China Green Material Technologies (CAGM) FY 2010 Results

10-K (FY 2010 results)

CHINA GREEN MATERIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2010 AND 2009

		Years Ended December 31,
		2010				2009
Revenues		$	20,042,025			$	13,407,287
Cost of Goods Sold			11,252,625				7,052,854
Gross Profit			8,789,400				6,354,433
Operating Expenses
Selling expenses			242,378				238,274
General and administrative expenses			1,647,891				792,587
Stock based compensation			167,163				-
Total Operating Expenses			2,057,432				1,030,861
Income From Operations			6,731,968				5,323,572
Other Income (Expenses)
Interest income			8,586				5,635
Interest expense			(316	)			-
Net rental (expense)/income			(123,163	)			24,057
Impairment of investment			(300,595	)			-
Loss on fixed assets disposal and intangible assets written off			(126,728	)			(459,695	)
Other (expense) income, net			(21,992	)			567
Total Other Expenses			(564,208	)			(429,436	)
Income Before Income Taxes			6,167,760				4,894,136
Provision for Income Taxes			925,207				738,810
Net Income		$	5,242,553			$	4,155,326
Foreign Currency Translation Adjustment			1,270,375				(20,380	)
Comprehensive Income		$	6,512,928			$	4,134,946
Net Income Per Common Share -Basic and Diluted
-Basic		$	0.21			$	0.22
-Diluted		$	0.21			$	0.22
Weight Common Shares Outstanding -Basic and Diluted
-Basic			24,457,767				18,711,388
-Diluted			24,621,490				18,711,388

Changes in internal controls

During the fourth quarter of 2010 we implemented certain improvements in our Company’s internal control over financial reporting. These improvements were in response to the conclusion by our Certifying Officers that, as of June 30 and September 30, 2010, there existed a material weakness in respect of our internal control over financial reporting, specifically in our control over the adoption of ASC 815-15, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock” which the FASB finalized in June 2008 and which became effective for fiscal years beginning after December 15, 2008. As in more detail in our Form 10-Q/A for June 30, 2010 and September 30, 2010, each of which was filed with the SEC on March 23, 2011, in response to comments raised by the SEC Staff, we determined that an error was contained in the initial filing of the reports on Form 10-Q as of and for the quarterly periods ended June 30 and September 30, 2010. Such error related to the accounting for certain warrants issued during April 2010 and July 2010 and our failure to properly apply the accounting principles set forth in ASC 815-15 with respect to such warrants. Based on the impact of the aforementioned accounting error, we determined to restate our consolidated financial statements as of June 30, 2010 and September 30, 2010. As a result of this material weakness, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, or that such information is accumulated and communicated to the Company’s management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

We believe we have remediated the material weakness identified above. Because the material weakness was related to a lack of sufficient technical accounting expertise and knowledge of accepted accounting principles in the United States of America (“U.S. GAAP”) that are relevant to the Company’s financial reporting requirements, we believe our addition of an employee within our accounting department has helped to remediate this material weakness. This employee, who has 14 years of accounting experience, was hired during 2010 and has been assigned the task (among others) of helping to establish and carry out internal audit procedures and assisting with certain other accounting and related finance matters. Since August 2010, we also have conducted several internal training sessions for various members of our accounting staff relating to various subjects including understanding and application of US GAAP and communication skills such as English-language report writing. We believe that the hiring of an additional accounting department employee will permit our senior financial management team, led by our CFO, to increase its focus on the implementation of new accounting pronouncements such as ASC 815-15, and on our compliance with U.S. GAAP generally, and enhance our ability to properly account and report on complex material or non-routine transactions. In addition, we believe our greater emphasis on the training of our internal accounting staff and our new internal audit procedures will also improve the effectiveness and reliability of our internal control over financial reporting.

Although the management of our Company, including the Chief Executive Officer and the Chief Financial Officer, believes that our disclosure controls and internal controls currently provide reasonable assurance that our desired control objectives have been met, management does not expect that our disclosure controls or internal controls will necessarily prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Positive developments in this company. If the cleansing in the US-listed China space is done, we are going to hear and see more from this company.