CHINA CARBON GRAPHITE GROUP, INC. The following discussion of the results of our operations and financial condition should be read in conjunction with our financial statements and the related notes, which appear elsewhere in this report. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from our forward-looking statements, see the section entitled "Cautionary Note Regarding Forward Looking Statements" above.
In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "would" and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. This Annual Report should be read in its entirety and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Overview
We are engaged in the research and development, small production and sales of
graphene and graphene oxide and graphite bipolar plates in
As of and for the nine months ended
PRC regulations grant broad powers to the government to adjust the price of raw materials and manufactured products. Although the government has not imposed price controls on our raw materials or our products, it is possible that price controls may be implemented in the future, thereby affecting our results of operations and financial condition.
Results of Operations
Comparison of the Three Months Ended
Sales.
During the three months ended
18
Cost of goods sold.
Our cost of goods sold consists of the purchase cost. During the three months
ended
Gross profit.
Our gross profit increased from
Gross profit Margin.
Our gross profit margin increased from 42.56% for the three months ended
Operating expenses.
Operating expenses totaled
Selling, general and administrative expenses.
Selling expenses decreased from
Our general and administrative expenses consist of salaries, office expenses,
utilities, business travel, amortization expenses, public company expenses
(including legal expenses, accounting expenses and investor relations expenses)
and stock compensation. General and administrative expenses were
Loss from operations.
As a result of the factors described above, operating loss was
Other income and expenses.
Our interest expense was
Other income of $nil and other income of
Loss on debt settlement of
Income tax.
During the three months ended
19
Net loss.
As a result of the factors described above, our net loss for the three months
ended
Foreign currency translation.
Our consolidated financial statements are expressed in
Net loss available to common stockholders.
Net loss available to our common stockholders was
Comparison of the Nine Months Ended
Sales.
During the nine months ended
Cost of goods sold.
Our cost of goods sold consists of the purchase cost. During the nine months
ended
Gross profit.
Our gross profit decreased from
Gross profit Margin.
Our gross profit margin increased from 45.65% for the nine months ended
Operating expenses.
Operating expenses totaled
Selling, general and administrative expenses.
Selling expenses decreased from
20
Our general and administrative expenses consist of salaries, office expenses,
utilities, business travel, amortization expenses, public company expenses
(including legal expenses, accounting expenses and investor relations expenses)
and stock compensation. General and administrative expenses were
Loss from operations.
As a result of the factors described above, operating loss was
Other income and expenses.
Our interest expense was
Other income of
Loss on debt settlement of
Income tax.
During the nine months ended
Net loss.
As a result of the factors described above, our net loss for the nine months
ended
Foreign currency translation.
Our consolidated financial statements are expressed in
Net loss available to common stockholders.
Net loss available to our common stockholders was
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Liquidity and Capital Resources
All of our business operations are carried out by Royal Shanghai, and all of the
cash generated by our operations has been held by that entity. In order to
transfer such cash to our parent entity,
PRC regulations relating to statutory reserves and currency conversion would impact our ability to transfer cash within our corporate structure. The Company Law of the PRC applicable to Chinese companies provides that net after tax income should be allocated by the following rules:
1. 10% of after tax income to be allocated to a statutory surplus reserve until
the reserve amounts to 50% of the company's registered capital.
2. If the accumulate balance of statutory surplus reserve is not enough to make
up the Company's cumulative prior years' losses, the current year's after tax
income should be first used to make up the losses before the statutory surplus
reverse is drawn.
3. Allocation can be made to the discretionary surplus reserve, if such a reserve
is approved at the meeting of the equity owners.
Therefore, the Company is required to maintain a statutory reserve in
The RMB cannot be freely exchanged into the Dollars.
These factors will limit the amount of funds that we can transfer from Royal
Shanghai to our parent entity and may delay any such transfer. In addition, upon
repatriation of earnings of Royal Shanghai to
Our primary capital needs have been to fund our working capital requirements. Our primary sources of financing will be cash generated from loans from banks, equity investment from investors, and borrowings from unrelated parties.
The Company's consolidated financial statements are prepared using generally
accepted accounting principles in
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. At this point, there can be no assurance that the Company is able to obtain such funding.
Our long-term goal is to develop our Royal Shanghai business. During the interim, we expect that anticipated cash flows from future operations, loans and equity investment from unrelated or related parties, provided that:
? we generate sufficient business so that we are able to generate substantial
profits, which cannot be assured;
? we are able to generate savings by improving the efficiency of our operations.
We may require additional equity, debt or bank funding to finance acquisitions or to allow us to develop our Royal Shanghai business, which is one of our primary growth strategies. We can provide no assurances that we will be able to enter into any additional financing agreements on terms favorable to us, if at all, especially considering the current global instability of the capital markets.
