**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 March 31, 2011**

**[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission file number 333-147084**

**CHINA GREEN CREATIVE, INC.**

 (Exact name of registrant as specified in its charter)
|  

 

 

**Nevada**

  

**83-0506099**

(State or other jurisdiction of incorporation or organization)

  

(I.R.S. Employer Identification No.)

 

 

 

**24/F., Unit 3 Great China International Square, No. 1, Fuhua Rd., Futian District, Shenzhen, Guandong Province, China**

  

**n/a**

(Address of principal executive offices)

  

(Zip Code)

**86-755-23998799**

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (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 T  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 £

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 Ruble 12b-2 of the Exchange Act.

 

 

Large accelerated filer   £

Accelerated filer  £

Non-accelerated filer  £ (Do not check if a smaller reporting company)

Smaller reporting company  T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  £ No T 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of March 31, 2011, are as follows: 

 

 

Class of Securities

Shares Outstanding

**Common Stock, $0.001 par value**

**300,000,000 shares**

1

**CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES**

**TABLE OF CONTENTS**

 

 

 

  

**Part I – Financial Information**

 

Item 1

Financial Statements

3

  

Unaudited Condensed Balance Sheets, September 30, 2010 and December 31, 2009

3

  

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2010 and 2009

4

  

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009

5

  

Notes to the Unaudited Condensed Consolidated Financial Statements

6

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3

Quantitative and Qualitative Disclosures about Market Risk

20

Item 4

Controls and Procedures

22

 

** **

 

 

**Part II – Other Information**

 

Item 1

Legal Proceedings

23

Item 2

Unregistered Sales Of Equity Securities And Use Of Proceeds

23

Item 3

Defaults Upon Senior Securities

23

Item 4

Removed and Reserved

23

Item 5

Other Information

23

Item 6

Exhibits

23

 

 

 

 

 

 

2

**PART I – FINANCIAL INFORMATION**

**ITEM 1.  FINANCIAL STATEMENTS**

**CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

 

 

 

March 31,2011

 

December 31,

2010

 

 

 

 

(Unaudited)

 

(Audited)

**Assets**

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

      Cash and cash equivalents

 

 

$

12,859

$

43,895

      Accounts receivable

 

 

 

634,838

 

35,068

      Inventories

 

 

 

474,322

 

533,955

      Amount due from a director

 

 

 

117,969

 

117,845

Prepaid expenses and other receivables

 

 

 

997,131

 

1,073,992

Total current assets

 

 

 

2,237,119

 

1,804,755

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

3,148,401

 

3,144,434

Land use rights, net

 

 

 

97,677

 

97,109

Other intangible assets, net

 

 

 

30,055

 

31,910

 

 

 

 

 

 

 

**Total assets**

 

 

**$**

**5,513,252**

**$**

**5,078,208**

 

 

 

 

 

 

 

**Liabilities and stockholders’ equity**

 

 

 

 

 

 

**Liabilities**

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

 

$

836,042

$

623,930

Accrued expenses and other payables

 

 

 

2,353,252

 

2,250,771

Receipt in advance

 

 

 

1,109,392

 

1,104,597

Short term debts

 

 

 

529,799

 

660,932

Taxes payable

 

 

 

1,787,332

 

1,695,292

Amount due to a director

 

 

 

911,844

 

849,445

 

 

 

 

** **

 

 

**Total liabilities**

 

 

**$**

** 7,527,661**

**$**

** 7,184,967**

 

 

 

 

** **

 

 

**Stockholders’ equity**

 

 

 

** **

 

 

Common stock: Par value $0.001 per share; 400,000,000 shares authorized, 300,000,000 shares issued and outstanding

 

 

 

300,000

 

300,000

Additional paid in capital

 

 

 

1,632,689

 

1,632,689

Accumulated deficits

 

 

 

(4,158,015)

 

(4,270,412)

Accumulated other comprehensive income

 

 

 

210,917

 

230,964

**Total stockholders’ equity**

 

 

**$**

** (2,014,409)**

**$**

** (2,106,759)**

 

 

 

 

** **

 

 

**Total liabilities and stockholders’ equity**

 

 

**$**

** 5,513,252**

**$**

**5,078,208**

 

 

 

 

 

 

** **

**See accompanying notes to condensed consolidated financial statements**

3

**CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**AND COMPREHENSIVE INCOME**

**(UNAUDITED)**

 

 

**Three months ended**

**March 31,**

 

 

**2011**

 

**2010**

 

 

 

 

 

**Revenues**

**$**

**719,183**

**$**

**301,398**

 

 

