**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, 2010**

**[  ]  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 November 15, 2010, 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

7

Item 2

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

17

Item 3

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4

Controls and Procedures

24

 

** **

 

 

**Part II – Other Information**

 

Item 1

Legal Proceedings

25

Item 2

Unregistered Sales Of Equity Securities And Use Of Proceeds

25

Item 3

Defaults Upon Senior Securities

25

Item 4

Removed and Reserved

25

Item 5

Other Information

25

Item 6

Exhibits

25

 

 

 

 

 

 

2

**PART I – FINANCIAL INFORMATION**

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

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**ITEM 1.  FINANCIAL STATEMENTS**

 

 

 

 

**September 30,**

**2010**

 

**December 31,**

**2009**

 

 

 

 

**(Unaudited)**

 

**(Audited)**

**Assets**

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

      Cash and cash equivalents

 

 

$

51,910

$

116,989

      Accounts receivable

 

 

 

3,334,673

 

3,282,501

      Inventories

 

 

 

294,998

 

66,289

      Amount due from a director

 

 

 

71,676

 

99,957

      Prepaid expenses and other receivables

 

 

 

1,612,697

 

231,883

           Total current assets

 

 

 

5,365,954

 

3,797,619

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

3,048,147

 

3,348,553

Land use rights, net

 

 

 

95,568

 

95,478

Other intangible assets, net

 

 

 

33,384

 

39,198

Deferred tax assets

 

 

 

436,385

 

430,798

 

 

 

 

 

 

 

**          Total assets**

 

 

**$**

**8,979,438**

**$**

**7,711,646**

 

 

 

 

 

 

** **

**Liabilities and stockholders’ equity**

 

 

 

 

 

 

**Liabilities**

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

     Accounts payable

 

 

$

572,933

$

436,505

     Accrued expenses and other payables

 

 

 

4,026,971

 

2,523,943

     Other liabilities

 

 

 

-

 

1,494,300

     Short term debts

 

 

 

574,308

 

230,005

     Taxes payable

 

 

 

1,663,519

 

1,550,172

     Amount due to a director

 

 

 

807,828

 

201,033

 

 

 

 

** **

 

 

**          Total liabilities**

 

 

 

** 7,645,559**

 

**6,435,958**

 

 

 

 

** **

 

 

**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

 

 

 

(879,084)

 

(919,402)

     Accumulated other comprehensive income

 

 

 

280,274

 

262,401

**          Total stockholders’ equity**

 

 

 

** 1,333,879**

 

**1,275,688**

 

 

 

 

** **

 

 

**          Total liabilities and stockholders’ equity**

 

 

**$**

** 8,979,438**

**$**

**7,711,646**

 

 

 

 

 

 

** **

**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**

 

**Nine months ended**

 

 

**September 30,**

 

**September 30,**

 

 

**2010**

 

**2009**

 

**2010**

 

**2009**

 

 

 

 

 

 

 

 

 

**Revenues**

**$**

**1,596,394**

**$**

**4,246,750**

**$**

**2,168,462**

** $**

**10,145,496**

Cost of sales

 

156,861

 

1,445,340

 

360,401

 

2,630,520

     Gross profit

 

1,439,533

 

2,801,410

 

1,808,061

 

7,514,976

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

     Selling and distribution 

 

183,819

 

192,631

 

360,351

 

1,177,596

     General and administrative (inclusive of  depreciation)

 

377,006

 

969,500

 

1,096,023

 

1,552,725

     Impairment loss on property, plant and equipment

 

-

 

-

 

231,754

 

-

Total operating expenses

 

560,825

 

1,162,131 

 

1,688,128

 

2,730,321

 

 

 

 

 

 

 

 

 

Operating profit from continuing operations

 

878,708

 

1,639,279

 

119,933

 

4,784,655

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

     Other expenses

 

(1,098)

 

6

 

(4,201)

 

(3,134)

     Interest expense

 

(14,103)

 

(11,128)

 

(38,430)

 

(82,656)

Total other expenses

 

(15,201)

 

(11,122)

 

(42,631)

 

(85,790)

 

 

 

 

 

 

 

 

 

Income from continuing operations before 

provision for income taxes

 

863,507

 

1,628,157

 

77,302

 

4,698,865

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

36,984

 

431,061

 

36,984

 

1,360,236

 

 

 

 

 

 

 

 

 

**Net income from continuing operations**

 

826,523

 

1,197,096

 

40,318

 

3,338,629

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

     Net loss

 

-

 

(238)

 

-

 

(2,288)

     Gain on disposal of discontinued operations

 

-

 

2,288

 

-

 

2,288

 

 

 

 

 

 

 

 

 

**Net income from discontinued operations**

 

