Guarantee income
|
|
148
|
|
|
0.7%
|
|
|
123
|
|
|
0.6%
|
|
Guarantee expenses
|
|
(108
|
)
|
|
-0.6%
|
|
|
(89
|
)
|
|
-0.4%
|
|
Equity in net loss of a non-consolidated
affiliate
|
|
(9
|
)
|
|
0.0%
|
|
|
-
|
|
|
0.0%
|
|
Interest income
|
|
186
|
|
|
0.9%
|
|
|
63
|
|
|
0.3%
|
|
Change in fair value of warranty
liabilities
|
|
-
|
|
|
0.0%
|
|
|
650
|
|
|
3.2%
|
|
Other income (expenses)
|
|
38
|
|
|
0.2%
|
|
|
(34
|
)
|
|
-0.2%
|
|
Finance costs
|
|
(1,950
|
)
|
|
-9.9%
|
|
|
(1,571
|
)
|
|
-7.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and
noncontrolling interest
|
|
(3,604
|
)
|
|
-18.4%
|
|
|
(42
|
)
|
|
-0.2%
|
|
Income taxes
|
|
(202
|
)
|
|
-1.0%
|
|
|
(226
|
)
|
|
-1.1%
|
|
Noncontrolling interest
|
|
12
|
|
|
0.1%
|
|
|
21
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Companys common
stockholders
|
|
(3,794
|
)
|
|
-19.3%
|
|
|
(247
|
)
|
|
-1.2%
|
|
|
|
Three-Month
|
|
|
Three-Month
|
|
|
Dollar
($)
|
|
|
Percentage
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Increase
|
|
|
Increase
|
|
Dollars in thousands
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
19,620
|
|
|
20,436
|
|
|
(816
|
)
|
|
-4.0%
|
|
Cost of goods sold
|
|
16,565
|
|
|
15,101
|
|
|
1,464
|
|
|
9.7%
|
|
Gross profit
|
|
3,055
|
|
|
5,335
|
|
|
(2,280
|
)
|
|
-42.7%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General &
administrative expenses
|
|
1,937
|
|
|
1,630
|
|
|
307
|
|
|
18.8%
|
|
Research and development expenses
|
|
236
|
|
|
145
|
|
|
91
|
|
|
62,8%
|
|
Selling expenses
|
|
2,791
|
|
|
2,761
|
|
|
30
|
|
|
1.1%
|
|
Total operating expenses
|
|
4,964
|
|
|
4,536
|
|
|
428
|
|
|
9.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
(1,909
|
)
|
|
799
|
|
|
(2,708
|
)
|
|
-339.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government grant income
|
|
-
|
|
|
17
|
|
|
(17
|
)
|
|
-100.0%
|
|
Guarantee income
|
|
148
|
|
|
123
|
|
|
25
|
|
|
20.3%
|
|
Guarantee expenses
|
|
(108
|
)
|
|
(89
|
)
|
|
(19
|
)
|
|
21.3%
|
|
Equity in net loss of a non-consolidated
affiliate
|
|
(9
|
)
|
|
-
|
|
|
(9
|
)
|
|
-100.0%
|
|
Interest income
|
|
186
|
|
|
63
|
|
|
123
|
|
|
195.2%
|
|
Change in fair value of warranty
liabilities
|
|
-
|
|
|
650
|
|
|
(650
|
)
|
|
-100%
|
|
Other income (expenses)
|
|
38
|
|
|
(34
|
)
|
|
72
|
|
|
211.8%
|
|
Finance costs
|
|
(1,950
|
)
|
|
(1,571
|
)
|
|
(379
|
)
|
|
24.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and
noncontrolling interest
|
|
(3,604
|
)
|
|
(42
|
)
|
|
(3,562
|
)
|
|
8,481.0%
|
|
Income taxes
|
|
(202
|
)
|
|
(226
|
)
|
|
24
|
|
|
-10.6%
|
|
Noncontrolling interest
|
|
12
|
|
|
21
|
|
|
(9
|
)
|
|
-42.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Companys common
stockholders
|
|
(3,794
|
)
|
|
(247
|
)
|
|
(3,547
|
)
|
|
1,436.0%
|
|
The average conversion rates between RMB and U.S. dollar used
for the condensed consolidated statements of operations and comprehensive loss
increased approximately 3.7% during the reporting period of 2012 compared with
the reporting period of 2011. As substantially all of our revenues and most
expenses are denominated in RMB, the appreciation in the value of RMB relative
to the U.S. dollar affected our financial results reported in the U.S. dollar
terms without giving effect to any underlying change in our business or results
of operations.
Sales revenues.
Sales revenues decreased approximately
$816,000, or 4.0% to approximately $19.6 million for the three months ended June
30, 2012 from approximately $20.4 million in the same period of 2011. Excluding
foreign currency translation, the revenue decreased approximately $1.5 million,
or 7.2% compared with the same period of 2011. Our sales revenue is currently
generated from sales of our mineral-based products, primarily our refractory
products, fracture proppant products, fine precision abrasives products and
industrial ceramic products. The decrease was mainly attributable to the
decreased sales of our fracture proppant products.
In our refractory segment, we sold 22,842 metric tons of
refractory products in the second quarter of 2012, compared with 27,686 metric
tons sold in the same period of 2011. The revenue from our refractory products
was approximately $11.6 million in the second quarter of 2012, compared with
$12.5 million in the same period of 2011. Excluding foreign currency
translation, the revenue decreased approximately $1.3 million, or 10.4% compared
with the same period of 2011. The average selling price increased to $509 per
metric ton compared with $452 per metric ton in the second quarter of 2011 and
the price increase partially offset the impact of decrease in sales volume on
our revenue. Excluding foreign currency translation, the average selling price
increased to $491 per metric ton in the second quarter of 2012.
10
In our fracture proppant segment, we sold 16,030 metric tons of
fracture proppant products in the second quarter of 2012, compared with 16,029
metric tons sold in the same period of 2011. Revenue was approximately $4.2
million in the second quarter of 2012, a decrease of 28.9% compared with
approximately $5.9 million in the same period of 2011. Excluding foreign
currency translation, the revenue decreased approximately $1.9 million, or 31.4%
compared with the same period of 2011. Average selling price decreased to $263
per metric ton in the second quarter of 2012, compared with $373 per metric ton
in the same period of 2011. Excluding foreign currency translation, the average
selling price decreased to $254 per metric ton in the second quarter of 2012.
The decrease in average selling price and revenue were primarily due to the
increased sales in domestic market where the fracture proppant products are
typically priced lower than in the U.S. market.
In our industrial ceramics segment, sales revenue was
approximately $530,000 in the second quarter of 2012 compared with approximately
$492,000 in the same period of 2011. Excluding foreign currency translation, the
revenue was approximately $511,000.
