UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended
May 31,
2009
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _____ to _____
Commission
File Number
000-51755
CHINA RUNJI CEMENT
INC.
(Exact
name of Registrant as specified in its charter)
Delaware
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|
98-0533824
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
Xian
Zhong Town, Han Shan County
Chao Hu City, People’s
Republic of China
(Address
of principal executive offices)
(86) 565
4219871
(Registrant's
telephone number)
Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
o
Accelerated
Filer
o
Non-accelerated
Filer
o
Smaller
Reporting Company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes
o
No
x
State the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: July 15, 2009, 78,832,064 shares.
CHINA RUNJI
CEMENT INC.
Form
10-Q for the period ended May 31, 2009
TABLE
OF CONTENTS
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Page
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PART
I - FINANCIAL INFORMATION
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ITEM
1 - FINANCIAL STATEMENTS
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Consolidated Balance Sheets
as of May 31, 2009
(
Unaudited) and August 31,
2008
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3
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Consolidated Statements of
Operations and Comprehensive
Income
for the three months and nine
months
ended
May 31, 2009 and 2008
(Unaudited)
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4
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Consolidated
Statements of Cash Flows
for
the nine months
ended
May 31, 2009 and 2008 (Unaudited)
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5
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Notes
to Unaudited Consolidated Financial Statements
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6
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ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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12
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ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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16
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ITEM
4 - CONTROLS AND PROCEDURES
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16
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ITEM
4T – INTERNAL CONTROL OVER FINANCIAL REPORTING
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17
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PART
II - OTHER INFORMATION
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ITEM
1 - LEGAL PROCEEDINGS
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17
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ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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17
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ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
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17
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ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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17
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ITEM
5 - OTHER INFORMATION
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17
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ITEM
6 – EXHIBITS
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17
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SIGNATURES
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18
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PART
I - FINANCIAL INFORMATION
ITEM
1 - FINANCIAL STATEMENTS
China
Runji Cement, Inc.
Consolidated
Balance Sheets
(UNAUDITED)
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May
31,
2009
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Aug
31,
2008
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ASSETS
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Current
Assets
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Cash
and cash equivalents
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$
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602,937
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$
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415,031
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Accounts
receivable, net
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6,704,148
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3,099,956
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Advances
(Note 4)
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4,102,873
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3,772,367
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Due
from related parties
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-
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53,516
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Inventory
(Note 3)
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2,807,683
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3,275,570
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Prepaid
expenses and other receivables
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1,036,449
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1,530,022
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Total
Current Assets
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15,254,090
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12,146,462
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Property,
plant and equipment, net (Note 5)
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52,129,773
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51,499,895
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Intangible
Assets & Deferred Charges (Note 6)
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4,492,148
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4,615,689
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Total
Assets
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$
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71,876,011
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$
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68,262,046
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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Current
Liabilities
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Accounts
Payable and accrued liabilities (Note 7)
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$
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19,325,900
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$
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15,629,106
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Short-term
loans (Note 8)
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4,679,680
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438,570
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Long-term
loan-current portion (Note 10)
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710,818
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-
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Due
to Related Parties (S/T, Note 9)
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21,133,272
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27,805,125
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Taxes
payable and other
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91,768
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2,374,042
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Total
Current Liabilities
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45,941,438
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46,246,843
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Long-Term
loan-non current portion
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427,371
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-
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Total
Liabilities
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46,368,809
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46,246,843
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Commitments
and Contingencies (Note 11)
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Stockholders'
Equity
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Preferred
Stock: 20,000,000 shares authorized, $0.0001 par value,
No
shares issued and outstanding
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-
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-
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Common
Stock: 200,000,000 shares authorized, $0.0001 par value,
78,832,064
shares issued and outstanding
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7,883
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7,883
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Additional
paid in capital
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12,327,962
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12,327,962
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Accumulated
other comprehensive income
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2,607,356
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2,595,790
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Retained
earnings
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10,564,001
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7,083,568
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Total
Stockholders' Equity
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25,507,202
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22,015,203
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Total
Liabilities and Stockholders' Equity
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$
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71,876,011
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$
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68,262,046
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The
accompanying notes are an integral part of these unaudited financial
statements.
China
Runji Cement, Inc.
Consolidated
Statement of Operations and Comprehensive Income
(UNAUDITED)
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For
the Three Months Ended
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For
the Nine Months Ended
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May
31,
2009
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May
31,
2008
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May
31,
2009
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May
31,
2008
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Revenue
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$
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15,487,487
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$
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11,681,719
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$
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40,528,647
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$
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27,901,832
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Cost
of goods sold
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15,292,572
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8,819,531
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38,555,892
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21,584,102
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Gross
Profit (Loss)
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194,915
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2,862,188
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1,972,755
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6,317,730
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Operating
Costs and Expenses:
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Selling
expenses
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177,101
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30,697
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336,523
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72,421
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G&A
expenses:
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255,204
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375,996
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1,141,995
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1,019,430
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Depreciation of property,
plant
and equipment
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38,027
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26,572
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113,667
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69,659
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Total
operating costs and expenses
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470,332
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433,265
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1,592,185
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1,161,510
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Income
From Operations
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(275,417
|
)
|
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|
2,428,923
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380,570
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5,156,220
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Interest
income (Expense)
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(72,834
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)
|
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|
(11,569
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)
|
|
|
(108,469
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)
|
|
|
(35,733
|
)
|
Reversal
of allowance for
doubtful
accounts
|
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|
-
|
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-
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-
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-
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Government
subsidies/grants and other
income
(expenses)
|
|
|
1,042,412
|
|
|
|
1,307,788
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3,213,947
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|
|
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1,412,513
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Income
Before Income Taxes
|
|
|
694,161
|
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|
3,725,142
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3,486,048
|
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6,533,000
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Income
taxes expense (benefit)
(Note
12)
|
|
|
(376,825
|
)
|
|
|
1,035,368
|
|
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|
5,615
|
|
|
|
1,559,566
|
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|
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|
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|
|
|
|
|
|
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Net
Income
|
|
$
|
1,070,986
|
|
|
$
|
2,689,774
|
|
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$
|
3,480,433
|
|
|
$
|
4,973,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustment
|
|
|
36,540
|
|
|
|
482,874
|
|
|
|
11,566
|
|
|
|
1,398,816
|
|
Comprehensive
Income
|
|
$
|
1,107,526
|
|
|
$
|
3,172,648
|
|
|
$
|
3,491,999
|
|
|
$
|
6,372,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share - Basic and Diluted
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding - Basic and Diluted
|
|
|
78,832,064
|
|
|
|
78,832,064
|
|
|
|
78,832,064
|
|
|
|
71,031,033
|
|
The
accompanying notes are an integral part of these unaudited financial
statements.