 

 

 

Cost of sales

 

243,898

 

95,245

 

 

 

 

 

Gross profit

 

475,285

 

206,153

 

 

 

 

 

Expenses

 

 

 

 

Selling and distribution 

 

182,247

 

72,956

General and administrative (inclusive of depreciation)

 

178,824

 

556,271

Impairment loss on property, plant and equipment

 

-

 

231,597

Total operating expenses

 

361,071

 

860,824

 

 

 

 

 

Operating profit/(loss) 

 

114,214

 

(654,671)

 

 

 

 

 

Other expenses

 

 

 

 

Other expenses

 

37

 

2,261

Interest expense

 

1,780

 

11,010

Total other expenses

 

1,817

 

13,271

 

 

 

 

 

Profit/(loss) from operations before provision for income taxes

 

112,397

 

(667,942)

 

 

 

 

 

Provision for income taxes

 

-

 

-

 

 

 

 

 

**Net income/(loss) for the period**

$

112,397

$

(667,942)

 

 

 

 

 

Other comprehensive income

 

 

 

 

(Loss)/gain on foreign currency translation

 

(20,047)

 

2,661

 

 

 

 

 

**Total comprehensive income for the period**

$

92,350

$

(665,281)

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic and diluted 

$

0.00

$

(0.00)

 

 

 

 

 

Weighted average number of shares outstanding, basic and diluted

 

300,000,000

 

300,000,000

**See accompanying notes to condensed consolidated financial statements**

4

**CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES**

** CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 

 

**Three months ended March 31,**

 

 

**2011**

 

**2010**

 

 

 

 

 

**Cash flows from operating activities**

 

 

 

 

Net income/(loss) 

$

112,397

$

(667,942)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation expense

 

35,925

 

109,311

Impairment charges for property, plant and equipment

 

-

 

231,597

Amortization expense of land use rights

 

393

 

379

Amortization expense of other intangible assets

 

2,161

 

2,085

Changes in operating assets and liabilities:

 

 

 

 

(Increase)/decrease in accounts receivable

 

(599,770)

 

304,766

Decrease/(increase) in inventories

 

59,633

 

(90,005)

Decrease/(increase) in prepaid expenses and other receivables

 

76,861

 

(403,228)

Increase in amount due from a director

 

(124)

 

(10,455)

Increase/(decrease) in accounts payable

 

212,112

 

(44,015)

Increase in accrued expenses and other payables

 

102,481

 

718,392

Increase in receipt in advance

 

4,795

 

-

Increase/(decrease) in taxes payable

 

92,040

 

(21,743)

 

 

 

 

 

**Net cash provided by operating activities**

 

98,904

 

129,142

 

 

 

 

 

**Cash flows from investing activities**

 

 

 

 

Additions to property, plant and equipment

$

(8,863)

 

(35,041)

Additions to other intangible assets

 

-

 

(33,069)

 

 

 

 

 

**Net cash used in investing activities**

 

(8,863)

 

(68,110)

 

 

 

 

 

**Cash flows from financing activities**

 

 

 

 

Decrease in other liabilities

$

-

 

(1,200,700)

Increase in amount due to related parties

 

-

 

368,945

Increase/(decrease) in amount due to a director

 

62,399

 

(130,488)

Decrease in other borrowings

 

(131,133)

 

-

Increase in amount due to a shareholder

 

-

 

880,800

 

 

 

 

 

**Net cash used in financing activities**

 

(68,734) 

 

(81,443) 

 

 

 

 

 

**Net increase/(decrease) in cash and cash equivalents**

 

21,307

 

(20,411)

 

 

 

 

 

**Effect of foreign exchange rate changes**

 

(52,343)

 

(4,883)

 

 

 

 

 

**Cash and cash equivalents at January 1**

 

43,895

 

116,989

 

 

 

 

 

**Cash and cash equivalents at March 31**

$

12,859

$

91,695

 

 

 

 

 

Supplement disclosure of cash flows information:

 

 

 

 

Cash paid for interest

$

-

$

-

Cash paid for income taxes

$

-

$

-

**See accompanying notes to condensed consolidated financial statements**

5

**CHINA GREEN CREATIVE, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**March 31, 2011**

*NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES*

China Green Creative, Inc. (“CGC”), a Nevada Corporation, was incorporated on August 17, 2006 under the name of Glance, Inc. On January 21, 2009, we changed our name to China Green Creative, Inc. CGC and its subsidiaries (collectively known as the “Company”) are principally engaged in the distribution of consumer goods in the People’s Republic of China (“China” or the “PRC”).  

