NOTES
TO
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE
1
NATURE
OF
OPERATIONS
AND
SUMMARY
OF
ACCOUNTING
POLICIES
Nature
of
Operations
San
Lotus
Holding
Inc.(the
“Company”
or
“San
Lotus” or
“we”),
was
incorporated
on
June
21,
2011
in
the State of
Nevada and changed our state of incorporation from the
State of Nevada to the State of California (the "Conversion") on July
21, 2015. The Company’s principal address of business is in Taiwan.
The Company acquired several parcels of undeveloped land and is holding
these parcels of land for future development of destination real estate.
Through the acquisition of Mao Ren International Inc. (“Mao Ren”) in fiscal
2015, the Company acquired the liquidation rights to certain properties
collateralized by a Taiwanese company. The Company is being compensated by the
creditors of this Taiwanese company to use the proceeds from the sale of the
collateralized land to re-invest or develop the collateralized land to
construct and then re-sell the real estate.
In fiscal 2015 and part of fiscal 2016, the Company, through the
acquisition of XO Experience Inc. (“XO”) from the former Chairman, was engaged
in the provision of travel services, including hotel reservation services,
airline ticketing, and travel package in the United States. In December 2016,
the Company decided to dissolve XO.
The Company has not conducted business operations nor had significant
revenues from operations since its inception.
The Company’s year-end is December 31.
Basis of Presentation and Measurement
The accompanying consolidated financial statements of the Company have
been prepared in conformity with accounting principles generally accepted in
the United States of America (“U.S. GAAP”). The Company’s consolidated
financial statements have been prepared on a historical basis except for
certain financial assets and liabilities measured at fair value.
Consolidation Policy
The consolidated financial statements of the Company include the
accounts of San Lotus Holding, Inc. and its subsidiaries, Green Forest
Management Consulting Inc. (“Green Forest”), Da Ren International Development
Inc. (“Da Ren”), Mao Ren International Inc. and XO Experience Inc. Intercompany
accounts and transactions have been eliminated upon consolidation. The following companies have been consolidated as at
December 31, 2016 and 2015:
Consolidated companies
Company name
|
Registered
|
Purpose of
entity
|
Green Forest
|
Taiwan
|
Land holding
company
|
Da Ren
|
Taiwan
|
Land holding
company
|
Mao Ren
|
Taiwan
|
Liquidation
rights to collateralized land
|
XO
|
U.S.A.
|
Travel services
|
Going
Concern
The accompanying consolidated financial statements were prepared on a
going concern basis, which assumes the realization of assets and discharge of
liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company had an accumulated deficit of $16,482,355 as of December 31, 2016.
The Company faces all the risks common to companies at the development
stage, including capitalization and uncertainty of funding sources, high
initial expenditure levels, uncertain revenue streams and difficulties in
managing growth. The Company's losses raise substantial doubt about its ability
to continue as a going concern. The Company's consolidated financial statements
do not reflect any adjustments that might result from the outcome of this
uncertainty.
In addition, the Company advanced an additional $6,047,831 to AHI Film Inc. (“AHI Film”), a company that was acquired
subsequent to December 31, 2016 (Note 13). As outlined in Notes 5 and 8, the
Company could not locate the third group of creditors and could not settle any
of their debts. Should these creditors come forward to claim their debt, there
is a risk that the Company would be obligated to settle with these creditors
and the potential obligation could result in a liability to the Company. As at
the date of these financial statements, the Company cannot reasonably estimate
the amount of any contingent payments to these creditors. These factors further
raised substantial doubt about the Company’s ability to
continue as a going concern.
The Company is currently addressing its liquidity issue by continually
seeking investment capital through private placements of common stock and debt.
The Company’s expected cash receipts to fund its liabilities is through the
realization of its long term receivable (note 5).The Company believes its
current and future plans enable it to continue as a going concern. The
Company's ability to achieve these objectives cannot be determined at this
time. These consolidated financial statements do not give effect to any
adjustments which would be necessary should the Company be unable to continue
as a going concern and therefore be required to realize its assets and
discharge its liabilities other than the normal course of business and at
amounts which may differ from those in the accompanying consolidated financial
statements.
Use
of
Estimates
The preparation of financial statements in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates incorporated into the Company’s consolidated
financial statements include the estimated recoverable amount of the long term receivable,
the estimated useful lives for depreciable and amortizable assets and
litigation contingencies and claims. Actual results could differ from those estimates.
Revenue recognition
The Company’s revenues are principally derived from providing hotel
reservation, air ticketing, other travel and non-travel services. The Company
recognizes revenues when all of the following have occurred: persuasive
evidence of arrangement with the customer, services have been performed, fees
are fixed or determinable and collectability of the fees is reasonably assured,
as prescribed by ASC 605-10,
Revenue Recognition, Overall
. These
criteria as related to revenues are considered to have been met as follows:
Packaged-tour:
The Company receives referral fees from travel product providers for
packaged -tour products and services through its service platform and branch
offices. Referral fees are recognized as commissions on a net basis after the
packaged-tour service are rendered and collections are reasonably assured .
In cases where these entities undertake the majority of the business
risks and acts as principal related to the travel tour services provided,
revenues are recognized at gross amounts received from customers after the
services are rendered. Revenue from such principal arrangement is minimal in
the past.