China
Runji Cement, Inc.
Consolidated
Statements of Cash Flows
(UNAUDITED)
|
|
For
the Nine Months Period Ended
|
|
|
|
May
31, 2009
|
|
|
May
31, 2008
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,480,433
|
|
|
$
|
4,973,434
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Reversal
of allowance of doubtful accounts
|
|
|
-
|
|
|
|
(172,409
|
)
|
Amortization
|
|
|
204,599
|
|
|
|
-
|
|
Depreciation
expense
|
|
|
3,141,660
|
|
|
|
2,477,452
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(3,596,842
|
)
|
|
|
1,337,021
|
|
Advances
to suppliers
|
|
|
-
|
|
|
|
(7,426,140
|
)
|
Prepaid
expenses and other receivables
|
|
|
465,324
|
|
|
|
(93,420
|
)
|
Inventory
|
|
|
469,008
|
|
|
|
103,059
|
|
Accounts
payable and accrued liabilities
|
|
|
4,165,604
|
|
|
|
604,018
|
|
Customer
Deposit
|
|
|
(1,001,520
|
)
|
|
|
(210,876
|
)
|
Tax
payable
|
|
|
(2,059,586
|
)
|
|
|
284,799
|
|
Net
cash provided by operating activities
|
|
|
5,268,680
|
|
|
|
1,876,938
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Changes
in due from related parties
|
|
|
53,534
|
|
|
|
14,947
|
|
Cash
paid for intangible assets and deferred expenses
|
|
|
-
|
|
|
|
(136,532
|
)
|
Cash
paid for property, plant and equipment additions
|
|
|
(3,753,924
|
)
|
|
|
(9,688,605
|
)
|
Net
cash used in investing activities
|
|
|
(3,700,390
|
)
|
|
|
(9,810,190
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Short
term loan proceeds (repayment)
|
|
|
4,240,960
|
|
|
|
(1,155,911
|
)
|
Debt
issue cost
|
|
|
(68,377
|
)
|
|
|
|
|
Proceeds
(repayments) of due to related parties
|
|
|
(6,681,365
|
)
|
|
|
8,476,546
|
|
Long
term loan proceeds (repayment)–Current
|
|
|
710,818
|
|
|
|
-
|
|
Long
term loan proceeds (repayment)- Non current
|
|
|
427,371
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
(11,820
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(1,370,593
|
)
|
|
|
7,308,815
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(9,791
|
)
|
|
|
1,398,816
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
187,906
|
|
|
|
774,379
|
|
Cash
and cash equivalents, beginning of year
|
|
|
415,031
|
|
|
|
1,400,479
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
602,937
|
|
|
$
|
2,174,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
41,782
|
|
|
$
|
29,482
|
|
Income
taxes paid
|
|
$
|
1,444,339
|
|
|
$
|
1,431,995
|
|
The
accompanying notes are an integral part of these unaudited financial
statements.
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
The
Company was incorporated as FitMedia Inc., a Delaware corporation, on August 30,
2004.
On
November 1, 2007, the Company closed a reverse merger with Anhui Province Runji
Cement Co., Limited (“Anhui Runji”). Anhui Runji is the accounting acquirer
and the transaction is accounted for as a recapitalization. The historical
financial statements of Anhui Runji survived the merger and are presented
herein.
Anhui
Runji, a producer and distributor of cement located in Anhui Province in
China, was established in December 2003 with registered capital of RMB 60
million yuan. Anhui Runji started production in October 2005 and specializes in
cement production and sales. The main cement varieties produced are ordinary
silicate cement PO52.5, PO42.5, PO32.5 and PC32.5. Following the commencement of
the second cement clinker production line in October 2008, Anhui Runji currently
has one production line of cement and one of cement clinker; each is
designed to produce 2,500 tons per day.
Anhui
Runji obtained its production license in 2005. Presently, Anhui Runji mainly
focuses production on Runji Brand PII52.5, PO42.5, PO32.5 and PC32.5
cements. PII52.5 is a high grade, high strength cement that is made in
Anhui and Jiangsu Provinces and the region of north of the
Changjiang River and is used in large infrastructural projects. Anhui Runji
has a rigorous quality control system and received ISO9001 quality system
certification and international accreditation in March 2006. In addition Anhui
Runji passed the national GB/T 19001-2000 standard authentication.
Presently,
Anhui Runji’s main market is in Hefei city and Pukou area of Nanjing, with
60% of the total annual production sold in this area. An additional 30% of total
annual production is sold in the cities surrounding Hefei and Pukou, with
another 10% being sold in Liu’an and Dingyuan in Anhui and Jiangsu. To reflect
its business and business plan, the Company changed its name from “FitMedia
Inc.” to “China Runji Cement Inc.”
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the August 31, 2008
audited financial statements of the Company and the notes thereto as included in
the Company’s Form 10-K filed on December 3, 2008. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the consolidated financial
statements, which would substantially duplicate the disclosure required in the
Company’s August, 31, 2008 annual financial statements have been
omitted.
These
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Ren Ji Cement Investment Co., Ltd (a
BVI corporation), Ren Ji Cement Company Limited (a Hong Kong
corporation), Mass Market Limited (a BVI corporation), and Anhui Province
Runji Cement Co., Ltd. (a PRC corporation). All have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”).
All
significant inter-company balances and transactions have been eliminated in
consolidation. Certain prior period numbers are reclassified to conform to
current period presentation.