As of March 31, 2011, the details of the Company’s subsidiaries are summarized as follows:

Name

 

Domicile and date of incorporation

 

Paid-in capital

 

Effective ownership

 

Principal activities

 

 

 

 

 

 

 

 

 

Plenty Fame Holding, Limited (“Plenty Fame”)

 

British Virgin Islands (the “BVI”)

January 18, 2008

 

$50,000

 

100%

 

Investment holding

 

 

 

 

 

 

 

 

 

Prospect Hong Kong Development Limited (“Prospect”)

 

Hong Kong Special Administrative Region (“HKSAR”)

October 17, 2008

 

HK$10,000

 

100%

 

Investment holding

 

 

 

 

 

 

 

 

 

Jiangxi Jien Industries Limited

 (“Jiangxi Jien”)

 

The PRC 

April 8, 1997

 

RMB16,000,000

 

100%

 

Sale of consumer products in the PRC. 

 

 

 

 

 

 

 

 

 

Shenzhen Jien Electronic Commerce Company Limited (“Shenzhen Jien”)

 

The PRC 

April 13, 2009

 

RMB3,000,000

 

100%

 

Management of regional distribution rights and provision of related services.

 

 

 

 

 

 

 

 

 

*NOTE 2 – PRINCIPLES OF CONSOLIDATION*

The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the three months ended March 31, 2011 and 2010 have been prepared pursuant to the rules & regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading.  All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”), while the reporting currency is the US Dollar.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of March 31, 2011, the results of its operations and cash flows for the three months ended March 31, 2011 and 2010.

The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results for a full year period. 

6

*NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES*

(a)

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  The Company maintains bank accounts in China and Hong Kong.

(b)

Inventories

Inventories consisting of trading goods, packing and other materials are stated at the lower of cost or net realizable value. Inventory costs are calculated using a weighted average method of accounting.

(c)

Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, amount due from/(to) directors, other liabilities, loans from related parties, debts, accounts payable, accrued expenses and other payables, and taxes payable. 

The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. 

  

As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective period ends. 

(d)

Revenue Recognition

We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.

The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable. 

Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)

Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  

(ii)

Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

(e)

Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of March 31, 2011 and 2010, there were no dilutive securities outstanding.

7

(f)

Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the period.  The translation rates are as follows:

 

 

March 31,

2011

 

December 31,

2010

 

March 31,

2010

                  

 

 

 

 

 

 

Period/year end RMB : US$ exchange rate

 

0.1529

 

0.1514

 

0.1468

Average yearly RMB : US$ exchange rate  

 

0.1522

 

0.1477

 

0.1468

 

 

 

 

 

 

 

On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC’s government.

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$ at the rates used in translation.

(g)

Recent Accounting Pronouncements

The Company has adopted all recently issued accounting pronouncements.  The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.

*NOTE 4 – ACCOUNTS RECEIVABLE*

As of the balance sheet dates, the Company’s accounts receivable are summarized as follows:

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

Beijing Shanghan International Trading Limited (“Beijing Shanghan”)

$

5,876,217

$

5,664,885

Others

 

479,631

 

35,068

 

 

6,355,848

 

5,699,953

Less: Allowance for doubtful accounts

 

(5,721,010)

 

(5,664,885)

 

 

 

 

 

Total

$

634,838

$

35,068

 

 

 

 

 

Beijing Shanghan is a related party as a director of which is also a shareholder of the Company.  It contributed 20.84% and 63%, of the Company’s revenues for the three months ended March 31, 2011 and 2010, respectively. As of the balance sheet dates, the balances are unsecured, interest free and repayable according to terms of trade.  The company will assess the collectibilty of accounts receivable on periodic basis and will make allowance for doubtful accounts when the amount receivable is no longer deemed to be collected by the company.

8

*NOTE 5 – INVENTORIES*

As of the balance sheet dates, the Company’s inventories are summarized as follows:

 

 

March 31,

2011

 

December 31, 2010

 

 

 

 

 

Trading inventories

$

125,837

$

314,871

Packing and other materials

 

348,485

 

219,084

 

 

 

 

 

Total 

$

474,322

$

533,955

*NOTE 6 – PREPAID EXPENSES AND OTHER RECEIVABLES*

As of the balance sheet dates, the Company’s prepaid expenses and other receivables are summarized as follows:

 

 

March 31,

2011

 

December 31, 2010

 

 

 

 

 

Prepaid expenses

$

840,793

$

895,646

Other receivables

 

156,338

 

178,346

 

 

 

 

 

Total 

$

997,131

$

1,073,992

Prepaid expenses as of March 31, 2011 include prepaid promotion and advertising expenses of $507,501 to Beijing Shanghan International Cultural Creative Development Company Limited.