Air ticketing services:
Commissions from air ticketing services rendered are recognized upon the
issuance of air tickets, net of estimated cancellations. Customers purchase the
air tickets, and the Company remits the net amount less base commission to the
airlines. Estimated cancellations were insignificant for the years ended December
31, 2016 and 2015. The Company presents revenues from such transactions on a
net basis in the consolidated statements of operations, as the Company acts as
an agent, does not assume any inventory risk, and has no obligations for
cancelled airline ticket reservations. The Company sometimes also receives
additional discretionary commissions from certain airlines when performance
targets are met. Such discretionary commissions are recognized on a cash basis
because the Company cannot reasonably estimate the amount, or timing of
receipt, of such commissions in advance.
Other travel services:
Other travel services are mainly commissions from insurance companies
for the sale of travel insurance. Customers purchase the travel insurance, and
the Company remits the net amount less commission to the insurance companies.
The Company recognizes revenue when the travel insurance is issued to the
customer, net of estimated cancellations.
Cash
and
Cash
Equivalents
Cash
and
cash
equivalents
include
cash
and
all
highly
liquid
instruments
with
original
maturities
of
three
months
or
less.
Property
and
Equipment
Property and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as
follows:
Estimated useful life
Property and equipment
|
Estimated Useful Life
|
Building
|
40 years
|
Vehicles
|
5 years
|
Equipment
|
3~5 years
|
Net Income (Loss)
Per
Share
The
Company
has
adopted
Accounting
Standards
Codification
subtopic
260-10,
Earnings
Per
Share
(
“ASC
260-10
”),
which
specifies
the
computation,
presentation
and
disclosure
requirements
of
earnings
per
share
information.
Basic
earnings
per
share
have
been
calculated
based
upon
the
weighted
average
number
of
common
shares
outstanding.
Common
equivalent
shares
are
excluded
from
the
computation
of
the
diluted
loss
per
share
if
their
effect
would
be
anti-dilutive.
For
the
years
ended
December 31
, 2016 and 2015
,
the
Company
did
not
have
any
common
equivalent
shares.
Impairment
of
Long-Lived
Assets
The
Company
has
adopted
Accounting
Standards
Codification
subtopic
360-10,
Property,
Plant
and
Equipment
(“ASC
360-10”).
ASC
360-10
requires
that
long-lived
assets
and
certain
identifiable
intangibles
held
and
used
by
the
Company
be
reviewed
for
impairment
whenever
events
or
changes
in
circumstances
indicate
that
the
carrying
amount
of
an
asset
may
not
be
recoverable.
The
Company
evaluates
its
long
lived
assets
for
impairment
annually
or
more
often
if
events
and
circumstances
warrant.
Events
relating
to
recoverability
may
include
significant
unfavorable
changes
in
business
conditions,
recurring
losses,
or
a
forecasted
inability
to
achieve
break-even
operating
results
over
an
extended
period.
The
Company
evaluates
the
recoverability
of
long-lived
assets
based
upon
forecasted
undiscounted
cash
flows.
Should
impairment
in
value
be
indicated,
the
carrying
value
of
intangible
assets
will
be
adjusted,
based
on
estimates
of
future
discounted
cash
flows
resulting
from
the
use
and
ultimate
disposition
of
the
asset.
ASC
360-10
also
requires
assets
to
be
disposed
of
be
reported
at
the
lower
of
the
carrying
amount
or
the
fair
value
less
costs
to
sell.
Management
has
determined
that
no
impairments
of
long-lived
assets
currently
exist.
Business Combinations
The
Company accounts for business combinations under the acquisition method of
accounting, which requires the Company to record assets acquired, liabilities
assumed and any non-controlling interest in the acquiree at their respective
fair values as of the acquisition date in the Company's consolidated financial
statements.
Goodwill and intangible assets
Goodwill
represents the excess of costs over fair value of the net assets of businesses
acquired. The Company follows ASC subtopic 350-20,
Intangibles-Goodwill
and Other: Goodwill
. Goodwill and intangible assets acquired in a business
combination and determined to have an indefinite useful life are not amortized,
but instead tested for impairment at least annually, or more frequently if
certain circumstances indicate a possible impairment may exist. The Company
performs its annual impairment assessment for goodwill and indefinite-lived
intangible assets in December of each year.
The Company
adopted ASU 2012-02,
Testing Indefinite-Lived Intangible Assets for Impairment
,
which amends the guidance in ASC subtopic 350-30 on testing indefinite-lived
intangible assets, other than goodwill, for impairment. ASU 2012-02 provides an
entity testing an indefinite-lived intangible asset for impairment the option
of performing a qualitative assessment before calculating the fair value of the
asset. Although ASU 2012-02 revises the examples of events and circumstances
that an entity should consider in interim periods, it does not revise the
requirements to test indefinite-lived intangible assets (1) annually for
impairment and (2) between annual tests if there is a change in events or
circumstances. If the Company determines, on the basis of qualitative factors,
that the fair value of indefinite-lived intangible assets is more likely than
not less than the carrying amount, further testing is required. Under the
further testing, the impairment test on indefinite-lived intangible assets that
are not subject to amortization consists of a comparison of the fair value of
each intangible asset with its carrying amount. If the carrying amount of an
intangible asset exceeds its fair value, an impairment loss is recognized in an
amount equal to that excess. Assets with definite lives are carried at cost
less accumulated amortization. Intangible assets with definite lives are
amortized using the straight-line method over the estimated economic life.
Discontinued Operations
The Company follows the
policy of segregating the assets and liabilities of subsidiaries or lines of
business on its balance sheet from the assets and liabilities of continuing
subsidiaries or lines of business when it is decided to close or dispose of a
subsidiary or line of business. The Company also follows the policy of
separately disclosing the assets and liabilities and the net operations of a
subsidiary or line of business in its financial statements when it is decided
to close or dispose of a subsidiary or line of business.