-

 

2,050

 

-

 

-

 

 

 

 

 

 

 

 

 

**Net income for the period**

 $

826,523

 $

1,199,146

 $

40,318

 $

3,338,629

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

    Gain on foreign currency translation

 

11,806

 

15,803

 

17,873

 

14,408

 

 

 

 

 

 

 

 

 

**Total comprehensive income for the period**

**$**

838,329

**$**

1,214,949

$

58,191

$

3,353,037

 

 

 

 

 

 

 

 

 

Earnings per share, 

     basic and diluted – continuing operations

$

0.00

$

0.00

$

0.00

$

0.01

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, 

     basic and diluted

 

300,000,000

 

300,000,000

 

300,000,000

 

300,000,000

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

4

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

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW**

**(UNAUDITED)**

 

**Nine months ended September 30,**

 

 

**2010**

 

**2009**

**Cash flows from operating activities**

 

 

 

 

   Net income from continuing operations

$

 40,318 

$

 3,338,629 

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

 

 

 

 

       Depreciation expense

 

 281,906 

 

 136,445 

       Impairment charges for property, plant and equipment

 

 231,754 

 

 - 

       Deferred tax income

 

 - 

 

 (181,338)

       Amortization expense of land use rights

 

 1,139 

 

 1,130 

       Amortization expense of other intangible assets

 

 6,475 

 

 - 

   Changes in operating assets and liabilities:

 

 

 

 

       Increase in accounts receivable

 

 (52,172)

 

 (5,916,957)

       (Increase)/decrease in inventories

 

 (228,709)

 

 1,051,642 

       (Increase)/decrease in prepaid expenses and other receivables

 

 (1,380,814)

 

 157,706 

       Decrease/(increase) in amount due from a director

 

 28,281 

 

 (70,757)

       Increase in accounts payable

 

 136,428 

 

 222,077 

       Increase in accrued expenses and other payables

 

 1,503,028 

 

 919,163 

       Increase in taxes payable

 

 113,347 

 

 2,931,495 

 

 

 

 

 

       Net cash provided by operating activities – continuing operations

$

 680,981 

$

 2,589,235 

       Net cash used in operating activities – discontinued operations

 

 - 

 

 (247)

 

 

 

 

 

**Net cash provided by operating activities**

$

 680,981 

**$**

 2,588,988 

 

 

 

 

 

**Cash flows from investing activities**

 

 

 

 

   Additions to property, plant and equipment

$

 (173,080)

 

 (493,148)

   Additions to other intangible assets

 

 (205)

 

 - 

 

 

 

 

 

       Net cash used in investing activities – continuing operations

$

 (173,285)

$

 (493,148)

       Net cash used in investing activities – discontinued operations

 

 - 

 

 - 

 

 

 

 

 

**Net cash used in investing activities**

$

 (173,285)

**$**

 (493,148)

 

 

 

 

 

**Cash flows from financing activities**

 

 

 

 

   Decrease in other liabilities

$

 (1,494,300)

 $

 (87,660)

   Increase in amount due to a director

 

 606,795 

 

 - 

   Repayment of a loan from related parties

 

 - 

 

 (993,480)

   Increase/(decrease) in debt

 

 344,303 

 

 (759,720)

   Decrease in amount due to a shareholder

 

 - 

 

 (12,741)

 

 

 

 

 

     Net cash used in financing activities – continuing operations

$

 (543,202)

$

 (1,853,601)

     Net cash provided by financing activities – discontinued operations

 

 - 

 

 - 

 

 

 

 

 

**     Net cash used in financing activities**

**$**

 (543,202)

**$**

 (1,853,601)

 

 

 

 

 

5

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

 

 

 

 

Attributable to continuing operations

$

 (35,506)

$

 242,486 

Attributable to discontinued operations

 

 - 

 

 (247)

 

$

 (35,506)

$

 242,239 

**Effect of foreign exchange rate changes**

 

 

 

 

Attributable to continuing operations

$

 (29,573)

$

 4,565 

Attributable to discontinued operations

 

 - 

 

 - 

 

$

 (29,573)

$

 4,565 

**Cash and cash equivalents at January 1**

 

 

 

 

Attributable to continuing operations

$

 116,989 

$

 6,768 

Attributable to discontinued operations

 

 - 

 

 247 

 

$

 116,989 

$

 7,015 

**Cash and cash equivalents at September 30**

 

 

 

 

Attributable to continuing operations

$

 51,910 

$

 253,819 

Attributable to discontinued operations

 

 - 

 

 - 

 

$

 51,910 

$

 253,819 

 

**Supplement disclosure of cash flows information**:

 

 

 

 

Cash paid for interest

$

 5,310 

$

 49,783 

Cash paid for income taxes

$

 2,224 

$

 - 

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

6

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

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**September 30, 2010**

**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”).

During the nine months ended September 30, 2010 and up to the date of this report, the Company principally engaged in the following operations:

-

Sale of consumer products in the People’s Republic of China (“China” or the “PRC”); 

-

grant regional distribution rights in the PRC using our “GEN+Me” trademark.