Use
of Estimates
In
preparing these financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance sheets
and revenues and expenses during the year reported. Actual results may differ
from these estimates.
New
Accounting Pronouncements
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“FAS 165”), which
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. FAS 165 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. This
disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements
being presented. FAS 165 is effective for interim and annual periods ending
after June 15, 2009 and will be effective for the Company beginning with its
annual period ending August 31, 2009. Since FAS 165 at most requires additional
disclosures, the Company does not expect the adoption to have a material impact
on its consolidated financial position, results of operations or cash
flows.
In June
2009, the FASB approved the “FASB Accounting Standards Codification” (the
“Codification”) as the single source of authoritative nongovernmental U.S. GAAP
to be launched on July 1, 2009. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in one
place. All existing accounting standard documents will be superseded and all
other accounting literature not included in the Codification will be considered
nonauthoritative. The Codification is effective for interim and annual periods
ending after September 15, 2009. The Codification is effective for the Company
in the interim period ending November 30, 2009 and it does not expect the
adoption to have a material impact on its consolidated financial position,
results of operations or cash flows.
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Government
Subsidies Income and Other Income (Expenses)
A
government subsidy is recognized only when there is reasonable assurance that
the enterprise will comply with any conditions attached to the grant and the
grant will be received.
NOTE
3 – INVENTORY
Inventory
consists of the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
1,633,088
|
|
|
$
|
1,539,946
|
|
Packaging
Materials
|
|
|
36,304
|
|
|
|
51,682
|
|
Semi-Finished
Goods
|
|
|
280,490
|
|
|
|
340,678
|
|
Finished
Goods
|
|
|
844,009
|
|
|
|
962,227
|
|
Supplies
|
|
|
13,792
|
|
|
|
381,037
|
|
|
|
$
|
2,807,683
|
|
|
$
|
3,275,570
|
|
NOTE
4 – ADVANCES TO SUPPLIERS
Advances
to suppliers consist of the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Advances
|
|
$
|
4,102,873
|
|
|
$
|
3,772,367
|
|
Advances
to suppliers represent amounts prepaid for raw materials and construction in
progress, including waste heat power generator project. These advances are
applied against amounts due to suppliers as the materials are
received.
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Building
- Cost
|
|
$
|
27,844,678
|
|
|
$
|
22,270,871
|
|
Building
- Accumulated Depr
|
|
|
(3,077,596
|
)
|
|
|
(2,103,678
|
)
|
Building
- Net
|
|
|
24,767,082
|
|
|
|
20,167,193
|
|
|
|
|
|
|
|
|
|
|
Equipment
& Machinery - Cost
|
|
|
31,151,512
|
|
|
|
18,712,633
|
|
Equipment
& Machinery - Accumulated Depr
|
|
|
(7,728,704
|
)
|
|
|
(5,607,996
|
)
|
Equipment
& Machinery - Net
|
|
|
23,422,808
|
|
|
|
13,104,637
|
|
|
|
|
|
|
|
|
|
|
Automobiles
- Cost
|
|
|
292,962
|
|
|
|
292,862
|
|
Automobiles
– Accumulated Depr
|
|
|
(137,733
|
)
|
|
|
(95,953
|
)
|
Automobiles
- Net
|
|
|
155,229
|
|
|
|
196,909
|
|
|
|
|
|
|
|
|
|
|
Other
Equipment - Cost
|
|
|
30,978
|
|
|
|
56,880
|
|
Other
Equipment - Accumulated Depr
|
|
|
(15,184
|
)
|
|
|
(11,208
|
)
|
Other
Equipment - Net
|
|
|
15,794
|
|
|
|
45,672
|
|
|
|
|
|
|
|
|
|
|
Computer
Equipment - Cost
|
|
|
28,235
|
|
|
|
24,982
|
|
Computer
Equipment - Accumulated Depr
|
|
|
(10,624
|
)
|
|
|
(6,670
|
)
|
Computer
Equipment - Net
|
|
|
17,611
|
|
|
|
18,312
|
|
|
|
|
|
|
|
|
|
|
Total
Fixed Assets - Net
|
|
$
|
48,378,524
|
|
|
$
|
33,532,723
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
3,751,249
|
|
|
|
17,967,172
|
|
|
|
$
|
52,129,773
|
|
|
$
|
51,499,895
|
|
NOTE
6 –INTANGIBLE ASSETS & DEFERRED CHARGES
Intangibles
and deferred charges include the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Mineral
rights-Limestone
|
|
$
|
3,461,330
|
|
|
$
|
2,682,863
|
|
Mineral
rights-Sandstone
|
|
|
231,666
|
|
|
|
1,124,440
|
|
Land
compensation fees (mine forest land requisition fees)
|
|
|
551,673
|
|
|
|
599,671
|
|
Working
area forestation fees
|
|
|
54,232
|
|
|
|
72,980
|
|
Baxiong
Village stone materials requisition expense
|
|
|
16,946
|
|
|
|
18,420
|
|
Baxiong
Limekiln mining area compensation expenses
|
|
|
14,736
|
|
|
|
16,019
|
|
Qiaomai
Village sandstone land compensation expenses
|
|
|
93,188
|
|
|
|
101,296
|
|
Debt
issue cost
|
|
|
68,377
|
|
|
|
-
|
|
|
|
$
|
4,492,148
|
|
|
|
4,615,689
|
|
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 –PAYABLES AND ACCRUED LIABILITIES
Payables
and accrued liabilities consist of the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
11,015,297
|
|
|
|
8,580,607
|
|
Other
Payables
|
|
|
8,284,085
|
|
|
|
7,039,091
|
|
Accrued
liabilities
|
|
|
26,518
|
|
|
|
9,408
|
|
Payables
and accrued liabilities
|
|
$
|
19,325,900
|
|
|
|
15,629,106
|
|
NOTE
8 – SHORT TERM LOANS
Short
term loans consist of the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Xianzong
credit union
|
|
$
|
438,720
|
|
|
$
|
-
|
|
Pudong
Development Bank,Wuhu branch
|
|
|
4,240,960
|
|
|
|
-
|
|
Loan
from Zhongxing Bank
|
|
-
|
|
|
|
438,570
|
|
|
|
$
|
4,679,680
|
|
|
$
|
438,570
|
|
The
details for the Company’s bank loan are as follows:
|
|
|
|
|
|
|
|
|
|
Nine
Months period
May 31, 2009
|
|
Borrowing
bank
|
|
Amount
|
|
Starting
date
|
|
Maturity
date
|
|
Interest
rate (monthly)
|
|
Interest
2009
|
|
|
Interest 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xianzong
credit union
|
|
438,720
|
|
2008-12-27
|
|
2009-12-23
|
|
0.8835%
|
|
|
33,563
|
|
|
|
-
|
|
Pudong
Development Bank,Wuhu branch
|
|
4,240,960
|
|
2009-4-30
|
|
2010-4-30
|
|
0.4425%
|
|
|
18,744
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
52,307
|
|
|
|
-
|
|
At May
31, 2009, both loans are secured by assets of the Company.