The Company evaluates prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company.

*NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET*

Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment in the PRC. As of the balance sheet dates, property, plant and equipment are summarized as follows:

 

Depreciable

lives

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

 

 

At cost:

 

 

 

 

 

 

Plant

40 years

 

$

1,432,175

$

1,418,125

Machinery

15 years

 

 

185,654

 

183,832

Motor vehicle

10 years

 

 

42,397

 

41,981

Office equipment

5 years

 

 

210,043

 

207,983

Leasehold Improvement

2 years

 

 

350,344

 

346,907

Construction in progress

N/A

 

 

1,707,861

 

1,688,058

 

 

 

 

3,928,474

 

3,886,886

 

 

 

 

 

 

 

Less: Accumulated depreciation

 

 

 

(780,073)

 

(742,452)

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

$

3,148,401

$

3,144,434

Depreciation expense for the three months ended March 31, 2011 and 2010 was $35,925 and $109,311, respectively. 

9

Impairment charges for property, plant and equipment for the three months ended March 31, 2011 and 2010 were nil and $231,597, respectively.

*NOTE 8 – LAND USE RIGHTS, NET*

The Company’s land use rights represent the cost of purchasing the rights to use the leasehold land in the PRC for the production facilities of Jiangxi Jien. According to the law of the PRC, the government owns all the land in the PRC. Companies or individuals are only authorized to possess and use the land through land use rights granted by the PRC government.

As of the balance sheet dates, the Company’s land use rights are summarized as follows:

 

Useful lives

 

 

 

March 31,

2011

 

December 31,

 2010

At cost:

 

 

 

 

 

 

 

Land use rights

59 – 60 years

 

 

$

116,250

$

115,109 

 

 

 

 

 

 

 

 

Less: Accumulated amortization

 

 

 

 

(18,573)

 

(18,000)

 

 

 

 

 

 

 

 

Land use rights, net

 

 

 

$

97,677

$

97,109

 

 

 

 

 

 

 

 

Amortization expense of land use rights for the three months ended March 31, 2011 and 2010 was $393 and $379, respectively.

*NOTE 9 – OTHER INTANGIBLE ASSETS, NET*

The Company’s other intangible assets represent cost of setting up information systems for the provision of franchising services. As of the balance sheet dates, the Company’s other intangible assets are summarized as follows:

 

Useful lives

 

 

 

March 31,

2011

 

December 31,

 2010

At cost:

 

 

 

 

 

 

 

Information systems

5 years

 

 

$

43,423

$

42,996

 

 

 

 

 

 

 

 

Less: Accumulated amortization

 

 

 

 

(13,368)

 

(11,086)

 

 

 

 

 

 

 

 

Other intangible assets, net

 

 

 

$

30,055

$

31,910

 

 

 

 

 

 

 

 

Amortization expense of other intangible assets for the three months ended March 30, 2011 and 2010 was $2,161 and $2,085, respectively.

*NOTE 10 – AMOUNT DUE FROM/(TO) DIRECTORS*

As of the balance sheet dates, the Company’s current accounts with the directors are summarized as follows:

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

Ye Xin Zhang

$

117,969

$

117,845

 

 

 

 

 

Chen Xing Hua

$

(911,844)

$

(849,445)

 

The amount due from Mr. Ye Xin Zhang represents temporary advances to the director for the Company’s daily operating expenses.  The balances are unsecured, interest free, and have no fixed terms of repayments.

10

The amount due to Mr. Chen Xing Hua represents temporary advance from the director for the Company’s working capital use. The balance is unsecured, interest free, and has no fixed terms of repayment.

*NOTE 11– DEBTS*

The Company’s debts are summarized as follows:

 

 

 

 

 

 

Effective interest rate

Outstanding balance

Name of parties

 

Due date

 

Nature

 

March 31,

2011

 

December 31,

2010

 

March 31,

2011

 

December 31,

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Qin Jianguo

 

December,

2011

 

Unsecured

 

Nil

 

19.1%

$

232,408

$

230,128

Shu Jian

 

On demand

 

Unsecured

 

5.85%

 

5.85%

 

228,586

 

355,104

Shenzhen Datang Hexie Investments Limited

 

On demand

 

Unsecured

 

Nil

 

Nil

 

68,805

 

75,700

 

 

 

 

 

 

 

 

 

 

 

 

 

Short term debt

 

 

 

 

 

 

 

 

$

529,799

$

660,932

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest expense related to these debts for the three months ended March 31, 2011 and 2010 was $1,780 and $11,010 respectively.

*NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES*

As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:

 

 

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

 

 

Accrued operating expenses

 

 

$

52,264

$

93,901

Accrued interest expense 

 

 

 

239,517

 

235,750

Amount due to Shenzhen Hanhong – (i)

 

 

 

829,062

 

825,933

Other payables – (ii)

 

 

 

1,232,409

 

1,095,187

 

 

 

 

 

 

 

 

 

 

$

2,353,252

$

2,250,771

(i)

The amount mainly represents consultancy fee payable to Shenzhen Hanhong. Shenzhen Hanhong is a related party as Mr. Chen Xing Hua is a common director of the Company and Shenzhen Hanhong. The amount is interest free, unsecured and has no fixed terms of repayment.

(ii)

Included in other payable as of March 31, 2011, there is an amount payable for office decoration and expenses in the amount of $244,640, an amount payable for marketing and promotional expenses of $573,397 and fixed assets payable amounting to $120,791. The remaining balance consists of amounts owed by the Company to various entities that are incurred by the Company outside of the normal course of business operations.  These liabilities and accrued operating expenses are non interest bearing and are payable within one year.

11

*NOTE 13 – RECEIPT IN ADVANCE*

As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:

 

 

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

 

 

Receipt in advance

 

 

$

1,109,392

$

1,104,597

 

 

 

 

 

 

 

Receipt in advance mainly consists of money received from customers for regional distribution rights which are yet to be performed. Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)

Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  

(ii)

Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

*NOTE 14 – TAXES PAYABLE*

As of the balance sheet dates, the Company’s taxes payable are summarized as follows:

 

 

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

 

 

Income tax payables

 

 

$

278,495

$

275,762

Value added tax payables

 

 

 

1,456,858

 

1,276,919

Business sales tax

 

 

 

46,567

 

46,111

Other tax payables

 

 

 

5,412

 

96,500

 

 

 

 

 

 

 

Total

 

 

$

1,787,332

$

1,695,292

 

 

 

 

 

 

 

*NOTE 15 – COMMON STOCK*

As of the balance sheet dates, the Company has authorized 400,000,000 shares $0.001 par value of common stock, of which 300,000,000 shares have been issued and outstanding. The Company has also authorized 10,000,000 shares of preferred class of stock, but no shares have been issued as of March 31, 2011.

*NOTE 16 – SEGMENT REPORTING*

The Company’s reportable segments of business include sale of consumer products and regional distribution rights.  Each of these segments is conducted in a separate corporation and each functions independently of the others. The Company has no sales between segments.

12

Financial information of the Company’s business segments is as follows:

 

 

 

 

Three months ended March 31,

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Revenues from:

 

 

$

 

 

 

Sale of consumer products

 

 

 

719,183

 

301,398

Regional distribution rights

 

 

 

-

 

-

 

 

 

 

719,183

 

301,398

 

 

 

 

 

 

 

Segment profit/(loss) from: 

 

 

 

 

 

 

Sale of consumer products

 

 

 

355,823

 

(535,490)

Regional distribution rights

 

 

 

(163,842)

 

-

Corporate

 

 

 

(79,584)

 

(132,452)

 

 

 

 

112,397

 

(667,942)

 

 

 

 

 

 

 

Depreciation and amortization expenses:

 

 

 

 

 

 

Sale of consumer products

 

 

 

20,501

 

111,775

Regional distribution services

 

 

 

17,978

 

-

Corporate

 

 

 

-

 

-

 

 

 

 

 38,479

 

111,775

 

 

 

 

 

 

 

Segment assets:

 

 

 

 

 

 

Sale of consumer products

 

 

 

3,846,814

 

3,270,905

Regional distribution services

 

 

 

1,665,159

 

1,805,966

Corporate

 

 

 

1,279

 

1,337

 

 

 

 

5,513,252

 

5,078,208

 

 

 

 

 

 

 

Capital expenditure

 

 

 

 

 

 

Sale of consumer products

 

 

 

8,863

 

68,110

Regional distribution services

 

 

 

-

 

-

Corporate

 

 

 

-

 

-

 

 

 

 

8,863

 

68,110

 

 

 

 

 

 

 

*NOTE 17 – PROVISION FOR INCOME TAXES*

Based on management's present assessment, the Company has determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the net operating loss carry-forward as of March 31, 2011 will be realized.  The Company will continue to review this valuation allowance and make adjustments as appropriate.