As of September 30, 2010, 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 nine months ended September 30, 2010 and 2009 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 

7

financial position as of September 30, 2010, the results of its operations and cash flows for the nine months ended September 30, 2010 and 2009.

The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results for a full year period. 

**NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIE**S

(a)

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of nine 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. 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.  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 

8

that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of September 30, 2010 and 2009, there were no dilutive securities outstanding.

(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:

 

 

September 30,

2010

 

December 31,

2009

 

September 30,

2009

                  

 

 

 

 

 

 

Period/year end RMB : US$ exchange rate

 

 0.1484

 

 0.1465

 

 0.1467

Average yearly RMB : US$ exchange rate            

 

 0.1472

 

 0.1464

 

 0.1461

 

 

 

 

 

 

 

 

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

 

In July 2010, the Financial Accounting Standards Board (“FASB”) issued an accounting standard related to disclosures about the credit quality of financing receivables and the allowance for credit losses. The standard requires greater transparency about an entity’s financing receivables, which include loans, long-term receivables, lease receivables, and other long-term receivables. We are required to adopt this standard effective January 1, 2011 and do not expect this accounting standard to have a material impact on our condensed consolidated financial statements. 

**NOTE 4 – ACCOUNTS RECEIVABLE**

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

 

 

September 30,

2010

 

December 31,

2009

 

 

 

 

 

Beijing Shanghan International Trading Limited (“Beijing Shanghan”)

$

 5,547,186 

$

 5,867,670 

Others

 

 413,675 

 

 5,626 

 

 

 5,960,861 

 

 5,873,296 

Less: Allowance for doubtful accounts

 

 (2,626,188)

 

 (2,590,795)

 

 

 

 

 

Total

$

 3,334,673 

$

 3,282,501 

Beijing Shanghan is a related party as a director of which is also a shareholder of the Company.  It contributed $199,238 and 10,145,496, or equivalent to 9% and 100%, of the Company’s revenues for the nine months ended September 30, 2010 and 2009, respectively. As of the balance sheet dates, the balances are unsecured, interest free and repayable according to terms of trade.

9

**NOTE 5 – INVENTORIES**

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

 

 

 

 

September 30,

2010

 

December 31,

2009

 

 

 

 

 

 

 

Trading inventories

 

 

$

 179,286

$

 40,041

Packing and other materials

 

 

 

 115,712

 

 26,248

Total 

 

 

$

 294,998

$

 66,289

**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:

 

 

September 30,

2010

 

December 31,

2009

 

 

 

 

 

Prepaid expenses

$

 1,363,638

$

 199,454

Other receivables

 

 249,059

 

 32,429

Total 

$

 1,612,697

$

 231,883

Prepaid expenses as of September 30, 2010 include prepaid promotion and advertising expenses of $672,335 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

 

 

September 30,

2010

 

December 31,

2009

At cost:

 

 

 

 

 

 

     Plant

40 years

 

$

 1,391,737 

$

 1,543,298 

     Machinery

15 years

 

 

 178,913 

 

 158,701 

     Motor vehicle

10 years

 

 

 125,790 

 

 106,945 

     Office equipment

5 years

 

 

 180,525 

 

 154,016 

     Leasehold Improvement

2 years

 

 

 445,200 

 

 439,500 

     Construction in progress

N/A

 

 

 1,625,053 

 

 1,604,247 

 

 

 

 

 3,947,218 

 

 4,006,707 

Less: Accumulated depreciation

 

 

 

 (899,071)

 

 (658,154)

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

$

 3,048,147 

$

 3,348,553 

Depreciation expense for the nine months ended September 30, 2010 and 2009 was $ 281,906 and $136,445, respectively. 

10

Impairment charges for property, plant and equipment for the nine months ended September 30, 2010 and 2009 were $231,754 and nil, respectively.

Since the second half of 2009, the Company has commenced a technical advancement program. In the first quarter of 2010, certain machineries, equipment and motor vehicle with net book value of $231,754 in aggregate were removed or abandoned. These assets were fully impaired.

The Company’s plant and construction in progress are restricted to sale as of September 30, 2010 but the restriction has been released subsequent to the balance sheet date.  Details of which have been disclosed in note 12 to the condensed consolidated financial statements.

