Big Tree Group Inc (OTC:BIGG)

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Appointment of Xiuhuan Lin as Chief Financial Officer

Effective August 15, 2014, Mr. Jiale Cai resigned as our Chief Financial Officer and director of the Company.

The Company is currently in the process of interviewing several CFO candidates.

Management Discussion and Analysis

Revenues
 
Our consolidated revenues for the three months ended June 30, 2014 decreased 59.3% as compared to the same period in 2013. Our consolidated revenues for the six months ended June 30, 2014 decreased 50.3% as compared to the same period in 2013. The decrease in revenues for the three and six months ended June 30, 2014 as compared to the same period in 2013 was primarily due to the decrease of sales in BT Brunei. For the six months ended June 30, 2014, approximately 30% of the total revenue of BT Brunei is recorded as gross basis, compared to the same period in 2013, where approximately 100% of the total revenue of BT Brunei is recorded as gross basis primarily due to the nature of the sales transactions pursuant to the criteria outlined in ASC 605-45-45 for revenue recognition on gross basis as principal versus net basis as agent. For the three and six months ended June 30, 2014, as compared to the same period in 2013, the gross sales decreased by 60% and 50%, respectively.
 
For the three and six months ended June 30, 2014, BT Shantou’s revenues decreased by approximately $0.3 million and $0.1 million respectively, from the comparable period in 2013. This decrease was primarily due to a decrease in sales of second quarter 2014 to one customer, Always Trading International Limited (“Always”), which we accounted for on a gross basis as a principal. For the six months ended June 30, 2014 and 2013, sales to Always accounted for 44.7% and 21.9% of total sales, respectively. For the three and six months ended June 30, 2014, BT Brunei’s revenues decreased by approximately $6.7 million and $9.6 million, respectively, as compared to the same periods ended June 30, 2013. Our revenue accounted for on a net basis as an agent increased during the three and six months ended June 30, 2014 as compared to the same periods ended June 30, 2013, mainly due to the nature of the sales transactions completed in the comparative periods.

Our strategy is to utilize BT Brunei to continue to increase our customer base for export sales of toys, while continuing to expand our domestic distribution sales channels within China through BT Shantou. In connection with our export sale, we are susceptible to the fluctuations and uncertainty of international trading conditions, currency exchange rates, and global financial crisis. In addition, due to the inflation and continuous appreciation of RMB in the past few years which has resulted in an increase in the wholesale price of toys, we will continue to face challenges in finding ways to effectively compete in the pricing of toy products in our domestic and export markets while maintaining our margins. We expect our revenues to keep in 2014 as 2013 as we continue to expand our export sales efforts, however we cannot predict our revenues and cannot assure that our revenues will increase.

Net Income (Loss)

As a results of the discussion above, our net (loss) income for the second quarter of 2014 and 2013 amounted to $(29,269), or $(0.00) per common share (basic and diluted) and $134,073, or $0.01 per common share (basic and diluted), respectively. Our net (loss) income for the six months ended June 30, 2014 and 2013 amounted to $(109,068), or $(0.01) per common share (basic and diluted) and $99,525, or $0.01 per common share (basic and diluted), respectively. The decrease was primarily due to decrease in revenues and lower gross profit and higher general and administrative expenses.

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Report.

On May 20, 2014, the Board of Directors of Big Tree Group, Inc. determined that certain of our consolidated financial statements could no longer be relied upon as a result of an error in these financial statements, including:

• our unaudited condensed consolidated balance sheet as of June 30, 2013 and the related condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2013; and

• our unaudited condensed consolidated balance sheet as of September 30, 2013 and the related condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2013.
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Based upon analysis of our current tax research and interpretations of China tax regulations, we have determined that our subsidiary, Big Tree International Co., Ltd., a Brunei company, may be considered a non-resident PRC company and may be subject to China income taxes and other payroll benefit taxes. Accordingly, we have decided to accrue China income taxes and payroll benefit taxes pursuant to China tax regulations. Currently, we are reviewing our corporate tax structure and plan on restructuring our tax structure to ensure that Big Tree International Co., Ltd. is not subject to such taxes in China. We have previously restated our audited consolidated financial statements as of December 31, 2012 and for the year then ended, as well as our unaudited consolidated financial statements at March 31, 2013 and for the three months then ended, to reflect errors in those financial statements based upon this analysis.

Our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014, when filed, will reflect the following restatements in our unaudited consolidated financial statements at June 30, 2013 and for the three and six months then ended:

• an increase in our current liabilities by $1,544,401,
• a reduction in our net income by $199,400 or $0.02 per common share (basic and diluted), and $299,329 or $0.03 per common share (basic and diluted) for the three and six months ended June 30, 2013, respectively, to reflect the accrual of income taxes, payroll benefit taxes and all related estimated penalties and interest,
• a reduction in the beginning retained earnings by $1,208,543 to reflect the accrual of such taxes and penalties for the 2012 and 2011 periods, and
• a decrease in accumulated other comprehensive income by $36,529.