Income
Taxes
The
Company
accounts
for
income
taxes
in
accordance
with
ASC
740,
Income
Taxes,
which
requires
that
the
Company
recognize
deferred
tax
liabilities
and
assets
based
on
the
differences
between
the
financial
statement
carrying
amounts
and
the
tax
basis
of
assets
and
liabilities,
using
enacted
tax
rates
in
effect
in
the
years
the
differences
are
expected
to
reverse. Deferred
income
tax
benefit
(expense)
results
from
the
change
in
net
deferred
tax
assets
or
deferred
tax
liabilities. A valuation
allowance
is
recorded
when,
in
the
opinion
of
management,
it
is
more
likely
than
not
that
some
or
all
of
any
deferred
tax
assets
will
not
be
realized.
Financial Instruments
The Company uses the following methods and assumptions to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate such values:
Cash and cash equivalent – the carrying amount approximates fair valule
because the amounts consist of cash held at banks.
Accounts payable and accrued liabilities – the carrying amounts
approximate fair value due to the short-term nature of the obligations.
Financial
instruments measured at fair value are classified into one of three levels in
the fair value hierarchy according to the relative reliability of the inputs
used to estimate the fair values. The three levels of the fair value hierarchy
are:
Level
1 - Unadjusted quoted prices in active markets for identical assets or
liabilities;
Level
2 - Inputs other than quoted prices that are observable for the asset or
liability either directly or indirectly; and
Level
3 - Inputs that are not based on observable market data.
Cash and cash
equivalent is measured at level 1 inputs.
Foreign Currency Translation
Adjustment
The
Company’s financial statements are presented in the U.S. dollar ($), which is
the Company’s reporting currency, while its functional currencies are the U.S.
Dollar for its U.S. based operations and New Taiwan Dollar (NTD) for its
Taiwanese based operations. Transactions in foreign currencies are initially
recorded at the functional currency rate prevailing at the date of transaction.
Any differences between the initially recorded amount and the settlement amount
are recorded as a gain or loss on foreign currency transaction in the
statements of operations. Monetary assets and liabilities denominated in
foreign currency are translated at the functional currency rate of exchange
prevailing at the balance sheet date. Any differences are taken to profit or
loss as a gain or loss on foreign currency translation in the statements of
operations.
In
accordance with ASC 830, Foreign Currency Matters, the Company translates the
assets and liabilities into U.S. dollars using the rate of exchange prevailing
at the balance sheet date and the statements of operations and cash flows are
translated at an average rate during the reporting period. Adjustments
resulting from the translation from NTD into U.S. dollar are recorded in
stockholders’ equity as part of accumulated other comprehensive income (loss).
The exchange rates used for financial statements in accordance with ASC 830,
Foreign Currency Matters, are as follows:
Foreign
currency exchange rates
|
Dec. 31, 2016
|
Dec. 31, 2015
|
Average Exchange Rate, TWD
|
31.911
|
31.927
|
Instant Exchange Rate, TWD
|
32.279
|
33.066
|
Average Exchange Rate, USD
|
1.000
|
1.000
|
Instant Exchange Rate, USD
|
1.000
|
1.000
|
Recently
Issued
Accounting
Pronouncements
In May 2014, the
FASB issued Accounting Standards Update, (
“
ASU
”
)No. 2014-09,
Revenue from Contracts with Customers (
“
ASU 2014-09), which
supersedes nearly all existing revenue recognition guidance under U.S. GAAP.
The core principle is that a company should recognize revenue when promised
goods or services are transferred to customers in an amount that reflects the
consideration to which an entity expects to be entitled for those goods or
services. ASU 2014-09 defines a five-step process to achieve this core
principle and, in doing so, more judgment and estimates may be required within
the revenue recognition process than are required under existing U.S. GAAP. The
standard is effective for annual periods beginning after December 15, 2017, and
interim periods therein, and shall be applied either retrospectively to each
period presented or as a cumulative-effect adjustment as of the date of
adoption. In May 2016, the FASB issued Accounting Standards Update No. 2016-12,
Revenue from Contracts with Customers. This update provides further guidance on
applying collectability criterion to assess whether the contract is valid and
represents a substantive transaction on the basis whether a customer has the
ability and intention to pay the promised consideration. The requirements of
this standard include an increase in required disclosures. Management has not
yet selected a transition method and is currently analyzing the impact of the
adoption of this guidance on the Company’s consolidated financial statements,
including assessing changes that might be necessary to information technology
systems, processes and internal controls to capture new data and address changes
in financial reporting. The Company believes that the adoption of the standard
will not have a significant impact on its consolidated financial statements.
In August 2014,
the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's
Ability to Continue as a Going Concern.” This ASU establishes specific guidance
to an organization's management on their responsibility to evaluate whether
there is substantial doubt about the organization's ability to continue as a
going concern. The provisions of this ASU are effective for interim and annual
periods ending after December 15, 2016. The Company believes that the adoption
of the standard will not have a significant impact on its consolidated
financial statements.
In March 2016,
the FASB issued Accounting Standards Update No. 2016-09, “Stock Compensation”.
The new guidance is intended to simplify several aspects of the accounting for
share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities and classification on
the statement of cash flows. The Accounting Standard Update allows the entity
to make an accounting policy election to account for forfeitures when they
occur. The standard is effective for annual periods beginning after December
15, 2016 and interim periods within those annual periods. The Company believes
there will be no impact on the consolidated financial statements as a result of
the adoption of the new accounting standard.
