The preparation of the financial
statements in conformity with generally accepted accounting principles in the United States 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 periods. Significant
estimates and assumptions are used for, but not limited to: (1) allowance for trade receivables, (2) economic lives of property,
plant and equipment, (3) asset impairments, and (4) contingency reserves. Management makes these estimates using the best information
available at the time the estimates are made; however actual results could differ materially from those estimates
|
D.
|
Cash and cash equivalents
|
The Company classifies the following
instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased
with original maturities of three months or less.
Accounts receivable are disclosed
at the net value of all outstanding invoice amounts less management’s estimate for doubtful accounts. Management regularly
reviews outstanding accounts and provides an allowance for doubtful accounts. Management’s allowance for doubtful accounts
at September 30, 2011 and December 31, 2010 was 5% of gross accounts receivables.
In regard to the Company’s
allowance for doubtful accounts, we keep one general reserve, the amount of which equals 5% of gross account receivables. We have
no specific reserve, as we believe adequate provisions for doubtful accounts have been provided through our general reserve. When
estimating the allowance for doubtful accounts, we take into consideration: 1) our track record of payment collection, which shows
zero experience of any material delinquent accounts that were uncollectible and that we have not written off material balance;
2) the enhanced measures we currently take to minimize failure of collection, which include having internal staff call for payment,
filing legal pledges, utilizing collection agents to collect outstanding balances, etc. Since our collection period of receivables
has never exceeded one year, based on past experience, we believe collection becomes improbable once they exceed the threshold
of one year. Thus we will write off receivables against allowance for doubtful accounts once they are older than one year.
Inventories consist of finished
goods and raw materials. Inventories are valued at the lower of cost, as determined on a first-in first-out basis, or market. Market
value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing
market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates
the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.
Costs of raw material inventories include purchase and related costs incurred in bringing the products to their present location
and condition. Finished goods are comprised of direct materials, direct labor, and an appropriate proportion of overhead.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
Plant and equipment are carried
at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method.
Estimated useful lives of the plant and equipment are as follows:
Buildings
|
20 years
|
|
Machinery and equipment
|
10 years
|
|
Motor vehicles
|
5 years
|
|
Office equipment
|
5 years
|
|
The cost and related accumulated
depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are
capitalized.
The Company individually tracks
and accounts for each intangible asset. Each intangible asset is carried at its original acquisition cost less accumulated amortization.
The Company provides amortization for each intangible asset using the straight line method over its estimated useful life.
|
I.
|
Accounting for impairment of long lived Assets
|
The Company has adopted Statement
of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), ASC 360-10-35. The Company evaluates its long lived assets for impairment when indicators of impairment are present
or annually, whichever occurs sooner. In the event that there are indications of impairment, the Company will record a loss to
statements of income equal to the difference between the carrying value and the fair value of the long lived asset. The Company
typically, but not exclusively, uses the expected future discounted flows method to determine fair value of long lived asset subject
to impairment. The fair value of long lived assets held for disposition will include the cost of disposal.
The Company’s long-lived
assets are grouped by their presentation on the consolidated balance sheets, and further segregated by their operating and asset
type. Long-lived assets subject to impairment include buildings, equipment, vehicles, software licenses, and land-use-rights. The
Company makes its determinations based on various factors that impact those assets.
The Company assessed its buildings,
equipment, vehicles, software licenses, and land-use-rights for production. At December 31, 2010, the Company concluded that certain
equipment was obsolete, and disposed of them in the first quarter of 2011. The total loss on such disposals was $443,027 and had
recorded it as impairment loss for the year then ended. At September 30, 2011, the Company has concluded its long-lived assets
have not experienced any impairment losses because the Company’s long lived assets have enabled the Company to experience
significant profit growth during the nine months ended September 30, 2011.
The Company expenses advertising costs as incurred.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
The Company uses the accrual
method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes.
Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and Hong Kong tax laws
provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred
taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment,
amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when
the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available
to offset future income taxes.
A valuation allowance is recognized
for deferred tax assets if it is more likely than not that the deferred tax assets will either expire before the Company is able
to realize that tax benefit, or that future realization is uncertain.
Statutory reserves are referring
to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and
increase capital, as approved, and are to be used to expand production or operations.
|
M.
|
Foreign currency translation
|
The accompanying financial statements
are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements
are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange
rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions
occurred.
Exchange Rates
|
|
Nine month ended
September 30, 2011
|
|
|
Twelve months ended
December 31, 2010
|
|
|
Nine months ended
September 30, 2010
|
|
Period-end RMB :
|
|
|
|
|
|
|
|
|
|
US$ exchange rate
|
|
|
6.4018
|
|
|
|
6.61180
|
|
|
|
6.6981
|
|
Average period RMB :
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ exchange rate
|
|
|
6.5060
|
|
|
|
6.77875
|
|
|
|
6.8164
|
|
The RMB is not freely convertible
into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
In accordance to FASB ASC 605-10,
the Company recognizes revenue net of value added tax (VAT) when persuasive evidence of an arrangement exists, delivery of the
goods has occurred and customer acceptance has been obtained, which means the significant risks and ownership have been transferred
to the customer, the price is fixed or determinable and collectability is reasonably assured. No return allowance is made as product
returns are insignificant based on historical experience. Costs of distributing products to the Company’s customers are included
in selling expenses.
Cost of goods sold consists primarily
of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and
direct overhead expenses necessary to manufacture finished goods, as well as warehousing and distribution costs such as inbound
freight charges, shipping and handling costs, purchasing and receiving costs.
