Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1.
NATURE OF BUSINESS
Organization
Sichuan Leaders Petrochemical Company, formally known as Quality Wallbeds, Inc. was incorporated on June 29, 2000 under the laws of the State of Florida.
In December 2012, the Company changed its name in anticipation of new business opportunities. We are exploring various opportunities within the petrochemical field to determine the best strategic business direction of the company. Management has determined that the opportunities in the petrochemical field in Asia are expanding. To take advantage of this opportunity we will be exploring the acquisition of companies that are wholesaling and retailing oil based products to be used in the automotive industry. A change in the strategic business direction of the company may take years to complete and future cash flows, if any, are impossible to predict at this time.
The Companys headquarters are located in Sarasota, Florida. The elected year end is December 31.
The company discontinued the Florida wall bed operations that were based in St. Petersburg, on May 21, 2013.
NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information regarding the Companys significant accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on March 14, 2013.
In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of (a) the result of operations for the three and six month periods ended June 30, 2013 and 2012; (b) the financial position at June 30, 2013; and (c) cash flows for the three and six month periods ended June 30, 2013 and 2012, have been made. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates
Our financial statements may not be comparable to companies that comply with public company effective dates. Due to our election not to opt out of the extended transition period that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a loss of sales for the second fiscal quarter and net loss of ($61,459) for the six months ended June 30, 2013, compared to a loss from discontinued operations of ($981) for the six months ended June 30, 2012. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.
The Company has a decreasing gross profits, increasing general expenses and negative working capital. The Company is currently evaluating acquisitions and other business opportunities. The Companys continuation is a going concern and is dependent upon its ability to obtain clients and investment capital from future funding opportunities to fund at the current and planned operating levels. No assurance can be given that the Company will be successful in these efforts.
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Cash and Cash Equivalents
The majority of cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments purchased with an original maturity of six months or less to be cash equivalents.
Impairment of Long-lived Assets
The Company records long-lived assets at cost. Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Stock-Based Compensation
The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition provisions ASC Topic 505-50. The Company estimates the fair value of stock options at the grant date by using the Black-Scholes option-pricing model.
Income Taxes
The Company has adopted the provisions of ASC 740-10,
Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2013, tax years 2012, 2011 and 2010 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
The Company has adopted ASC 740-10,
Definition of Settlement in FASB Interpretation No. 48, (ASC 740-10), which was issued on May 2, 2007. ASC 740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term effectively settled replaces the term ultimately settled when used to describe recognition, and the terms settlement or settled replace the terms ultimate settlement or ultimately settled when used to describe measurement of a tax position under ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying consolidated financial statements.
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Net Earnings (Loss) Per Share
In accordance with ASC 260-10, Earnings Per Share, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings
(loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. At June 30, 2013 and December 31, 2012 there were no potentially dilutive securities.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and estimable in accordance with ASC 605, Revenue Recognition.
We recognized a sale when the product had been delivered and installed at which time risk of loss had passed to the customer, collection of the resulting receivable is reasonably assured, persuasive evidence of an arrangement exists, and the fee was fixed or determinable. If we determined that the fee was not fixed or determinable, we recognized revenue to the extent of which substantial work had been performed in fulfillment of the order, at which time the fee became due, provided that all other revenue recognition criteria had been met. Also, sales arrangements may have contained customer-specific acceptance requirements for both products and services. In such cases, revenue was deferred at the time of delivery of the product or service and was recognized upon receipt of customer acceptance.
Our services required that we order product based on our customers selection. At the time of order our normal terms required a deposit on those products ordered. The collections on orders not yet received or installed are recorded as a customer deposit and revenue is deferred until the order was completed.
Fair Value of Financial Instruments
FASB ASC Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This ASC also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable data by correlation or other means.
Level 3
Inputs that are both significant to the fair value measurement and unobservable.
Accounts Receivable, Trade
The Company followed ASC 310-10, Receivables. Our sales offerings were customer specific and required an initial deposit ranging between 35 and 50% at time of contract signing. Accounts receivable were balances due from customers upon completion of the design, construction, and installation of our products. These trade accounts receivable had a contractual maturity of one year or
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less. Receivables were determined to be past due based on payment terms of original invoices. We do not typically charge interest on past due receivables.
An allowance for doubtful accounts is established for amounts that may not be recoverable and is based on an analysis of individual customer credit worthiness and an assessment of current economic trends. Based on managements review of accounts receivable no allowance for doubtful accounts was considered necessary at June 30, 2013 and December 31, 2012. An account determined to be fully non-collectable is expensed as bad debt using the direct write off method in the period determined noncollectable. Bad debt expense was $450 for the six months ended June 30, 2013. There was no bad debt expense for the six months ended June 30, 2012.
Recent Accounting Pronouncements
The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to June 30, 2013 through the date these financial statements were issued.
NOTE 3.
RELATED PARTY TRANSACTIONS
The shareholders loan money to the Company as needed. During the six month period ended June 30, 2013, shareholders advanced the Company $45,422, for operating expenses. During 2012, a shareholder advanced the Company $54,522. These loans are payable on demand and are non-interest bearing.
NOTE 4.
INVENTORY
Our inventory consists of commonly used and ordinary supplies, parts, and small tools used during the assembly process. All supplies, parts, and small tools are ordered per job along with raw materials and as such are consumable during normal operations. The disclosed amounts represent net realizable value as the inventory was held solely to ensure timely order fulfillment and may or may not be used during the normal course of operations. Management conducted annual physical counts of supplies
.
