Maryland
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20-3912942
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer
o
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Smaller
reporting
company
þ
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|||
(Do
not check if a smaller reporting
company)
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ITEM
NO.
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PAGE
NO.
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PART
I – Financial Information
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1. Financial
Statements
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||
Condensed
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and
December 31, 2008
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F-1
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Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008 (Unaudited)
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F-2
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Condensed
Consolidated Statements of Stockholders’ Equity for the nine months ended
September 30, 2009 (Unaudited) and the year ended December 31,
2008
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F-3
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Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and 2008 (Unaudited)
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F-4
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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F-5
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2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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1
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3. Quantitative
and Qualitative Disclosures about Market Risk
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9
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4.
Controls and Procedures
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10
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PART
II – Other Information
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||
1. Legal
Proceedings
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11
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1A. Risk
Factors
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11
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2. Unregistered
Sales of Equity Securities and Use of Proceeds
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11
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3. Defaults
Upon Senior Securities
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11
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4. Submission
of Matters to a Vote of Security Holders
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11
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5. Other
Information
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11
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6. Exhibits
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11
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Signatures
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12
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Page
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Condensed
Consolidated Balance Sheets
as
of September 30, 2009 (Unaudited) and December 31, 2008
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F-1
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Condensed
Consolidated Statements of Operations
for
the three and nine months ended September 30, 2009 and 2008
(Unaudited)
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F-2
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Condensed
Consolidated Statements of Stockholders’ Equity
for
the nine months ended September 30, 2009 (Unaudited) and
the
year ended December 31, 2008
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F-3
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Condensed
Consolidated Statements of Cash Flows
for
the nine months ended September 30, 2009 and 2008
(Unaudited)
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F-4
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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F-5
- F-12
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September
30,
2009
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December 31,
2008
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|||||||
(Unaudited)
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||||||||
Assets
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||||||||
Current
Assets
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||||||||
Cash
and cash equivalents
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$ | 9,043,466 | $ | 8,312,636 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $4,981 and $6,524,
respectively
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28,494 | 45,165 | ||||||
Inventory
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112,943 | 47,113 | ||||||
Other
receivables
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7,325 | 7,329 | ||||||
Prepaid
expenses
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31,830 | 22,345 | ||||||
Total
Current Assets
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9,224,058 | 8,434,588 | ||||||
Property,
plant and equipment, net of accumulated depreciation of $190,251 and
$161,055, respectively
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350,665 | 231,278 | ||||||
Investment
in Tienwe Technology
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879,000 | 879,420 | ||||||
Deferred
financing costs, net of accumulated amortization of $108,858 and $28,403,
respectively
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98,424 | 178,879 | ||||||
Intangible