**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

 

 

 

September 30,

2010

 

December 31,

2009

At cost:

 

 

 

 

 

 

 

     Land use rights

59 – 60 years

 

 

$

 112,829 

$

 111,384 

 

 

 

 

 

 

 

 

Less: Accumulated amortization

 

 

 

 

 (17,261)

 

 (15,906)

Land use rights, net

 

 

 

$

 95,568 

$

 95,478 

Amortization expense of land use rights for the nine months ended September 30, 2010 and 2009 was $1,139 and $1,130, respectively.

The Company’s land use rights are restricted to sale as of September 30, 2010 but the charges have been released subsequent to the balance sheet date.  Details of which have been disclosed in note 12 to the consolidated financial statements.
**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

 

 

 

September 30,

2010

 

December 31,

2009

At cost:

 

 

 

 

 

 

 

     Information systems

5 years

 

 

$

 42,144 

$

 41,605 

 

 

 

 

 

 

 

 

Less: Accumulated amortization

 

 

 

 

 (8,760)

 

 (2,407)

Other intangible assets, net

 

 

 

$

 33,384 

$

 39,198 

Amortization expense of other intangible assets for the nine months ended September 30, 2010 and 2009 was $6,475 and nil, respectively.

11

**NOTE 10 – DEFERRED TAX ASSETS**

As of the balance sheet dates, the components of the Company’s deferred tax assets are summarized as follows:

 

 

September 30,

2010

 

December 31,

2009

Arising from:

 

 

 

 

     Difference in depreciation and amortization

$

 294,069

$

 290,304

     Difference in recognition of expenses between accounting 

         and PRC tax practice (timing differences)

 

 142,316

 

 140,494

 

 

 

 

 

Total 

$

 436,385

$

 430,798

**NOTE 11 – AMOUNT DUE FROM/(TO) DIRECTORS**

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

 

 

 

September 30,

2010

 

December 31,

2009

 

 

 

 

 

Ye Xin Zhang

$

 71,676 

$

 99,957 

 

 

 

 

 

Chen Xing Hua

$

 (807,828)

$

 (201,033)

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.

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 12 – OTHER LIABILITIES**

 

 

September 30,

2010

 

December 31,

2009

 

 

 

 

 

Other liabilities

$

 -

$

 1,494,300

In 2003, the Company was involved in litigation with two local banks in the PRC.

Pursuant to legal opinion, the Court of Anyi Municipal, Jiangxi Province, China (the “Court of Anyi”) ruled in 2003 that the final settlement payable by Jiangxi Jien is RMB12,800,000 (equivalent to $1,888,000 as of September 30, 2010). Meanwhile, Jiangxi Jien’s properties, properties under construction, and land use rights have been restricted to sale until the above debt is fully settled.

Shenzhen Hanhong Investments Limited (“Shenzhen Hanhong”), a related company with common directorship, has provided a guarantee in favor of the Court of Anyi for repayment of the outstanding debt.  Mr. Chen Xing Hua is a common director of the Company and Shenzhen Hanhong. As such, the guarantee granted by Shenzhen Hanhong is a related party transaction.

During the nine months ended September 30, 2010, the Company satisfied the outstanding payment and the litigation was closed. On October 8, 2010, the Court of Anyi released all the restrictions on the Company’s property and land use rights.

12

**NOTE 13 – DEBTS**

The Company’s debts are summarized as follows:

 

 

 

 

 

 

Effective 

interest rate

Outstanding balance

Name of parties

 

Due date

 

Nature

 

September 30,

2010

 

December 31,

2009

 

September 30,

2010

 

December 31,

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Qin Jianguo

 

September, 

2010

 

Unsecured

 

19.1%

 

19.1%

$

232,988

$

230,005

 

 

 

 

 

 

 

 

 

 

 

 

 

Shu Jian

 

December, 

2010

 

Unsecured

 

5.85%

 

Nil

 

192,920

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Shenzhen Datang Hexie 

Investments Limited

 

December, 

2010

 

Unsecured

 

Nil

 

Nil

 

148,400

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Short term debt

 

 

 

 

 

 

 

 

$

574,308

$

230,005

Pursuant to the loan agreement entered into between Jiangxi Jien and Qin Jianguo on September 30, 2005, the total lending amount was RMB3,000,000, repayable in September, 2010. Total interest expense accrued on the borrowing amount is fixed at RMB1,500,000 (equivalent to $222,600 as of September 30, 2010), repayable on the due date and is being accrued over the loan period (please also see footnote 15). Accrued interest expense associated with this debt for the nine months ended September 30, 2010 and 2009 was $33,120 and $32,873, respectively.

Interest expense related to these debts for the nine months ended September 30, 2010 and 2009 was $38,430 and $32,873 respectively.