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At
Accounts receivable, net of allowance, were
As of
The following table sets forth information about our net cash flow for the nine
months indicated:
For the Nine Months Ended
September 30,
2021 2020
Net cash flows provided by (used in) operating activities
$ (20,952 ) $ (1,658 ) Net cash flows provided by financing activities $ -$ 93,900
Net cash flow provided by operating activities was
Net cash flow used in investing activities was
Net cash flow provided by financing activities was $nil and
Concentration of Business and Credit Risk
Most of the Company's bank accounts are in banks located in the PRC and are not
covered by any type of protection similar to that provided by the
Because the Company's operations are located in the PRC, this may give rise to
significant foreign currency risks due to fluctuations in and the volatility of
foreign exchange rates between
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of cash, trade accounts receivables and
inventories, the balances of which are stated on the balance sheet. The Company
places its cash in banks located in
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Significant Accounting Estimates and Policies
The discussion and analysis of our financial condition and results of operations
is based upon our financial statements that have been prepared in accordance
with accounting principles generally accepted in
Revenue Recognition
The Company derives revenues from distribution of graphite-based products. We recognize revenue in accordance with ASC 605-25, Revenue Recognition, which states that revenue should be recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the service has been rendered; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. Sales represent the invoiced value of goods, net of value added tax ("VAT"), if any, and are recognized upon delivery of goods and passage of title according to shipping terms.
The Company is subject to VAT, which is levied on a majority of the products, at a rate ranging from 13% to 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.
The Company recognizes revenue upon delivery of goods and passage of title
according to shipping terms. The Company does not provide chargeback or price
protection rights to the customers. The customer only places purchase orders
with the Company once it has confirmed the sale with a third party because this
is a specialized business, which dictates that the Company will not sell the
products until the purchase order is received. The Company allows its customers
to return products only if its products are later determined by the Company to
be defective. Based on the Company's historical experience, product returns have
been insignificant throughout all of its product lines. Therefore, the Company
does not record an allowance for sales returns. If sales returns occur, they are
taken against revenue when products are returned from customers. Sales are
presented net of any discounts given to customers. Interest income is recognized
when earned. The Company experienced no returns for the nine months ended
In
There is no impact of applying this ASU.
Comprehensive Income
We have adopted ASC 220, Comprehensive Income, formerly known as SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of general purpose financial statements. We have chosen to report comprehensive income (loss) in the statements of operations and comprehensive income.
Income Taxes
We account for income taxes under the provisions of ASC 740, Income Tax, formerly known as SFAS No. 109, Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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Effective
Accounts Receivable and Allowance For Doubtful Accounts
Accounts receivables are recognized and carried at the original invoice amount
less allowance for any uncollectible amounts. An estimate for allowance for
doubtful accounts is made when collection of the full amount is no longer
probable. Bad debts are written off as incurred. Accounts receivable are
recorded at the invoiced amount and do not bear interest. Management reviews the
adequacy of the allowance for doubtful accounts on an ongoing basis, using
historical collection trends and aging of receivables. Management also
periodically evaluates individual customer's financial condition, credit
history, and the current economic conditions to make adjustments in the
allowance when it is considered necessary. The allowance for doubtful accounts
amounted to $nil as of
Inventories
Inventories are stated at the lower of cost, determined on a weighted average
basis, and net realizable value. Net realizable value is the estimated selling
price, in the ordinary course of business, less estimated costs to complete and
dispose. The cost of inventories comprises all costs of purchases, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition. For the nine months ended
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major expenditures for
betterments and renewals are capitalized while ordinary repairs and maintenance
costs are expensed as incurred. Depreciation and amortization is provided using
the straight-line method over the estimated useful life of the assets after
taking into account the estimated residual value. The Company reviews the
carrying value of property, plant, and equipment for impairment whenever events
and circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows
are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is used, and the
effects of obsolescence, demand, competition, and other economic factors. Based
on this assessment, no impairment expenses for property, plant, and equipment
was recorded in operating expenses during the nine months ended
Research and Development
Research and development costs are expensed as incurred, and are included in
general and administrative expenses. These costs primarily consist of the cost
of material used and salaries paid for the development of our products and fees
paid to third parties. Our research and development expense for the nine months
ended
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Value Added Tax
Pursuant to
The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty, which can range from zero to five times the amount of the taxes that are determined to be late or deficient. In the event that a tax penalty is assessed on late or deficient payments, the penalty will be expensed as a period expense if and when a determination has been made by the taxing authorities that a penalty is due.
Fair Value of Financial Instruments
On
? Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
? Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for
the assets or liabilities, either directly or indirectly, for substantially the
full term of the financial instruments.
? Level 3 inputs to the valuation methodology are unobservable and significant to
the fair value.
The carrying amounts of financial assets and liabilities, including cash and cash equivalents, accounts receivable, notes receivable, advances to suppliers, other receivables, short-term bank loans, notes payable, accounts payable, advances from customers and other payables, approximate their fair values because of the short maturity period for these instruments.
Stock-based Compensation
Stock-based compensation includes (i) common stock awards granted to employees and directors for services which are accounted for under FASB ASC 718, Compensation-Stock Compensation, and (ii) common stock awards granted to consultants which are accounted for under FASB ASC 505-50, Equity-Equity-Based Payments to Non-Employees.
All grants of common stock awards and stock options to employees and directors are recognized in the financial statements based on their grant date fair values. The Company has elected to recognize compensation expense using the straight-line method for all common stock awards and stock options granted with service conditions that have a graded vesting schedule, with a corresponding charge to additional paid-in capital.
Common stock awards are granted to directors for services provided.
Common stock awards issued to consultants represent common stock granted to non-employees in exchange for services at fair value. The measurement dates for such awards are set at the dates that the contracts are entered into as the awards are non-forfeitable and vest immediately. The measurement date fair value is then recognized over the service period as if the Company has paid cash for such service. The Company did not make significant grants to consultants for any of the periods presented.
The Company estimates fair value of common stock awards based on the number of shares granted and the quoted price of the Company's common stock on the date of grant.
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
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