Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item
3. Quantitative and Qualitative Disclosures about Market Risk.
Foreign
Exchange Risk
While
our reporting currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated
in RMB. All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result,
we are exposed to foreign exchange risks as our revenues and results of operations may be affected by fluctuations in the exchange
rate between US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets
as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort
to reduce our exposure to foreign exchange risk.
Inflation
Although
we are generally able to pass along minor incremental cost inflation to our customers, inflation such as increases in the costs
of our products and overhead costs may adversely affect our operating results. We do not believe that inflation in China has had
a material impact on our financial position or results of operations to date, however, a high rate of inflation in the future
may have an adverse effect on our ability to maintain current levels of gross margin and selling and distribution, general and
administrative expenses as a percentage of net revenues if the selling prices of our products do not increase in line with the
increased costs.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.