Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. China Logistics Group Inc (1123493) 10-Q published on Jan 28, 2014 at 4:16 pm
Reporting Period: Sep 29, 2013
On May 31, 2011, the Company entered into a lease for office space with Mr. Wei Chen (the “Shanghai Office Lease”), its Chairman and CEO. Pursuant to the Shanghai Office Lease, the Company leases approximately 7,008 square feet of office space in Shanghai City. The office serves as the Company’s principal executive office. Rent under the Shanghai Office Lease is RMB 25,000 (approximately $4,000) per month. The Company also needs to pay a property management fee to an unrelated party of RMB 11,719 (approximately $1,900) per month in connection with the Shanghai Office Lease. The term of the Shanghai Office Lease is two years and expires on May 31, 2013. On May 31, 2013, the Company renewed the Shanghai Office Lease. Pursuant to the renewed Shanghai Office Lease, the monthly rent is RMB 25,000 (approximately $4,000). The Company also needs to pay a property management fee to an unrelated party of RMB 11,719 (approximately $1,900) per month in connection with the renewed Shanghai Office Lease. The term of the renewed Shanghai Office Lease is a year and expires on May 31, 2014. For the nine months ended September 30, 2013 and 2012, rent expense related to the Shanghai Office Lease amounted $36,213 and $35,666, respectively. At September 30, 2013 and December 31, 2012, accrued rent for the Xiamen Office Lease amounted to $20,370 and $0, respectively, which were included in accrued expense – related parties on the accompanying consolidated balance sheets.
We had a total operating expense of approximately $299,000 for the third quarter of fiscal 2013 as compared to a total operating expense of approximately $251,000 for the third quarter of fiscal 2012. We had a bad debt expense of approximately $14,000 and a bad debt recovery of approximately $3,000 for the third quarter of fiscal 2013 and 2012, respectively. Our selling, general and administrative expense increased by approximately $34,000 or 13.4% for the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012. The increase was mainly attributable to an increase in entertainment expense of approximately $11,000 due to the increased entertainment activities associated with customer support and marketing in order to enhance our visibility, an increase in depreciation expense of approximately $7,000 from the newly purchased fixed assets, an increase in consulting fees of approximately $15,000 which was incurred and paid in 2013 period, and an increase in other miscellaneous items of approximately $1,000.
Our total operating expenses increased by approximately $307,000, or 39.5% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. We had a bad debt expense of approximately $181,000 for the nine months ended September 30, 2013 as compared to a bad debt expense of approximately $9,000 for the nine months ended September 30, 2012. Our selling, general and administrative expense increased by approximately $138,000, or 17.9%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase was mainly attributable to an increase in compensation of approximately $57,000 due to the increase in salaries paid to our management and other administrative staff resulting from our purpose to try to expand our business, an increase in expense of approximately $21,000 related to our Board member’s service, and an increase in professional fees of approximately $41,000 mainly due to the increased service fee incurred and paid for our consultants and other professionals, an increase in depreciation expense of approximately $17,000 from the newly purchased fixed assets, and an increase in other miscellaneous items of approximately $2,000.
During the nine months ended September 30, 2013, we issued an aggregate of 52,383,252 shares of our common stock upon the conversion of various notes which increased our issued and outstanding shares by approximately 126% as compared to the issued and outstanding shares as of December 31, 2012. Between February 2013 and August 2013, we received net proceeds of $136,500 (net of debt discount of $12,500) under the terms of various promissory notes and used the net proceeds for working capital purpose. As of September 30, 2013, one of these notes in the principal amount of $10,000 has converted into 1,970,444 shares of our common stock, and the other three notes are convertible at various discounts to market. During the nine months ended September 30, 2013, we issued 50,412,808 shares of our common stock to either CDII or third parties to which it had assigned various notes we owed it in the amount of $622,463 in satisfaction of those obligations. While these convertible note transactions have either provided capital for our operations or conserved cash through the conversion of debt to equity, these transactions have been dilutive to our stockholders and there are no assurances that these terms are as favorable as we might have negotiated in arms-length transactions.
On August 8, 2013 the Company entered into a Securities Purchase Agreement with LG pursuant to which it issued and sold a $51,500 principal amount convertible promissory note. The Company reimbursed LG for its expenses of $1,500 in connection the transaction and paid a fee of $4,000 to Anubis Partners, LLC for legal service. The Company used the net proceeds for working capital. Under the terms of the Securities Purchase Agreement, we granted LG a 12 month right of first refusal with respect to future equity financings, including equity with a debt component, subject to certain exclusions. The principal amount and accrued interest of note are due on April 8, 2014. Any amount of principal or interest on the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the note is paid. LG is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 57% of the average of three lowest trading price in the 10 consecutive trading days prior to the day that LG requests conversion. The Note has a Flex Floor at $0.001 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor"). If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. A copy of the note and Securities Purchase Agreement are filed as Exhibits 10.15 and 10.16, respectively, to this report.
On October 21, 2013, the Company borrowed $30,000 from GEL under the terms of a 6% convertible redeemable note in the principal amounts of $30,000. In connection with this transaction, the Company paid legal fees of $1,500 and an investment banking fee of $3,000 to Anubis Partners, LLC. It used the net proceeds of $25,500 for working capital. The principal amount and accrued interest are due on October 21, 2014, and interest is payable in shares of the Company’s common stock valued at the conversion price as hereinafter described. GEL is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 60% of the lowest closing bid price of the last day of five trading days prior to conversion (including the day upon which a notice of conversion is received by the Company). In the event the Company experiences a DTC “Chill” on its shares while this note is eligible for conversion into common shares, the conversion price shall be decreased to 55% while that “Chill” is in effect. At the Company’s option, the note is redeemable at various premiums ranging from 125% to 150%, dependent upon the date fixed for redemption. The note also is subject to automatic repayment at the holder’s option, in cash, at 150% of the face amount including (i) the sale or transfer of all or substantially all of our assets, (ii) a reclassification, stock split or similar transaction, or (ii) a consolidation or merger in which the Company is not the surviving entity. A copy of this note is filed as Exhibit 10.18 to this report.