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 sale of graphene, graphene oxide, carbon graphite felt and graphite bipolar plates products in the PRC. We also operate a business-to-business and business-to-consumers Internet portal (www.roycarbon.com) for graphite related products. Vendors can sell raw materials, industrial commodities and consumer (household) commodities to both business and consumers through the website by paying a fee for each transaction conducted through the website.
As of and for the year 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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Recent Development Started in
Since
Results of Operations - Fiscal Years Ended
The following table sets forth the results of our operations for the periods indicated inU.S. dollars: Years ended December 31, 2020 2019 Sales$ 429,335 $ 359,974 Cost of Goods Sold 237,986 171,869 Gross Profit 191,349 188,105 44.6 % 52.3 % Operating Expenses Selling expenses 43,516 22,117 General and administrative 366,399 392,188 Total operating expenses 409,915 414,305 Loss before other income (expense) and income taxes (218,566 ) (226,200 ) Other Income (Expense) Interest expense (56,295 ) (72,683 ) Other income (expense), net 3,460 - Total other expense (income), net (52,835 ) (72,683 ) Loss before income taxes (271,401 ) (298,883 ) Income Tax Expense - - Net loss (271,401 ) (298,883 ) Other Comprehensive Income Foreign currency translation gain (loss) (25,633 ) 5,007 Total Comprehensive Loss$ (297,034 ) $ (293,876 ) Share Data Basic and diluted loss per share Net loss per share - basic and diluted$ (0.01 ) $ (0.01 )
Weighted average common shares outstanding, basic and diluted 27,718,084 27,469,469
Sales
During the year ended
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Cost of goods sold
Our cost of goods sold consists of the purchase cost. During the year ended
Gross profit
Our gross profit increased from
Gross profit Margin
Our gross profit margin decreased from 53.3% for the year 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 and accounting expenses) and stock compensation.
General and administrative expenses were
Loss from operations
Our operating loss was
Other income and expenses
Our interest expense was
Other income amounted to
Income tax
During the years ended
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Net loss
As a result of the factors described above, our net loss for the year 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
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.
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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 $nil and
As of
Fiscal Year ended
The following table sets forth information about our net cash flow for the years
indicated:
Years ended
December 31,
2020 2019Net cash provided by (used in) operating activities (96,166 ) 9,027 Net cash used in investing activities
(1,679 ) (6,496 )
Net cash 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 used in 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
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 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 years ended
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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.
Effective
Accounts Receivable and Allowance For Doubtful Accounts
The Company establishes an individualized credit and collection policy based on
each individual customer's credit history. The Company does not have a uniform
policy that applies equally to all customers. The collection period usually
ranges from three months to twelve months. The Company grants extended payment
terms only when the Company believes that the payment will be collectible at the
end of the term. The Company grants extended payment terms to customers if based
on the following factors: (a) whether or not the Company views a real need, from
the customer's perspective, for the extension and (b) how critical the Company's
relationship with the customer and is the customer the Company's long-term
business. The Company grants extended payment terms only when the Company
believes that the payment will be collectible at the end of the term. This meets
the criteria of revenue recognition under
As ofDecember 31, 2020 andDecember 31, 2019 , accounts receivable consisted of the following: December 31, December 31, 2020 2019 Amount outstanding $ -$ 3,781 Less: Allowance for doubtful accounts - Net amount $ -$ 3,781 15 Inventories As ofDecember 31, 2020 andDecember 31, 2019 , inventories consisted of the following: December 31, December 31, 2020 2019 Inventory in transit $ -$ 17,583 Reserve for slow moving and obsolete inventory - Inventory, net $ -$ 17,583
For the years 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.
As ofDecember 31, 2020 andDecember 31, 2019 , property, plant and equipment consisted of the following: December 31, December 31, 2020 2019 Machinery and equipment$ 46,277 $ 41,708 Office equipment 11,696 10,963 Motor vehicles 42,814 40,127 Total 100,787 92,798
Less: accumulated depreciation (69,747 ) (56,523 )
Plant and Equipment, net
For the years ended
The Company purchased approximately
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 years 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.
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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.
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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