With the discontinuing of operations for the wall bed store we donated the remaining inventory of showroom samples, raw supplies, parts and small tools to various charities.
NOTE 5.
PROPERTY AND EQUIPMENT
Property consists of equipment purchased for the production of revenues:
|
|
|
|
|
June 30, 2013
(unaudited)
|
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December 31, 2012
(audited)
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Property and equipment
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-
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$
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26,155
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Less accumulated depreciation
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-
|
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(22,620)
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Property and equipment, net
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-
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$
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3,535
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Assets were depreciated over their useful lives when placed in service. Depreciation expense was $608; and $1,117 for the six months ended June 30, 2013 and 2012 (unaudited), respectively.
During the period ended June 30, 2013 the Company sold some of equipment used for the production of revenues. The proceeds from the sale of equipment totaled $6,022. The rest of the property and equipment was donated to various charities.
NOTE 6.
INCOME TAXES
As of June 30, 2013, the Company has net operating loss carry forwards of approximately $127,794. The carry forward starts expiring in 2029. The Companys net operating loss carry forward may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.
NOTE 7.
DISCONTINUED OPERATIONS AND CHANGE IN DIRECTION
On May 21, 2013, the company discontinued the Florida wall bed operations and disposed of the Company assets directly related to the wall bed operations.
The Board believed that to continue to protect and increase shareholder value, it would be to the advantage, welfare and best interests of the shareholders for the Company to consider alternative corporate strategies to generate new business revenue for the Company.
The Board of Directors believes the company should pursue the opportunities in Asia to acquire companies in the wholesale and resale of the automotive oil industry. To facilitate this action, the Board voted to dispose of the Company assets related to the retail operation of the wall bed products. This action was approved by Shareholders representing 87% of the shares issued and outstanding.
Summary of results of discontinued operations is as follows:
Summary of Results of Discontinued Operations
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US Dollars
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Six Months Ended June 30
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Three Months Ended June 30
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2013
(unaudited)
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2012
(unaudited)
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2013
(unaudited)
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2012
(unaudited)
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Discontinued Revenues
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-
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50,518
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-
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22,234
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Discontinued Expenses
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(34,345)
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(51,499)
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(6,749)
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(36,175)
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Discontinued Income, Pre Tax
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(34,345)
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(981)
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|
(6,749)
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(13,941)
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Gain on Disposal of Operations, Pre Tax
|
3,095
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-
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3,095
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-
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Tax
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-
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-
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-
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-
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Total Discontinued Operations, Net of Tax
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(31,250)
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(981)
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(3,654)
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(13,941)
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NOTE 8.
COMMITMENTS AND CONTINGENCIES
Related Party
The controlling shareholders have pledged support to fund continuing operations, as necessary. From time to time, the Company is dependent upon the continued support of these parties, through temporary advances or through arrangements of their personal credit. However there is no written commitment to this effect.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
The Company does not have employment contracts with its key employees, including the officers of the Company.
Leases And Facility
The Company leases its facilities on a month to month lease.
Product Warranties
The Company has no history of warranty costs and expenditures. The Company purchases products directly from manufacturers and relies upon warranties provided by the product manufacturer. Any costs are to be expensed as incurred until such time that potential future costs may be estimated. As of June 30, 2013 and December 31, 2012, no such costs have been incurred and no such costs are anticipated; therefore, no liability reserve has been established.
Legal Matters
From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Companys financial position or results of operations.
NOTE 9.
STOCKHOLDERS EQUITY
As of June 30, 2013 and December 31, 2012, the Company had 10,375,000 and 9,375,000 shares of common stock issued and outstanding, respectively. In January 2013, the Company issued 1,000,000 shares of common stock at par value for $10,000 cash to an officer.
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NOTE 10.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
Financial Instruments
The Companys financial assets are comprised of cash and cash equivalents, accounts receivable, and inventory. Our liabilities consist of accounts payable, customer deposits, and other current liabilities.
Our financial assets and liabilities are carried at fair value, which is described in Note 2. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments.
Financial instruments that could subject us to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. Our cash and cash equivalents are within FDIC limits.
No single customer represents a significant portion of revenues or accounts receivable for the six months ended June 30, 2013, or the year ended December 31, 2012.
Liquidity Risk
The Companys objective in managing liquidity risk is to maintain sufficient available reserves to meet its liquidity requirements at any point in time. The Company achieves this by managing capital and operating expenditures and maintaining sufficient funds for anticipated short-term spending in our cash and cash equivalent accounts
NOTE 11.
SUBSEQUENT EVENTS
On August 7, 2013, due to the Companys increased focus on Chinese-only business and operations, and believing it to be in the best interests of the Company to find Chinese officers and directors that will devote the time necessary to further the goals of the Company, both Diane J. Harrison and Gary Macleod submitted, and the board accepted, their resignations as Treasurer, Principal Accounting Officer, and Director and as Chief Executive Officer and Director, respectively. Their resignations were not the result of any disagreement with management regarding the operations, policies or practices of the Company. Chairman of the Board, Andy Z. Fan, accepted the positions of Treasurer, Chief Executive Officer, and Principal Accounting Officer. Ms. Harrison continues as corporate secretary and Mr. Fan and Mr. Yakang Ai remain as the only two directors.
The Company has evaluated subsequent events through the date the financial statements were issued to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.
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ITEM 2.