assets, net of accumulated amortization of $56,664 and $47,493,
respectively
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12,935 | 59,495 | ||||||
Total
Assets
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$ | 10,565,082 | $ | 9,783,660 | ||||
Liabilities
and Stockholders' Equity
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||||||||
Current
Liabilities
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||||||||
Current
portion of long-term debt
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$ | 7,854 | $ | - | ||||
Current
portion of convertible notes, net of unamortized debt
discounts
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402,725 | - | ||||||
Accounts
payable and accrued liabilities
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225,671 | 234,007 | ||||||
Total
Current Liabilities
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636,250 | 234,007 | ||||||
Long
Term Liabilities
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||||||||
Long-term
debt
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108,650 | - | ||||||
Convertible
notes, net of unamortized debt discounts
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- | 327,020 | ||||||
Total
Long Term Liabilities
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108,650 | 327,020 | ||||||
Total
Liabilities
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744,900 | 561,027 | ||||||
Stockholders'
Equity
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||||||||
Undesignated
preferred stock, par value $.001 per share; authorized 4,900,000 shares;
none issued
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- | - | ||||||
Common
stock, par value $.001 per share; authorized 100,000,000 shares, issued
and outstanding 12,958,574 and 12,958,574, respectively
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12,959 | 12,959 | ||||||
Additional
paid-in capital
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4,369,786 | 4,369,786 | ||||||
Retained
earnings
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4,255,847 | 3,654,212 | ||||||
Accumulated
other comprehensive income
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1,181,590 | 1,185,676 | ||||||
Total
stockholders' equity
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9,820,182 | 9,222,633 | ||||||
Total
Liabilities and Stockholders' Equity
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$ | 10,565,082 | $ | 9,783,660 |
Three
Months Ended
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Nine
Months Ended
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|||||||||||||||
September 30,
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September 30,
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|||||||||||||||
2009
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2008
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2009
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2008
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|||||||||||||
(Unaudited)
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(Unaudited)
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(Unaudited)
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(Unaudited)
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|||||||||||||
Sales
of products
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$ | 617,457 | $ | 612,301 | $ | 1,790,904 | $ | 2,134,491 | ||||||||
Cost
of goods sold
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184,587 | 154,222 | 519,481 | 612,799 | ||||||||||||
Gross
profit
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432,870 | 458,079 | 1,271,423 | 1,521,692 | ||||||||||||
Selling,
general and administrative expenses
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136,305 | 78,118 | 519,450 | 360,037 | ||||||||||||
Income
from operations
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296,565 | 379,961 | 751,973 | 1,161,655 | ||||||||||||
Interest
and other income
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6,274 | 10,217 | 17,072 | 21,734 | ||||||||||||
Interest
expense
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(55,021 | ) | (618 | ) | (167,410 | ) | (618 | ) | ||||||||
Income
before income taxes
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247,818 | 389,560 | 601,635 | 1,182,771 | ||||||||||||
Income
taxes
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- | - | - | - | ||||||||||||
Net
income
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$ | 247,818 | $ | 389,560 | $ | 601,635 | $ | 1,182,771 | ||||||||
Earnings
per common share:
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||||||||||||||||
Basic
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$ | 0.02 | $ | 0.03 | $ | 0.05 | $ | 0.09 | ||||||||
Diluted
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$ | 0.02 | $ | 0.03 | $ | 0.04 | $ | 0.09 | ||||||||
Weighted
average number of common shares used to compute earnings per common
share:
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||||||||||||||||
Basic
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12,958,574 | 12,958,574 | 12,958,574 | 12,958,574 | ||||||||||||
Diluted
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13,958,574 | 12,980,313 | 13,958,574 | 12,965,900 | ||||||||||||
Comprehensive
Income:
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||||||||||||||||
Net
income
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$ | 247,818 | $ | 389,560 | $ | 601,635 | $ | 1,182,771 | ||||||||
Other
comprehensive (loss) income
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6,913 | 89,025 | (4,086 | ) | 562,420 | |||||||||||
Comprehensive
Income
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$ | 254,731 | $ | 478,585 | $ | 597,549 | $ | 1,745,191 |
Accumulated
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||||||||||||||||||||||||
