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 GREEN MATERIAL TECHNOLOGIES, INC. (1082384) 10-Q published on Nov 21, 2011 at 2:57 pm
Reporting Period: Sep 29, 2011
Rental income from operating leases to a third party related to the Company’s unused factory facilities with 21,132 square meters of floor space is recognized on a straight-line basis over the lease period. The Company recognized $70,103 and $66,460 of gross rental income for the three months ended September 30, 2011 and 2010, respectively, and recognized $207,730 (equivalent to RMB1.35 million) and $198,325 (equivalent to RMB 1.35 million) gross rental income for the nine months ended September 30, 2011 and 2010, respectively. Rental income is included as general and administrative expense in the Unaudited Statements of Income and Comprehensive Income net of related rental expense which amounted to $167,168 and $94,803 for the three months ended September 30, 2011 and 2010, respectively, and $471,224 and $292,698 for the nine months ended September 30, 2011 and 2010, respectively.
Operating Expenses Operating expenses (which consist of selling expenses and general and administrative expenses) were $6.27 million for the three months ended September 30, 2011, compared to $0.50 million for the comparable period of 2010, an increase of $5.76 million or 1145.1%. Selling expenses were relatively stable at approximately $0.05 million for the three months ended September 30, 2011, compared to $0.05 million for the comparable period of 2010. General and administrative expenses were $6.22 million for the three months ended September 30, 2011, compared to $0.46 million for the comparable period of 2010, an increase of approximately $5.76 million or 1262.8%. The increase was primarily due to increase in impairment loss of $5.82 million from the Company’s land use right and building, increase in stock based compensation of $0.07 million and net loss from leasing our of the Company’s unused land use right. Offsetting by the decreases in Zhonghao Bio start-up costs of $0.01 million and corporate related professional fees and travelling costs of $0.18 million in the third quarter of 2011.
Net Sales - Net sales decreased $4.13 million or 31.0% to $9.17 million for the nine months ended September 30, 2011 from $13.29 million for the comparable period in 2010. The decrease was mainly attributable to the decreased sales of our products which resulted from decreased demand from our existing customers as well as new customers. We believe that the decrease was a result of the selling price increase negotiation process with our major distributors, who withheld orders due to the current steep hike in raw materials prices, especially corn starch, which we are attempting to pass along in part to our customers. For the nine months ended September 30, 2011, the volume of our products sold decreased by 35.4% and our average selling price increased by 1.9% in local currency term as compared to the comparable period in 2010.
Gross Profit - Gross profit decreased $3.02 million or 49.4% to $3.09 million for the nine months ended September 30, 2011 from $6.11 million for the comparable period in 2010. Gross profit as percentage of revenues was 33.8% for the nine months ended September 30, 2011, a decrease of 12.2% from 46.0% during the comparable period in 2010. The decline in gross profit margin during the nine months ended September 30, 2011 compared with the comparable period in 2010 was due to increased in overall production costs by 24.9% in local currency term, which was mainly caused by increases in corn starch price, the main ingredient in our products, coupled with higher average costs per ton for fixed overhead such as depreciation charges for plant and equipment as well as amortization costs for technology and patent right due to lower tonnages produced in 2011 as compared to 2010.
We incurred positive cash in-flow from our operations of $10.3 million for the nine months ended September 30, 2011. This was primarily attributable to a $7.7 million reduction in our accounts receivable balance, loss on impairment of land use right and building of $5.8 million and non-cash items adjustments for depreciation and amortization of $1.6 million offset by net loss of $4.8 million and outflow from changes in operating assets and liabilities. We incurred cash in-flow from our operations of $2.9 million for the nine months ended September 30, 2010. This was primarily attributable to our net income of $3.6 million, non-cash items adjustment for depreciation of plant and equipment and amortization of intangible assets of $1.1 million, loss on long-term investment and intangible assets of $0.4 million offset by outflow from changes in account receivables of $2.0 million and other current assets and liabilities.