The Company computes earnings
per share (“EPS”) in accordance with FASB ASC 260 “Earnings per share”. SFAS No. 128 requires companies
with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common
shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of potential common shares (e.g., contingent shares, convertible securities,
options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential
common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded
from the calculation of diluted EPS.
Comprehensive income is defined
to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents
components of comprehensive income with equal prominence to other financial statements. The Company’s current component of
other comprehensive income is the foreign currency translation adjustment.
|
R.
|
Commitments and contingencies
|
Liabilities for loss contingencies
arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably estimated.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
The Company evaluates subsequent
events that have occurred after the consolidated balance sheet date but before the consolidated financial statements are issued. There
are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions
that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements,
and (2) non-recognized, or those that provide evidence with respect to conditions that did
not
exist at the date of
the balance sheet but arose subsequent to that date. The Company has evaluated subsequent events, and based on this evaluation,
the Company did not identify any recognized or non-recognized subsequent events that would have required adjustments to the
consolidated financial statements.
|
T.
|
Recent accounting pronouncements
|
In January 2011, the FASB issued
an Accounting Standard Update (“ASU”) No. 2011-01, “Receivables Topic 310): Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining
what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310):
Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity
creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings
in Update 2010-20. Under the existing effective date in Update 2010-20, public- entity creditors would have provided disclosures
about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily
defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance
for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures
about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update
2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications
would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings
in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal
is adopted. This new accounting pronouncement is not expected to have a material impact on the Company’s consolidated financial
position or results of the operations.
In June 2011, the FASB issued
an Accounting Standard Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220). Under the amendments to
Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income,
and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate
but consecutive statements. In both choices, an entity is required to present each component of net income along with total net
income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for
comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities,
the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. This
new accounting pronouncement is not expected to have a material impact on the Company’s consolidated financial position or
results of the operations.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
Restricted cash represents interest
bearing deposits placed with banks to secure letters of credit.
Accounts receivable at September 30, 2011 and December
31, 2010 consisted of the following: -
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Accounts receivable
|
|
$
|
2,761,056
|
|
|
$
|
1,531,173
|
|
Less:
Allowance for doubtful accounts
|
|
|
138,053
|
|
|
|
76,559
|
|
Accounts receivable,
net
|
|
|
2,623,003
|
|
|
$
|
1,454,614
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
76,559
|
|
|
$
|
81,076
|
|
Allowance provided
|
|
|
61,494
|
|
|
|
2,764
|
|
Charged against allowance
|
|
|
-
|
|
|
|
-
|
|
Reversals
|
|
|
-
|
|
|
|
(7,281
|
)
|
Ending balance
|
|
|
138,053
|
|
|
$
|
76,559
|
|
Accounts receivable aging analysis:-
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
1-30 Days
|
|
$
|
2,753,246
|
|
|
$
|
1,531,173
|
|
30-60 Days
|
|
|
-
|
|
|
|
-
|
|
61-90 Days
|
|
|
-
|
|
|
|
-
|
|
91-120 Days
|
|
|
-
|
|
|
|
-
|
|
121-365 Days
|
|
|
-
|
|
|
|
-
|
|
Over 365 Days
|
|
|
7,810
|
|
|
|
-
|
|
Total
|
|
$
|
2,761,056
|
|
|
$
|
1,531,173
|
|
The Company believes it has
provided adequate provisions for doubtful accounts. Doubtful allowance accounts at September 30, 2011 and December 31, 2010 was
5% of gross account receivables. In a situation, the Company uses all its efforts, such as having internal staff call for payment,
filing legal pledges, or even hiring collecting agents to collect the outstanding balance, but the collection is no longer probable.
The Company will write off the balance against the allowance for doubtful accounts. In the event that previously written off receivables
are collected, the Company will re-establish the allowance of bad debt.
From the inception of business,
the Company has not experienced any material delinquent accounts that were uncollectible, and has not written off material balances
against the allowance for doubtful accounts.
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Raw Materials
|
|
$
|
469,366
|
|
|
$
|
401,667
|
|
Finished Goods
|
|
|
413,005
|
|
|
|
729,562
|
|
|
|
$
|
882,371
|
|
|
$
|
1,131,229
|
|
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
Plant and equipment consisted of the following at
September 30, 2011 and December 31, 2010:-
At
|
|
|
|
|
Accumulated
|
|
|
|
|
September 30, 2011:-
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
1,650,172
|
|
|
$
|
260,315
|
|
|
$
|
1,389,857
|
|
Manufacturing Equipment
|
|
|
2,367,890
|
|
|
|
618,606
|
|
|
|
1,749,284
|
|
Office Equipment
|
|
|
70,733
|
|
|
|
17,452
|
|
|
|
53,281
|
|
Vehicles
|
|
|
18,901
|
|
|
|
7,444
|
|
|
|
11,457
|
|
|
|
$
|
4,107,696
|
|
|
$
|
903,817
|
|
|
$
|
3,203,879
|
|
At
|
|
|
|
|
Accumulated
|
|
|
|
|
December 31, 2010:-
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
1,597,761
|
|
|
$
|
71,186
|
|
|
$
|
1,526,575
|
|
Manufacturing Equipment
|
|
|
2,860,289
|
|
|
|
1,300,047
|
|
|
|
1,560,242
|
|
Office Equipment
|
|
|
55,149
|
|
|
|
8,645
|
|
|
|
46,504
|
|
Vehicles
|
|
|
18,301
|
|
|
|
4,600
|
|
|
|
13,701
|
|
|
|
$
|
4,531,500
|
|
|
$
|
1,384,478
|
|
|
$
|
3,147,022
|
|
Depreciation expenses were $
224,840 and $332,412 for the nine months and fiscal year ended September 30, 2011 and December 31, 2010, respectively.