13

A reconciliation of the expected tax with the actual tax expense is as follows:

 

 

Three months ended March 31,

 

 

2011

 

2010

 

 

Amount

%

 

Amount

%

 

 

 

 

 

 

 

Income from continuing operations before provision for income taxes

$

112,397

 

 

(667,942)

 

 

 

 

 

 

 

 

Expected PRC income tax expense at statutory tax rate of 25%

 

28,099

25.0

 

(166,986)

25.0

Tax effect of tax losses not provided for deferred tax

 

-

-

 

166,986

(25.0)

 

 

 

 

 

 

 

Utilization of tax loss brought forward

 

(28,099)

(25.0)

 

-

-

 

 

 

 

 

 

 

Provision for Income Taxes

$

-

-

$

-

-

(i)

Both Jiangxi Jien and Shenzhen Jien are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC. 

(ii)

Plenty Fame is not subject to tax in accordance with the relevant tax laws and regulations of the BVI. 

(iii)

Prospect did not generate any assessable profits since its incorporation and therefore is not subject to HKSAR tax.

*NOTE 18 – RELATED PARTY TRANSACTIONS*

In addition to the transactions detailed elsewhere in these financial statements, the Company entered into the following significant transactions with related parties:

 

 

 

 

Three months ended March 31,

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Chen Xing Hua

 

 

 

 

 

 

Rental expenses payable for the Company’s office premises in Shenzhen, the PRC

 

 

$

9,598

$

13,886

 

 

 

 

 

 

 

Mr. Chen Xing Hua, the director of Shenzhen Hanhong, is also a director of the Company.  Details of which please refer to note 10 to the consolidated financial statements.

In the opinion of the directors, the above transactions were entered into by the Company in the normal course of business.

*NOTE 19 – CONCENTRATION OF RISK*

The Company is exposed to the following concentrations of risk:

 

Zhang De Jun contributed 62.13% and nil and Beijing Shanghan International Trading Limited (“Beijing Shanghan”), a related party as a director of which is also a shareholder of the Company, contributed 20.84% and 63% of the Company’s revenues for the three months ended March 31, 2011 and 2010, respectively.

14

*NOTE 20 – CAPITAL COMMITMENT*

Capital Commitment:

As of the balance sheet dates, the Company’s capital commitment are summarized as follows:

 

 

March 31,

2011

 

December 31,

 2010

 

 

 

 

 

Construction-in-progress:

 

 

 

 

Contracted but not provided for

$

1,865,650

$

1,856,164

 

 

 

 

 

**NOTE 21 – GOING CONCERN**

Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since the fourth quarter of 2009, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant losses. As of March 31, 2011, the Company has accumulated deficits of $4,158,015, and a negative working capital of $5,290,542. 

As of March 31, 2011 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

15

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report.

**Forward Looking Statements**

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "our company believes," "management believes" and similar language.  These forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Description of Business" and "Management's Discussion and Analysis", including under the heading “– Risk Factors”.  Our actual results may differ materially from results anticipated in these forward-looking statements.  We base our forward-looking statements on information currently available to us, and we assume no obligation to update them.  In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe that such comparisons cannot be relied upon as indicators of future performance.

**Results of Operations**

Results of Operations – Three Months Ended March 31, 2011 as Compared to Three Months Ended March 31, 2010

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

March 31

 

Increase/

 

%

 

 

2011

 

2010

 

(decrease)

 

change

 

 

 

 

 

 

 

 

 

Revenue

$

719,183

$

301,398

$

417,785

 

139

Cost of sales

 

243,898

 

95,245

 

148,653

 

156

Gross profit

 

475,285

 

206,153

 

269,132

 

131

Selling and distribution expenses

 

182,247

 

72,956

 

109,291

 

150

General and administrative expenses

 

178,824

 

787,868

 

(609,044)

 

(77)

Income/(loss) before income taxes

 

112,397

 

(667,942)

 

780,339

 

N/A

Provision for income taxes

 

-

 

-

 

-

 

-

Net income/(loss)

$

112,397

$

(667,942)

$

780,339

 

N/A

*Revenues*

Revenue for the three months ended March 31, 2011 amounted to $719,183, represents a $417,785 or 139% increase when compare to $301,398 for the same period last year.  Revenue for the three months ended March 31, 2011 and 2010 are analyzed as follows:

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

Increase/

 

%

 

 

2011

 

2010

 

(decrease)

 

change

 

 

 

 

 

 

 

 

 

Sale of consumer products

$

719,183

$

301,398

 

417,785

 

139

Regional distribution rights

 

-

 

-

 

-

 

N/A

 

 

 

 

 

 

 

 

 

*(a)*

*Sale of consumer products*

Our sales of consumer products consist of providing herbal teas and beverages, coffees and milk teas, trendy notebook computers, sauces, healthy blend oils and health liquors.  Sales increased by $417,785, or 139%, from $301,398 for the three month period ended March 31, 2010 to $719,183 for the three month period ended March 31, 

16

2011.  The significant increase in sales revenue was mainly due to more efforts to expand our customer base in different provinces in the PRC. 