In August 2016, the
FASB issued Accounting Standards Update No. 2016-15,
“
Statement of
Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash
Payments.
”
The new guidance
is intended to provide specific guidance on cash flow classification issues
such as debt prepayment or debt extinguishment costs, settlement of zero coupon
debt instruments or cases where the coupon interest rate is insignificant
compared to the effective interest rate of the borrowing, contingent consideration
payments in a business combination, proceeds from insurance claim settlements
and distributions received by equity method investees. The standard is
effective for annual periods beginning after December 15, 2017 and interim
periods within those annual periods. The amendments should be applied using a
retrospective transition method to each period presented. The Company believes
there will be no impact on the consolidated financial statements as a result of
the adoption of the new accounting standard.
In January 2017,
the FASB issued Accounting Standards Update No. 2017-01, “Business Combinations
(Topic 805).” The amendments in this Update are intended to clarify the
definition of business. The current guidance specifies three elements of a
business – inputs, processes, and outputs. The new guidance provides a screen
to determine when a set is not a business. The screen requires that when
substantially all of the fair value of the gross assets acquired is
concentrated in a single identifiable asset or group of similar identifiable
assets, the set is not a business. This screen reduces the number of
transactions that needs to be further evaluated. The standard is effective to
annual periods beginning after December 15, 2017, including interim periods within
those periods. The Company believes that the adoption of the standard will not
have a significant impact on its consolidated financial statements.
F-6
Note 2 PROPERTY
AND EQUIPMENT
Property
and equipment
|
Dec. 31, 2016 (USD)
|
Dec. 31, 2015 (USD)
|
Land
|
5,902,201
|
5,761,724
|
Vehicles
|
67,960
|
164,984
|
Equipment
|
55,069
|
91,561
|
Property and equipment - gross
|
6,025,230
|
6,018,269
|
Accumulated depreciation
|
(68,845)
|
(126,765)
|
Property and equipment - net
|
5,956,385
|
5,891,504
|
Depreciation
Expense
|
Year Ended Dec. 31, 2016 (USD)
|
Year Ended Dec. 31, 2015 (USD)
|
Depreciation Expense
|
43,651
|
27,098
|
In June 2016, The Company has sold vehicles, details of which are listed
below.
Vehicle Sale
|
June 30, 2016 (USD)
|
Sale proceeds
|
44,000
|
Net book value
|
34,215
|
Realized gain on disposal
|
9,785
|
NOTE
3. ACQUISITION AND DIVESTURE OF XO EXPERIENCE
INC. (“XO”)
On August 14,
2015, the Company entered into a stock purchase agreement (the “Stock Purchase
Agreement”) with Chen-Tseng, Chih-Ying and Chen, Li Hsing, our former CEO and
former Chairman respectively, for the acquisition of XO EXPERIENCE INC. (“XO”)
to acquire all of the issued and outstanding common stock of XO in exchange for
$1.
The following
table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the acquisition date of the acquisition:
Fair value of XO
Experience acquisition
|
Aug. 14, 2015 (USD)
|
Cash
|
216,402
|
Accounts receivable
|
250,740
|
Prepaid expenses and other current assets
|
21,915
|
Goodwill
|
121,793
|
Accounts payable
|
(583,257)
|
Other current liabilities
|
(13,154)
|
Unearned revenue
|
(14,438)
|
Consideration paid
|
1
|
The
acquisition of XO is considered to be a business acquisition; accordingly
goodwill (refer to above table) was recognized on the
acquisition date. As at December 31, 2015, the Company performed an impairment
test on its goodwill and determined that an impairment existed due to negative
expected cash flows that will be generated in the business. Accordingly, the
Company recorded an impairment charge equal to the full amount of
its goodwill (refer to above table).
On
December 31, 2016, we decided to
dissolve XO EXPERIENCE INC. pursuant to Section
1900 (a) of California
Corporations Code. The Company follows the policy of segregating the assets
and liabilities of subsidiaries or lines of business on its balance sheet from
the assets and liabilities of continuing subsidiaries or lines of business when
it decided to close or dispose of a subsidiary or line of business. As a
result of the decision to dissolve XO, XO’s assets, liabilities, revenues and
expenses have been classified as discontinued
operations on the consolidated balance
sheets and statement of operations. The components of discontinued
operations summarized on the statement
of operations arising from the decision to dissolve XO are as follows:
Discontinued
Operations
|
Year Ended Dec. 31, 2016 (USD)
|
Year Ended Dec. 31, 2015 (USD)
|
Revenue
|
156,276
|
235,403
|
General and administrative
expenses
|
(143,696)
|
(270,531)
|
Income tax
|
0
|
(800)
|
Net income (loss) from
discontinued operations
|
12,580
|
(35,928)
|
The components of discontinued operations
summarized on the balance sheets arising from the decision to dissolve XO are
as follows:
Discontinued
Operations
|
Dec. 31, 2016 (USD)
|
Dec. 31, 2015 (USD)
|
Current assets
|
|
|
Cash
|
0
|
128,444
|
Accounts receivable and other
current assets
|
0
|
13,441
|
Due from former related parties
|
0
|
204,658
|
Total assets held for divesture
|
0
|
346,543
|
Current liabilities
|
|
|
Accounts payable and accrued
liabilities
|
0
|
283,180
|
Unearned revenue
|
0
|
60,944
|
Total liabilities held for
divesture
|
0
|
344,124
|
As at December
31, 2016, the Company wrote off the residual net receivable due from companies
owned by our former CEO and Chairman totaling $27,836.