At
|
|
|
|
|
Accumulated
|
|
|
|
|
September 30, 2011:
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
Land Use Rights
|
|
$
|
178,970
|
|
|
$
|
19,409
|
|
|
$
|
159,561
|
|
Biology Assets
|
|
|
3,174,263
|
|
|
|
-
|
|
|
|
3,174,263
|
|
|
|
$
|
3,353,233
|
|
|
$
|
19,409
|
|
|
$
|
3,333,824
|
|
At
|
|
|
|
|
Accumulated
|
|
|
|
|
December 31, 2010:-
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
Land Use Rights
|
|
$
|
178,969
|
|
|
$
|
15,822
|
|
|
$
|
163,147
|
|
Biology Assets
|
|
|
3,073,444
|
|
|
|
-
|
|
|
|
3,073,444
|
|
|
|
$
|
3,252,413
|
|
|
$
|
15,822
|
|
|
$
|
3,236,591
|
|
Land-use-rights
represent the right to use and develop land in accordance to zoning laws granted by the local PRC government less accumulated amortization.
Under PRC law, the company is permitted to sell, transfer, or mortgage its land-use-rights.
Amortization
expenses were $3,586 and $4,351 for the nine months and fiscal year ended September 30, 2011 and December 31, 2010, respectively.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
In November 2009, the Company
entered into an agreement with a shareholder of Ding Neng Bio-tech to purchase 165 acres of Sapindus forests and the forest land
use rights for RMB 20,000,000 (approximately $3.1 million). As of September 30, 2011, the Company had paid $3,174,263 towards the
total purchase price. The forests ownership and land use rights were obtained from Zhejiang Provenience Forestry Administration
after the completion of certain administrative processes in December 2010.
Short-term bank loans:-
|
|
|
|
|
|
|
|
|
|
|
Creditor
|
|
Interest
Rate
|
|
Maturity
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
China Minsheng Banking Corp., Ltd. – Xiamen Branch
|
|
7.8875
|
%
|
1/05/2012
|
|
$
|
468,618
|
|
|
$
|
453,734
|
|
|
|
|
|
|
|
$
|
468,618
|
|
|
$
|
453,734
|
|
The loan was
guaranteed by Jianhu Qinglong Forest Development Co., Ltd. No covenant was applied.
|
9.
|
Accounts Payable and Accruals
|
Description
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Payables for purchases of production materials
|
|
$
|
326,078
|
|
|
$
|
303,533
|
|
Miscellaneous payables and accrued expenses
|
|
|
142,854
|
|
|
|
86,707
|
|
|
|
$
|
468,932
|
|
|
$
|
390,240
|
|
Description
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Income tax payable
|
|
$
|
38,67373
|
|
|
$
|
1,421
|
|
Personal Income tax withholding
|
|
|
-
|
|
|
|
7,840
|
|
Value added tax payable
|
|
|
187,629
|
|
|
|
-
|
|
Others
|
|
|
9,382
|
|
|
|
-
|
|
|
|
$
|
235,684
|
|
|
$
|
9,261
|
|
|
11.
|
Related Party Payable
|
Related party payable was
$76,260 due to the shareholder Mr. Sanfu Huang. Related party payables represent the amounts the shareholders of Ding Neng
Bio-tech advanced to the Company during the development stage of its business. These loans were non-interest-bearing and
payable on demand.
As of December 31, 2010, among
the $1,678,877 related party payables, $1,659,369 (approximately RMB 10.97 million) was due to the shareholder Mr. Sanfu Huang.
Because the Company was lacking in favorable liquidity source, the Board approved a resolution on December 9, 2010 to authorize
Mr. Sanfu Huang to pay on behalf of Ding Neng Bio-tech, $1,659,369 representing price increase of raw materials purchased as agreed
by the Company. This debt due to Mr. Huang was fully repaid on July 22, 2011.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
In respect of the Company and its subsidiaries domiciled
and operated in United States, British Virgin Islands, Hong Kong and the People’s Republic of China, the taxation of these
entities are summarized below:
Entities
|
|
Countries of Domicile
|
|
Income Tax Rate
|
|
China Bio-Energy Corp.
|
|
United States
|
|
|
34
|
%
|
Ding Neng Holdings Limited
|
|
BVI
|
|
|
0
|
%
|
Ding Neng Bio-technology Co., Limited
|
|
Hong Kong
|
|
|
16.5
|
%
|
Zhangzhou Fuhua Biomass Energy Technology Co., Limited
|
|
PRC
|
|
|
12.5
|
%
|
Fujian Zhangzhou Ding Neng Bio Technology Co., Limited
|
|
PRC
|
|
|
12.5
|
%
|
Ding Neng Bio-tech is a foreign
owned entity. Pursuant to the tax laws of the PRC, it is exempt from corporate income tax for its first two years and is entitled
to a 50% tax reduction for the succeeding three years. Therefore, Ding Neng Bio-tech’s income is subject to 0% income tax
rate for the years 2008 and 2009. From 2010 onwards to 2012, Ding Neng Bio-tech will benefit from a reduced tax rate of 12.5%.
