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 Polypeptide Group, Inc. (1435530) 10-Q published on Aug 22, 2011 at 12:02 pm
Reporting Period: Jun 29, 2011
The accompany (a) consolidated balance sheet as of September 30, 2010, which has been derived from audited financial statements, and (b) the unaudited consolidated financial statements as of June 30, 2011 and for the three- and nine-month periods ended June 30, 2011 and 2010 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The unaudited consolidated financial statements should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, previously filed with the SEC.
We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies in making this assessment. If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial adverse impact on our operating results.
In September 2009, the PRC government published Draft Regulations regarding Supervision and Management of Health Food, or the Draft Regulations, which prohibits sales through meeting-based sales of health food. Although the Draft Regulations are still in the stage of discussion and other later issued related government directives relaxed the above prohibition, we believe that the final regulation will prohibit such sales. Our subsidiary, Hopsun, which contributed over 90% of our total sales revenue through its meeting-based sales network, conducts its sales through a self-owned meeting-based sales network. We believe that once the regulation becomes effective, Hopsun’s business operations with regard to meeting-based sales would be prohibited by the regulation.
Cost of Sales. Cost of sales for the nine months ended June 30, 2011 amounted to $2,240,152, or approximately 25.3% of revenues, compared to $1,782,788, or approximately 6.9% of revenues, for the nine months ended June 30, 2010, an increase of $457,364 or 25.7%. The increase of cost of sales is mainly attributable to the increase of fixed cost such as depreciation expense, payroll and utility costs etc. Such costs, especially the depreciation expense increased in the nine months ended June 30, 2010 mainly due to the completion of the construction of the new factory as of September 30, 2010, depreciation expense for the nine months ended June 30, 2011 and 2010 was $939,835 and $285,871, respectively. The significant increase of the proportion of cost of sales to revenues is mainly attributable to the sharply decrease of Hopsun’s revenue in the nine months ended June 30, 2011, which used to have much higher gross profit than that in the consolidated level.
Selling and Administrative Expenses. Selling and administrative expenses for the nine months ended June 30, 2011 totaled $16,191,336, or approximately 182.7% of revenues, compared to $16,213,354, or approximately 63.2% of revenues, for the same period in 2010, and decrease of $22,018, or -0.1%. There was a decrease of $22,018 or -0.1% in selling and administrative expenses while the proportion to revenues increased significantly from 63.2% to 182.7%. The change is mainly attributable to: a) the decrease in selling and administrative expenses mainly due to the decrease in promotional costs from approximately $12.7 million for nine months ended June 30, 2010 to approximately $8.5 million for the same period in 2011, a decrease of $4.2 million, as the sales of products decreased in this quarter as discussed above; b) the significant increase in the proportion to revenues is mainly attributable to the $16,804,002 decrease in revenues; and c) the bad debt for receivables for the nine months ended June 30, 2011 increased approximately $2.3 million compared to the nine months ended June 30, 2010 as we provide additional bad debt provisions for Hopsun’s receivables after considering the long aging and the collectability of these accounts; and d) payroll for the nine months ended June 30, 2011 increased approximately $0.86 million, compared with the same period in 2010. Due to the restructuring of Hopsun and its sales model, the management decided to dismiss some employees, where the annual bonus were be paid in advance. Therefore the payroll expense increased for the nine months ended June 30, 2011, which will be temporarily impacted and we expect to improve our operational efficiency in the near term.