In our fine precision abrasives segment, we realized sales of
1,172 ton in the second quarter of 2012, for revenue of approximately $3.3
million. Excluding foreign currency translation, the revenue was approximately
$3.1 million. We sold 421 metric tons of fine precision abrasives products for
approximately $1.5 million in the same period of 2011. The increase in sales
revenue was primarily due to the increased sales to a major customer.
Cost of goods sold.
Our cost of goods sold is primarily
comprised of the cost of raw materials, components, labor and overhead. Our cost
of goods sold increased approximately $1.5 million, or 9.7%, to approximately
$16.6 million in the second quarter of 2012 from approximately $15.1 million in
the same period of 2011. Excluding foreign currency translation, our cost of
goods sold increased approximately $913,000, or 6.0% compared with the same
period of 2011. As a percentage of net revenues, the cost of goods sold
increased by 10.5% to 84.4% in the second quarter of 2012 from 73.9% in the same
period of 2011. This increase was primarily due to the higher raw material costs
and energy costs compared with the same period in 2011.
Gross profit.
Our gross profit decreased approximately
$2.2 million, or 42.7% to approximately $3.1 million in the second quarter of
2012 from approximately $5.3 million in the same period of 2011. Excluding
foreign currency translation, our gross profit decreased approximately $2.4
million, or 44.6% compared with the same period of 2011. Gross profit as a
percentage of net revenues was 15.6% in the second quarter of 2012, as compared
with 26.1% in the same period of 2011. The percentage decrease was primarily
attributable to the decreased gross profit margin in our fine precision
abrasives segment and fracture proppants segment.
General and administrative expenses.
Our general and
administrative expenses consist of the expenses associated with staff and
support personnel who manage our business activities and professional fees paid
to third parties. Our general administrative expenses increased to approximately
$1.9 million in the second quarter of 2012, from approximately $1.6 million in
the same period in 2011. The increase was primarily due to the loss on disposal
of equipment in our fine precision abrasives segment as we upgraded the
production facilities and the increase in depreciation expenses and salary
expenses. As a percentage of net revenues, administrative expenses increased to
9.9% in the second quarter of 2012 as compared with 8.0% in the same period in
2011.
Selling expenses.
Our selling expenses include sales
commissions, expenses of advertising and promotional materials, transportation
expenses, benefits of sales personnel, after-sale support services and other
sales related expenses. Selling expenses stayed flat at approximately $2.8
million in the second quarter of 2012. Excluding foreign currency translation,
the selling expenses decreased approximately $60,000, or 2.2% compared with the
same period of 2011. As a percentage of net revenues, our selling expenses
increased to 14.2% in the second quarter of 2012, as compared with 13.5% in the
same period in 2011.
Research and development expenses.
Our research and
development expenses increased to approximately $236,000 in the second quarter
of 2012, compared with approximately $145,000 in the same period in 2011 due to
more R&D activities in the second quarter of 2012. Excluding foreign currency
translation, the research and development expenses were approximately $228,000.
Government grant income.
Our government grant income was
nil in the second quarter of 2012 compared with approximately $17,000 in the
same period in 2011.
Finance costs.
Our finance costs increased by
approximately $379,000, or 24.1% to approximately $2.0 million in the second
quarter of 2012, from approximately $1.6 million in the same period in 2011.
Excluding foreign currency translation, our finance costs increased
approximately $316,000, or 20.1% compared with the same period of 2011. As a
percentage of net revenues, our finance costs were 9.9% in the second quarter of
2012 and 7.7% in the same period in 2011. This increase was primarily
attributable to an increase of approximately $606,000 in interest expenses as we
increased borrowing activities in the second quarter of 2012.
(Loss) income before income taxes and non-controlling
interests.
Our loss before income taxes and non-controlling interest was
approximately $3.6 million in the second quarter of 2012, compared with
approximately $42,000 in the same period of 2011. Excluding foreign currency
translation, our loss before income taxes and non-controlling interest was
approximately $3.5 million. The decrease was primarily attributable to the loss
from operations and higher finance costs in the second quarter of 2012.
Income taxes.
Our income taxes were approximately
$202,000 in the second quarter of 2012, a decrease of approximately $24,000 or
10.6% from approximately $226,000 in the same period of 2011. Excluding foreign
currency translation, our income taxes were approximately $194,000.
Net loss.
Our net loss in the second quarter of 2012 was
approximately $3.8 million, a decrease of approximately $3.5 million from
approximately $247,000 in the same period in 2011. Excluding foreign currency
translation, our net loss was approximately $3.7 million.The decrease was
attributable to the factors described above.
11
Comparison of Six-Month Periods ended June 30, 2012 and
2011
The following table summarizes the results of our operations
during the six-month periods ended June 30, 2012 and 2011, and provides
information regarding the dollar and percentage increase or (decrease) during
the six-month periods ended June 30, 2012 and 2011.