NOTE
9 –DUE TO RELATED PARTIES (S/T)
(a) Names
and relationship of related parties
|
Existing relationships with the
Company
|
|
|
Nanjin
Hongren
|
A
company controlled by shareholder
|
|
|
Nanjin
Runji
|
A
company controlled by shareholder
|
|
|
Zhao,
Shouren
|
shareholder
& president & CEO of the Company
|
|
|
Yang,
Xuanjun
|
shareholder
of the Company
|
|
|
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 –DUE TO RELATED
PARTIES (S/T) (CONT.)
(b) Due
to Other Related Parties (S/T) consists of the following:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Nanjin
Hongren
|
|
$
|
12,940,616
|
|
|
$
|
19,117,328
|
|
Nanjin
Runji
|
|
|
7,138,296
|
|
|
|
7,135,856
|
|
Zhao,
Shouren
|
|
|
444,003
|
|
|
|
488,606
|
|
Yang,
Xuanjun
|
|
|
607,075
|
|
|
|
1,060,056
|
|
Miscellaneous
|
|
|
3,282
|
|
|
|
3,279
|
|
|
|
$
|
21,133,272
|
|
|
|
27,805,125
|
|
The above
amounts due to related parties represent loans payable that are unsecured and
non-interest bearing. The loans are due on demand and are used to meet the
Company’s operating needs.
NOTE
10 – LONG-TERM LOAN
The
details for the Company’s long-term loan are as follows:
|
|
May-31-09
|
|
|
Aug-31-08
|
|
|
|
|
|
|
|
|
Long-term
loan – Anhui Yuanzhong (current portion)
|
|
$
|
710,818
|
|
|
$
|
-
|
|
Long-term
loan – Anhui Yuanzhong (None-current portion)
|
|
|
427,371
|
|
|
|
-
|
|
|
|
$
|
1,138,189
|
|
|
$
|
-
|
|
NOTE
11 – COMMITMENTS AND CONTINGECIES
Social
insurance for employees
According
to the prevailing laws and regulations of the PRC, the Company is required to
cover its employees with medical, retirement and unemployment insurance
programs. Management believes that due to the transient nature of its employees,
the Company does not need to provide all employees with such social insurances,
and has paid the social insurances for the Company’s employees who have
completed three months’ continuous employment with the Company.
In the
event that any current or former employee files a complaint with the PRC
government, the Company may be subject to making up the social insurances as
well as administrative fines. As the Company believes that these fines would not
be material, no provision has been made in this regard.
Tax
issues
The tax
authority of the PRC Government conducts periodic and ad hoc tax filing reviews
on business enterprises operating in the PRC after those enterprises had
completed their relevant tax filings, hence the Company’s tax filings may not be
finalized. It is therefore uncertain as to whether the PRC tax authority may
take different views about the Company’s tax filings which may lead to
additional tax liabilities.
CHINA
RUNJI CEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – INCOME TAXES
The
Company‘s Enterprise Income Tax (“EIT”) rate is 25%.
|
|
Nine Months ended
May-31-09
|
|
|
Nine Months ended
May-31-08
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
$
|
5,615
|
|
|
|
1,559,566
|
|
During
2009, the PRC tax authority announced that the government subsidies income is
not subject to income tax, which is a permanent difference between book and tax
income.
NOTE
13 - OPERATING RISK
Country
risk
The
Company has significant investments in the PRC. The operating results of the
Company may be adversely affected by changes in the political and social
conditions in the PRC and by changes in Chinese government policies with respect
to laws and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things. There
can be no assurance; however, those changes in political and other conditions
will not result in any adverse impact.
NOTE
14 – IMPORTANT ASSETS’ MORTGAGE AND GUARANTEE ISSUES
(a) The
Company has renewed its asset mortgage agreement with Nanjing Runji Building
Materials Industrial Ltd., Co. (“Nanjing Runji”) on March 28, 2009. On March 27,
2009, Nanjing Runji has repaid its short term bank loan of USD$1,461,900 with an
interest rate of 7.47% per annum in Nanjing Daxinggong Branch of Bank of
Construction in China commencing on April 30, 2008 and expiring on April 29,
2009. And Nanjing Runji renewed a short term bank loan of USD$1,461,900 with an
interest rate of 5.31% per annum in Nanjing Daxinggong Branch of Bank of
Construction in China commencing on March 28, 2009 and expiring on March 27,
2010. The bank loan was mortgaged by assets of Anhui Province Runji Cement Ltd.,
Co., and the mortgage period is from March 28, 2009 to March 27, 2010. Runji
provided the mortgage to Nanjing Runji Building Materials Industrial Ltd., Co.,
including the principal of USD$1,461,900, interest (including compound interest
and default interest), penalties, claims, and other payments that the debtor
should pay to the mortgage. The mortgage asset list below was decided by Runji’s
management when it provided the mortgage to Nanjing Runji Building Materials
Industrial Ltd., Co.
