NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of business
HH Biotechnology Holdings Company (“HHBT” or the “Company”), was incorporated in the State of Nevada on December 4, 1987, under the name of Quantus Capital, Inc. The Company, through its various subsidiaries, is engaged in commercial and residential real estate leasing, management, consulting, investment, development and sales in the city of Shenyang, Liaoning Province, in the People’ Republic of China (“PRC”). The Company is also engaged in the wholesale and retail distribution of consumer products including food products, dietary supplements, household products and daily necessities, etc., through its wholly owned subsidiary, Shenyang Ai Zhuang Trading Co., Ltd (“Ai Zhuang”), and the 53% owned entity, Panacea Co., Ltd.
2. Summary of significant accounting policies
Principles of consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Silverstrand International Holdings Company Limited, Shenyang Maryland International Industry Company Limited, Shenyang Ai Zhuang Trading Co., Ltd (“Ai Zhuang”), and the 53% owned entity, Panacea Co., Ltd. Ai Zhuang and Panacea Co
., Ltd. All significant inter-company transactions and balances within the Company are eliminated in consolidation.
Use of estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements”, for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
|
●
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
●
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
●
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
There were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of September 30, 2016 and December 31, 2015.
6
Foreign currency translation
The Company uses the United States dollar for financial reporting purposes. The Company’s subsidiaries maintain their books and records in their functional currency - Chinese Yuan Renminbi (CNY), being the primary currency of the economic environment in which their operations are conducted. All assets and liabilities are translated at the current exchange rate, stockholder’s equity are translated at the historical rates and income statement and statement of cash flows items are translated at the average exchange rate for the period. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet. The resulting translation adjustments are reported under other comprehensive as a component of shareholders’ equity.
Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
Allowance for doubtful accounts
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and other receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2016 and December 31, 2015, the Company reserved $2,066,239 and $1,644,340 respectively, for other receivable bad debt; and $653,023 and $675,929 respectively, for accounts receivable bad debt. The Company also reserved $0 and $2,415,944 respectively for loans receivable as of September 30, 2016 and December 31, 2015 respectively.
Property, plant and equipment
Property, plant and equipment is being depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line basis over useful lives as follows:
|
|
8-26 years
|
|
Equipment
|
5 years
|
|
Automobile
|
5 years
|
|
Office furniture and fixtures
|
5 years
|
Repairs and maintenance costs are normally charged to the statement of operations and other comprehensive income in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.
Property, plant and equipment are evaluated annually for any impairment in value. Where the recoverable amount of any property, plant and equipment is determined to have declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. There were no property, plant and equipment impairments recognized as of September 30, 2016 and December 31, 2015 respectively.
Rental property
Properties include buildings held for rental and land use rights, which are being depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line basis over 20-26 years. As of September 30, 2016 and December 31, 2015, net property held for rental amounted to $31,913,126 and $35,502,002 respectively. Accumulated depreciation of rental properties amounted to $36,301,614 as of September 30, 2016 and $35,044,528 as of December 31, 2015.
Investment-related party
Because the fair value is not readily determinable and less than 20% of voting rights, our long-term investments apply ASC 325-20 cost method investments.
The Company carries at cost with its investment in investees which does not have readily determinable fair value and the Company does not have significant influence. The Company only adjusts for other-than-temporary declines in fair value and distributions of earnings that exceed the Company’s share of earnings since its investment. The Company regularly evaluates the impairment of the cost method investments based on performance and financial position of the investee as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. An impairment loss is recognized in earnings equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of investment.
Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. An impairment loss is recognized in earnings equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of investment.
Revenue recognition
Rental income and management fee income – The Company recognizes the rental income on the straight-line basis over the terms of the tenancy agreements. The management fee, including the service fee mainly for property management, maintenance and repair, and security, is recognized quarterly over the terms of the tenancy agreements.
Real estate sales – Revenue from the sales of development properties is recognized by the full accrual method when the sale is consummated. A sale is not considered consummated until (1) the parties are bound by the terms of a contract, (2) all consideration has been exchanged, (3) any permanent financing of which the seller is responsible has been arranged, (4) all conditions precedent to closing have been performed, (5) the seller does not have substantial continuing involvement with the property, and (6) the usual risks and rewards of ownership have been transferred to the buyer. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.