(All amounts, other than percentages, in U.S. dollars)
|
|
Six-Month Period
|
|
|
Six-Month Period
|
|
|
|
Ended June 30, 2012
|
|
|
Ended June 30, 2011
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
Dollars in
|
|
|
percentage of
|
|
|
Dollars in
|
|
|
percentage of
|
|
Statement of operations data:
|
|
thousands
|
|
|
net revenues
|
|
|
thousands
|
|
|
net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
33,331
|
|
|
100.0%
|
|
|
36,620
|
|
|
100.0%
|
|
Cost of goods sold
|
|
27,560
|
|
|
82.7%
|
|
|
26,998
|
|
|
73.7%
|
|
Gross profit
|
|
5,771
|
|
|
17.3%
|
|
|
9,622
|
|
|
26.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative expenses
|
|
3,666
|
|
|
11.0%
|
|
|
3,133
|
|
|
8.6%
|
|
Research and
development expenses
|
|
399
|
|
|
1.2%
|
|
|
287
|
|
|
0.8%
|
|
Selling expenses
|
|
5,271
|
|
|
15.8%
|
|
|
4,733
|
|
|
12.9%
|
|
Total operating expenses
|
|
9,336
|
|
|
28.0%
|
|
|
8,153
|
|
|
22.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
(3,565
|
)
|
|
-10.7%
|
|
|
1,469
|
|
|
4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government grant income
|
|
385
|
|
|
1.2%
|
|
|
18
|
|
|
0.0%
|
|
Guarantee income
|
|
301
|
|
|
0.9%
|
|
|
210
|
|
|
0.6%
|
|
Guarantee expenses
|
|
(237
|
)
|
|
-0.7%
|
|
|
(176
|
)
|
|
-0.5%
|
|
Equity in net loss of a non-consolidated affiliate
|
|
(9
|
)
|
|
0.0%
|
|
|
-
|
|
|
0.0%
|
|
Interest income
|
|
239
|
|
|
0.7%
|
|
|
182
|
|
|
0.5%
|
|
Change in fair value of warranty liabilities
|
|
-
|
|
|
0.0%
|
|
|
910
|
|
|
2.5%
|
|
Other income (expenses)
|
|
44
|
|
|
0.1%
|
|
|
(68
|
)
|
|
-0.2%
|
|
Finance costs
|
|
(3,700
|
)
|
|
-11.1%
|
|
|
(2,537
|
)
|
|
-6.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and noncontrolling
interest
|
|
(6,542
|
)
|
|
-19.6%
|
|
|
8
|
|
|
0.0%
|
|
Income taxes
|
|
(214
|
)
|
|
-0.6%
|
|
|
(362
|
)
|
|
-1.0%
|
|
Noncontrolling interest
|
|
49
|
|
|
0.1%
|
|
|
27
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Companys common stockholders
|
|
(6,707
|
)
|
|
-20.1%
|
|
|
(327
|
)
|
|
-0.9%
|
|
|
|
Six-Month
|
|
|
Six-Month
|
|
|
Dollar ($)
|
|
|
Percentage
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Increase
|
|
|
Increase
|
|
Dollars in thousands
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
33,331
|
|
|
36,620
|
|
|
(3,289
|
)
|
|
-9.0%
|
|
Cost of goods sold
|
|
27,560
|
|
|
26,998
|
|
|
562
|
|
|
2.1%
|
|
Gross profit
|
|
5,771
|
|
|
9,622
|
|
|
(3,851
|
)
|
|
-40.0%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General &
administrative expenses
|
|
3,666
|
|
|
3,133
|
|
|
533
|
|
|
17.0%
|
|
Research and development expenses
|
|
399
|
|
|
287
|
|
|
112
|
|
|
39.0%
|
|
Selling expenses
|
|
5,271
|
|
|
4,733
|
|
|
538
|
|
|
11.4%
|
|
Total operating expenses
|
|
9,336
|
|
|
8,153
|
|
|
1,183
|
|
|
14.5%
|
|
12
(Loss) income from operations
|
|
(3,565
|
)
|
|
1,469
|
|
|
(5,034
|
)
|
|
-342.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government grant income
|
|
385
|
|
|
18
|
|
|
367
|
|
|
2,038.9%
|
|
Guarantee income
|
|
301
|
|
|
210
|
|
|
91
|
|
|
43.3%
|
|
Guarantee expenses
|
|
(237
|
)
|
|
(176
|
)
|
|
(61
|
)
|
|
34.7%
|
|
Equity in net loss of a non-consolidated affiliate
|
|
(9
|
)
|
|
-
|
|
|
(9
|
)
|
|
-100.0%
|
|
Interest income
|
|
239
|
|
|
182
|
|
|
57
|
|
|
31.3%
|
|
Change in fair value of warranty liabilities
|
|
-
|
|
|
910
|
|
|
(910
|
)
|
|
-100%
|
|
Other income (expenses)
|
|
44
|
|
|
(68
|
)
|
|
112
|
|
|
164.7%
|
|
Finance costs
|
|
(3,700
|
)
|
|
(2,537
|
)
|
|
(1,163
|
)
|
|
45.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and noncontrolling
interest
|
|
(6,542
|
)
|
|
8
|
|
|
(6,550
|
)
|
|
-81,875.0%
|
|
Income taxes
|
|
(214
|
)
|
|
(362
|
)
|
|
148
|
|
|
-40.9%
|
|
Noncontrolling interest
|
|
49
|
|
|
27
|
|
|
22
|
|
|
81.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Companys common stockholders
|
|
(6,707
|
)
|
|
(327
|
)
|
|
(6,380
|
)
|
|
1,951.1%
|
|
Sales revenues.
Sales revenues decreased approximately
$3.3 million, or 9.0% to approximately $33.3 million for the six months ended
June 30, 2012, from approximately $36.6 million in the same period of 2011.
Excluding foreign currency translation, the revenue decreased approximately $4.5
million, or 12.2% compared with the same period of 2011. The decrease was mainly
attributable to the decreased sales from our fracture proppant products.
In our refractory segment, we sold 42,985 metric tons of
refractory products in the six months ended June 30, 2012, compared with 47,891
metric tons sold in the same period of 2011. The revenue from our refractory
products was approximately $21.6 million in the six months ended June 30, 2012,
compared with $22.5 million in the same period of 2011. Excluding foreign
currency translation, the revenue decreased approximately $1.7 million, or 7.5%
compared with the same period of 2011. The average selling price reached $502
per metric ton in the six months ended June 30, 2012, representing a 6.8%
increase compared with $470 per metric ton in the same period of 2011. Excluding
foreign currency translation, the average selling price increased to $484 per
metric ton, or 3.0% in the six months ended June 30, 2012.
In our fracture proppant segment, we sold 18,703 metric tons of
fracture proppant products in the six months ended June 30, 2012, compared with
28,542 metric tons sold in the same period of 2011. The decrease in sales volume
was primarily due to the decreased sales in the U.S. market as we were unable to
sell directly to the end users. Revenue was approximately $5.2 million in the
six months ended June 30, 2012, a decrease of 53.1% compared with approximately
$11.1 million in the same period of 2011. Excluding foreign currency
translation, the revenue decreased approximately $6.1 million, or 54.8% compared
with the same period of 2011. Average selling price decreased to $279 per metric
ton in the six months ended June 30, 2012, compared with $390 per metric ton in
the same period of 2011. Excluding foreign currency translation, the average
selling price decreased to $269 per metric ton in the six months ended June 30,
2012. The decrease in average selling price was primarily due to the increased
sales in domestic market where the fracture proppant products are typically
priced lower than in the U.S. market.
In our industrial ceramics segment, sales revenue was
approximately $861,000 in the six months ended June 30, 2012 compared with
approximately $722,000 in the same period of 2011. Excluding foreign currency
translation, the revenue was approximately $830,000.
In our fine precision abrasives segment, we realized sales of
2,055 ton in the six months ended June 30, 2012, for revenue of approximately
$5.7 million. Excluding foreign currency translation, the revenue was
approximately $5.5 million. We sold 623 metric tons of fine precision abrasives
products for approximately $2.3 million in the same period of 2011. The increase
in sales revenue was primarily due to the increased sales to a major customer.
Cost of goods sold.
Our cost of goods sold increased
approximately $562,000, or 2.1%, to approximately $27.6 million in the six
months ended June 30, 2012 from approximately $27.0 million in the same period
of 2011. Excluding foreign currency translation, our cost of goods sold
decreased approximately $426,000, or 1.6% compared with the same period of 2011.