Mortgage
Asset List
Mortgage
Asset
Name
|
|
Ownership
Certificate
No.
|
|
Location
|
|
Area
or Quantity
|
|
Whether
mortgaged for other debts
|
|
Notes
|
Land
Use Right
|
|
Han
State (2005) No. 083
|
|
Xianzhong
Town, Hanshan County,
Anhui
Province
|
|
64,051.6
square meters
|
|
No
|
|
Total
original area
278,691
square meters
|
House
|
|
Real
Estate Property Zi Guan
No.
06001650
|
|
Runji
Cement Factory Area
|
|
8,690.21
square meters
|
|
No
|
|
|
House
|
|
Real
Estate Property Right
Zi
Guan
No.
06001652
|
|
Runji
Cement Factory Area
|
|
3,258.63
square meters
|
|
No
|
|
|
(b) The
Company renewed a credit guaranty agreement with Nanjing Runji Building
Materials Industrial Ltd., Co. (“Nanjing Runji”) on March 31, 2009. On March 30,
2009, Nanjing Runji has repaid its one-year short term bank loan of
USD$2,923,763 with an interest rate of 7.47% per annum from Daxinggong Branch of
Bank of Construction in China commencing on March 31, 2008 and expiring on March
30, 2009. And Nanjing Runji renewed its one-year short term bank loan of
USD$2,923,763 with an interest rate of 5.31% per annum from Daxinggong Branch of
Bank of Construction in China commencing on March 31, 2009 and expiring on March
30, 2010. Runji Cement provided credit guaranty to Nanjing Runji Building
Materials Industrial Ltd., Co. The guaranty period is from March 31, 2009 until
the maturity of the bank loan two years thereafter. The credit guaranty includes
the principal of USD$2,923,763, interest (including compound interest and
default interest), penalties, claims, and other payments that the debtor should
pay to the mortgage.
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
DESCRIPTION OF BUSINESS
Introduction
China
Runji was incorporated as FitMedia Inc., a Delaware company, on August 30, 2004.
FitMedia was a development stage company that planned to sell prenatal yoga DVDs
through small retail stores and others and it also planned to sell its fitness
DVDs through its Internet site
www.fitmedia.net
. It
completed its prenatal yoga DVD for sale and began marketing it in January
2007.
In
October 2007, the management of FitMedia determined that it was in the best
interests of the stockholders of FitMedia to agree to a share exchange with
Anhui Province Runji Cement Co., Limited, a Chinese company that is engaged in
the business of distributing cement across many provinces in mainland
China. As part of the share exchange and reverse merger, FitMedia
ceased engaging in the health and fitness business.
On
October 9, 2007, FitMedia entered into a Share Exchange Agreement
(the “Exchange Agreement”) by and among FitMedia, Timothy Crottey, the President
and majority shareholder of FitMedia (“Crottey”), Shouren Zhao, a citizen and
resident of the People’s Republic of China and owner of 100% of the share
capital of Ren Ji Cement Investment Company Limited (“Zhao”); Ren Ji Cement
Investment Company., Ltd., a British Virgin Islands corporation (“Renji
Investment”) and owner of 100% of the share capital of Ren Ji Cement Company
Limited; Ren Ji Cement Company Limited, a corporation organized and existing
under the laws of the Hong Kong SAR of the People’s Republic of China (“HK
Renji”) and owner of 100% of the share capital of Anhui Province Runji Cement
Co., Ltd.; and Anhui Province Runji Cement Co., Ltd., a corporation organized
under the laws of the People’s Republic of China (“Anhui Runji”). For
purposes of the Exchange Agreement, Zhao was referred to as the “Ren
Shareholder,” and Renji Investment, HK Renji and Anhui Runji were referred to as
the “Renji Subsidiaries.” Upon closing of the share exchange
transaction (the “Share Exchange”) contemplated under the Exchange Agreement on
November 1, 2007, the Ren Shareholder transferred all of his share capital in
Renji Investment to FitMedia in exchange for
an aggregate of 55,000,000 shares of
common stock of the FitMedia, thus causing the Renji Subsidiaries to become
direct and indirect wholly-owned subsidiaries of FitMedia.
On
October 9, 2007, FitMedia entered into a Stock Purchase Agreement (the “Stock
Purchase Agreement”) by and among FitMedia, Crottey, and the Ren Shareholder,
pursuant to which the Ren Shareholder, as Purchaser, at closing on November 1,
2007, acquired 18,500,000 shares (the “Stock Purchase”) of common stock of
FitMedia from Crottey for $540,000.00.
In
addition, pursuant to the terms and conditions of the Exchange
Agreement:
·
|
Demand
and piggy-back registration rights were granted to the Ren Shareholder
with respect to shares of the Company’s restricted common stock to be
acquired by him at closing in a Regulation S
offering.
|
·
|
On
the Closing Date, the current officers of FitMedia resigned from such
positions and the persons chosen by Anhui Runji were appointed as the
officers of FitMedia, notably Shouren Zhao, as Chairman, CEO and President
and Yichun Jiang as CFO.
|
·
|
On
the Closing Date, Crottey resigned from his position as a director
effective upon the expiration of the ten day notice period required by
Rule 14f-1, at which time additional persons designated by Anhui Runji
were appointed as directors of FitMedia, notably Liming Bi and Xuanjun
Yang.
|
·
|
On
the Closing Date, FitMedia paid and satisfied all of its “liabilities” as
such term is defined by U.S. GAAP as of the
closing.
|
·
|
As
of the Closing, the parties consummated the transactions contemplated by
the Stock Purchase Agreement.
|
On
January 8, 2008, FitMedia changed its name to China Runji Cement Inc. and
increased its authorized common stock from 80,000,000 shares to 200,000,000
shares.
As a
result of the closing of the Share Exchange, China Runji became the owner of a
leading cement production and distribution company in mainland China through its
ownership of Anhui Runji. Using cost effective production techniques, while
building a strong brand image, Anhui Runji is a strong competitor in the central
China cement market.