Real estate capitalization and cost allocation – Real estate held for development or sale is stated at cost or estimated net realizable value, whichever is lower. Costs include land and land improvements, direct construction costs and development costs, including predevelopment costs, interest on indebtedness, real estate taxes, insurance, construction overhead and indirect project costs. Selling and advertising costs are expensed as incurred. Total estimated costs of multi-unit developments are allocated to individual units based upon specific identification methods.
Impairment – If real estate is determined to be impaired, it will be written down to its fair market value. Real estate held for development or sale costs include the cost of land use rights, land development and home construction costs, engineering costs, insurance costs, wages, real estate taxes, and interest related to development and construction. All costs are accumulated by specific projects and allocated to residential and commercial units within the respective projects. The Company leases the land for the residential unit sites under land use rights with various terms from the government of the PRC. The Company evaluates the carrying value for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventory deemed impaired would be recorded as adjustments to the cost basis. No depreciation is provided for construction in progress.
Other income consists of land leveling income, parking lot income, cleaning income and etc. This income was recognized as the services were performed and the settled amount has been paid in accordance with the terms of the agreement.
8
Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period.
As of September 30, 2016 and December 31, 2015, respectively, there were no outstanding securities or other contracts to issue common stock, such as options, warrants or conversion rights, which would have a dilutive effect on earnings per share as the effect of options outstanding at that time was anti- dilutive.
Income taxes
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the difference are expected to affect taxable income.
The Company records a valuation allowance for deferred tax assets, if any, based on its estimates of its future taxable income as well as its tax planning strategies when it is more likely than not that a portion or all of its deferred tax assets will not be realized.
Non-controlling interest
Non-controlling interest represents the portion of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests are separately presented in the accompanying statements of income and other comprehensive income. Losses attributable to non-controlling interests in a subsidiary may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit of the non-controlling interest balance. The non-controlling interest rate of entity Panacea Co., Ltd., which was set up in April 2015, was 47%, with the amount of $21,099 and $142,782 as of September 30, 2016 and December 31, 2015, respectively.
Concentrations of business and credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, accounts receivable and other receivables arising from its normal business activities. The Company places its cash and cash equivalents in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China.
The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Statement of cash flows
Cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
9
Recent accounting pronouncements
Revenue Recognition
: In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers: Topic 606
and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016 and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10 and ASU 2016-12, respectively (ASU 2014-09, ASU 2015-04, ASU 2016-08, ASU 2016-10 and ASU 2016-12 collectively, Topic 606). Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 is effective for us as of either our first quarter of fiscal 2018 or our first quarter of fiscal 2019 using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional disclosures as defined per Topic 606. Preliminarily, we plan to adopt Topic 606 in the first quarter of fiscal 2019 pursuant to the aforementioned adoption method (1) and we do not believe there will be a material impact to our revenues upon adoption. We are continuing to evaluate the impacts of our pending adoption of Topic 606 and our preliminary assessments are subject to change.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net),” clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition. These ASUs are effective for the Company beginning in the first quarter of 2018, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements.
Disclosure of Going Concern Uncertainties
: In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for us in our fourth quarter of fiscal 2017 with early adoption permitted. We do not believe the impact of our pending adoption of ASU 2014-15 on the Company’s financial statements will be material.
Liabilities
: In February 2015, FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a VIE, and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact of the adoption of this guidance on the consolidated financial statements.
Financial instrument
: In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.
10
Leases
: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease amendments to the FASB Accounting should Standard Codification. This ASU will be effective for us beginning in May 1, 2019. We are currently in the process of evaluating the impact of the adoption of ASU 2016-2on our consolidated financial statements.
Stock-based Compensation
: In March 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09). ASU 2016-09 changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for us in the first quarter of 2018, and earlier adoption is permitted.
We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses
: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.
Statement of Cash Flows
: In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.