Other
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||||||||||||||||||||||||
Common Stock
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Common Stock
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Additional Paid-
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Retained
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Comprehensive
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||||||||||||||||||||
Shares
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Amount
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in
Capital
|
Earnings
|
Income
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Total
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|||||||||||||||||||
Balance,
December 31, 2007
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12,958,574 | $ | 12,959 | $ | 4,150,636 | $ | 2,308,873 | $ | 656,164 | $ | 7,128,632 | |||||||||||||
Relative
fair value of warrants and beneficial conversion feature
included in sale of convertible notes
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- | - | 199,230 | - | - | 199,230 | ||||||||||||||||||
Fair
value of Placement Agent warrants
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- | - | 19,920 | - | - | 19,920 | ||||||||||||||||||
Net
income for the year ended December 31, 2008
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- | - | - | 1,345,339 | - | 1,345,339 | ||||||||||||||||||
Foreign
currency translation adjustment
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- | - | - | - | 529,512 | 529,512 | ||||||||||||||||||
Balance,
December 31, 2008
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12,958,574 | 12,959 | 4,369,786 | 3,654,212 | 1,185,676 | 9,222,633 | ||||||||||||||||||
Net
income for the nine months ended September 30, 2009
(Unaudited)
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- | - | - | 601,635 | - | 601,635 | ||||||||||||||||||
Foreign
currency translation adjustment (Unaudited)
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- | - | - | - | (4,086 | ) | (4,086 | ) | ||||||||||||||||
Balance,
September 30, 2009 (Unaudited)
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12,958,574 | $ | 12,959 | $ | 4,369,786 | $ | 4,255,847 | $ | 1,181,590 | $ | 9,820,182 |
Nine
Months Ended
September
30,
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||||||||
2009
|
2008
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|||||||
(Unaudited)
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(Unaudited)
|
|||||||
Operating
activities
|
||||||||
Net
income
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$ | 601,635 | $ | 1,182,771 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Bad
debt expense
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(1,477 | ) | 13,318 | |||||
Depreciation
of property, plant and equipment
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29,169 | 37,029 | ||||||
Amortization
of intangible assets and deferred financing costs
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89,620 | 15,032 | ||||||
Amortization
of debt discount and fair value of warrants
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75,705 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
in accounts receivable
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18,214 | 8,070 | ||||||
Increase
in other receivable
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- | (509 | ) | |||||
Increase
in inventory
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(65,830 | ) | (9,299 | ) | ||||
(Increase)
/ decrease in prepaid expenses
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(9,485 | ) | 1,507 | |||||
(Decrease)
/ increase in accounts payable and accrued liabilities
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(8,336 | ) | 76,917 | |||||
Net
cash provided by operating activities
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729,215 | 1,324,836 | ||||||
Investing
activities
|
||||||||
Proceeds
from disposal of fixed assets and intangible assets
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131,760 | - | ||||||
Property,
plant and equipment additions
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(244,645 | ) | (4,742 | ) | ||||
Net
cash used in investing activities
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(112,885 | ) | (4,742 | ) | ||||
Financing
activities
|
||||||||
Proceeds
from long-term debt
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117,200 | - | ||||||
Repayment
of long-term debt
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(696 | ) | - | |||||
Proceeds
from convertible notes
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- | 483,680 | ||||||
Financing
costs
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- | (114,200 | ) | |||||
Net
cash provided by financing activities
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116,504 | 369,480 | ||||||
Effect
of exchange rate changes on cash and cash equivalents
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(2,004 | ) | 495,250 | |||||
Increase
in cash and cash equivalents
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730,830 | 2,184,824 | ||||||
Cash
and cash equivalents, beginning of period
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8,312,636 | 5,984,448 | ||||||
Cash
and cash equivalents, end of period
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$ | 9,043,466 | $ | 8,169,272 | ||||
Supplemental
Disclosures of Cash Flow Informtion:
|
||||||||
Interest
paid
|
$ | 15,000 | $ | - | ||||
Non
Cash Financing Activities:
|
||||||||
Relative
fair value of warrants and beneficial conversion feature
|
$ | - | $ | 219,150 |
Inventory
consists of:
|
September
30,
|
December
31,
|
||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Raw
materials