Since the Company is primarily
a holding company without any business activities in United States, the Company did not incur any U.S. tax for the nine and twelve
months ended September 30, 2011 and December 31, 2010, respectively.
|
|
Three months ended September 30
|
|
|
Nine months ended September 30
|
|
Description
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Income (loss) before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,255,240
|
)
|
|
$
|
-
|
|
U.S. State
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
BVI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
HK
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
PRC
|
|
|
1,906,291
|
|
|
|
2,846,811
|
|
|
|
5,175,207
|
|
|
|
5,584,578
|
|
Total income before taxes
|
|
$
|
1,906,291
|
|
|
$
|
2,846,811
|
|
|
$
|
2,919,941
|
|
|
$
|
5,584,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
BVI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
HK
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
191,046
|
|
|
|
463,008
|
|
|
|
600,334
|
|
|
|
805,229
|
|
|
|
$
|
191,046
|
|
|
$
|
463,008
|
|
|
$
|
600,334
|
|
|
$
|
805,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
BVI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
HK
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Valuation Allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deferred tax:
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for taxes
|
|
$
|
191,046
|
|
|
$
|
463,008
|
|
|
$
|
600,334
|
|
|
$
|
805,229
|
|
Effective tax rate
|
|
|
10.02
|
%
|
|
|
16.26
|
%
|
|
|
20.56
|
%
|
|
|
14.42
|
%
|
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
The differences between the
U.S. federal statutory income tax rates and the Company's effective tax rate for the three months and nine months ended September
30, 2011 and 2010 are shown in the following table:
|
|
Three months ended September 30
|
|
|
Nine months ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
U.S. federal statutory income tax rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
Lower rates in PRC, net
|
|
|
(9.00
|
)%
|
|
|
(9.00
|
)%
|
|
|
(9.00
|
)%
|
|
|
(9.00
|
)%
|
Accruals in foreign jurisdictions
|
|
|
(2.58
|
)%
|
|
|
3.76
|
%
|
|
|
8.06
|
%
|
|
|
1.92
|
%
|
Tax holiday
|
|
|
(12.50
|
)%
|
|
|
(12.50
|
)%
|
|
|
(12.50
|
)%
|
|
|
(12.50
|
)%
|
Effective tax rate
|
|
|
10.02
|
%
|
|
|
16.26
|
%
|
|
|
20.56
|
%
|
|
|
14.42
|
%
|
Since the Company’s inception,
the age of account receivables have been less than one year indicating that the Company is subject to minimal risk from credit
extended to customers.
The Company is subject to interest
rate risk when its short term loans become due and require refinancing.
|
C.
|
Concentration of demand risk
|
The Company’s top ten customers
accounted for 90.10% and 98.68% of its revenue for the nine months ended September 30, 2011 and 2010, respectively. During those
same periods, four and five individual customers each accounted for greater than 10% of the Company’s revenues, respectively.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
D.
|
Concentration of supply risk
|
The Company’s top ten vendors
accounted for 84.79% and 90.93% of its cost for the nine months ended September 30, 2011 and 2010, respectively. During those same
periods, two and four individual vendors each accounted for greater than 10% of the Company’s purchases, respectively.
|
E.
|
Economic and political risks
|
The Company’s operations
are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced
by changes in the political, economic, and legal environments in the PRC.
The Company’s operations
in the PRC are subject to special considerations and significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign
currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the
PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion,
remittances abroad, and rates and methods of taxation, among other things.
Management monitors changes in
prices levels. Historically inflation has not materially impacted the Company’s financial statements; however, significant
increases in the price of raw materials and labor that cannot be passed on to the Company’s customers could adversely impact
the Company’s results of operations.
|
14.
|
Financial Instruments
|
The Company adopted ASC 820-10,
Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets
and liabilities, and expands disclosures about fair value measurements.
ASC 820-10 includes a fair value
hierarchy that is intended to increase the consistency and comparability in fair value measurements and related disclosures. The
fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable
or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on
market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing an asset or
liability based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level 1–inputs are unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
Level 2–observable inputs
other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3–instrument valuations
are obtained without observable market values and require a high-level of judgment to determine the fair value.
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
The Company’s financial
instruments consist mainly of cash and restricted cash. While the Company believes its valuation methodologies are appropriate
and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different estimate of fair value at the reporting date.
The following tables present
the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10:-
At September 30, 2011:
|
|
Quoted in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,481,513
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,481,513
|
|
Restricted cash
|
|
|
296,016
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,016
|
|
Total financial assets
|
|
$
|
4,777, 529
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,777, 529
|
|
At December 31, 2010:
|
|
Quoted in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,253,976
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,253,976
|
|
Restricted cash
|
|
|
259,228
|
|
|
|
-
|
|
|
|
-
|
|
|
|
259,228
|
|
Total financial assets
|
|
$
|
2,513,204
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,513,204
|
|
In January 2008, the Company
adopted SFAS 159,
the Fair Value Option for Financial Assets and Financial Liabilities
, now known as the provisions of Accounting
Standards Codification subtopic 825-10 (formerly SFAS 159),
Fair Value Option for Financial Assets and Financial Liabilities
,
and has elected not to measure any of our current eligible financial assets or liabilities at fair value. SFAS 159 was issued to
allow entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, SFAS 159 specifies that unrealized gains and losses for that instrument shall
be reported in earnings at each subsequent reporting date. SFAS 159 is effective January 1, 2008. We did not elect the fair
value option for our financial assets and liabilities existing on January 1, 2008, and did not elect the fair value option
for any financial assets or liabilities transacted during the nine months ended September 30, 2011.
|
A.
|
Operating lease commitments
|
The Company leases cars from
the Company’s shareholder, Mr. Xinfeng Nie. The impact to the Company’s results of operations, in the form of lease
expense, for the nine and twelve months ended September 30, 2011 and December 31, 2010, were $40,349 and $13,234, respectively.