As a percentage of net revenues, the cost of goods sold increased by 9.0% to
82.7% in the six months ended June 30, 2012 from 73.7% in the same period of
2011. This increase was primarily due to the higher raw material costs and
energy costs compared with the same period in 2011.
Gross profit.
Our gross profit decreased approximately
$3.8 million, or 40.0% to approximately $5.8 million in the six months ended
June 30, 2012 from approximately $9.6 million in the same period of 2011.
Excluding foreign currency translation, our gross profit decreased approximately
$4.1 million, or 42.2% compared with the same period of 2011. Gross profit as a
percentage of net revenues was 17.3% in the six months ended June 30, 2012, as
compared with 26.3% in the same period of 2011. The percentage decrease was
primarily attributable to the decreased gross profit margin in our fine
precision abrasives segment and fracture proppants segment.
General and administrative expenses.
Our general
administrative expenses increased to approximately $3.7 million in the six
months ended June 30, 2012, from approximately $3.1 million in the same period
in 2011. Excluding foreign currency translation, the general and administrative
expenses increased approximately $401,000, or 12.8% compared with the same
period of 2011. The increase was primarily due to the loss on disposal of
equipment in our fine precision abrasives segment as we upgraded the production
facilities, higher salary expenses and higher preliminary expenses related to
Yuxing operation. As a percentage of net revenues, administrative expenses
increased to 11.0% in the six months ended June 30, 2012 as compared with 8.6%
in the same period in 2011.
Selling expenses.
Selling expenses increased by
approximately $538,000 to approximately $5.3 million in the six months ended
June 30, 2012, compared with approximately $4.7 million in the same period in
2011. Excluding foreign currency translation, the selling expenses increased
approximately $349,000, or 7.4% compared with the same period of 2011. As a
percentage of net revenues, our selling expenses increased to 15.8% in the six
months ended June 30, 2012, as compared with 12.9% in the same period in 2011.
The increase in selling expenses was primarily attributable to the increase in
the allowance for doubtful accounts and higher transportation expenses compared
to the same period in 2011.
13
Research and development expenses.
Our research and
development expenses increased to approximately $399,000 in the six months ended
June 30, 2012, compared with approximately $287,000 in the same period in 2011.
Excluding foreign currency translation, the research and development expenses
were approximately $385,000. The increase was mainly due to more R&D activities
in the six months ended June 30, 2012.
Government grant income
. Our government grant income was
approximately $385,000 in the six months ended June 30, 2012 compared with
approximately $18,000 in the same period in 2011. Excluding foreign currency
translation, the government grant income was approximately $371,000.
Finance costs.
Our finance costs increased by
approximately $1.2 million, or 45.8% to approximately $3.7 million in the six
months ended June 30, 2012, from approximately $2.5 million in the same period
in 2011. Excluding foreign currency translation, our finance costs increased
approximately $1.0 million, or 40.6% compared with the same period of 2011. As a
percentage of net revenues, our finance costs were 11.1% in the six months ended
June 30, 2012 and 6.9% in the same period in 2011. This significant increase was
primarily attributable to an increase of approximately $481,000 in bills
discounting charges as we discounted more bills receivable instead of holding
them to maturity; and an increase of approximately $682,000 in interest expenses
as we increased borrowing activities in the six months ended June 30, 2012.
(Loss) income before income taxes and non-controlling
interests.
Our loss before income taxes and non-controlling interest was
approximately $6.5 million in the six months ended June 30, 2012, compared with
an income of approximately $8,000 in the same period of 2011. Excluding foreign
currency translation, our loss before income taxes and non-controlling interest
was approximately $6.3 million. The decrease was primarily attributable to the
loss from operations and higher finance costs in the six months ended June 30,
2012.
Income taxes.
Our income taxes were approximately
$214,000 in the six months ended June 30, 2012, a decrease of approximately
$148,000 or 40.9% from approximately $362,000 in the same period of 2011.
Excluding foreign currency translation, our income taxes were approximately
$206,000.
Net loss.
Our net loss in the six months ended June 30,
2012 was approximately $6.7 million, a decrease of approximately $6.4 million
from approximately $327,000 in the same period in 2011. Excluding foreign
currency translation, our net loss was approximately $6.5 million. The decrease
was attributable to the factors described above.
Liquidity and Capital Resources
As of June 30, 2012, we had cash and cash equivalents of
approximately $5.2 million and restricted cash of approximately $38.5 million.
Our current assets were approximately $136.9 million and our current liabilities
were approximately $131.7 million as of June 30, 2012 which resulted in a
current ratio of approximately 1.04. Total equity as of June 30, 2012 was
approximately $47.3 million. The following table sets forth a summary of our
cash flows for the periods indicated:
|
|
Six Months ended June 30,
|
|
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
(13,305
|
)
|
|
(1,546
|
)
|
Net cash used in investing activities
|
|
(1,677
|
)
|
|
(8,318
|
)
|
Net cash provided by financing activities
|
|
16,540
|
|
|
18,400
|
|
Net cash inflows
|
|
1,569
|
|
|
8,564
|
|
Operating Activities
Net cash used in operating activities was approximately $13.3
million in the six months ended June 30, 2012, compared with net cash used in
operating activities of approximately $1.5 million in the same period of 2011.
The increase in net cash used in operating activities was primarily due to the
net loss, increase in trade receivables, bills receivables and decrease in bills
payables in the six months ended June 30, 2012.
Investing Activities
Net cash used in investing activities in the six months ended
June 30, 2012 was approximately $1.7 million, a decrease of approximately $6.6
million from net cash used in investing activities of approximately $8.3 million
in the same period in 2011. The decrease in net cash used in investing
activities in the six months ended June 30, 2012 was primarily due to fewer
activities related to our construction of manufacturing and administrative
facilities and no acquisition of land use right occurred.
Financing Activities
Net cash provided by financing activities was approximately
$16.5 million in the six months ended June 30, 2012, compared with net cash
provided by financing activities of approximately $18.4 million in the same
period of 2011.
14
Loan Facilities
In the six months ended June 30, 2012, we secured new loans
totaling approximately $50.0 million from banks for our working capital needs,
and we repaid approximately $11.6 million in bank loans during the period. As a
result, the balance of all bank loans and bank borrowings as of June 30, 2012
was approximately $84.6 million, which includes approximately $40.8 million
short-term bank loans and approximately $43.8 million of bank borrowings secured
by bank deposits.
As of June 30, 2012, the detail of all our short-term bank
loans and bank borrowings are as follows:
All amounts, other than percentages, are in U.S. dollar.