**NOTE 14 – ACCRUED EXPENSES AND OTHER PAYABLES**

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

 

 

 

 

 

September 30, 2010

 

December 31, 2009

 

 

 

 

 

 

 

Accrued operating expenses

 

 

$

 744,850

$

 70,052

Accrued interest expense – (i)

 

 

 

 227,954

 

 186,788

Deposits received in advance from customers

 

 

 

 1,783,487

 

 380,683

Amount due to Shenzhen Hanhong – (ii)

 

 

 

 452,620

 

 826,600

Other payables – (iii)

 

 

 

 818,060

 

 1,059,820

 

 

 

$

 4,026,971

$

 2,523,943

(i)

Amount mainly represents accrued interest expense for loan from Qin Jianguo (please also see footnote 13). 

(ii)

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.

(iii)

Included in other payable as of September 30, 2010, there is an amount payable for office decoration and expenses in the amount of $445,200 and an amount payable for marketing and promotional expenses of $175,260.  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.

13

**NOTE 15 – TAXES PAYABLE**

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

 

 

 

 

September 30, 2010

 

December 31, 2009

 

 

 

 

 

 

 

Income tax payables

 

 

$

 211,561

$

 208,998

Value added tax payables

 

 

 

 1,354,133

 

 1,252,119

Other tax payables

 

 

 

 97,825

 

 89,055

Total

 

 

$

 1,663,519

$

 1,550,172

**NOTE 16 – 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 September 30, 2010.

**NOTE 17 – 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.

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

 

 

 

 

Nine months ended September 30,

 

 

 

 

2010

 

2009

Revenues from:

 

 

 

 

 

 

    Sale of consumer products

 

 

$

 992,018

$

                      10,145,496

    Regional distribution rights

 

 

 

 1,176,444

 

 -

 

 

 

 

 2,168,462

 

 10,145,496

Segment profit/(loss) from: 

 

 

 

 

 

 

    Sale of consumer products

 

 

 

 (251,461)

 

 5,169,183

    Regional distribution rights

 

 

 

 728,817

 

 -

    Corporate

 

 

 

 (400,054)

 

 (470,318)

 

 

 

 

 77,302

 

 4,698,865

Depreciation and amortization expenses:

 

 

 

 

 

 

    Sale of consumer products

 

 

 

 255,995

 

 137,575

    Regional distribution services

 

 

 

 32,216

 

 -

    Corporate

 

 

 

 1,309

 

 -

 

 

 

 

 289,520

 

 137,575

Segment assets:

 

 

 

 

 

 

    Sale of consumer products

 

 

 

 7,618,715

 

 7,710,833

    Regional distribution services

 

 

 

 1,347,041

 

 -

    Corporate

 

 

 

 13,682

 

 813

 

 

 

 

 8,979,438

 

 7,711,646

Capital expenditure

 

 

 

 

 

 

    Sale of consumer products

 

 

 

 20,084

 

 493,148

    Regional distribution services

 

 

 

 153,201

 

 -

    Corporate

 

 

 

 -

 

 -

 

 

 

 

 173,285

 

 493,148

14

**NOTE 18 – PROVISION FOR INCOME TAXES**

Income tax expense for the nine months ended September 30, 2010 and 2009 is summarized as follows:

 

 

 

 

Nine months ended September 30,

 

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Current – PRC income tax provision

 

 

$

 36,984

$

 1,541,574 

Deferred income tax provision

 

 

 

 -

 

 (181,338)

Total

 

 

$

 36,984

$

 1,360,236 

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

 

 

Nine months ended September 30,

 

 

2010

 

2009

 

 

Amount

%

 

Amount

%

 

 

 

 

 

 

 

Income from continuing operations before provision

      for income taxes

$

 77,302

 

 

 4,698,865

 

 

 

 

 

 

 

 

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

 

 19,326

25.0

 

 1,174,716

25.0

Tax effect of expenses that are not deductible for tax purposes

 

 17,658

22.8

 

 185,520

3.9

Tax effect of tax losses not provided for deferred tax

 

 -

-

 

 -

-

 

 

 

 

 

 

 

Provision for Income Taxes

$

 36,984

47.8

$

 1,360,236

28.9

(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 19 – 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:

 

 

Nine months ended September 30,

 

 

2010

 

2009

Chen Xing Hua

 

 

 

 

    Rental expenses payable for the Company’s office 

     premises in Shenzhen, the PRC

$

 38,245

$

 -

 

 

 

 

 

Shenzhen Hanhong

 

 

 

 

    Consultancy fees

 

 -

 

 470,318

 

 

 

 

 

 

$

 38,245

$

 470,318

Mr. Chen Xing Hua, the director of Shenzhen Hanhong, is also a director of the Company.  Details of which please refer to note 12 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.

