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 six 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.
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Results of Operations
Comparison of the Three Months Ended
Sales.
During the three months ended
Cost of goods sold.
Our cost of goods sold consists of the purchase cost. During the three months
ended
Gross profit.
Our gross profit decreased from
Gross profit Margin.
Our gross profit margin decreased from 41.19% for the three months ended
Operating expenses.
Operating expenses totaled
Selling, general and administrative expenses.
Selling expenses increased 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
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Other income and expenses.
Our interest expense was
Other income of
Income tax.
During the three months ended
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 Six Months Ended
Sales.
During the six months ended
Cost of goods sold.
Our cost of goods sold consists of the purchase cost. During the six months
ended
Gross profit.
Our gross profit decreased from
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Gross profit Margin.
Our gross profit margin decreased from 46.73% for the six 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
Income tax.
During the six months ended
Net loss.
As a result of the factors described above, our net loss for the six months
ended
Foreign currency translation.
Our consolidated financial statements are expressed in
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Net loss available to common stockholders.
Net loss available to our common stockholders was
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
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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.
At
Accounts receivable, net of allowance, were
As of
The following table sets forth information about our net cash flow for the six
months indicated:
For the Six months Ended
June 30,
2021 2020
Net cash flows (used in) provided by operating activities
$ - $ (1,649 )
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
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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
Sales to certain customers generated over 10% of the Company's total net sales.
Sales to one Company for the six months ended
Sales to certain customers generated over 10% of the Company's total net sales.
Sales to one Company for the six months ended
For the six months ended
For the six months ended
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
The accompanying unaudited consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements and notes.
Use of estimates
The preparation of these financial statements in conformity with
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Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with maturity
periods of six months or less to be cash equivalents. The carrying amounts
reported in the accompanying balance sheet for cash and cash equivalents
approximate their fair value. Substantially all of the Company's cash is held in
bank accounts in the PRC and is not protected by
Accounts receivable
Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An 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.
Inventory
Inventory is stated at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchases, and other costs incurred in bringing the inventories to their present location and condition. Cost is determined using the weighted average method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete the sale. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. Impairment of inventories is recorded in cost of goods sold.
For the six months ended
Lease
The Company used comparative method and adopted ASU 2018-20, Leases (Topic 842)
to recognize leases assets and lease liabilities on the balance sheet and
disclosing key information about lease transactions. All existing leases since
Property and equipment
Property and equipment is stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided using the straight-line method over the estimated useful lives of the assets for both financial and income tax reporting purposes as follows:
Machinery and equipment 5 years Motor vehicle 5 years
Expenditures for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.
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Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from their respective accounts and any gain or loss is recorded in the statements of income.
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 were recorded in operating expenses
during the six months ended
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. The vested portions of common stock awards granted but not yet issued are recorded in common stock to be issued.
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 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.
Foreign currency translation
The reporting currency of the Company is
Assets and liabilities were translated at
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Revenue recognition
The Company derives revenues from distribution of graphite-based products. We recognize revenue in accordance with ASC 606, Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products. We enter into contracts that can include products, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. 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 transfer of control of promised products to
customers 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 six months
ended
In
There is no impact of applying this ASU.
Cost of goods sold
Cost of goods sold consists primarily of the purchase costs of products.
Shipping and handling costs
The Company follows ASC 606, as amended and clarified by ASU 2016-10, to record
shipping and handling cost. The Company classifies shipping and handling costs
paid on behalf of its customers in selling expenses. For the six months ended
Taxation
Taxation on profits earned in the PRC has been calculated based on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC after taking into account the benefits from any special tax credits or "tax holidays" allowed in the county of operations.
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The Company does not accrue
In 2006, the
The Company recognizes that virtually all tax positions in the PRC are not free from some degree of uncertainty due to tax law and policy changes by the state. The Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current government officials.
Based on all known facts and circumstances and current tax law, the Company
believes that the total amount of unrecognized tax benefits as of
Enterprise income tax
The enterprise income tax is calculated on the basis of the statutory profit as
defined in the PRC tax laws. This statutory profit is computed differently than
the Company's net income under
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Value added tax
The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by
the
VAT payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of VAT included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year.
Contingent liabilities and contingent assets
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. It can also be a present obligation arising from past events that is not recognized because it is not probable that the Company will incur a liability or obligations as a result. A contingent liability, which might occur but is not probable, is not recorded but is disclosed in the notes to the financial statements. The Company will recognize a liability or obligation when it is probable that the Company will incur such liability or obligation.
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A contingent asset is an asset, which could possibly arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Company. Contingent assets are not recorded but are disclosed in the notes to the financial statements when it is likely that the Company will recognize an economic benefit. When the benefit is virtually certain, the asset is recognized.
Fair value of financial instruments
The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure,
which defines fair value, establishes a framework for measuring fair value in
? 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 liability, 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 amount of other receivables, advance to vendors, advances from customers, other payables, accrued liabilities are reasonable estimates of their fair value because of the short-term nature of these items.
Loss per share
Basic loss per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Potentially dilutive shares of common stock consist of the common stock issuable upon the conversion of convertible debt, preferred stock and warrants. The Company uses if-converted method to calculate the dilutive preferred stock and treasury stock method to calculate the dilutive shares issuable upon exercise of warrants.
The following table sets forth the computation of the number of net loss per
share for the six months ended
June 30 ,June 30, 2021 2020
Weighted average shares of common stock outstanding (basic) 28,597,429 27,693,555 Shares issuable upon conversion of Series B Preferred Stock
- -
Weighted average shares of common stock outstanding (diluted) 28,597,429 27,693,555 Net loss available to common shareholders
$ (296,457 ) $ (116,105 ) Net loss per shares of common stock (basic)$ (0.01 ) $ (0.00 ) Net loss per shares of common stock (diluted)$ (0.01 ) $ (0.00 ) 30
The following table sets forth the computation of the number of net loss per
share for the three months ended
June 30 ,June 30, 2021 2020
Weighted average shares of common stock outstanding (basic) 29,243,335 27,742,346 Shares issuable upon conversion of Series B Preferred Stock
- -
Weighted average shares of common stock outstanding (diluted) 29,243,335 27,742,346 Net loss available to common shareholders
$ (110,282 ) $ (77,290 ) Net loss per shares of common stock (basic)$ (0.00 ) $ (0.00 ) Net loss per shares of common stock (diluted)$ (0.00 ) $ (0.00 )
Accumulated other comprehensive income
The Company follows ASC 220, Comprehensive Income, formerly known as SFAS No.
130, Reporting Comprehensive Income, to recognize the elements of comprehensive
income. Comprehensive income is comprised of net income and all changes to the
statements of stockholders' equity, except those due to investments by
stockholders, changes in paid-in capital and distributions to stockholders. For
the Company, comprehensive income for the six months ended
Related parties
Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. Transactions with related parties are disclosed in the financial statements.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.
In
In
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
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