NOTE 4. ACQUISITION
OF MAO REN INTERNATIONAL INC.
On March 31, 2015 (the acquisition date), Green Forest
Management Consulting Inc. ("Green Forest"), our wholly-owned
subsidiary, entered into a stock purchase agreement with Chiu, Pao-Chi, Chiun
Jing Inc., Haug Inc., Jiu Bang Inc., and Wan Fu Inc., (collectively the
"Mao Ren Sellers") for the acquisition of Mao Ren International Inc.,
a Taiwan (R.O.C.) company ("Mao Ren"). Green Forest acquired all of
the issued and outstanding common stock of Mao Ren from the Mao Ren Sellers in
exchange for $1.
The main assets and liabilities acquired from Mao Ren
included the liquidation rights to proceeds from collateralized land totaling US$18,190,911 and the related
promissory notes payable totaling US$18,190,911 respectively. See Note 5.
NOTE 5. LONG-TERM
RECEIVABLES
In February 2010, Mao Ren took on debt
from the creditors of a Taiwanese based company in exchange for the creditors’
rights to the proceeds from the sale of collateralized land pledged by this
Taiwanese company.
Pursuant to the
assumption agreements, the creditors agreed with Mao Ren to enforce and execute
the auction by the court or itself against the debtor’s remaining assets which
are the collateralized land.
The above mentioned creditors of the Taiwanese company
are segregated into three groups. In response to the three groups of creditors,
three private companies were incorporated by Chen, Kuan Yu, our Chairman, and Yu,
Chien Yang, our former Director to facilitate further development.
Prior to the acquisition date of March 31,
2015, these three private
companies assumed the debt which Mao Ren owed to the three groups of creditors
respectively and in turn accepted promissory notes from Mao Ren as
consideration. On June 12, 2015, the
first group of creditors,
represented by the first of the three private companies, agreed to take common stock of the Company
as settlement for cancellation
of the promissory notes from Mao Ren. The common stock issued was recorded at the
par value of $1/common share. The difference between the carrying amount (that being the cost of the seller) and the par value was recorded in
deficit. The Company issued those shares to our Chairman in trust for those individual creditors. The second
group of creditors, who wish to collect cash
proceeds from the sale of collateralized land, settled with the second private company (owned by our
former Director)
whereby the former director would be personally liable to settle the amounts with
the creditors. The Company could not locate the remaining third group creditors
and could not settle any of their debts.
The Company has hired an independent appraiser to
appraise the collateralized land and recorded the long-term receivable based on
the potentially realizable value
NT$913,401,823 of the collaterals at
initial recognition. The realizable value
constitutes the carrying amount of the seller because the agreements with the
creditors stipulated that the maximum amount the creditors could recover is
limited to the proceeds received from the sale of the collateralized land
relative to their proportionate investment. Further to realization of some of
the liquidation rights to the debtor’s remaining assets during fiscal 2016, the
Company has re-assessed our remaining rights to the debtor’s remaining assets
as follow:
Land Fair Value
|
Dec. 31, 2016
|
Dec. 31, 2015
|
Fair Value (NT$)
|
263,018,668
|
568,111,416
|
Land Area (square meter)
|
532,228
|
758,017
|
As of December
31, 2016 and 2015, the Company’s
receivable amounts are shown below.
Receivables
|
Dec. 31, 2016 (USD)
|
Dec. 31, 2015 (USD)
|
Loan receivable
|
8,148,290
|
17,190,372
|
During
fiscal 2016, three parcels of the debtor’s land
were sold for the following amounts:
Land Sales
Proceeds
|
Year Ended Dec. 31, 2016
|
|
Yilan
|
Tainan
|
Pingtung
|
Total
|
Cash Proceeds (NT$)
|
258,999,970
|
15,681,799
|
30,110,734
|
304,792,503
|
No
gain or loss was recognized upon sale of the debtor’s land because the initial
carrying value was adjusted to its fair value as agreements with the first
group of the creditors stipulated that the cost of the seller to equal to the
estimated expected proceeds from the sales.
F-7
NOTE 6. RELATED
PARTY
TRANSACTIONS
The principal
related party transactions for the years ended December 31, 2016, and 2015
were as follows:
a)
Miaoli
Land
In fiscal 2013
and 2014, the Company, through Green Forest, entered into several land purchase
agreements with Chen, Kuan-Yu, our Chairman and Yu, Chien-Yang, and a former director
and issued 77,338,781common shares to settle the promissory notes in exchange
for certain parcels of land in Miaoli County, Taiwan. Since title to the
properties had not been
transferred to Green Forest by the end of 2014 as stipulated in the sales agreement,
Green Forest cancelled the land purchase transactions in accordance with terms
of the sales agreement whereby the Company is not obligated to pay any
termination costs. The shares issued in connection with these cancelled transactions
were retired as treasury stock in fiscal 2015.
b)
Dataoping
Land
On March 31,
2015, our wholly-owned subsidiary, Green Forest, a Taiwanese corporation,
entered into a land purchase agreement with Yu, Chien-Yang , our former
Director to acquire land in Dataoping Section of Zaoqiao Township, Miaoli
County, and land in Laotianliao Section of Touwu Township, Miaoli County,
Taiwan, all of which is 76,435 square meters for the below Purchase Price. All pertinent
figures are disclosed in the below table. The Purchase Price was paid for through
Green Forest's issuance of a promissory note payable to the Seller. On the same
date, to
settle the promissory note, the Company entered into a stock purchase agreement
for the issuance of its common stock at par to the Seller pursuant to stock
purchase agreement. This transaction was measured at the carrying amount of the
seller pursuant to Staff Accounting Bulletin 5 Topic G.