The Company’s lease contract with the related party calls for operating lease commitments as follows:
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
For the nine months ending September
30:
Fiscal Years
|
|
Commitments
|
|
2011
|
|
$
|
23,764
|
|
2012
|
|
|
54,146
|
|
2013
|
|
|
54,146
|
|
2014
|
|
|
54,146
|
|
2015
|
|
|
40,610
|
|
|
|
$
|
226,812
|
|
The
Company leases offices from various outside parties. The impact to the Company’s results of operations, in the form of rent
expense, for the nine and twelve months ended
September
30, 2011 and December 31, 2010, were
$38,433 and $13,930, respectively. The Company does not have long term contractual agreements with such outside parties. Lease
contracts are renegotiated individually on a year-to-year basis. The Company’s current lease contracts with the outside parties
call for an operating lease commitment as follows:
For the ninse months ending September
30:
Fiscal Year
|
|
Commitment
|
|
2011
|
|
$
|
10,315
|
|
2012
|
|
|
12,443
|
|
|
|
$
|
22,758
|
|
|
B.
|
Statutory reserve commitment
|
In accordance with PRC laws,
statutory reserve refers to the appropriation from net income, to the account statutory reserve, to be used for future company
development, recovery of losses, and increase of capital, as approved, to expand production or operations. Under the applicable
PRC laws, a PRC enterprise operating at a profit must appropriate, on an annual basis, an amount equal to 10% of its profit until
the reserve reaches 50% of its registered capital. At September 30, 2011, Ding Neng Bio-tech has appropriated sufficient fund to
the statutory reserve account.
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
PRC subsidiaries registered capital
|
|
|
|
|
|
|
-
Ding Neng Bio-tech
|
|
$
|
2,920,298
|
|
|
$
|
953,340
|
|
Statutory reserve ceiling based on 50% of PRC registered capital
|
|
|
1,460,149
|
|
|
|
476,670
|
|
|
|
|
|
|
|
|
|
|
Less: Retained earnings appropriated to statutory reserve
|
|
|
898,271
|
|
|
|
898,271
|
|
Impact of foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
Reserve commitment outstanding
|
|
$
|
561,878
|
|
|
$
|
-
|
|
China Bio-Energy Corp.
Notes to Financial Statements
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
|
|
Three months ended September 30
|
|
|
Nine months ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,715,245
|
|
|
$
|
2,383,803
|
|
|
$
|
2,319,607
|
|
|
$
|
4,779,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Common Stockholders
|
|
$
|
1,715,245
|
|
|
$
|
2,383,803
|
|
|
$
|
2,319,607
|
|
|
$
|
4,779,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Shares of Common Stock
|
|
|
28,766,267
|
|
|
|
27,312,515
|
|
|
|
27,312,515
|
|
|
|
27,312,515
|
|
New Issuance of Common Stock
|
|
|
17,308
|
|
|
|
-
|
|
|
|
857,551
|
|
|
|
-
|
|
Basic Weighted Average Shares Outstanding
|
|
|
28,783,575
|
|
|
|
27,312,515
|
|
|
|
28,170,066
|
|
|
|
27,312,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Weighted Average Shares Outstanding
|
|
|
28,783,575
|
|
|
|
27,312,515
|
|
|
|
28,170,066
|
|
|
|
27,312,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.18
|
|
- Diluted
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
28,783,575
|
|
|
|
27,312,515
|
|
|
|
28,170,066
|
|
|
|
27,312,515
|
|
- Diluted
|
|
|
28,783,575
|
|
|
|
27,312,515
|
|
|
|
28,170,066
|
|
|
|
27,312,515
|
|
The Company granted a total
1,478,752 shares of common stock to consultant firms as compensation for consulting services having a fair market value $2,205,990
for the nine months ended September 30, 2011. This cost was charged to other expense, and credited into common stock and additional
paid in capital. The incorporation of this stock transaction has the impact of decreasing the current year’s net income by
$2,205,990 or $0.08 per share using the weighted average of shares. No U.S. tax is affected since the Company has not repatriated
its earnings to the United States. No tax benefit has yet to be accrued or realized for the nine months ended September 30, 2011.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report on Form 10-Q,
“Company,” "China Bio-Energy" “our company,” “we,” “us,” and “our”
refer to China Bio-Energy Corporation and its subsidiaries unless the context requires otherwise.
The Company's Form
10-K, this and any other Form 10-Q or any Form 8-K of the Company or any other written or oral statements made by or on behalf
of the Company may contain forward-looking statements which reflect the Company's current views with respect to future events and
financial performance. The words "believe," "expect," "anticipate," "intends," "estimate,"
"forecast," "project," and similar expressions identify forward-looking statements. All statements other than
statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans,
strategies and objectives of management for future operations; any statements concerning proposed new products, services, developments
or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements
of assumptions underlying any of the foregoing. Such "forward-looking statements" are subject to risks and uncertainties
set forth from time to time in the Company's SEC reports and include, among others, the Risk Factors set forth under Item 1A below
and in the Company's Form 8-K/A filed on October 14, 2011.
The risks included
herein are not exhaustive. The Company's annual report on Form 10-K, this and other quarterly reports on Form 10-Q, current reports
on Form 8-K and other documents filed with the SEC include additional factors which could impact China Bio-Energy Corporation's
business and financial performance. Moreover, China Bio-Energy Corporation operates in a rapidly changing and competitive environment.
New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. Further, it is
not possible to assess the impact of all risk factors on China Bio-Energy Corporation business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Readers are cautioned not to place undue
reliance on such forward-looking statements as they speak only of the Company's views as of the date the statement was made. The
Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Overview
Based in the city of Zhangzhou, Fujian
Province, China, we are principally engaged in the production, refinement and distribution of biodiesel fuel. We have approximately
106 full-time employees. We operate a biodiesel manufacturing facility in Zhangzhou, the annual aggregate capacity of which has
increased from approximately 20,000 tons in 2009 to approximately 40,000 tons in 2010. Ding Neng Bio-tech believes its rapid growth
in recent years has been supported by the continuing expansion of the market for biodiesel in the People’s Republic of China
(“PRC”). According to China Commodities Daily, this market was forecasted to reach 1 million tons in 2010, which is
20% more than the expected domestic biodiesel production volume in the PRC.