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$ | 73,938 | $ | 39,125 | ||||
Finished
goods
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30,994 | 4,536 | ||||||
Others
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8,011 | 3,452 | ||||||
Total
inventory
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$ | 112,943 | $ | 47,113 |
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Building
|
$ | 263,727 | $ | 19,699 | ||||
Transportation
equipment
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222,986 | 223,092 | ||||||
Machinery
and electronic equipment
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50,697 | 146,034 | ||||||
Office
equipment
|
3,506 | 3,508 | ||||||
540,916 | 392,333 | |||||||
Less
accumulated depreciation
|
(190,251 | ) | (161,055 | ) | ||||
Property,
plant and equipment, net
|
$ | 350,665 | $ | 231,278 |
September 30,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
||||||||
Placement
Agent commissions
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$ | 40,000 | $ | 40,000 | ||||
Placement
Agent expense allowance
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25,000 | 25,000 | ||||||
Fair
value of Placement Agent warrants
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19,920 | 19,920 | ||||||
Legal
and other fees
|
122,362 | 122,362 | ||||||
Total
|
207,282 | 207,282 | ||||||
Less:
accumulated amortization
|
(108,858 | ) | (28,403 | ) | ||||
Deferred
Financing Costs, end of period
|
$ | 98,424 | $ | 178,879 |
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Product
rights
|
$ | 52,740 | $ | 90,141 | ||||
Patent
|
14,650 | 14,657 | ||||||
Trademark
|
2,189 | 2,190 | ||||||
Total
|
69,579 | 106,988 | ||||||
Less
accumulated amortization
|
(56,644 | ) | (47,493 | ) | ||||
Intangible
assets, net
|
$ | 12,935 | $ | 59,495 |
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Convertible
notes - face amount
|
$ | 500,000 | $ | 500,000 | ||||
Less:
|
||||||||
Debt
discount attributable to the relative fair value of
warrants
|
(149,615 | ) | (149,615 | ) | ||||
Debt
discount attributable to the intrinsic value of the beneficial conversion
feature
|
(49,615 | ) | (49,615 | ) | ||||
Less
accumulated amortization of debt discounts
|
101,955 | 26,250 | ||||||
Convertible
notes payable, net
|
$ | 402,725 | $ | 327,020 |
September 30,
2009
|
Year Ended
December 31, 2008
|
|||||||
(Unaudited)
|
||||||||
Outstanding
at beginning of period
|
1,387,580 | 807,580 | ||||||
Warrants
issued
|
- | 580,000 | ||||||
Warrants
exercised
|
- | - | ||||||
Warrants
expired
|
(10,000 | ) | - | |||||
Outstanding
at end of period
|
1,377,580 | 1,387,580 | ||||||
Exercisable
at end of period
|
1,377,580 | 1,387,580 |
Date Issued
|
Expiration Date
|
Number of
Warrants
|
Weighted Average
Exercise Price
|
|||||||
October
11, 2007
|
October
10, 2010
|
379,800 | 1.50 | |||||||
October
11, 2007
|
October
10, 2010
|
379,800 | 2.00 | |||||||
October
11, 2007
|
October
10, 2012
|
37,980 | 1.00 | |||||||
September
29, 2008
|
September
29, 2011
|
80,000 | 1.00 | |||||||
September
29, 2008 (1)
|
September
29, 2011
|
500,000 | 1.50 | |||||||
Total
|
1,377,580 | $ | 1.60 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Expected
tax at 35%
|
$ | 86,736 | $ | 136,346 | $ | 210,572 | $ | 413,970 | ||||||||
Tax
effect of unutilized losses of China Agri and Meixin
|
37,177 | (1,336 | ) | 115,404 | 15,158 | |||||||||||
Effect
of PRC income tax exemption granted to Xinsheng
|
(88,509 | ) | (96,465 | ) | (232,840 | ) | (306,549 | ) | ||||||||
Permanent
difference relating to Xinsheng's earnings to be permanently
invested in operations outside the United States
|
(35,404 | ) | (38,545 | ) | (93,136 | ) | (122,579 | ) | ||||||||
Actual
provision for income taxes
|
$ | - | $ | - | $ | - | $ | - |
Twelve months
ending
September 30,
|
Minimum
Rent
|
|||
2010
|
$ | 69,634 | ||
2011
|
30,114 | |||
Total
|
$ | 99,748 |
Three
Months Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Sales
|
$ | 617,457 | $ | 612,301 | ||||
Cost
of Goods Sold
|
184,587 | 154,222 | ||||||
Gross
Profit
|
$ | 432,870 | $ | 458,079 | ||||
Gross
Profit Margin
|
70.11 | % | 74.81 | % |
Three
Months Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Gross
Profit
|
$ | 432,870 | $ | 458,079 | ||||
Selling
and marketing
|
26,694 | 27,678 | ||||||
Professional
fees
|
34,039 | (18,950 | ) | |||||
Depreciation
and amortization expenses
|
11,680 | 14,624 | ||||||
Other
general and administrative expenses
|
63,892 | 54,766 | ||||||
Total
selling, general and administrative expenses
|
136,305 | 78,118 | ||||||
Income
from operations
|
296,565 | 379,961 | ||||||
Interest
expense
|
(55,021 | ) | (618 | ) | ||||
Interest
income
|
6,274 | 10,217 | ||||||
Net
Income
|
$ | 247,818 | $ | 389,560 |
Nine
Months Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Sales
|
$ | 1,790,904 | $ | 2,134,491 | ||||
Cost
of Goods Sold
|
519,481 | 612,799 | ||||||
Gross
Profit
|
$ | 1,271,423 | $ | 1,521,692 | ||||
Gross
Profit Margin
|
70.99 | % | 71.29 | % |
Nine
Months Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Gross
Profit
|
$ | 1,271,423 | $ | 1,521,692 | ||||
Selling
and marketing
|
177,618 | 109,249 | ||||||
Professional
fees
|
94,702 | 46,096 | ||||||
Depreciation
and amortization expenses
|
35,401 | 47,151 | ||||||
Other
general and administrative expenses
|
211,729 | 157,541 | ||||||
Total
selling, general and administrative expenses
|
519,450 | 360,037 | ||||||
Income
from operations
|
751,973 | 1,161,655 | ||||||
Interest
expense
|
(167,410 | ) | (618 | ) | ||||
Interest
income
|
17,072 | 21,734 | ||||||
Net
Income
|
$ | 601,635 | $ | 1,182,771 |
CHINA
AGRI-BUSINESS, INC.
|
|
/s/Liping Deng
|
|
Liping
Deng
|
|
President,
Chief Executive Officer, Director
(Principal
Executive Officer)
|
|
/s/Xiaolong Zhou
|
|
Xiaolong
Zhou
|
|
Chief
Financial Officer (Principal
Accounting
and Financial Officer)
|