Dataoping Land
|
Mar. 31, 2015
|
Dataoping section land (square meter)
|
35,251
|
Laotianliao section land (square meter)
|
41,184
|
Total land (square meter)
|
76,435
|
Purchase price (NTD)
|
99,110,334
|
Purchase price ($)
|
3,384,450
|
Common stock issuance (number of shares)
|
6,195,484
|
Issuance share price ($)
|
1
|
c)
Glendale
Condominium
In July 2015,
the Company sold the condominium unit in Glendale, California to our former CEO,
Chen-Tseng, Chih-Ying for a total selling price of $487,355.
d)
Purchase
of vehicle
During fiscal
2016, the Company purchased two vehicles from a private company controlled by
Yu, Chien-Yang , our former Director for total purchase price of $39,600
e)
Amounts
due from/to related parties
Amounts Due From or To Related Parties
|
Dec. 31, 2016 (USD)
|
Dec. 31, 2015 (USD)
|
Amount due from Chen, Kuan Yu,
Chairman
|
78,000
|
78,000
|
Amount due from Yu, Chien Yang,
former Director
|
78,000
|
94,409
|
Amount due to Yu, Chien Yang,
former Director
|
7,023
|
153,284
|
The amounts due
from/to related parties are non-interest bearing, unsecured and have no fixed
terms of repayment.
f)
Acquisitions
The acquisitions
of XO and Mao Ren as outlined in notes 3 and 4 are considered to be
transactions with related parties. The acquisitions of AHI Film Inc., AHI
Records Inc. and San Lotus Holding Inc. (BVI) in note 13 are also considered to
be transactions with related parties.
NOTE
7.
CAPITAL
STOCK
Common Stock
Holders of
common stock are entitled to one vote for each share held. There are no
restrictions that limit the Company’s ability to pay dividend on its common
stock. The Company has not declared any dividend since incorporation.
Capital Stock
|
Apr. 21, 2015
|
Jun. 25, 2015
|
Aug. 19, 2015
|
Common Shares Issued
|
6,195,484
|
29,464,575
|
|
Value of Common Shares Issued
|
3,384,450
|
18,191,790
|
|
Common Shares Canceled
|
|
|
77,338,782
|
Reason
|
See a
|
See b
|
See c
|
a) To a former director to settle the note payable as outlined in Note
6 (b).
b) To settle promissory note payable to Mao Ren Sellers as outlined in
Note 5.
c) As outlined in Note 6(a).
There are no capital transactions during fiscal 2016.
NOTE 8. COMMITMENTS AND CONTINGENCIES
a)
The Company has several operating leases, primarily for
offices and employee dormitories. Payments under operating leases, including
periodic rent escalation and rent holidays, are expensed on a straight-line
basis over the lease term.
Future minimum lease payments under non-cancellable
operating leases as of December 31, 2016 are as follows:
Minimum lease payments
|
Year Ended Dec. 31, 2017 (USD)
|
Year Ended Dec. 31, 2018 (USD)
|
Total
|
Minimum lease payments
|
29,701
|
31,168
|
60,869
|
Rental expenses
|
Year Ended Dec. 31, 2016 (USD)
|
Year Ended Dec. 31, 2015 (USD)
|
Rental expenses
|
35,012
|
31,669
|
b)
As outlined in Note 5, the Company could not locate the
third group of creditors and could not settle any of their debts. Should these
creditors come forward to claim their debt, there is a risk that the Company
would be obligated to settle with these creditors and the potential obligation
could result in a liability to the Company. As at the date of these financial
statements, the Company cannot reasonably estimate the amount of any contingent
payments to these creditors.
F-8
NOTE 9. SEGMENTED
INFORMATION
The
Company has two principal reportable segments, one of which is considered to be
discontinued operations as at December 31, 2016. These reportable segments
were determined based on the nature of products and services offered.
Reportable segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
Subsequent
to December 31, 2016, the Company acquired media assets by way of acquiring AHI
Film. During fiscal 2016, the Company advanced $904,869 to AHI Film. As at
December 31, 2016, the Company performed an impairment test on these advances
and decided to record an allowance for doubtful balance on this account due to
uncertainty on the ultimate benefit of these advances to the Company.
Business
Segments
|
Year Ended Dec. 31, 2016 (USD)
|
Year Ended Dec. 31, 2015 (USD)
|
Travel Services
|
12,580
|
(35,928)
|
Real Estate
|
(596,452)
|
(394,911)
|
Impairment of advances to AHI
Film
|
(904,869)
|
0
|
Net income (loss)
|
(1,488,741)
|
(430,839)
|
The
following table lists the Company’s capital assets by geographical area:
Geographical
Areas
|
Dec. 31, 2016 (USD)
|
Dec. 31, 2015 (USD)
|
U.S.A.
|
0
|
61,663
|
Taiwan
|
5,956,385
|
5,829,841
|
Capital assets
|
5,956,385
|
5,891,504
|
NOTE 10. CONCENTRATIONS
Credit risk
Financial
instruments that potentially subject the Company to concentration of credit
risk consist primarily of cash and cash equivalents. The Company places its
cash with high quality financial institutions. The majority of the Company’s
cash is deposited with banks in Taiwan. The government-owned Central Deposit
Insurance Corporation in Taiwan provides deposit insurance coverage limit of up
to NTD3,000,000 per depositor.