Management Discussion and Analysis

Results of Operations
 

Revenues

Our consolidated revenues for the three months ended March 31, 2014decreased 36.0% as compared to the same period in 2013. The decrease in revenues for the three months ended March 31, 2014 as compared to the same period in 2013 was primarily due to the sales decrease in BT Brunei. For the three months ended March 31, 2014, BT Shantou’s revenues increased by approximately $0.2 million, or 13.7%, from the comparable periodin 2013. This increase was primarily due to an increase in sales to one customer, Always Trading International Limited (“Always”) which we accounted for on a gross basis as a principal. For the three months ended March 31, 2014 and 2013, sales to Always accounted for 35.8% and 20.1% of total sales, respectively. For the three months ended March 31, 2014, BT Brunei’s revenues decreased $2.8 million, or 48.5%, as compared to the same period ended March 31, 2013. Our revenue accounted for on a net basis as an agent increased during the three months ended March 31, 2014 as compared to the same period ended March 31, 2013, mainly due to the nature of the sales transactions completed in the comparative period. Generally, we have higher sales in the second and third quarters and lower sales in the first and fourth quarters.

Our strategy is to utilize BT Brunei to continue to increase our customer base for export sales of toys, while continuing to expand our domestic distribution sales channels within China through BT Shantou. In connection with our export sale, we are susceptible to the fluctuations and uncertainty of international trading conditions, currency exchange rates, and global financial crisis. In addition, due to the inflation and continuous appreciation of RMB in the past few years which has resulted in an increase in the wholesale price of toys, we will continue to face challenges in finding ways to effectively compete in the pricing of toy products in our domestic and export markets while maintaining our margins. We expect our revenues to increase in 2014 over 2013 as we continue to expand our export sales efforts, however we cannot predict our revenues and cannot assure that our revenues will increase.

Net Loss

As a results of the discussion above, our net loss for the three months ended March 31, 2014 and 2013 amounted to approximately of $80,000, or $(0.01) per common share (basic and diluted) and approximately $35,000, or $(0.00) per common share (basic and diluted), respectively.

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Report.

On May 20, 2014, the Board of Directors of Big Tree Toy Group, Inc. determined that certain of our consolidated financial statements could no longer be relied upon as a result of an error in these financial statements, including:

• our unaudited condensed consolidated balance sheet as of March 31, 2013 and the related condensed consolidated statements of operations and comprehensive income for the three months ended march 31, 2013.

The Quarterly Report on Form 10-Q of Big Tree Group, Inc. for the period ended March 31, 2014 will reflect the restatement of our unaudited condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013.

Based upon analysis of our current tax research and interpretations of China tax regulations, we have determined that our subsidiary, Big Tree International Co., Ltd., a Brunei company, may be considered a non-resident PRC company and may be subject to China income taxes and other payroll benefit taxes. Accordingly, we have decided to accrue China income taxes and payroll benefit taxes pursuant to China tax regulations. At March 31, 2013, we increased our current liabilities by $1,323,442, reduced net income by $99,929 or $0.01 per common share (basic and diluted) to reflect the accrual of income taxes, payroll benefit taxes and all related estimated penalties and interest, we reduced beginning retained earnings by $1,208,543 to reflect the accrual of such taxes and penalties for the 2012and 2011 periods, and decreased accumulated other comprehensive income by $14,970. Currently, we are reviewing our corporate tax structure and plan on restructuring our tax structure to ensure that Big Tree International Co., Ltd. is not subject to such taxes in China.

We expect to file a Quarterly Report on Form 10-Q for the period ended March 31, 2014 to reflect the restatement as soon as practicable. Our Chief Financial Officer has discussed the matters disclosed in this report with RBSM LLP, our current independent registered public accounting firm, which issued the audit report on our December 31, 2013’s consolidated financial statements.

SHANTOU, China, December 3, 2013 /PRNewswire/ --

Full year 2013 revenue expected to exceed $45 million with EPS of $0.14

35% growth in revenue and earnings projected for 2014 as end markets strengthen and marketing efforts continue to gain momentum

Big Tree Group, Inc. (OTCQB: BIGG) ("Big Tree Group"), a company that serves as a "one stop shop" for the sourcing and distribution of toys and related products, announced today its financial forecast for the full fiscal year of 2013 and provided its outlook for the 2014 fiscal year.

Big Tree Group estimates it will achieve record revenue exceeding $45 million with earnings per share of approximately $0.14 for the full fiscal year of 2013 ending December 31, 2013.  Management further believes the successful implementation of the Company's more aggressive pricing strategy to increase international market share throughout the course of 2013, coupled with a strengthening global economy, have set the stage for Big Tree to achieve substantial financial growth in fiscal 2014. Big Tree Group sees full year revenue in fiscal 2014 reaching $60 million with earnings per share exceeding $0.20.

Mr. Wei Lin, Chairman and CEO of Big Tree Group, stated, "We continue to see positive growth in our sales resulting from the implementation of our aggressive pricing strategy.  We are confident that as we head into 2014 we are reaching the inflection point where further sales gains will result in similar increases to our bottom line.  With improvements in the global economy and through the efforts of our top-notch sales and quality control team, we are confident that we can achieve substantial overall growth at Big Tree for the foreseeable future."