15

**NOTE 20 – CONCENTRATION OF RISK**

The Company is exposed to the following concentrations of risk:

 

(a)

Major Customers

Beijing Shanghan International Trading Limited (“Beijing Shanghan”), is a related party as a director of which is also a shareholder of the Company. It contributed approximately 9% and 100% of the Company’s revenues for the nine months ended September 30, 2010 and 2009, respectively.

**NOTE 21 – CAPITAL COMMITMENT**

As of September 30, 2010, the Company’s capital commitment is summarized as follows:

 

 

 

 

2010

 

 

 

 

 

Construction-in-progress:

 

 

 

 

Contracted but not provided for

 

 

$

1,869,840

 

 

 

 

 

**NOTE 22 – 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 September 30, 2010, the Company has accumulated deficits of $879,084, and a negative working capital of $2,279,605.

As of September 30, 2010 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.

**NOTE 23 – SUBSEQUENT EVENTS**

The Company has evaluated for disclosure all subsequent events occurring through November 15, 2010, the date the financial statements were issued and filed with the United States Securities and Exchange Commission.

16

**ITEM 2.**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

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 September 30, 2010 as Compared to Three Months Ended September 30, 2009

 

 

Third quarter

 

Increase/

 

%

 

 

2010

 

2009

 

(decrease)

 

change

 

 

 

 

 

 

 

 

 

Revenue

$

1,596,394 

$

4,246,750

$

(2,650,356)

 

(62.4)

Cost of sales

 

156,861 

 

1,445,340

 

(1,288,479)

 

(89.1)

Gross profit

 

1,439,533 

 

2,801,410

 

(1,361,877)

 

(48.6)

Selling and distribution expenses

 

183,819 

 

192,631

 

(8,812)

 

(4.6)

General and administrative expenses

 

377,006 

 

969,500

 

(592,494)

 

(61.1)

Income before income taxes

 

  863,507 

 

1,628,157

 

(764,650)

 

(47.0)

Provision for income taxes

 

36,984 

 

431,061

 

(394,077)

 

(91.4)

Discontinued operations

 

- 

 

2,050

 

(2,050)

 

(100.0)

Net income

$

826,523 

$

1,199,146

$

(372,623)

 

(31.1)

*Revenues*

Revenue for the third quarter of 2010 amounted to $1,596,394, represents a $2,650,356 or 62.4% decrease when compare to $4,246,750 for the same period last year.  Revenue for the third quarter of 2010 and 2009 are analyzed as follows:

17

 

 

          Third quarter

 

Increase/

 

%

 

 

2010

 

2009

 

(decrease)

 

change

 

 

 

 

 

 

 

 

 

From sale of consumer products

 

419,950

 

4,246,750

 

(3,826,800)

 

(90.1)

From regional distribution rights

 

1,176,444

 

-

 

1,176,444

 

N/A

 

 

1,596,394

 

4,246,750

 

(2,650,356)

 

(62.4)

*(a)*

*Sale of consumer products*

Revenue from this segment drops by 90.1% or $3,826,800 from $4,246,750 for third quarter of 2009 to $419,950 for the same period in 2010.  The significant decrease in sales revenue from sale of consumer products segment was mainly due to the tightening of credit control and the modification of sales strategies to concentrate on the recruitment of regional agents in order to expand our market in different provinces in the PRC. 

*(b)*

*Regional distribution rights*

Since third quarter of 2010, the Company has granted regional distribution rights in Wenzhou and Beijing area, the PRC, to two agents, respectively, for using “GEN+Me” trademark. As of September 30, 2010, our agents have set up 2 shops in Wenzhou and Beijing area, PRC.  We received positive feedbacks from the market, and currently we are planning to recruit new agents to open more shops in the PRC.

Revenue arising from regional distribution rights for the third quarter of 2010 and 2009 amounted to $1,176,444 and nil, respectively. There is no such revenue in the comparative period last year as this is a new business segment since the third quarter of 2010. 

*Cost of sales*

It represents cost of consumer products sold for the distribution segment. The amount decreased significantly from $1,445,340 for the third quarter of 2009 to $156,861 for the same period in 2010. The significant decrease in cost of sales was a result of decrease in sales of consumer products. 

*Gross profit*

Gross profit decreased by $1,361,877, or 48.6 %, from $2,801,410 for the third quarter of 2009 to $1,439,533 for the third quarter of 2010. Gross profit as a percentage of revenue was 90.2% for the third quarter of 2010, representing an increase of 24.2% from 66.0% for the same period last year.  Gross profit margin was mainly driven up by our regional distribution rights operations.