Since the first quarter of 2010, the Company began to modify its sales strategies and develop somenew distribution channels in order to diversify the concentration of credit risks.  After optimizing the distribution channels and recruiting two major agents in Wenzhou and Beijing areas, the company recorded a significant growth in sales of consumer products in the first quarter of 2011.

*(b)*

*Regional distribution rights*

Since third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark. 

Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)

Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  

(ii)

Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

The receipt in advance met the criteria of initial fee was recognized as revenue in 2010. The continuing management fee will be recognized on a yearly basis. Therefore, no revenue from regional distribution rights is recorded during the first quarter of 2011. 

Currently we are planning to recruit new agents to open more shops and expand the business in the PRC. 

*Cost of sales and gross profit*

Cost of sales increased significantly from $95,245 for the first quater of 2010 to $243,898 for the same period in 2010. The significant increase in cost of sales was a result of decrease in sales of consumer products. 

Gross profit increased by $269,132, or 131 %, from $206,153 for the first quarter of 2010 to $475,285 for the first quarter of 2011. Gross profit as a percentage of revenue was 66.1% for the first quarter of 2011, representing a slight decrease of 2.3% from 68.4% for the same period last year.  The decline in gross profit margin was mainly attributable to the modification of product mix and sales strategies.

*Selling and distribution expenses*

Selling and distribution expenses for the first quarter of 2011 and year 2010 amounted to $182,247 and $72,956, respectively. The increase of $109,291 or 150% was mainly attributable to the modification of the marketing strategy. The increase was in line with the growth of sales of consumer goods, which primarily reflected higher promotion and advertising expenses and the payrolls for recruiting new staffs to expand distribution channels. 

*General and administrative expenses*

General and administrative expenses dropped by $609,044 or 77% from $787,868 for the first quarter of 2010 to $178,824 for the first quarter of 2011. The difference mainly represents impairment loss on property, plant, and equipment of $231,597 incurred in the first quarter last year for certain machineries, equipment and motor vehicle, as well as the implementation of cost saving plan, which led to efficient reduction in professional expenses, payroll and office expenses.

*Income before income taxes and provision for income taxes*

The Company recorded a pretax income of $112,397 for the for the three months ended March 31, 2011, compared to a loss of $667,942 for the comparative period last year. The change was mainly due to the increase in sales revenue and the decrease in administrative expenses.  

17

There was no PRC income tax provision for the first quarter of 2011 as substantial amount of pretax income were absorbed by accumulated losses incurred in previous years.  The Company recorded a loss of $667,942 for the first quarter in 2010, accordingly no PRC income tax provision was provided.  

*Net income*

We recorded a net income of $112,397 for the first quarter of 2011, as compared to a loss of $667,942 for the same period in 2010. The increase in net income mainly resulted from the increase in sales revenue and the decrease in administrative expenses.

*Cash and cash equivalents*

As of March 31, 2011, the Company had a total cash and cash equivalents of $12,859 compared to $43,895 as of December 31, 2010. The cash was mainly used to fund our operations. The Company’s cash flows for the three months ended March 31, 2011 are analyzed as follows:

*Cash Flow from Continuing Operations*

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

$

98,904

$

129,142

Net cash used in investing activities

 

 

 

(8,863)

 

(68,110)

Net cash used in financing activities

 

 

 

(68,734)

 

(81,443)

Net increase/(decrease) in cash and cash equivalents

 

 

$

21,307

$

(20,411)

During the three months ended March 31, 2011, we had net cash provided by operating activities of $98,904, as compared to net cash provided by operating activities of $129,142 for the same period last year. The decrease in cash inflow from operating activities was primarily due to the increase in accounts receivables.  Most of the trade receivables incurred in March 2011 with credit terms of 30 days. 

Our cash flow used in investing activities for the three months ended March 31, 2011 and 2010 amounted to $8,863 and $68,110, respectively. The net cash used in investing activities mainly represents purchase of equipment and machinery during the both period.  There was no major purchase of equipment and machinery incurred in the first quarter of 2011.

