Notes
to the Financial Statements
For
the quarter ended September 30, 2018
1. LEGAL
STATUS AND OPERATIONS
China Liaoning Dingxu Ecological
Agriculture Development Inc. (the "Company") was incorporated under the laws of State of Nevada on August 19, 2010. On
December 12, 2011, the Company entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which the
Company issued 60,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu
BVI.
China Liaoning DingXu Ecological Agriculture Development Co, Ltd ., a BVI company (“DingXu BVI”) was incorporated under
the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.
The
Company is primarily engaged in the growing, marketing, producing and selling of agriculture products in People’s Republic
of China (“PRC”).
2. BASIS
OF PREPARATION
2.1 Statement
of compliance
The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America and pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") on a going concern.
2.2 Accounting Convention
These
financial statements have been prepared on the basis of 'historical cost convention using accrual basis of accounting except as
otherwise stated in the respective accounting policies notes.
Going
concern
The accompanying unaudited financial
statements have been prepared on the assumption that the Company will continue as a going concern. The Company historically has
experienced significant losses and negative cash flows from operations. Further, the Company does not have a revolving credit facility
with any financial institution. These factors raise substantial doubt about the Company’s ability to continue as a going
concern.
The ability of the Company to continue as a going concern is dependent on raising additional capital, negotiating adequate financing
arrangements and on achieving sufficiently profitable operations. The financial statements do not include any adjustments relating
to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
2.3 Critical
accounting estimates and judgements
The
preparation of financial statements in conformity with the approved accounting standards require management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future
periods.
The
areas involving higher degree of judgment and complexity, or areas where assumptions and estimates made by the management are
significant to the financial statements are as follows:
i) Equipment
- estimated useful life of property, plant and equipment (note - 3.8)
ii) Provision
for doubtful debts (note - 3.4)
iii) Provision
for income tax (note - 3.1)
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1
Income tax
The
tax expense for the year comprises of income tax, and is recognized in the statement of earnings. The income tax charge is calculated
on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is accounted
for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying
amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable
profit. Deferred income tax liabilities are recognised for all taxable temporary differences and deferred income tax assets are
recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences
and unused tax losses can be utilized. Deferred income tax is calculated at the rates that are expected to apply to the period
when the differences are expected to be reversed.
3.2 Trade
and other payables
Liabilities for trade and other
amounts payable are carried at cost, which is the fair value of the consideration to be paid in future for goods and services received,
whether or not billed to the Company.
3.3 Provisions
A provision is recognized in
the financial statements when the Company has a legal or constructive obligation as a result of past events and it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can
be made of the amount of obligation.
3.4 Accounts
Receivable
Accounts receivable are non-interest
bearing obligations due under normal course of business. The management reviews accounts receivable on a monthly basis to determine
if any receivables will be potentially uncollectible. Historical bad debts and current economic trends are used in evaluating the
allowance for doubtful accounts. The Company includes any accounts receivable balances that are determined to be uncollectible
in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written
off against the allowance. Based on the information available, the Company believes its allowance for doubtful accounts as of period
ended is adequate.
3.5
Contingent liabilities
A contingent liability is disclosed
when the Company has a possible obligation as a result of past events, the existence of which will be confirmed only by the occurrence
or non-occurrence, of one or more uncertain future events, not wholly within the control of the Company; or when the Company has
a present legal or constructive obligation, that arises from past events, but it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient
reliability.
3.6
Financial liabilities
Financial liabilities are recognized
when the Company becomes party to the contractual provision of the instruments and the Company loses control of the contractual
right that comprise the financial liability when the obligation specified in the contract is discharged, cancelled or expired.
The Company classifies its financial liabilities in two categories: at fair value through profit or loss and financial liabilities
measured at amortized cost. The classification depends on the purpose for which the financial liabilities were incurred. Management
determines the classification of its financial liabilities at initial recognition.
(a) Financial liabilities at fair value through
profit or loss
Financial liabilities at fair
value through profit or loss are financial liabilities held for trading. A financial liability is classified in this category if
incurred principally for the purpose of trading or payment in the short-term. Derivatives (if any) are also categorized as held
for trading unless they are designated as hedges.