Currently, the raw materials used in our
production of biodiesel are refined animal fats and crude and refined vegetable oils. The multi-feedstock technology employed in
our biodiesel production process enables us to utilize different feedstocks based on availability and price. Ding Neng Bio-tech,
our operating subsidiary in PRC, acquired a 1000mu (approximately 165 acres) Sapindus “mother-tree” plantation located
in Zhejiang Province in 2010. Ding Neng Bio-tech expects to use the “mother-tree” plantation as the foundation for
its intended expansion to a 1,000,000 mu (approximately165,000 acres) Sapindus forest in the next 3-5 years, which, if successful,
is expected to provide one-third of the total feedstock required for its biodiesel production beginning in 2013.
We currently market our products to various
oil companies located in Fujian Province, China. The executive office of the Company is located at Pudong Building, 2nd Floor,
Jiulong Avenue, Longwen District, Zhangzhou City, Fujian Province 363000, China.
The Company, previously known as China
INSOnline Corp., was incorporated on December 23, 1988 as a Delaware corporation. It became a shell company in June 2010 as a result
of winding down all of its operations. Through an acquisition consummated on February 10, 2011, we acquired Ding Neng Holdings
and its principal operating subsidiary, Ding Neng Bio-tech. Ding Neng Holdings, a British Virgin Islands business company, acts
as a holding company and indirectly controls Ding Neng Bio-tech, a variable interest entity in China. Ding Neng Holdings’
sole source of income and operations is through its indirect, contractual control of Ding Neng Bio-tech.
Our post–acquisition organization structure is summarized
below:
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED WITH THREE
MONTHS ENDED SEPTEMBER 30, 2011
|
|
2011
|
|
|
2010
|
|
|
Variance
|
|
Revenue
|
|
|
10,944,633
|
|
|
|
100
|
%
|
|
|
9,852,715
|
|
|
|
100
|
%
|
|
|
1,091,918
|
|
|
|
11
|
%
|
Cost of revenue
|
|
|
8,549,203
|
|
|
|
78
|
%
|
|
|
6,666,967
|
|
|
|
68
|
%
|
|
|
1,882,236
|
|
|
|
28
|
%
|
Gross Profit
|
|
|
2,395,430
|
|
|
|
22
|
%
|
|
|
3,185,748
|
|
|
|
32
|
%
|
|
|
-790,318
|
|
|
|
-25
|
%
|
Selling expenses
|
|
|
180,158
|
|
|
|
2
|
%
|
|
|
11,455
|
|
|
|
0
|
%
|
|
|
168,703
|
|
|
|
1473
|
%
|
General and administrative expenses
|
|
|
327,595
|
|
|
|
3
|
%
|
|
|
326,457
|
|
|
|
3
|
%
|
|
|
1,138
|
|
|
|
0
|
%
|
Operating Income
|
|
|
1,887,677
|
|
|
|
17
|
%
|
|
|
2,847,836
|
|
|
|
29
|
%
|
|
|
-960,159
|
|
|
|
-34
|
%
|
Total other income/(expenses)
|
|
|
18,614
|
|
|
|
0
|
%
|
|
|
-1,025
|
|
|
|
0
|
%
|
|
|
19,639
|
|
|
|
-1916
|
%
|
Income before income taxes
|
|
|
1,906,291
|
|
|
|
17
|
%
|
|
|
2,846,811
|
|
|
|
29
|
%
|
|
|
-940,520
|
|
|
|
-33
|
%
|
Income tax
|
|
|
191,046
|
|
|
|
2
|
%
|
|
|
463,008
|
|
|
|
5
|
%
|
|
|
-271,962
|
|
|
|
-59
|
%
|
Net Income
|
|
|
1,715,245
|
|
|
|
16
|
%
|
|
|
2,383,803
|
|
|
|
24
|
%
|
|
|
-668,558
|
|
|
|
-28
|
%
|
Revenue
China Bio-Energy Corp. total revenue increased
by $1,091,918 or approximately 11%, from $9,852,715 in the three months ended September 30, 2010 to $10,944,633 in the three months
ended September 30, 2011. This increase was primarily attributable to significant increased sales volume of biodiesel. Revenue
from biodiesel in the three months ended September 30, 2011increased by $2,854,488 to $10,835,187, compared to $7,980,699 in the
three months ended September 30, 2010. Biodiesel production contributed 81% of total revenue in the three months ended
September 30, 2010, and 99% for the three months ended September 30, 2011. China Bio-Energy Corp. also introduced
a new product called fatty alcohol in January, 2011. In the three months ended September 30, 2011, revenue from fatty alcohol was
$109,446, or approximately 1% of total revenue.
Cost of Revenue
China Bio-Energy Corp. overall cost of
revenue increased by $1,882,236 or approximately 28% from $6,666,967 in the three months ending September 30, 2010 to $8,549,203
in the three months ending September 30, 2011. This increase was primarily due to increased costs from the significant increase
in revenue. Total biodiesel production cost increased by $3,063,468, or approximately 36%, from $5,400,243 in the three
months ending September 30, 2010 to $8,463,711 in the three months ending September 30, 2011. Although a significant increase in
purchases occurred, China Bio-Energy Corp. was able to benefit from economies of scale in transportation, so freight-in cost remained
stable.