NOTE 11. INCOME TAXES
The
Company's Loss before income tax consisted of:
Loss
before income tax
|
Year Ended Dec. 31, 2016 (USD)
|
Year Ended Dec. 31, 2015 (USD)
|
U.S.
|
(541,786)
|
(148,765)
|
Taiwan
|
(946,952)
|
(246,146)
|
Loss before income tax
|
(1,488,741)
|
(394,911)
|
A
reconciliation of income taxes at statutory rates with the reported taxes is as
follows:
Income Tax Reconciliation
|
Year Ended Dec. 31, 2016 (USD)
|
Year Ended Dec. 31, 2015 (USD)
|
Earnings (loss) for the year
|
(1,488,741)
|
(394,911)
|
Expected income tax (recovery)
|
(593,000)
|
(157,000)
|
Change in statutory, foreign tax, foreign exchange rates
and other
|
217,000
|
104,000
|
Permanent Difference
|
0
|
48,000
|
Change in unrecognized deductible temporary differences
|
376,000
|
5,000
|
Total income tax expense (recovery)
|
0
|
0
|
The
significant components of the Company’s deferred tax assets that have not been
included on the consolidated statement of financial position are as follows:
Deferred Tax Components
|
Dec. 31, 2016 (USD)
|
Dec. 31, 2015 (USD)
|
Property and equipment
|
0
|
30,000
|
Long term receivables
|
1,994,000
|
1,810,000
|
Non-capital losses available for
future period
|
630,000
|
391,000
|
Deferred Tax Assets (liabilities)
|
2,624,000
|
2,231,000
|
Valuation allowance
|
(2,624,000)
|
(2,231,000)
|
Net deferred tax assets
|
0
|
0
|
Non-capital losses available
|
Jan. 1, 2016 to Dec. 31, 2025
|
Jan. 1, 2017 to Dec. 31, 2026
|
Jan. 1, 2021 to Dec. 31, 2025
|
Jan. 1, 2021 to Dec. 31, 2026
|
|
Taiwan
|
Taiwan
|
USA
|
USA
|
Non-capital
losses available for future period
|
719,000
|
853,000
|
675,000
|
1,217,000
|
F-9
NOTE 12. RESTATEMENT AND CORRECTION
OF ERRORS
Subsequent
to the issuance of the Company’s 2015 consolidated financial statements on
March 31, 2016, the Company became aware of errors in its determination of
certain previously reported amounts in its 2015 consolidated financial
statements related to the acquistion of XO and Mao Ren and the application of
its revenue recognition policy. These errors were related to the measurement
of the purchase price allocation on acquistion dates and the subsequent
measurement of these amounts as well as the recognition policy of the revenue
from the travel services business. The Company has also identified other
adjustments that have been corrected as part of this restatement, including
classification of related party balances, and adjustments to accounts
receivable and unearned revenue related to errors in revenue recognition. The
errors in revenue recognition are related to the fact that the Company booked
revenue on a gross basis instead of net basis in accordance with ASC 605-45
Revenue Recognition: Principal Agent Considerations. The purchase price
allocation has been adjusted to reflect the carrying amounts to the seller of
Mao Ren. The Company determined its previously issued consolidated financial
statements should be restated to correct these errors. The following tables
summarize the impact of the restatement on our previously reported consolidated
balance sheets, consolidated statementof comprehensive loss, consolidated
statementof stockholders’ equity and consolidated statementof cash flows for
the year ended December 31, 2015.
Consolidated balance sheets
|
Dec. 31, 2015
|
|
As previously reported
|
Adjustments
|
As currently reported (Restated)
|
|
(USD)
|
(USD)
|
(USD)
|
Current assets
|
|
|
|
Cash
|
136,125
|
0
|
136,125
|
Accounts receivable
|
469,008
|
(250,652)
|
218,356
|
Prepaid expenses and other
current assets
|
0
|
32,380
|
32,380
|
Current assets
|
605,133
|
(218,272)
|
386,861
|
|
|
|
|
Goodwill
|
1,145,848
|
(1,145,848)
|
0
|
Due from related parties
|
0
|
172,409
|
172,409
|
Long term receivables
|
26,967,654
|
(9,777,282)
|
17,190,372
|
Fixed assets
|
5,891,504
|
0
|
5,891,504
|
Other assets
|
6,882
|
0
|
6,882
|
Total assets
|
34,617,021
|
(10,968,993)
|
23,648,028
|
Current liabilities
|
|
|
|
Accounts payable and accrued
liabilities
|
366,462
|
(42,480)
|
323,982
|
Due to related party
|
0
|
153,284
|
153,284
|
Unearned revenue
|
295,803
|
(234,859)
|
60,944
|
Current liabilities
|
662,265
|
(124,055)
|
538,210
|
|
|
|
|
Share capital
|
42,003,333
|
0
|
42,003,333
|
Additional paid-in capital
|
24,000
|
0
|
24,000
|
Treasury stock
|
(1,815,415)
|
(462,360)
|
(2,277,775)
|
Deficit
|
(3,745,612)
|
(11,248,002)
|
(14,993,614)
|
Accumulated other comprehensive
loss
|
(2,511,550)
|
865,424
|
-,1646126
|
Liabilities and Equity
|
34,617,021
|
(10,968,993)
|
23,648,028
|
Consolidated statements of loss and comprehensive loss
|
Year Ended
Dec. 31, 2015
|
|
As previously reported
|
Adjustments
|
As currently reported (Restated)
|
|
(USD)
|
(USD)