Anhui
Runji is a producer and distributor of cement, primarily in An Hui Province of
central China and neighboring locations, which was founded in December
2003. Its initial capital was 60,000,000 RMB and there were two
founding shareholders who owned such capital in a ratio of 60 to
40%. Anhui Runji is located in Xianzong Town, Hanshan County, An Hui
Province, where the factory occupies an area of 418 mu, and its limestone mine
comprises an area of 1,000 mu. The Anhui Runji factory, limestone
reserve and storing mine together comprise an area of approximately 50,000
square meters.
Summary
of the Operations of Anhui Runji
Anhui
Province Runji Cement Co., Limited (
www.chinarunji.com
),
a private company located in Anhui Province in China, was established in
December 2003 with registered capital of 60 million RMB. The Company
started production in October 2005 and specializes in cement production and
sales. The main cement varieties produced are ordinary silicate cement P.O52.5,
P.O42.5, P.O32.5 and P.C32.5. At present, the Company has one cement production
line and one cement clinker production line. The production capacity of each
line amounts to 2,500 tons per day and one million tons per year.
The
Company obtained its production license in 2005. Presently, the Company mainly
focuses production on Runji Brand cement P.II52.5, P.O42.5, P.O32.5 P.C32.5 as
well as cement clinker. P.II52.5 is a high grade, high strength
cement that is made for Anhui and Jiangsu Provinces and the region north of the
Changjiang River and is used in large infrastructure projects. The cement
clinker is the semi-finished ingredient of cement, which is able to be processed
into different categories of cement products.
The
Company produces cement through the advanced dry production process, an energy
efficient and environmentally friendly cement production technique, as only 60%
of the total output in the region is produced by dry process. The Company has a
rigorous quality control system and received ISO9001 quality system
certification and international accreditation in March 2006. In
addition, our Company passed the national GB/T 19001-2000 standard
authentication. The Company’s pollution control exceeds the national standard
and received “green building material” certification in 2007.
The
Company has an abundant supply of high quality raw materials. The Company has
obtained a 30 year mining right for 87 million tons of limestone reserve, which
can supply two cement clinker production lines with a daily output of 2,500 tons
for 40 years.
Presently,
the Company is one of the largest cement producers and distributors in the north
Changjiang region of Anhui, with a 12% market share within a 100 mile radius of
its facility. The Company is the only producer of P.II52.5 cement (the highest
quality cement) in the north Changjiang region of Anhui and Jiangsu Provinces,
with 70% market share within a 100 miles radius of its facility. The Company’s
main market is in Hefei and Pukou (Nanjing), with total sales of 600,000 tons in
the area, representing 60% of our total annual production of one million tons.
An additional 30% of total annual production is sold in the cities surrounding
Hefei and Pukou, with another 10% being sold in Liu’an and Dingyuan in
Anhui and Jiangsu.
The
Company’s net sales to customers for the three months ended May 31, 2009 and
2008, were $15,487,487 and $11,681,719, respectively.
Anhui
Runji’s Plan of Operation
·
|
We
plan to raise adequate capital over the next five years for expansion and
growth.
|
·
|
We
have invested over USD$50 million to build up one cement production line
with daily production of 2,500 tons and one cement clinker production line
with daily production of 2,500 tons. The newly invested cement clinker
production line was put into production in October
2008.
|
·
|
We
plan to complete the investment of USD$10 million to establish a waste
heat power generator system to convert waste heat into electricity in
early 2010, which is expected to save about USD$4.6 million per year in
electricity costs. After the completion of the generator system, we will
significantly improve our margins and reduce reliance on outside power
sources.
|
·
|
We
plan to construct a third production line in late 2009, which will have a
daily cement clinker production capacity of 5,000 tons or 1.5 million tons
annually, respectively. Upon completion, our total cement production
capacity will reach 3.6 million tons per year, and cement clinker
production will reach 3 million tons per year, controlling 30% of the
market share within a 100 miles radius of our production
facility.
|
RESULTS OF OPERATIONS FOR
THE THREE AND NINE MONTHS ENDED MAY 31, 2009 AND 2008
The
following discussion should be read in conjunction with the financial statements
included in this report and is qualified in its entirety by the
foregoing.
FORWARD
LOOKING STATEMENTS
Certain
statements in this report, including statements of our expectations, intentions,
plans and beliefs, including those contained in or implied by "Management's
Discussion and Analysis" and the Notes to Financial Statements, are
"forward-looking statements", within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
subject to certain events, risks and uncertainties that may be outside our
control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. We undertake no obligation to
update or revise any forward-looking statements. These forward-looking
statements include statements of management's plans and objectives for our
future operations and statements of future economic performance, information
regarding our expansion and possible results from expansion, our expected
growth, our capital budget and future capital requirements, the availability of
funds and our ability to meet future capital needs, the realization of our
deferred tax assets, and the assumptions described in this report underlying
such forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements.
Revenues
We
generated all of our revenue by selling primarily cement products.
|
For
the Three Months Ended
|
|
For
the Nine Months Ended
|
|
|
May
31, 2009
|
|
May
31, 2008
|
|
Difference
|
|
May
31, 2009
|
|
May
31, 2008
|
|
Difference
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
15,487,487
|
|
$
|
11,681,719
|
|
$
|
3,805,768
|
|
$
|
40,528,647
|
|
$
|
27,901,832
|
|
$
|
12,626,815
|
|
cement
|
|
7,374,466
|
|
|
9,452,639
|
|
|
(2,078,173
|
)
|
|
24,777,907
|
|
|
22,577,665
|
|
|
2,200,242
|
|
cement
clinker
|
|
8,113,021
|
|
|
2,229,080
|
|
|
5,883,941
|
|
|
15,750,740
|
|
|
5,324,167
|
|
|
10,426,573
|
|
Revenues
increased by $3,805,768 or 33% to $15,487,487 for the three months ended
May 31, 2009 from $11,681,719 for the same corresponding period in 2008.
The sales revenue of the cement clinker increased $5,883,941, which is primarily
the result of increased sales volume from cement clinker produced by the
second production line.