No
|
Type
|
Contracting Party
|
Valid Date
|
Duration
|
Amount
|
1
|
Facility Bank Loan
|
Shanghai Pudong
Development Bank Village Bank
|
2011-09-16 to 2012-09-14
|
1 year
|
$792,000
|
2
|
Facility Bank Loan
|
Shanghai Pudong Development Bank Village
Bank
|
2011-09-16 to 2012-09-15
|
1 year
|
$396,000
|
3
|
Facility Bank Loan
|
Shanghai Pudong
Development Bank Village Bank
|
2011-09-22 to 2012-09-21
|
1 year
|
$712,800
|
4
|
Facility Bank Loan
|
Shanghai Pudong Development Bank
|
2011-09-22 to 2012-09-21
|
1 year
|
$1,584,000
|
5
|
Facility Bank Loan
|
Kaifeng Commercial Bank
|
2011-09-27 to 2012-09-26
|
1 year
|
$4,752,000
|
6
|
Facility Bank Loan
|
Shanghai Pudong Development Bank
|
2011-10-12 to 2012-10-11
|
1 year
|
$1,584,000
|
7
|
Facility Bank Loan
|
Shanghai Pudong
Development Bank Village Bank
|
2011-10-14 to 2012-10-13
|
1 year
|
$427,680
|
8
|
Facility Bank Loan
|
City Credit Cooperatives in Gongyi
|
2011-12-12 to 2012-12-5
|
1 year
|
$2,851,200
|
9
|
Facility Bank Loan
|
Zhengzhou Bank
|
2012-01-5 to 2013-01-04
|
1 year
|
$4,752,000
|
10
|
Facility Bank Loan
|
China Construction Bank
|
2012-01-10 to 2013-01-09
|
1 year
|
$3,168,000
|
11
|
Facility Bank Loan
|
China EverBright Bank
|
2012-01-20 to 2012-07-17
|
6 months
|
$1,053,202
|
12
|
Facility Bank Loan
|
Industrial and Commercial Bank of China
|
2012-02-03 to 2013-01-08
|
1 year
|
$2,851,200
|
13
|
Facility Bank Loan
|
China EverBright Bank
|
2012-02-16 to 2012-08-13
|
6 months
|
$1,252,310
|
14
|
Facility Bank Loan
|
Agricultural Bank of China
|
2012-02-20 to 2013-02-19
|
1 year
|
$1,853,280
|
15
|
Facility Bank Loan
|
China CITIC Bank
|
2012-03-01 to 2013-02-28
|
1 year
|
$1,473,120
|
16
|
Facility Bank Loan
|
Luoyang Bank
|
2012-04-25 to 2013-04-24
|
1 year
|
$3,168,000
|
17
|
Facility Bank Loan
|
Agricultural Bank of
China
|
2012-04-28 to 2013-04-27
|
1 year
|
$5,068,800
|
18
|
Facility Bank Loan
|
Industrial and Commercial Bank of China
|
2012-05-09 to 2013-05-08
|
1 year
|
$712,800
|
19
|
Facility Bank Loan
|
China CITIC Bank
|
2012-06-26 to 2013-06-25
|
1 year
|
$2,376,000
|
20
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-03-02 to 2012-08-10
|
6 months
|
$126,720
|
21
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-03-02 to 2012-08-22
|
6 months
|
$364,320
|
22
|
Bank Borrowing
|
Luoyang Bank
|
2012-03-06 to 2012-09-05
|
6 months
|
$1,584,000
|
23
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-03-13 to 2012-09-12
|
6 months
|
$1,584,000
|
24
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-03-15 to 2012-07-10
|
4 months
|
$158,400
|
25
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-03-15 to 2012-07-18
|
5 months
|
$47,520
|
26
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-03-15 to 2012-09-06
|
6 months
|
$190,080
|
27
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-03-20 to 2012-08-28
|
6 months
|
$70,963
|
15
28
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-03-20 to 2012-09-07
|
6 months
|
$79,200
|
29
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-03-20 to 2012-09-14
|
6 months
|
$1,520,640
|
30
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-03-21 to 2012-07-09
|
4 months
|
$47,520
|
31
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-03-21 to 2012-08-29
|
6 months
|
$31,680
|
32
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-03-22 to 2012-09-19
|
6 months
|
$1,346,400
|
33
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-03-23 to 2012-08-24
|
6 months
|
$47,520
|
34
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-03-23 to 2012-09-09
|
6 months
|
$792,000
|
35
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-04-06 to 2012-09-28
|
6 months
|
$633,600
|
36
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-04-06 to 2012-09-30
|
6 months
|
$285,120
|
37
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-04-06 to 2012-10-05
|
6 months
|
$3,168,000
|
38
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-04-09 to 2012-10-06
|
6 months
|
$1,584,000
|
39
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-04-10 to 2012-08-03
|
4 months
|
$79,200
|
40
|
Bank Borrowing
|
Luoyang Bank
|
2012-04-11 to 2012-09-08
|
5 months
|
$475,200
|
41
|
Bank Borrowing
|
Luoyang Bank
|
2012-04-11 to 2012-09-19
|
6 months
|
$475,200
|
42
|
Bank Borrowing
|
Luoyang Bank
|
2012-04-11 to 2012-09-21
|
6 months
|
$792,000
|
43
|
Bank Borrowing
|
Luoyang Bank
|
2012-04-11 to 2012-09-27
|
6 months
|
$1,425,600
|
44
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-04-11 to 2012-10-10
|
6 months
|
$3,168,000
|
45
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-04-13 to 2012-10-12
|
6 months
|
$4,672,800
|
46
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-04-17 to 2012-07-27
|
4 months
|
$79,200
|
47
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-04-20 to 2012-09-15
|
5 months
|
$79,200
|
48
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-04-28 to 2012-10-19
|
6 months
|
$158,400
|
49
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-05-04 to 2012-11-03
|
6 months
|
$3,168,000
|
50
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-05-06 to 2012-08-16
|
4 months
|
$79,200
|
51
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-05-07 to 2012-11-04
|
6 months
|
$950,400
|
52
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-05-09 to 2012-11-07
|
6 months
|
$1,584,000
|
53
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-05-09 to 2012-11-08
|
6 months
|
$792,000
|
54
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-05-11 to 2012-11-03
|
6 months
|
$142,560
|
55
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-05-14 to 2012-11-09
|
6 months
|
$158,400
|
56
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-05-17 to 2012-11-10
|
6 months
|
$79,200
|
57
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-05-17 to 2012-11-16
|
6 months
|
$2,851,200
|
58
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-05-30 to 2012-11-10
|
6 months
|
$79,200
|
59
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-05-30 to 2012-11-17
|
6 months
|
$95,040
|
60
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-05-31 to 2012-11-17
|
6 months
|
$126,720
|
61
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-06-05 to 2012-09-07
|
6 months
|
$15,840
|
62
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-06-05 to 2012-09-14
|
6 months
|
$15,840
|
63
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-06-05 to 2012-09-16
|
6 months
|
$31,680
|
64
|
Bank Borrowing
|
Hana Bank
|
2012-06-05 to 2012-11-25
|
6 months
|
$633,600
|
16
65
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-06-07 to 2012-12-06
|
6 months
|
$3,168,000
|
66
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-06-08 to 2012-11-21
|
6 months
|
$79,200
|
67
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-06-08 to 2012-12-08
|
6 months
|
$950,400
|
68
|
Bank Borrowing
|
Puyang Commerical Bank
|
2012-06-14 to 2012-12-14
|
6 months
|
$633,600
|
69
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-06-15 to 2012-11-29
|
6 months
|
$792,000
|
70
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-06-19 to 2012-12-18
|
6 months
|
$950,400
|
71
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-06-20 to 2012-12-19
|
6 months
|
$950,400
|
72
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-06-29 to 2012-09-02
|
4 months
|
$15,840
|
73
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-06-29 to 2012-12-08
|
6 months
|
$95,040
|
74
|
Bank Borrowing
|
Shanghai Pudong Development Bank Village
Bank
|
2012-06-29 to 2012-12-12
|
6 months
|
$158,400
|
75
|
Bank Borrowing
|
Shanghai Pudong
Development Bank Village Bank
|
2012-06-29 to 2012-12-13
|
6 months
|
$79,200
|
We have approximately $40.8 million of facility bank loans,
maturing from July 17, 2012 to June 25, 2013 and approximately $43.8 million of
bank borrowings secured by bank deposits. We will also consider refinancing
debts. However, we cannot provide assurance that we will be able to refinance
any of our debts on terms favorable to us in a timely manner.