Our cash flows used in financing activities for the three months ended March 31, 2011 amounted to $68,734, as compared to a net cash used in financing activities of $81,443 for the same period last year. The difference mainly represents repayment of loans of $131,133 and increase in advance from a director of $62,399.

*Working Capital*

As of March 31, 2011, the Company recorded a working capital deficit of $5,290,542, as compared to a deficit of $5,380,212 as of December 31, 2010. The slight increase in working capital was mainly due to the growth of sales of consumer products in the first quarter of 2010.

*Going Concern*

Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. Since the fourth quarter of 2009, the Company has modified its sales and marketing strategies in order to diversify its concentration of credit risk, leading to a decrease in working capital and incurred significant losses. As of March 31, 2011, the Company has accumulated deficits of $4,158,015, and a negative working capital of $5,290,542.

18

As of March 31, 2011 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.  

**Off-Balance Sheet Transactions**

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, cash flows, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

**Critical Accounting Policies**

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements.

We believe that the following critical accounting policy reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial statements and affect our financial condition and results of operations.

*Revenue Recognition*

We generate revenues mainly from sale of consumer products and also revenue from regional distribution rights.

The Company recognizes trading revenue when products are delivered and customers take ownership and assume risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and selling price is fixed or determinable. 

Revenues from regional distribution rights include initial fees and continuing management fee income. All moneys received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:

(i)

Initial fee income is generally recorded upon completion of admission procedures, when the rights to use the trademarks are granted to the users, and when collectability is reasonably assured.  

(ii)

Continuing management fee income represent regular contractual payments received for the use of the “GEN+Me” trademarks plus our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

**Recent Accounting Pronouncements**

19

The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its condensed consolidated financial statements.

  

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**

We are exposed to various market risks arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and interest rates, which could impact our results of operations and financial position. We do not currently engage in any hedging or other market risk management tools, and we do not enter into derivatives or other financial instruments for trading or speculative purposes.

 

20

**Foreign Currency Exchange Rate Risk**

 

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Chinese Renminbi, could adversely affect our financial results. During the three months ended March 31, 2011, approximately all of our sales are denominated in foreign currencies. We expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby mitigating our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not substantial. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.

 

All of our sales denominated in foreign currencies are denominated in the Chinese Renminbi. Our principal exchange rate risk therefore exists between the U.S. dollar and this currency. Fluctuations from the beginning to the end of any given reporting period result in the re-measurement of our foreign currency-denominated receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other income (expense), net in our combined consolidated financial statements. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.

 

**Interest Rate Risk**

 

Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant. 

 

**Inflation**

 

Inflation has not had a material impact on the Company's business in recent years.

 

**Currency Exchange Fluctuations**

 

All of the Company's revenues are denominated in Chinese Renminbi, while its expenses are denominated primarily in Chinese Renminbi ("RMB"). The value of the RMB-to-U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People's Bank of China, which are set daily based on the previous day's inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the RMB from the United States dollar. At the recent quarterly regular meeting of People's Bank of China, its Currency Policy Committee affirmed the effects of the reform on RMB exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of RMB has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so. 

 

**Concentration of Credit Risk**

 

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from 

21

financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions as described below:

1. Approximately 62.13% of the Company’s revenue and 70.4% of net accounts receivable are contributed by a major agent in the People’s Republic of China (the “PRC”). 

2. Approximately 100% of the Company's revenue is derived from the PRC. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.

3. If the Company is unable to derive any revenues from China, it would have a significant, financially disruptive   effect on normal operations of the Company.

**ITEM 4.  CONTROLS AND PROCEDURES**

Our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures are appropriate and effective. They have evaluated these controls and procedures as of the date of this report on Form 10-Q. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Our management believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also 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; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

22

**PART II.  OTHER INFORMATION**

 

 

**ITEM 1.**

**LEGAL PROCEEDINGS**

None.

 

 

**ITEM 2.**

**UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

 

 

**ITEM 3.**

**DEFAULT UPON SENIOR SECURITIES**

None.

 

 

**ITEM 4.**

**[REMOVED AND RESERVED]**

 

 

**ITEM 5.**

**OTHER INFORMATION**

None.

**ITEM 6.**

**EXHIBITS**

***Exhibits***

Exhibit

Number

Description

31.1

 

Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

 

Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

**CHINA GREEN CREATIVE, INC.**

 

 

Dated:  May 23, 2011

/*s/ Ye Xing Zhang*

 

Ye Xing Zhang

 

Chief Executive Officer

 

 

 

 

Dated:  May 23, 2011

/s/ *Deng Lin*

 

Deng Lin

 

Chief Financial Officer

23 |
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