China Bio-Energy Corp. concluded that cost efficiency was
the main factor attributable to its improved production output. Other factors include new techniques and updated processing systems.
Selling Expenses
Selling expenses increased by $168,703
or approximately 1473% to $180,158 for the three months ended September 30, 2011 compared to $11,455 for the same period in 2010. Our
selling expenses were consistent with growth in revenue as we experienced a modest increase in our operating expenses, which was
mainly attributed to an increase in our payroll.
General and Administrative Expenses
China Bio-Energy Corp. total general and
administrative expenses increased by $1,138 or approximately 0.01%, to $327,595 in the three months ended September 30, 2011 from
$326,457 in the three months ended September 30, 2010. This was mainly attributed to an decrease in our administrative
costs.
Net Income
Net income decreased by $668,558 or approximately
28% to $191,046 for the three months ended September 30, 2011 from $463,008 for the three months ended September 30, 2010. The
decrease is primarily due to the decrease of our gross profit.
Liquidity and Capital Resources
Net cash provided from operating activities
was $1,776,342 for the three months ended September 30, 2011, compared to net cash used from operating activities of $290,816 for
the three months ended September 30, 2010.The major components of cash provided in operations were related to decreased operating
net income offset by a decrease in prepaid expense and tax, accounts and other receivables and inventories. Net cash
used in investing activities was $127,938 for the three month period ended September 30, 2011, compared with $1,837,597 for the
three months ended September 30, 2010. The decrease was mainly due to the decrease of return from deposit accounts compared with
prior year.
Net cash used in financing activities was
$710,217 and $303,960 for the three months ended September 30, 2011 and 2010, respectively. Net cash used in financing activities
for three months ended September 30, 2011 represented payments of related party loans. Net cash used in financing activities for
the three months ended September 30, 2010 represented net cash repayments to the related parties and loans from bank borrowing.
We have historically funded our working
capital needs from operations, bank borrowings and capital from stockholders. Presently, our principal sources of liquidity were
generated from our operations and through bank loans. Our working capital requirements are influenced by the level of our operations,
the numerical and dollar volume of our sales contracts, the progress of our contract execution and the timing of accounts receivable
collections.
Based on our current operating plan, we
believe that our existing resources, including cash generated from operations as well as the bank loans, will be sufficient to
meet our working capital requirement for our current operations. In order to fully implement our business plan and continue our
growth, however, we will require additional capital either from our stockholders or from outside sources.
Results of Operations
NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED WITH NINE MONTHS
ENDED SEPTEMBER 30, 2011
|
|
2011
|
|
|
2010
|
|
|
Variance
|
|
Revenue
|
|
|
30,378,570
|
|
|
|
100
|
%
|
|
|
24,641,197
|
|
|
|
100
|
%
|
|
|
5,737,373
|
|
|
|
23
|
%
|
Cost of revenue
|
|
|
23,244,712
|
|
|
|
77
|
%
|
|
|
17,804,186
|
|
|
|
72
|
%
|
|
|
5,440,526
|
|
|
|
31
|
%
|
Gross Profit
|
|
|
7,133,858
|
|
|
|
23
|
%
|
|
|
6,837,011
|
|
|
|
28
|
%
|
|
|
296,847
|
|
|
|
4
|
%
|
Selling expenses
|
|
|
539,073
|
|
|
|
2
|
%
|
|
|
176,309
|
|
|
|
1
|
%
|
|
|
362,764
|
|
|
|
206
|
%
|
General and administrative expenses
|
|
|
1,422,089
|
|
|
|
5
|
%
|
|
|
1,078,284
|
|
|
|
4
|
%
|
|
|
343,805
|
|
|
|
32
|
%
|
Operating Income
|
|
|
5,172,696
|
|
|
|
17
|
%
|
|
|
5,582,418
|
|
|
|
23
|
%
|
|
|
-409,722
|
|
|
|
-7
|
%
|
Total other income/(expenses)
|
|
|
-2,252,755
|
|
|
|
-7
|
%
|
|
|
2,160
|
|
|
|
0
|
%
|
|
|
-2,254,915
|
|
|
|
-104394
|
%
|
Income before income taxes
|
|
|
2,919,941
|
|
|
|
10
|
%
|
|
|
5,584,578
|
|
|
|
23
|
%
|
|
|
-2,664,637
|
|
|
|
-48
|
%
|
Income tax
|
|
|
600,334
|
|
|
|
2
|
%
|
|
|
805,229
|
|
|
|
3
|
%
|
|
|
-204,895
|
|
|
|
-25
|
%
|
Net Income
|
|
|
2,319,607
|
|
|
|
8
|
%
|
|
|
4,779,349
|
|
|
|
19
|
%
|
|
|
-2,459,742
|
|
|
|
-51
|
%
|
Revenue
China Bio-Energy Corp.’s total revenue
increased by $5,737,373 or approximately 23%, from $24,641,197 in the nine months ended September 30, 2010 to $30,378,570 in the
nine months ended September 30, 2011. This increase was primarily attributable to significant increased sales volume of biodiesel.
Revenue from biodiesel in the nine months ended September 30, 2011 increased by $7,515,057 to $27,416,368, compared to $19,901,311
in the nine months ended September 30, 2010. Biodiesel production contributed 90.25% of total revenue in the nine months
ended September 30, 2010 and 95% for the nine months ended September 30, 2011. Crude biodiesel revenue was $2,752,548,
or approximately 9.06% of total revenue in the nine months ended September 30, 2011. The revenue from acidified oil
in the nine months ended September 30, 2011 was $2,956,944, approximately 9.73% of total revenue. China Bio-Energy Corp. also introduced
a new product called fatty alcohol in January, 2011. In the nine months ended September 30, 2011, revenue from fatty alcohol was
$1,149,664, or approximately 3.78% of total revenue.