Below is a brief summary of the payment obligations under
material contracts to which we are a party:
On September 16, 2011, our subsidiary, Refractories, entered
into a short-term working capital loan agreement with Shanghai Pudong
Development Bank Village Bank of Gongyi (SPDVB), whereby SPDVB has agreed to
loan approximately $792,000 (RMB 5 million) to Refractories for a term of one
year, at an interest rate of 6.56% per year on all outstanding principal.
On September 16, 2011, our subsidiary, Duesail, entered into a
short-term working capital loan agreement with SPDVB, whereby SPDVB has agreed
to loan approximately $396,000 (RMB 2.5 million) to Duesail for a term of one
year, at an interest rate of 8.53% per year on all outstanding principal.
On September 22, 2011, our subsidiary, Refractories, entered
into a short-term working capital loan agreement SPDVB, whereby SPDVB has agreed
to loan approximately $713,000 (RMB 4.5 million) to Refractories for a term of
one year, at an interest rate of 6.56% per year on all outstanding principal.
On September 22, 2011, our subsidiary, Duesail, entered into a
short-term working capital loan agreement with Shanghai Pudong Development Bank
(SPD), whereby SPD has agreed to loan approximately $1.6 million (RMB 10
million) to Duesail for a term of one year, at an interest rate of 7.22% per
year on all outstanding principal.
On September 27, 2011, our subsidiary, Duesail, entered into a
short-term working capital loan agreement with Kaifeng Commercial Bank (KCB),
whereby KCB has agreed to loan approximately $4.8 million (RMB 30 million) to
Duesail for a term of one year, at an interest rate of 8.53% per year on all
outstanding principal.
On October 12, 2011, our subsidiary, Refractories, entered into
a short-term working capital loan agreement with SPD, whereby SPD has agreed to
loan approximately $1.6 million (RMB 10 million) to Refractories for a term of
one year, at an interest rate of 7.22% per year on all outstanding principal.
On October 14, 2011, our subsidiary, Refractories, entered into
a short-term working capital loan agreement with SPDVB, whereby SPDVB has agreed
to loan approximately $428,000 (RMB 2.7 million) to Refractories for a term of
one year, at an interest rate of 6.56% per year on all outstanding principal.
On December 12, 2011, our subsidiary, Duesail, entered into a
short term working capital loan agreement with City Credit Cooperatives in
Gongyi (CCCG), whereby CCCG has agreed to loan approximately $2.9 million
(RMB18 million) to Duesail for a term of one year, at an interest rate of 11.81%
per year on all outstanding principal.
On January 5, 2012, our subsidiary, Refractories, entered into
a short-term working capital loan agreement with Zhengzhou Bank (ZB), whereby
ZB has agreed to loan approximately $4.8 million (RMB 30 million) to
Refractories for a term of one year, at an interest rate of 6.56% per year on
all outstanding principal.
17
On January 10, 2012, our subsidiary, Duesail, entered into a
short term working capital loan agreement with China Construction Bank (CCB),
whereby CCB has agreed to loan approximately $3.2 million (RMB 20 million) to
Duesail for a term of one year, at an interest rate of 8.00% per year on all
outstanding principle.
On January 20, 2012, our subsidiary, Micronized, entered into a
short-term working capital loan agreement with China EverBright Bank (CEB),
whereby CEB has agreed to loan approximately $1.1 million (RMB 6.6 million) to
Micronized for a term of 6 months, at an interest rate of $7.625% per year on
all outstanding principal.
On February 3, 2012, our subsidiary, Refractories, entered into
a short-term working capital loan agreement with Industrial and Commercial Bank
of China (ICBC), whereby ICBC has agreed to loan approximately $2.9 million
(RMB 18 million) to Refractories for a term of one year, at an interest rate of
6.89% per year on all outstanding principal.
On February 16, 2012, our subsidiary, Micronized, entered into
a short-term working capital loan agreement with CEB, whereby CEB has agreed to
loan approximately $1.3 million (RMB 7.9 million) to Micronized for a term of 6
months, at an interest rate of $7.625% per year on all outstanding
principal.
On February 20, 2012, our subsidiary, Micronized, entered into
a short-term working capital loan agreement with Agricultural Bank of China
(ABC), whereby ABC has agreed to loan approximately $1.9 million (RMB 11.7
million) to Micronized for a term of one year, at an interest rate of 6.56% per
year on all outstanding principal.
On March 1, 2012, our subsidiary, Micronized, entered into a
short-term working capital loan agreement with China CITIC Bank (CITIC),
whereby CITIC has agreed to loan approximately $1.5 million (RMB 9.3 million) to
Micronized for a term of one year, at an interest rate of 6.56% per year on all
outstanding principal.
On April 25, 2012, our subsidiary, Refractories, entered into a
short-term working capital loan agreement with Luoyang Bank (LYB), whereby LYB
has agreed to loan approximately $3.2 million (RMB 20 million) to Refractories
for a term of one year, at an interest rate of 7.22% per year on all outstanding
principal.
On April 28, 2012, our subsidiary, Refractories, entered into a
short-term working capital loan agreement with ABC, whereby ABC has agreed to
loan approximately $5.1 million (RMB 32 million) to Refractories for a term of
one year, at an interest rate of 8.53% per year on all outstanding principal.