3. Property, Plant & Equipment and Rental property
Property, Plant & Equipment consisted of the following:
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Building
|
$
|
39,644
|
|
$
|
15,144
|
|
Automobile
|
|
1,104,281
|
|
|
1,136,790
|
|
Office equipment & Furniture
|
|
895,641
|
|
|
609,932
|
|
|
|
2,039,566
|
|
|
1,761,866
|
|
Accumulated depreciation
|
|
(1,502,853)
|
|
|
(1,536,066)
|
|
Property, plant and equipment, net
|
$
|
536,713
|
|
$
|
225,800
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Rental property
|
$
|
68,214,740
|
|
$
|
70,546,530
|
|
Accumulated depreciation
|
|
(36,301,614)
|
|
|
(35,044,528)
|
|
Rental property, net
|
$
|
31,913,126
|
|
$
|
35,502,002
|
11
The Company recorded depreciation expense relating to properties held for rental, as well as property, plant and equipment amounting to $3,134, and $2,092 for the three months ended September 30,2016 and 2015, and $2,293,977 and $2,382,676 for the nine months ended September 30, 2016 and 2015, respectively.
$499,613 and $389,533 for the three months ended September 30, 2016 and 2015, and $1,387,257 and $1,078,609 for the nine months ended September 31, 2016 and 2015 were recorded as general and administrative expense, respectively.
As of September 30, 2016, no fixed assets or rental property were pledged as security for long-term loans.
4. Related party transactions
Investment in a related party
On May 15, 2016, the Company entered into a Framework Agreement on Capital Increase and Equity Enlargement with the shareholders of Jiangcheng Sino-Au Agricultural Technology Development Co., Ltd. (“SAAT”) for the purchase of 14.07 million shares in the capital of SAAT for approximately 5,852,697 (RMB 37.48 million) based on the fair value . After the investment HHBT holds 11.12% of the total share capital of SAAT.
As of September 30, 2016 and December 31, 2015, the Company's balance of long-term investment was $5.85 million and $0 million, respectively. For the period ended September 30, 2016, the Company did not record any investment income.
The investment is accounted for under the cost method, and is reviewed periodically for indicators of other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we write down the investment to its fair value. We estimate fair value of our cost method investments considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. For the three and nine months ended September 30, 2016, we determined there were no other-than-temporary impairments on our cost method investment.
Due to a related party
The due to a related party is the amount due to a Company’s stockholder. The amount of due to a related party is $364,377 as of September 30, 2016 and $314,975 as of December 31, 2015.
5. Accrued expenses
Accrued expenses consisted of the following:
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Payroll and welfare payable
|
$
|
2,738
|
|
$
|
4,260
|
|
Accrued expenses
|
|
10,722
|
|
|
9,116
|
|
Total
|
$
|
13,460
|
|
$
|
13,376
|
6. Other payable
Other payable consisted of the following:
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Customer guarantee deposit
|
$
|
313,318
|
|
$
|
1,117,614
|
|
Customer deposit for property decoration
|
|
18,722
|
|
|
18,502
|
|
Miscellaneous payable
|
|
1,576,966
|
|
|
781,663
|
|
Total
|
$
|
1,909,006
|
|
$
|
1,917,779
|
7. Tax payables
Tax payables consisted of the following:
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Income tax payable in Mainland China
|
$
|
1,679,649
|
|
$
|
1,576,275
|
|
Business tax
|
|
607,137
|
|
|
602,586
|
|
Land VAT payable
|
|
2,250,149
|
|
|
2,316,391
|
|
Other levies
|
|
1,397
|
|
|
(27,691)
|
|
Total
|
$
|
4,538,332
|
|
$
|
4,467,561
|
8. Payable to disposed subsidiary
The Company had amounts due to a Loyal Best, a previously disposed of entity, as of September 30, 2016 and December 31, 2015 in the amount of $780,646 and $803,628 respectively.
9. Loan Payable
Loans payable (including accrued interest) consisted of the following:
|
|
Due on
|
Interest per Annum
|
|
September 30,
2016
|
|
December 31,
2015
|
|
Bank loan
|
6-12-2016
|
8.775%
|
|
$
|
-
|
|
$
|
4,631,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
4,631,202
|
The above loans were previously secured by the Company's rental properties.