(b) Financial
liabilities measured at amortized cost
These are non-derivative financial
liabilities with fixed or determinable payments that are not quoted in an active market. These are recognized initially at fair
value, net of transaction costs incurred and are subsequently stated at amortized cost; any difference between the proceeds (net
of transaction costs) and the redemption value is recognized in the profit and loss account.
3.6.1 Derivative
financial instruments and hedge accounting
Derivatives are recognised initially
at fair value, any directly attributable transaction costs are recognised in profit or loss as they are incurred. Subsequent to
initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit and loss account.
The Company also holds derivative financial instruments to hedge its foreign currency exposures. Embedded derivatives are separated
from the host contract and accounted for separately if certain criteria are met.
(a) Fair
value hedge
Derivatives which are designated
and qualify as fair value hedge, changes in the fair value of such derivatives are recorded in the profit and loss account, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
(b) Cash
flow hedges
When
a derivative is designated as cash flow hedging instrument, the effective portion of changes in the fair value of the derivative
is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the
fair value of the derivative is recognised immediately in profit or loss.
The amount accumulated in equity is retained in other
comprehensive income and reclassified to profit or loss in the same period or periods during which the hedged item affects profit
or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the
designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected
to occur, then the amount accumulated in equity is reclassified to profit or loss.
3.7
Property, plant and equipment
All
equipments are stated at cost less accumulated depreciation and impairment loss.The cost of fixed assets includes its purchase
price, import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working
condition and location for its intended use.
Depreciation on additions to property, plant and equipment is charged, using straight
line method, on pro rata basis from the month in which the relevant asset is acquired or capitalized, upto the month in which
the asset is disposed off. Impairment loss, if any, or its reversal, is also charged to income for the year. Where an impairment
loss is recognized, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount,
less its residual value, over its estimated useful life. Estimated useful life of assets is as follows:
|
Building
|
20 years
|
|
Plant and equipment
|
5-10 years
|
|
Office equipment
|
3-5 years
|
|
Vehicles
|
4 years
|
Maintenance
and normal repair costs are expensed out as and when incurred. Major renewals and improvements are capitalized and assets so replaced,
if any are retired.
Gains and losses on disposal of fixed assets, if any, are recognized in statement of profit and loss.
3.8 Cash and
cash equivalents
Cash and cash equivalents include
cash in hand and deposits held at call with banks. For the purpose of the statement of cash flows, cash and cash equivalents comprises
of bank balances and short term highly liquid investments subject to an insignificant risk of changes in value and with maturities
of less than three months.
3.9
Revenue recognition
The Company derives revenue from
the sale of selling fresh mushrooms, dried mushrooms, and mushroom seeds.
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when it has persuasive evidence of an arrangement that the goods have been shiped to the customer, the sales price is
fixed or determinable, and collectability is reasonably assured.
3.10 Functional
and presentation currency
Items included in the financial
statements are measured using the currency of the primary economic environment in which the Company operates. The functional currency
of the Company is US (Dollars) and the functional currency of the Company’s operating subsidiaries and variable interest
entities is the RMB. The financial statements are presented in US (Dollars) which is the Company's presentation currency. All financial
information presented in US Dollars has been rounded to the nearest dollar unless otherwise stated.
3.11 Foreign
currency transactions
Foreign currency transactions
are translated into the functional currency using the exchange rate prevailing on the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated into functional currency using the exchange rate prevailing at
the statement of financial position date. Translation adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are included in determining comprehensive income. Transaction gains and losses that arise
from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the
results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The
Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had,
and are not expected to have, a material effect on the results of operations of the Company.
3.12 Contingencies
The assessment of the contingencies
inherently involves the exercise of significant judgment as the outcome of the future events cannot be predicted with certainty.
The Company, based on the availability of the latest information, estimates the value of contingent assets and liabilities, which
may differ on the occurrence / non-occurrence of the uncertain future event(s).
3.13
Stock based compensation
The Company recognizes compensation
expense for stock-based compensation in accordance with generally accepted accounting principles. For employee stock-based awards,
fair value of the award on the date of grant is calculated using the Black-Scholes method and the quoted price of the Company's
common stock for stock options and unrestricted shares respectively;
The Company recognizes expense over the service period for awards expected to vest.