On May 9, 2012, our subsidiary, Micronized, entered into a
short-term working capital loan agreement with ICBC, whereby ICBC has agreed to
loan approximately $713,000 (RMB 4.5 million) to Micronized for a term of one
year, at an interest rate of 6.56% per year on all outstanding principal.
On June 26, 2012, our subsidiary, Refractories, entered into a
short-term working capital loan agreement with CITIC, whereby CITIC has agreed
to loan approximately $2.4 million (RMB 15 million) to Refractories for a term
of one year, at an interest rate of 6.94% per year on all outstanding principal.
18
Statutory Reserves
Under PRC regulations, all our subsidiaries in the PRC may
pay dividends only out of their accumulated profits, if any, determined in
accordance with PRC GAAP. In addition, these companies are required to set aside
at least 10% of their after-tax net profits each year, if any, to fund the
statutory reserves until the balance of the reserves reaches 50% of their
registered capital. The statutory reserves are not distributable in the form of
cash dividends to the Company and can be used to make up cumulative prior year
losses.
Special Reserve
Before the reorganization, a former subsidiary of
Refractories, Gongyi GengSheng Refractories Co., Ltd., was entitled to a special
tax concession (Tax Concession) because it employed the required number of
disabled staff according to the relevant PRC tax rules. In particular, this Tax
Concession exempted the subsidiary from paying enterprise income tax. However,
these tax savings can only be used for future development of its production
facilities or welfare matters, and cannot be distributed as cash dividends.
Accordingly, the same amount of tax savings was set aside and taken to special
reserve which is not available for distribution. This reserve as maintained by
the subsidiary has been combined into Refractories upon the reorganization and
is subject to the same restrictions in its usage.
Restrictions on net assets also include the conversion of
local currency into foreign currencies, tax withholding obligations on dividend
distributions, the need to obtain SAFE approval for loans to a non-PRC
consolidated entity and the covenants or financial restrictions related to
outstanding debt obligations. We did not have these restrictions on our net
assets as of June 30, 2012 and December 31, 2011.
The following table provides the amount of our statutory
reserves, special reserve, the amount of restricted net assets, consolidated net
assets, and the amount of restricted net assets as a percentage of consolidated
net assets, as of June 30, 2012 and December 31, 2011.
|
|
As of June
30, 2012
(Unaudited)
|
|
|
As of
December 31,
2011
|
|
|
|
|
|
|
|
|
Statutory reserves
|
$
|
4,554,936
|
|
$
|
4,554,936
|
|
Special reserve
|
|
3,556,036
|
|
|
3,556,036
|
|
|
|
|
|
|
|
|
Total restricted net assets
|
$
|
8,110,972
|
|
$
|
8,110,972
|
|
Consolidated net assets
|
$
|
47,086,388
|
|
$
|
53,589,986
|
|
Restricted net assets as percentage of consolidated net assets
|
|
17.2
|
%
|
|
15.1
|
%
|
Total restricted net assets only accounted for approximately
17.2% of our consolidated net assets as of June 30, 2012. As our subsidiaries
usually set aside only 10% of after-tax net profits each year to fund the
statutory reserves and are not required to fund the statutory reserves when they
incur losses, we believe the potential impact of such restricted net assets on
our liquidity is limited.
Accounts Receivable and Bills Receivable
Accounts receivable represents amounts due to GengSheng by
our customers on the sale of products or services on credit.
Bills receivable represents bank undertakings that
essentially guarantee the payment of amounts owed by our customers to us. The
undertakings are provided by banks upon receipt of collateral deposits from the
customers. Bills receivable can be sold by us at a discount before maturity.
The following is the aging analysis for accounts receivable
as of June 30, 2012 and December 31, 2011:
|
|
As of June
30, 2012
(Unaudited)
|
|
|
As of
December 31,
2011
|
|
|
|
|
|
|
|
|
Due within 1 year
|
$
|
48,113,370
|
|
$
|
43,781,105
|
|
Due from 1 to 2 years
|
|
4,758,536
|
|
|
4,863,486
|
|
Due from 2 to 3 years
|
|
1,405,758
|
|
|
1,037,185
|
|
Due over 3 years
|
|
1,684,379
|
|
|
1,532,792
|
|
|
|
|
|
|
|
|
Total
|
$
|
55,962,043
|
|
$
|
51,214,568
|
|
19
The following is the aging analysis for bills receivable as
of June 30, 2012 and December 31, 2011:
|
|
As of June
30, 2012
(Unaudited)
|
|
|
As of
December 31,
2011
|
|
|
|
|
|
|
|
|
Due within 6 months
|
$
|
12,363,231
|
|
$
|
6,331,997
|
|
|
|
|
|
|
|
|
Total
|
$
|
12,363,231
|
|
$
|
6,331,997
|
|
We generally provide our customers in the refractories
segment a payment period of 90 days and our customers in the fine precision
abrasives segment a payment period of 180 days. As there are many producers in
the refractories and fine precision abrasives market competing with us, we find
it difficult to change these payment terms.
We noted that turnover days of accounts receivable in our
refractories segment increased in 2012 due to the macro economic situation.
However, we are usually willing to continue the relationship with our customers
in the refractory segment and allow for additional time for them to make
payments. In the meantime, since most of our large customers are state-owned
steel producers and our products are essential for their daily operations, we
have not seen a significant increase of risk related to the collection of
accounts receivables.
Critical Accounting Policies
Basis of consolidation
The accompanying consolidated financial statements of the
Company have been prepared in accordance with accounting principles generally
accepted in the United States of America.
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Use of estimates
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting periods. These accounts and estimates include, but
are not limited to, the valuation of trade receivables, other receivables,
inventories, deferred income taxes, provision of warranty, the estimation on
useful lives of property, plant and equipment and the impairment of goodwill,
know-how and deposit for acquisition of a non-consolidated affiliate. Actual
results could differ from those estimates.
20
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts
based on managements assessment of the collectability of trade receivables. A
considerable amount of judgment is required in assessing the amount of the
allowance. The Company considers the historical level of credit losses and
applies percentages to aged receivable categories. The Company makes judgments
about the creditworthiness of each customer based on ongoing credit evaluations,
and monitors current economic trends that might impact the level of credit
losses in the future. If the financial condition of the customers were to
deteriorate, resulting in their inability to make payments, a larger allowance
may be required.
Based on the above assessment, during the reporting periods,
the management established the general provisioning policy to make allowance
equivalent to 5% (2011: 5%) of trade receivables due from 1 to 2 years, 40%
(2011: 40%) of trade receivables due from 2 to 3 years and 90% (2011: 70%) of
trade receivables due over 3 years. Additional specific provision is made
against trade receivables to the extent which they are considered to be
doubtful.