The Company's incurred interest expense of $0 and$113,769 for the three months ended September 30, 2016 and 2015, and $105,743 and $790,609 for the nine months ended September 30, 2016 and 2015 respectively.
10. Statutory reserve
As stipulated by the Company Law of the People’s Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following:
|
i.
|
Making up cumulative prior years’ losses, if any;
|
|
|
|
|
ii.
|
Allocations to the “Statutory Surplus Reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;
|
|
|
|
|
iii.
|
Allocations of 5% to 10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “Statutory Common Welfare Fund”, which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; and statutory common welfare fund is no longer required per the new cooperation law executed in 2006; and
|
|
|
|
|
iv.
|
Allocations to the discretionary surplus reserve, if approved in the stockholders’ general meeting.
|
The Company did not contribute to statutory reserve for the period ended September 30, 2016 and 2015, respectively.
11. Segment information
ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
During 2016 and 2015, the Company was organized into two main business segments: (1) Rental income & Management fee, and (2) Consumer product sales. The following table presents a summary of operating information and certain year-end balance sheet information as of nine-month and three-month periods ended of September 30, 2016 and 2015, respectively.
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
Rental income & Management fee
|
1,933,909
|
|
1,765,624
|
|
5,679,910
|
|
5,741,299
|
|
|
Consumer product sales
|
13,180
|
|
923
|
|
25,255
|
|
923
|
|
|
|
Consolidated
|
1,947,089
|
|
1,766,547
|
|
5,705,165
|
|
5,742,222
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Rental income & Management fee
|
1,796,667
|
|
144,034
|
|
3,254,348
|
|
2,359,192
|
|
|
Consumer product sales
|
(103,727)
|
|
(83,054)
|
|
(310,686)
|
|
(83,054)
|
|
|
Corporation (1)
|
(62,138)
|
|
(18,835)
|
|
(308,292)
|
|
(182,784)
|
|
|
|
Consolidated
|
1,630,802
|
|
42,145
|
|
2,635,370
|
|
2,093,354
|
|
Net income (loss) before taxes:
|
|
|
|
|
|
|
|
|
|
Rental income & Management fee
|
1,864,716
|
|
84,423
|
|
3,303,101
|
|
1,819,440
|
|
|
Consumer product sales
|
(101,882)
|
|
(82,755)
|
|
(307,648)
|
|
(82,755)
|
|
|
Corporation (1)
|
(62,652)
|
|
(15,409)
|
|
(322,968)
|
|
(182,846)
|
|
|
|
Consolidated
|
1,700,182
|
|
(13,741)
|
|
2,672,485
|
|
1,553,839
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
Rental income & Management fee
|
(865,818)
|
|
(1,259,280)
|
|
32,096,044
|
|
40,156,866
|
|
|
Consumer product sales
|
(301)
|
|
511,170
|
|
31,635
|
|
511,170
|
|
|
Corporation (1)
|
-
|
|
(49,132)
|
|
-
|
|
7,241,049
|
|
|
|
Consolidated
|
(866,119)
|
|
(797,242)
|
|
32,127,679
|
|
47,909,085
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Consumer product sales
|
944
|
|
(1,620,978)
|
|
8,477
|
|
|
|
|
Rental income & Management fee
|
2,190
|
|
2,372,020
|
|
6,603
|
|
2,372,020
|
|
|
Corporation (1)
|
-
|
|
1,552
|
|
-
|
|
10,656
|
|
|
|
Consolidated
|
3,134
|
|
752,594
|
|
15,080
|
|
2,382,676
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Rental income & Management fee
|
506
|
|
755
|
|
6,146
|
|
4,196
|
|
|
Consumer product sales
|
-
|
|
21,290
|
|
-
|
|
21,290
|
|
|
|
Consolidated
|
-
|
|
22,045
|
|
6,146
|
|
25,486
|
(1). Unallocated loss from Operating income (loss) and Net income before provision for income taxes are primarily related to general corporate expenses.
14