Cost of Revenue
China Bio-Energy Corp. overall cost of
revenue increased by $5,440,526 or approximately 31% from $17,804,186 in the nine months ending September 30, 2010 to $23,244,712
in the nine months ending September 30, 2011. This increase was primarily due to increased costs from the significant increase
in revenue. Total biodiesel production cost increased by $7,877,315, or approximately 55.55%, from $14,180,848 in the
nine months ending September 30, 2010 to $22,058,163 in the nine months ending September 30, 2011. Although a significant increase
in purchases occurred, China Bio-Energy Corp. was able to benefit from economies of scale in transportation. Our freight-in cost
remained stable.
China Bio-Energy Corp. concluded that cost efficiency was
the main factor attributable to its improved production output. Other factors include new techniques and updated processing systems.
Selling Expenses
Selling expenses increased by $362,764
or approximately 206% to $539,073 for the nine months ended September 30, 2011 compared to $176,309 for the same period in 2010. Our
selling expenses were consistent with growth in revenue as we experienced a modest increase in our operating expenses, which was
mainly attributed to an increase in our payroll.
General and Administrative Expenses
China Bio-Energy Corp. total general and
administrative expenses increased by $343,805 or approximately 32%, to $1,422,089 in the nine months ended September 30, 2011 from
$1,078,284 in the nine months ended September 30, 2010. This was mainly attributed to an increase in our administrative
costs.
Net Income
Net income decreased by $2,459,742 or approximately
51% to $2,319,607 for the nine months ended September 30, 2011 from $4,779,349 for the nine months ended September 30, 2010. The
decrease is primarily due to $2,205,990 of non-operational share compensation cost.
Liquidity and Capital Resources
Net cash provided in operating activities
was $1,240,091 for the nine months ended September 30, 2011, compared to net cash provided from operating activities of $3,238,393
for the nine months ended September 30, 2010. The major components of cash provided in operations were related to decreased operating
net income offset by an increase in accounts and other receivables. Net cash used in investing activities was $215,732
for the nine month period ended September 30, 2011, compared with $614,654 for the nine months ended September 30, 2010. The decrease
was mainly due to additional payments paid for intangible assets purchased and decrease of the return from deposits accounts compared
with the prior period.
Net cash provided by financing activities
was $757,771 for the nine months ended September 31, 2011, compared to net cash used in financing activities of $1,421,411
for the nine months ended September 31, 2010. Net cash provided by financing activities for the nine months ended September 31,
2011 represented capital contributions from shareholders, offset by repayments of related party loans. Net cash used in financing
activities for the nine months ended September 30, 2010 represented net cash repayments to the related parties.
We have historically funded our working
capital needs from operations, bank borrowings and stockholders contribution. Presently, our principal sources of liquidity were
generated from our operations and through bank loans. Our working capital requirements are influenced by the level of our operations,
the numerical and dollar volume of our sales contracts, the progress of our contract execution and the timing of accounts receivable
collections.
Based on our current operating plan, we
believe that our existing resources, including cash generated from operations as well as the bank loans, will be sufficient to
meet our working capital requirement for our current operations. In order to fully implement our business plan and continue our
growth, however, we will require additional capital either from our stockholders or from outside sources.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company is not required
to provide Part I, Item 3 disclosure.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and
Procedures
Our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by
this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures as of the end of the period covered by this report were effective. The design of any system of controls is based
in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions, regardless of how remote. However, management believes that
our system of disclosure controls and procedures is designed to provide a reasonable level of assurance that the objectives of
the system will be met.
b) Changes in Internal Control over Financial Reporting.
During the quarter ended
September
30, 2011
, there was no change in our internal control over financial reporting (as such term is defined
in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Our Chief Executive Officer and Chief
Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional
limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one
or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control.
Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software
controls.
LACK OF AUDIT COMMITTEE
Management is aware that an audit committee
composed of the requisite number of independent members along with a qualified financial expert has not yet been established.
Considering the costs associated with procuring and providing the infrastructure to support an independent audit committee and
the limited number of transactions, management has concluded that the risks associated with the lack of an independent audit committee
are not justified. Management will periodically reevaluate this situation.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither our Company nor any of our officers
or directors is a party to any material legal proceeding or litigation and such persons know of no material legal proceeding or
litigation contemplated or threatened. There are no judgments against the Company or its officers or directors. None of the officers
or directors has been convicted of a felony or misdemeanor relating to securities or performance in corporate office.
ITEM 1A -
Risk
Factors
There have been no material changes for the risk factors disclosed
in the “Risk Factors” section of our current report on Company's Form 8-K/A filed on October 14, 2011, which updated
the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
During the three months ended September
30, 2011, the Company issued 25,000 restricted shares of common stock to Greenstone Holding Group LLC, a New Jersey limited liability
company, as settlement of certain outstanding notes previously issued by the Company to Greenstone. We have issued the above securities
not registered under the Securities Act by reason of the exemption afforded under Section 4(2) of the Securities Act of 1933, within
the last quarter. No underwriting discounts or commissions were paid with respect to any of the transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSUERS
N/A
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
32.1
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
|
|
|
32.2
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
China Bio-Energy Corp.
|
|
|
|
/s/ PokKam Li
|
|
PokKam Li
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
/s/ Ming Yi
|
|
Ming Yi
|
|
Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
|
Dated – September 21, 2012
Wave Sync (CE) (USOTC:WAYS)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
Wave Sync (CE) (USOTC:WAYS)
Gráfica de Acción Histórica
De May 2023 a May 2024