CHAI-NA-TA CORP.

Interim Condensed Consolidated Financial Statements
Three months ended March 31, 2012

(Unaudited - Prepared by Management)

 

Commitments (Note 7)

Approved by the Board:

 

 

 

 

 

 

 

1. Nature of operations

The Company operated North American ginseng farms in Ontario, Canada, on which ginseng root was planted, cultivated and harvested. The Company sells ginseng in its primary markets of Hong Kong and China, and to a lesser extent Canada and the United States of America, through its wholly-owned subsidiaries.

The Company is publicly traded with no single shareholder holding a majority of the Company’s common shares. The largest shareholder of the Company is Wai Kee Holdings Limited (“Wai Kee”), a publicly traded Hong Kong based company, which owns 46% of the shares of the Company.

Going concern

During the first quarter of 2012, the Board of Directors of the Company instructed management to initiate a plan to liquidate the Company subject to approval of the shareholders. Subsequent to the end of the reporting period, the shareholders of the Company approved the plan to liquidate the Company (see Note 10). The Company will continue to operate while selling the remaining inventory from the 2011 harvest which is expected to be completed in the second quarter of 2012. As such, there is substantial doubt about the Company's ability to continue indefinitely as a going concern. However the Company’s financial statements were prepared on a going concern basis which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company will adopt liquidation based accounting to prepare the Company's financial statements for all periods subsequent to the liquidation plan being approved by the shareholders.

2. Summary of significant accounting policies

Basis of presentation

These interim consolidated financial statements and notes have been prepared in accordance with United States generally accepted accounting principles (US GAAP) for interim reporting periods and should be read in conjunction with the Company’s annual consolidated financial statements and notes for the year ended December 31, 2011.

These interim consolidated financial statements are subject to seasonality due to the timing of crop harvesting, which typically occurs in the fall and the timing of subsequent sales, and in the current year the Company may intitate liquidation, subject to shareholder approval. Therefore, the results contained within these statements may not be indicative of results to be expected for the remainder of the year.

All amounts included in these interim consolidated financial statements are expressed in Canadian dollars ("CAD") unless otherwise noted.

3. Assets held for sale

The Company entered into an agreement for the sale of certain assets and real property used in connection with the farming operations in Ontario for total cash consideration of $1,850,000 in accordance with the terms and conditions of an asset purchase agreement (the “Agreement”) dated September 14, 2011 with a closing date of January 16, 2012. The closing of the transaction was approved by the Company’s shareholders at a special meeting on October 28, 2011. The transaction was concluded on the scheduled closing date with the full proceeds of the sale being received by the Company in accordance with the Agreement. There was no gain or loss upon the sale of the assets as they were recorded at their net realizable value.

4. Share capital

5. Selling, general and administrative expenses

During 2010, the Company agreed to pay retention bonuses totalling $485,000 to corporate and farm management and staff to ensure the stability of the operation through the expected final harvest in 2011 and the sale of the Company’s assets in 2012. These retention bonuses are contingent on the satisfactory completion of the job duties of each employee up to their termination date. During the three months ended March 31, 2012, $49,000 (2011 - $63,000) of expenses were incurred and included in accounts payable and accrued liabilities. The remaining $34,000 will be recorded over the remaining service period for the employees.

 

Foreign exchange (losses) gains for the three months ended March 31, 2011 include a $36,000 loss on foreign exchange forward contracts. There were no foreign exchange contracts outstanding during the three month period ended March 31, 2012.

Government supplements for the three months ended March 31, 2012 are funds received from Agriculture Canada and are based on sales made in the 2010 program year.

7. Commitments

The Company has entered into an operating lease for its corporate head office in Richmond, British Columbia at a cost of $3,000 per month through July 31, 2012.

8. Segmented information

The Company operates in one operating segment and two geographic regions. The geographic region that the external revenue is derived from is determined by the residency of the customer. Intersegment revenue is determined by the residency of the subsidiary selling the product. Information by geographic region is summarized as follows:

 

 

The Company had no long-lived assets, which comprise of all assets not classified as current, as at March 31, 2012. All of the Company's long-lived assets were in the Canadian geographic region as at March 31, 2011.

Major customers

For the three months ended March 31, 2012, revenue included sales to two major customers which accounted for $2,228,000 from the Canadian geographic region and $442,000 from the Hong Kong and People's Republic of China geographic region (March 31, 2011 - three major customers which accounted for $2,376,000 from the Canadian geographic region and $641,000 and $398,000, respectively, from the Hong Kong and People's Republic of China geographic region). Major customers include all customers with whom the Company has derived revenue greater than 10% of its total revenue within the reporting period.

9. Related party transactions

In the normal course of business, the Company pays management fees to Wai Kee for performing sales, accounting and administrative services for CNT Trading (Hong Kong) Limited, a subsidiary of the Company. The Company paid management fees of $11,000 (2011 - $14,000) for the three months ended March 31, 2012 of which $4,000 (2011 - $9,000) remains outstanding and is included in accounts payable and accrued liabilities on the consolidated balance sheet. This related party transaction is measured at the fair value.

10. Subsequent event

On May 11, 2012, a special resolution has been approved by the shareholders of the Company for (A) the voluntary liquidation of the Company pursuant to section 211 of the Canada Business Corporation Act, through the distribution of its remaining assets to its shareholders, after providing for outstanding liabilities, contingencies and costs of the liquidation, (B) the appointment of a liquidator if and when deemed appropriate by the board of directors of the Company, and (C) the ultimate dissolution of the Company in the future once all of the liquidation steps have been completed.