In case of non-employee stock-based awards, fair value of the award on the date of grant is calculated in the same manner as employee
awards. However, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted
accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals
the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s
performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period
estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class,
and historical experience.
The Black-Scholes option valuation model is used to estimate the fair value of the warrants or options granted. The model includes
subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating
the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of
time equal to the weighted average life of the warrants or options granted.
3.14
Inventories
Inventories, except for stock
in transit, are stated at lower of cost and net realizable value. Stock in transit is valued at cost comprising invoice value plus
other charges thereon. Net realizable value is the estimated selling price in ordinary course of business less estimated costs
of completion and selling expenses.
4 Cash
This represents cash in hand
and cash deposited in bank accounts (current) by the Company.
5 Inventory
|
Opening balance
|
|
$
|
214,046
|
|
|
Net movement during the period
|
|
|
10,702
|
|
|
|
|
$
|
224,748
|
|
6 Other current assets
|
Opening balance
|
|
$
|
147,548
|
|
|
Net movement during the period
|
|
|
7,377
|
|
|
|
|
$
|
154,925
|
|
7 Land use right
|
Opening balance
|
|
$
|
4,071,035
|
|
|
Net movement during the period
|
|
|
(81,421
|
)
|
|
|
|
$
|
3,989,614
|
|
8 Property, plant and equipment
|
Cost
|
|
|
|
|
|
Opening balance
|
|
$
|
14,507,561
|
|
|
Net movement during the period
|
|
|
–
|
|
|
|
|
|
14,507,561
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
Opening balance
|
|
|
(3,539,752
|
)
|
|
Net movement during the period
|
|
|
(106,193
|
)
|
|
|
|
|
(3,645,944
|
)
|
|
|
|
|
|
|
|
Closing Book Value
|
|
$
|
10,861,617
|
|
8.1 Property, plant and
equipment, as the reporting date, comprises of:
|
Building
|
|
$
|
13,654,077
|
|
|
Plant
|
|
|
748,007
|
|
|
Vehicles
|
|
|
32,912
|
|
|
Office equipment
|
|
|
72,565
|
|
|
|
|
|
14,507,561
|
|
|
Less: Accumulated depreciation
|
|
|
(3,645,944
|
)
|
|
Closing balance
|
|
$
|
10,861,617
|
|
9. Prepaid lease for land
|
Opening balance
|
|
$
|
1,122,094
|
|
|
Net movement during the period
|
|
|
(33,663
|
)
|
|
|
|
$
|
1,088,431
|
|
|
|
9.1
|
Leases where substantially all the risks and rewards of
ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of
any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over
the terms of the underlying lease.
|
The Company records lease payments at cost less accumulated rent. The Company entered into a long term agreement with certain
unrelated parties to rent land in 2010 and 2013. The lease payments are recorded as operating lease expenses using the straight
line method during the contract period of 20 years and 17 years beginning at January 1, 2010 and December 25, 2013 respectively.
The lease payments of $1,030,000 and $984,107 for the entire contract period were prepaid.
10 Account payables
|
Opening balance
|
|
$
|
140,626
|
|
|
Net movement during the period
|
|
|
4,219
|
|
|
|
|
$
|
144,844
|
|
11 Accrued expense
|
Opening balance
|
|
$
|
19,714
|
|
|
Net movement during the period
|
|
|
394
|
|
|
|
|
$
|
20,108
|
|
12 Due to related parties
|
Opening balance
|
|
$
|
475,142
|
|
|
Net movement during the period
|
|
|
–
|
|
|
|
|
$
|
475,142
|
|
13 Long term payable
|
Opening balance
|
|
$
|
19,027,765
|
|
|
Net movement during the period
|
|
|
–
|
|
|
|
|
$
|
19,027,765
|
|
14 Contingencies and Commitments
From time to time, the Company may be involved in
litigation relating to claims arising out of operations in the normal course of business. As at the end of current reporting period,
there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations
and there are no proceedings in which any directors, officers or affiliates, or any registered or beneficial stockholder, is an
adverse party or has a material interest adverse to the Company’s interest.