Revenues
increased by $12,626,815 or 45% to $40,528,647 for the nine months ended
May 31, 2009 from $27,901,832 for the same corresponding period in 2008, in
which the sales revenue of cement clinker increased $10,426,573, which is mainly
the result of increased cement clinker production from the second production
line, since the sales revenue of cement clinker increased along with cement
sales.
Cost
of Goods Sold
|
For
the Three Months Ended
|
|
For
the Nine Months Ended
|
|
|
May
31, 2009
|
|
May
31, 2008
|
|
Difference
|
|
May
31, 2008
|
|
May
31, 2009
|
|
Difference
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
$
|
15,292,572
|
|
$
|
8,819,531
|
|
$
|
6,473,041
|
|
$
|
38,555,892
|
|
$
|
21,584,102
|
|
$
|
16,971,790
|
|
cement
|
|
7,859,346
|
|
|
6,392,404
|
|
|
1,466,942
|
|
|
22,717,675
|
|
|
16,061,888
|
|
|
6,655,787
|
|
cement
clinker
|
|
7,433,226
|
|
|
2,427,127
|
|
|
5,006,099
|
|
|
15,838,217
|
|
|
5,522,214
|
|
|
10,316,003
|
|
Our cost
of goods sold for the three months ended May 31, 2009 was $15,292,572,
compared to $8,819,531 for the same corresponding period in 2008, an increase of
$6,473,041 or approximately 73%. Our cost of goods sold for the nine months
ended May 31, 2009 was $38,555,892, compared to $21,584,102 for the same
corresponding period in 2008, an increase of $16,971,790 or approximately 79%.
For the nine months ended May 31, 2009, our cost of goods increased 78.7% when
the sales revenue increased 45%, which is mainly the result of the increased
costs after the second production line was put into production, the heavy
rainfall in An Hui province in January 2009 that influenced our normal
production, production equipment maintenance, and insufficient production
capacity with fixed costs unchanged, which resulted in increased unit
costs.
Gross
Profit
|
For
the Three Months Ended
|
|
For
the Nine Months Ended
|
|
|
May
31, 2009
|
|
May
31, 2008
|
|
Difference
|
|
May
31, 2009
|
|
May
31, 2008
|
|
Difference
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
$
|
194,915
|
|
$
|
2,862,188
|
|
$
|
(2,667,273
|
)
|
$
|
1,972,755
|
|
$
|
6,317,730
|
|
$
|
(4,344,975
|
)
|
cement
|
|
(484,880
|
)
|
|
3,060,235
|
|
|
(3,545,115
|
)
|
|
2,060,232
|
|
|
6,515,777
|
|
|
(4,455,545
|
)
|
cement
clinker
|
|
679,795
|
|
|
(198,047
|
)
|
|
877,842
|
|
|
(87,477
|
)
|
|
(198,047
|
)
|
|
110,570
|
|
Our gross
profit decreased by $2,667,273 to $194,915 for the three months ended
May 31, 2009 from $2,862,188 for the same period in 2008. Our gross profit
decreased by $4,344,975 to $1,972,755 for the nine months ended May 31, 2009
from $6,317,730 for the same period in 2008, which is mainly the result of the
adjustment and testing costs of the second production line and increased
depreciation in unit production cost because of running under full production
capacity. Furthermore, intense market pricing competition forced us to
decrease prices to maintain existing clients and market share.
Operating
Expenses
Total
operating expenses for the three months ended May 31, 2009 was $470,332,
compared to $433,265 for the same period in 2008, an increase of $37,067 or
approximately 9%.
Total
operating expenses for the nine months ended May 31, 2009 was $1,592,185,
compared to $1,161,510 for the same period in 2008, an increase of $430,675 or
approximately 37%.
The
increase was mainly the result of the operation of the second production
line and higher marketing expenses.
Interest
Expenses
Our
interest expense for
the three months ended
May 31, 2009 and 2008 was $72,834 and $11,569. Our interest
expense for the nine months ended May 31, 2009 and May 31, 2008 was $108,469 and
$35,733, respectively, which is mainly the result of increased interest from the
short term loan of $4,679,680 and long term loan of $1,138,189 in this
quarter.
Government
Subsidies Income and Other Income (Expenses)
The
government subsidies income and other income (expenses) increased by $1,801,434
to $3,213,947 for
the nine months ended
May 31, 2009 from $1,412,513 for the same period in 2008. The
increase in other income was mainly the result of a tax refund from the Chinese
government in 2009.
Liquidity
and Capital Resources
Net cash
flows provided by operating activities for the nine months ended May 31,
2009 and May 31, 2008 were $5,268,680 and $1,876,938, respectively, which
is mainly the result of decreased receivables and increased
payables.
Net cash
flows used in investing activities for the nine months ended May 31, 2009
and May 31, 2008 were $(3,700,390) and $(9,810,190), which is mainly the
result of a reduction in the purchase of fixed assets.
Net cash
flows provided by (used in) financing activities for the nine months ended May
31, 2009 and May 31, 2008 were $(1,370,593) and $7,308,815, respectively,
which is mainly the result of the repayment of a loan from a related
party.
Overall,
we have funded most of our cash needs from inception through May 31, 2009
with operating activities and loans from related parties.
On
May 31, 2009, we had cash and cash equivalents of $602,937 on hand. We
anticipate raising funds through an equity or debt offering or with a strategic
partner in the coming year.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of the Company’s financial condition presented in this
section are based upon the unaudited consolidated financial statements of China
Runji Cement Inc., which have been prepared in accordance with the generally
accepted accounting principles in the United States. During the
preparation of the financial statements China Runji Cement Inc. is required to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, China Runji Cement Inc. evaluates
its estimates and judgments, including those related to sales, returns, pricing
concessions, bad debts, inventories, investments, fixed assets, intangible
assets, income taxes and other contingencies. China Runji Cement Inc. bases its
estimates on historical experience and on various other assumptions that it
believes are reasonable under current conditions. Actual results may
differ from these estimates under different assumptions or
conditions.
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policy,” China Runji Cement Inc. identified
the most critical accounting principles upon which its financial status depends.