Bad debts are written off when identified. The Company does not
accrue interest on trade receivables.
Acquisition of a non-consolidated
affiliate
Investment in an entity over which the
Company does not have control, but has significant influence, is accounted for
using the equity method of accounting. The Companys investment in Yili YiQiang
Silicon Limited ("Yili") is reported in the condensed consolidated balance
sheets as investment in a non-consolidated affiliate.
Impairment of long-lived assets
Long-lived assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. The Company recognizes impairment of long-lived assets in the
event that the net book values of such assets exceed the future undiscounted
cash flows attributable to such assets. During the reporting periods, the
Company has not identified any indicators that would require testing for
impairment.
Financial guarantee issued
The Company has acted as guarantor for bank loans granted to
certain local authorities and certain business associates. The Company assessed
its obligation under this guarantee pursuant to the provision of ASC 460
Guarantee. The Company recognized in its consolidated financial statements a
liability for that guarantee at fair value at the date of inception and
recognized as an expense in profit or loss immediately. The amount of guarantee
liability is amortized in profit or loss over the term of the guarantee as
income from financial guarantees issued.
Revenue recognition
Pure products sales - Sales revenue is recognized when the
significant risks and rewards of ownership have been transferred to the buyer at
the time when the products are delivered to and accepted by customers, the sales
price is fixed or determinable and collection is reasonably assured.
Products sales with installation, testing, maintenance, repair
and replacement - This kind of contract is signed as a whole such that all of
these services are provided for one fixed fee, and it does not separate the
components of products, installation, testing, maintenance, repair and
replacement. After delivery of products/materials to customers, the Company will
do the installation and testing works, which takes one to two days, before
acceptance and usage by customers. The product life cycle is very short and can
normally be used for 80 cycles of production by customers (about two to three
days). Thereafter the customers will need maintenance, repair and replacement of
the Companys materials. For each maintenance, repair and replacement, the
Company will supply materials and do the installation and testing works again,
which are regarded as separate sales by the Company. In other words, the Company
will have sales to this kind of customers every couple of days. This kind of
sales revenue is recognized when the significant risks and rewards of ownership
have been transferred to the buyer at the time when the installation and testing
works are completed and after acceptance by customers, the sales price is fixed
or determinable and collection is reasonably assured.
Revenue from sales of the Companys product represents the
invoiced value of goods, net of the value-added tax (VAT). The Companys
products that are sold in the PRC are subject to VAT at a rate of 17 percent of
the gross sales price. The VAT may be offset by VAT paid by the Company on raw
materials, other materials or costs included in the cost of producing the
Companys products.
Stock-based compensation
The Company adopted the provisions of ASC 718, which requires
the use of the fair value method of accounting for share-based compensation.
Under the fair value based method, compensation cost related to employee stock
options or similar equity instruments which are equity-classified awards, is
measured at the grant date based on the value of the award and is recognized
over the requisite service period, which is usually the vesting period. ASC 718
also requires measurement of cost of a liability-classified award based on its
current fair value.
21
Recently issued accounting pronouncements
In September 2011, the FASB issued ASU 2011-08, Intangibles -
Goodwill and Other (Topic 350). The amendments in this update will allow an
entity to first assess qualitative factors to determine whether it is necessary
to perform the two-step quantitative goodwill impairment test. Under these
amendments, an entity would not be required to calculate the fair value of a
reporting unit unless the entity determines, based on a qualitative assessment,
that it is more likely than not that its fair value is less than its carrying
amount. The amendments include a number of events and circumstances for an
entity to consider in conducting the qualitative assessment. The amendments in
this ASU are effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. Early adoption is
permitted. The adoption of this ASU has no material impact on the Companys
condensed consolidated financial statements.
In September 2011, the FASB issued ASU 2011-09, Compensation -
Retirement Benefits - Multiemployer Plans (Subtopic 715 - 80). The amendments
in this update require additional disclosures about an employer's participation
in a multiemployer plan. ASU 2011-09 is effective for annual periods for fiscal
years ending after December 15, 2011, and early adoption is permitted. ASU
2011-09 should be applied retrospectively for all prior periods presented. The
adoption of this ASU has no material impact on the Companys condensed
consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet
(Topic 210). The objective of this update is to provide enhanced disclosures
that will enable users of its financial statements to evaluate the effect or
potential effect of netting arrangements on an entitys financial position. This
includes the effect or potential effect of rights of setoff associated with an
entitys recognized assets and recognized liabilities within the scope of this
update. The amendments require enhanced disclosures by requiring improved
information about financial instruments and derivative instruments that are
either (1) offset in accordance with either Section 210-20-45 or Section
815-10-45 or (2) subject to an enforceable master netting arrangement or similar
agreement, irrespective of whether they are offset in accordance with either
Section 210-20-45 or Section 815-10-45. An entity is required to apply the
amendments retrospectively for annual reporting periods beginning on or after
January 1, 2013, and interim periods within those annual periods. The adoption
of this ASU has no material impact on the Companys condensed consolidated
financial statements.
In December 2011, the FASB issued ASU 2011-12, Comprehensive
Income (Topic 220). The amendments in this update supersede certain pending
paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income
(Topic 220): Presentation of Comprehensive Income, to effectively defer only
those changes in ASU 2011-05 that relate to the presentation of reclassification
adjustments out of accumulated other comprehensive income. The amendments will
be temporary to allow the Board time to redeliberate the presentation
requirements for reclassifications out of accumulated other comprehensive income
for annual and interim financial statements for public, private, and non-profit
entities. The amendments are effective for fiscal years, and interim periods
within those years, beginning after December 15, 2011. Early application is
permitted. The adoption of this ASU has no material impact on the Companys
condensed consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02 on impairment testing
for indefinite-lived intangible assets. This ASU amends FASB Codification Topic
350, Intangibles-Goodwill and Other to allow, but not require, an entity, when
performing its annual or more frequent indefinite-lived intangible asset
impairment test, to first assess qualitative factors to determine whether the
existence of events and circumstances indicates that it is more likely than not
that the indefinite-lived intangible asset is impaired. If, after assessing the
totality of events and circumstances, an entity concludes that it is not more
likely than not that the indefinite-lived intangible asset is impaired, then the
entity is not required to take further action. However, if an entity concludes
otherwise, then it is required to determine the fair value of the
indefinite-lived intangible asset and perform the quantitative impairment test
by comparing the fair value with the carrying amount. ASU2012-02 is effective
for annual and interim impairment tests performed for fiscal years beginning
after September 15, 2012. Early adoption is permitted. The Company is currently
evaluating ASU 2012-02. The adoption of this ASU will not have a material impact
on the Companys condensed consolidated financial statements.
22