*Selling and distribution expenses*

Selling and distribution expense slightly decrease by 4.6% to $183,819. During the third quarter of 2010, the Company was mainly aimed to improve “GEN+Me” brand image and also to promote of our licensing business

*General and administrative expenses*

General and administrative expenses decreased by $592,494 or 61.1% from $969,500 for the third quarter of 2009 to $377,006 for the third quarter of 2010. The difference mainly represents legal and professional fees of approximately $470,000 incurred in the third quarter last year for a reverse takeover exercise that completed in September 2009.

*Income before income taxes and provision for income taxes*

The Company recorded a pretax income of $863,507 for the third quarter of 2010 and $1,628,157 for the comparative period last year. The decrease in pretax income was mainly due to the decrease in revenues and gross profit. 

18

The provision for income tax for the third quarter of 2010 and 2009 was $36,984 and $431,061, respectively. Effectively tax rate for the third quarter of 2010 was just 4.3%, which is significantly lower than the PRC statutory rate of 25%, as substantial amount of pretax income were absorbed by losses incurred since the fourth quarter of 2009. 

Effective tax rate for the comparative period last year was 26.5%.

*Net income*

We recorded a net income of $826,523 for the third quarter of 2010, as compared to $1,199,146 for the same period in 2009. The decrease in net income was mainly due to the decrease in revenues and gross profit. 

Results of Operations – Nine Months Ended September 30, 2010 as Compared to Nine Months Ended September 30, 2009

 

 

Nine months ended

 

 

 

 

 

 

September 30,

 

Increase/

 

%

 

 

2010

 

2009

 

(decrease)

 

change

 

 

 

 

 

 

 

 

 

Revenue

$

2,168,462 

$

10,145,496

$

(7,977,034)

 

(78.6)

Cost of sales

 

360,401 

 

2,630,520

 

(2,270,119)

 

(86.3)

Gross profit

 

1,808,061 

 

7,514,976

 

(5,706,915)

 

(75.9)

Selling and distribution expenses

 

360,351 

 

1,177,596

 

(817,245)

 

(69.4)

General and administrative expenses (inclusive of impairment charges for property, plant and equipment)

 

1,327,777 

 

1,552,725

 

(224,948)

 

(14.5)

Income before income taxes

 

77,302 

 

4,698,865

 

(4,621,563)

 

(98.4)

Provision for income taxes

 

36,984 

 

1,360,236

 

(1,323,252)

 

(97.3)

Net income

$

40,318 

$

3,338,629

$

(3,298,311)

 

(98.8)

*Revenues*

Revenue for the nine months ended September 30, 2010 amounted to $2,168,462, represents a $7,977,034 or 78.6% decrease when compare to $10,145,496 for the same period last year.  Revenue for the nine months ended September 30, 2010 and 2009 are analyzed as follows:

 

 

Nine months ended September 30,

 

Increase/

 

%

 

 

2010

 

2009

 

(decrease)

 

change

 

 

 

 

 

 

 

 

 

Sale of consumer products

 

992,018

 

10,145,496

 

(9,153,478)

 

(90.2)

Regional distribution rights

 

1,176,444

 

-

 

1,176,444

 

N/A

 

 

2,168,462

 

10,145,496

 

(7,977,034)

 

(78.6)

*(a)*

*Sale of consumer products*

Sales revenue for the nine months ended September 30, 2010 and 2009 was $992,018 and $10,145,496, respectively. Beijing Shanghan, a related party as a director of which is also a shareholder of the Company, contributed approximately 9% and 100% of the Company’s revenues for the nine months ended September 30, 2010 and 2009, respectively. 

For credit risk management, the Company tightened its credit control on sales to Beijing Shanghan, leading to a significant decrease in sales revenue by $9,153,478 or 90.2% when compared to the same period last year.  On the other hand, the Company has modified its sales strategies and has developed new source of revenue, i.e. franchise operations, in order to diversify the concentration of credit risks.

19

As of September 30, 2010, the Company has a gross account receivable from Beijing Shanghan of $5,547,186, and an accumulated allowance of $2,626,188, giving a net receivable of $2,920,998.  Our management is now assessing the recoverability of this account and may further increase the allowance.

*(b)*

*Regional distribution rights*

Revenue arising from the business licensing operations for the nine months ended September 30, 2010 and 2009 amounted to $1,176,444 and nil, respectively. There is no such revenue in the comparative period last year as this is a new business segment since the third quarter of 2010. 

*Cost of sales*

Cost of sales represents cost of consumer products sold. The amount decreased from $2,630,520 for nine months ended September 30, 2009 to $360,401 for the same period in 2010. The decrease in cost of sales was a result of decrease in sales revenue in consumer products. 