China Runji Cement Inc. determined that those critical accounting
principles are related to the use of estimates, inventory valuation, revenue
recognition, income tax and impairment of intangibles and other long-lived
assets. China Runji Cement Inc. presents these accounting policies in the
relevant sections in this management’s discussion and analysis, including the
Recently Issued Accounting Pronouncements discussed below.
Revenue Recognition
. China
Runji Cement Inc. recognizes sales when the revenue is realized or realizable,
and has been earned, in accordance with SEC Staff Accounting Bulletin No. 104,
“Revenue Recognition in Financial Statements”. China Runji Cement Inc.’ sales
are related to sales of product. Revenue for product sales is recognized as risk
and title to the product transfer to the customer, which usually occurs at the
time shipment is made. Substantially all of China Runji Cement Inc.’ products
are sold FOB (“free on board”) shipping point. Title to the product passes when
the product is delivered to the freight carrier.
Sales
revenue represents the invoiced value of goods, net of a value-added tax (VAT).
All of China Runji Cement Inc.’s products that are sold in the China are
subject to a Chinese value-added tax at a rate of 17% of the gross sales price
or at a rate approved by the Chinese local government. This VAT may be
offset by VAT paid by China Runji Cement Inc. on raw materials and other
materials included in the cost of producing their finished product.
A
ccounts Receivable, Trade and
Allowance for Doubtful Accounts.
China Runji Cement Inc.’ business
operations are conducted in the People's Republic of China. During the normal
course of business, China Runji Cement Inc. extends unsecured credit to its
customers. Management reviews accounts receivable on a regular basis to
determine if the allowance for doubtful accounts is adequate. An estimate
for doubtful accounts is recorded when collection of the full amount is no
longer probable.
I
nventories.
Inventories are
stated at the lower of cost or market using the weighted average method. China
Runji Cement Inc. reviews its inventory on a regular basis for possible obsolete
goods or to determine if any reserves are necessary for potential
obsolescence.
Government Subsidies.
A
government subsidy is recognized only when there is reasonable assurance that
the enterprise will comply with any conditions attached to the grant and the
grant will be received. The Company is entitled to receive treasury subsidy of
local government in accordance with the “Regulations of facilitating investment
in industrial enterprises” (Article 17 of Han Order [2002]) which is promulgated
on Oct. 28, 2002 by the Communist Party Commission of Han Shan County, Anhui
Province and Han San County government of Anhui Province. According to this
regulation, the first 3 years of tax payable by the Company after it commenced
production to the local government will be returned to the Company for the
purpose of increasing production. The application of the Company was
approved.
Income Taxes
. China Runji
Cement Inc. has adopted Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the
recognition of deferred income tax liabilities and assets for the expected
future tax consequences of temporary differences between income tax basis and
financial reporting basis of assets and liabilities. Provision for income
taxes consist of taxes currently due plus deferred taxes. Since China Runji
Cement Inc. had no operations within the United States there is no provision for
US income taxes and there are no deferred tax amounts at December 31, 2006 and
2005. The charge for taxation is based on the results for the year as adjusted
for items, which are non-assessable or disallowed. It is calculated
using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit. In principle,
deferred tax liabilities are recognized for all taxable temporary differences,
and deferred tax assets are recognized to the extent that it is probably that
taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled.
Deferred tax is charged or credited in the income statement, except when
it related to items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when they related to income taxes levied by the same taxation
authority and the Company intends to settle current tax assets and liabilities
on a net basis.
Recently
Issued Accounting Pronouncements
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“FAS 165”), which
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. FAS 165 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. This
disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements
being presented. FAS 165 is effective for interim and annual periods ending
after June 15, 2009 and will be effective for the Company beginning with its
annual period ending August 31, 2009. Since FAS 165 at most requires additional
disclosures, the Company does not expect the adoption to have a material impact
on its consolidated financial position, results of operations or cash
flows.
In June
2009, the FASB approved the “FASB Accounting Standards Codification” (the
“Codification”) as the single source of authoritative nongovernmental U.S. GAAP
to be launched on July 1, 2009. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in one
place. All existing accounting standard documents will be superseded and all
other accounting literature not included in the Codification will be considered
nonauthoritative. The Codification is effective for interim and annual periods
ending after September 15, 2009. The Codification is effective for the Company
in the interim period ending November 30, 2009 and it does not expect the
adoption to have a material impact on its consolidated financial position,
results of operations or cash flows.
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the
normal course of business, operations of the Company are exposed to fluctuations
in interest rates. These fluctuations can vary the costs of financing and
investing yields. In view of the financing arrangements during the third three
months of its 2009 fiscal year, the Company is not currently subject to
significant market risk.
ITEM
4 - CONTROLS AND PROCEDURES
The Chief
Executive Officer and Chief Financial Officer (the principal executive officer
and principal financial officer, respectively) of the Company have concluded,
based on their evaluation as of May 31, 2009, that the design and operation of
the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are
effective to ensure that information required to be disclosed in the reports
filed or submitted by the Company under the Exchange Act is accumulated,
recorded, processed, summarized and reported to the management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding whether or not disclosure is required.
During
the quarter ended May 31, 2009, there were no changes in the internal controls
of the Company over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that have materially affected, or are reasonably likely to
materially affect, the internal controls of the Company over financial
reporting.
ITEM
4T – INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in the Company's internal controls over financial reporting,
known to the chief executive officer or the chief financial officer that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1 - LEGAL PROCEEDINGS
None.
ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5 - OTHER INFORMATION
None.
ITEM
6 – EXHIBITS
31.1
|
Certification
of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
|
|
|
31.2
|
Certification
of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
|
|
|
32.1
|
Certification
of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
32.2
|
Certification
of the Chief Financial Officer Pursuant to 18 U.S.C. SS. 1350 Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURES
Pursuant
to the requirements of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CHINA
RUNJI CEMENT INC.
|
|
|
|
Date: July
15, 2009
|
By:
|
/s/
Shouren Zhao
|
|
Shouren
Zhao
Chairman
and Chief Executive
Officer
|
China Runji Cement (GM) (USOTC:CRJI)
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