*Gross profit*

Gross profit decreased by $5,706,915, or 75.9%, from $7,514,976 for the nine months ended September 30, 2009 to $1,808,061 for the nine months ended September 30, 2010. Gross profit as a percentage of revenue was 83.4% for the nine months of 2010, representing an increase of 9.3% from 74.1% for the same period last year. Gross profit margin was mainly driven up by our regional distribution rights operations.

*Selling and distribution expenses*

Selling expenses for the nine months ended September 30, 2010 and 2009 amounted to $360,351 and $1,177,596, respectively. The decrease in selling and distribution expenses of $817,245 was mainly due to the modification of sales and marketing strategies during the nine months ended September 30, 2010. Currently, we concentrate our resources to improve “GEN+Me” brand image and also to promote our business.

*General and administrative expenses*

General and administrative expenses decreased by $224,948 or 14.5% from $1,552,725 for the nine months ended September 30, 2009 to $1,327,777 for the nine months ended September 30, 2010. The difference mainly represents legal and professional fees of $470,318 incurred in last year for a reverse takeover exercise that completed in September 2009, and offset by an impairment charge of property, plant and equipment of $231,754 during the nine months ended September 30, 2010.

*Income before income taxes and provision for income taxes*

The Company recorded a pretax income of $77,302 for the nine months ended September 30, 2010, compared to $4,698,865 for the comparative period last year. 

Our consumer products segment record a pretax loss of $251,461 for the nine months ended September 30, 2010, compared to a pretax income of $5,169,183 for the comparative period last year. The change was mainly due to the decrease in sales revenue and gross profit.

Our regional distribution rights segment record a pretax income of $728,817 for the nine months ended September 30, 2010. This is a new source of cashflows since the third quarter of 2010.

Tax provision for the nine months ended September 30, 2010 was $36,984, mainly arising from our business licensing operation segment. Effective tax rate was 47.8%, which is significantly higher than the PRC statutory rate of 25%, as the pretax income of business licensing operation segment was offset by the pretax loss of consumer products segment and also corporate expenses.

Tax provision for the nine months ended September 30, 2009 was $1,360,236, mainly arising from our consumer products segment. 

20

*Net income*

We recorded a net income of $40,318 for the nine months ended September 30, 2010, as compared to $3,338,629 for the same period in 2009. The change was mainly due to the decrease in revenues and gross profit.

**Liquidity and Capital Resources**

*Cash and cash equivalents*

As of September 30, 2010, the Company had a total cash and cash equivalents of $51,910 compared to $116,989 as of December 31, 2009. The cash was mainly used to fund our operations. The Company’s cash flows for the nine months ended September 30, 2010 are analyzed as follows:

*Cash Flow from Continuing Operations*

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

$

 680,981 

$

 2,589,235 

Net cash used in investing activities

 

 

 

 (173,285)

 

 (493,148)

Net cash used in financing activities

 

 

 

 (543,202)

 

 (1,853,601)

Net (decrease)/increase in cash and cash equivalents

 

 

$

 (35,506)

$

 242,486 

During the nine months ended September 30, 2010, we had net cash provided by operating activities of $680,981, as compared to a net cash provided by operating activities of $2,589,235 for the same period last year. The decrease in cash inflow from operating activities was primarily due to the decrease in our sales revenue.

Our cash flow used in investing activities for the nine months ended September 30, 2010 amounted to $173,285, mainly represents purchase of equipment and machinery of $173,080, and development of information systems of $205.

Our cash flows used in financing activities for the nine months ended September 30, 2010 amounted to $543,202, as compared to a net cash used in financing activities of $1,853,601 for the same period last year. The difference of $1,310,399 mainly represents the net repayment of various debts of $1,917,194, and an advance from a director of $606,795.

*Working Capital*

As of September 30, 2010, the Company recorded a working capital deficit of $2,279,605, as compared to a deficit of $2,638,339 as of December 31, 2009. The decrease in working capital was mainly due to the modification of sales and marketing strategies since the fourth quarter of 2009.

*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 September 30, 2010, the Company has accumulated deficits of $879,084 and a negative working capital of $2,279,605.

As of September 30, 2010 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 

21

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. 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.  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**

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

22

**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.

 

**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 nine months ended September 30, 2010, 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 

23

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 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 9% of the Company’s revenue and 87.6% of net accounts receivable are contributed by a related party 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.

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**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]**

None.

**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

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**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:  November 15, 2010

/*s/ Ye Xing Zhang*

 

Ye Xing Zhang

 

Chief Executive Officer

 

 

 

Dated:  November 15, 2010

/s/ *Deng Lin*

 

Deng Lin

 

Chief Financial Officer

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