|
(USD)
|
Revenue
|
1,046,380
|
-810,977
|
235,403
|
Cost of sales
|
496,071
|
-496,071
|
0
|
Gross profit
|
550,309
|
-314,906
|
235,403
|
General and administrative
expenses
|
596,324
|
-
|
596,324
|
Loss from operations
|
-46,015
|
-314,906
|
-360,912
|
|
|
|
|
Interest income
|
101
|
0
|
101
|
Gain on sale of fixed assets and
investment
|
39,121
|
0
|
39,121
|
Other income
|
13,453
|
0
|
13,453
|
Impairment of goodwill
|
0
|
-121,793
|
-121,793
|
Loss before income taxes
|
6,660
|
-436,699
|
-430,039
|
Income tax expense
|
-800
|
0
|
-800
|
Net income (loss) for the year
|
5,860
|
-436,699
|
-430,839
|
Basic and diluted loss per share
|
0
|
-0.01
|
-0.01
|
Weighted average number of
common shares outstanding
|
9,161,741
|
62,418,047
|
71,579,788
|
Net income (loss)
|
5,860
|
-436,699
|
-430,839
|
Foreign exchange translation
|
-2,343,270
|
865,422
|
-1,477,848
|
Total comprehensive loss
|
-2,337,410
|
428,723
|
-1,908,687
|
Consolidated
statement of stockholders’ equity
|
Dec. 31, 2015
|
|
As previously reported
|
Adjustments
|
As currently reported (Restated)
|
|
(USD)
|
(USD)
|
(USD)
|
Share capital
|
42,003,333
|
0
|
42,003,333
|
Additional paid-in capital
|
24,000
|
0
|
24,000
|
Treasury stock
|
(1,815,415)
|
(462,360)
|
(2,277,775)
|
Deficit
|
(3,745,612)
|
(11,248,002)
|
(14,993,614)
|
Accumulated other comprehensive
loss
|
(2,511,550)
|
865,424
|
(1,646,126)
|
Total Equity
|
33,954,756
|
(10,844,938)
|
23,109,818
|
Consolidated
statements of cash flows
|
Year Ended
Dec. 31, 2015
|
|
As previously reported
|
Adjustments
|
As currently reported (Restated)
|
|
(USD)
|
(USD)
|
(USD)
|
Net cash used in operating
activities
|
(603,504)
|
31,728
|
(571,776)
|
Net cash from investing
activities
|
738,785
|
2,076
|
740,861
|
Net cash from financing
activities
|
0
|
24,091
|
24,091
|
Effect of exchange rate on cash
|
(12,315)
|
(57,817)
|
(70,210)
|
Change in cash during the year
|
122,966
|
0
|
122,966
|
Cash, beginning of the year
|
13,159
|
0
|
13,159
|
Cash, end of the year
|
136,125
|
0
|
136,125
|
NOTE 13. SUBSEQUENT EVENTS
On
August 31, 2016, we entered into an agreement (Agreement I) to purchase all outstanding
shares of AHI Film Inc. from Chang, Hsin-Yu (the “Seller”), the sole
shareholder of AHI Film and AHI Film’s creditor’s right from
Yu, Chien-Yang, a former director and major shareholder. During
fiscal 2016, the Company advanced funds to AHI Film totaling amount as shown
below. Due to uncertainty in the recoverability of the advances and the
ultimate benefit of the assets to the Company acquired from AHI Film, an
allowance was recorded for the full amount of funds advanced. The Company
determined that the acquisition of AHI Film will be an asset acquisition upon
closing of the transaction. Details of the AHI Film Inc. transaction are
as follow:
AHI Film Inc.
Closing date
|
January 1, 2017
|
Number of shares acquired
|
10,000
|
Consideration paid for shares (USD)
|
$1
|
Advance to settle creditor’s right in 2016 (USD)
|
$904,869
|
On August 31, 2016, we entered
into an agreement (Agreement II) to purchase all outstanding shares of AHI
Records Inc. from Chang, Hsin-Yu (the “Seller”), the sole shareholder
of AHI Records Inc. (“AHI Records”) and AHI Records’ creditor’s
right from Yu, Chien-Yang, a former director and major
shareholder. The Company determined that the acquisition of AHI Records
will be an asset acquisition upon closing of the transaction. Details of
the AHI Records Inc. transaction are as follow:
AHI Records Inc.
Closing date
|
January 1, 2017
|
Number of shares acquired
|
10,000
|
Consideration paid for shares (USD)
|
$1
|
On August 31, 2016, we entered
into an agreement (Agreement III) to purchase all outstanding shares
of San Lotus Holding Inc. registered in British Virgin Islands (the
“BVI Company”) from Chang, Hsin-Yu (the “Seller”), the sole
shareholder of the BVI Company and the BVI Company’s creditor’s
right from Yu, Chien-Yang, a former director and major
shareholder. The Company determined that the acquisition of the BVI
Company will be an asset acquisition upon closing of the
transaction. Details of the the BVI Company transaction are as
follow:
BVI Company
Closing date
|
January 1, 2017
|
Number of shares acquired
|
50,000
|
Consideration paid for shares (USD)
|
$1
|
In connection
with the transactions outlined above, the Company effectively acquired
ancillary assets and know-how to augment the two main operating segments to the
Company’s main businesses. These ancillary assets and know-how included the
following:
a)
Media
asset
s including a feature motion-picture, video
footages and albums – these were acquired via the transaction with AHI Film and
AHI Records. The motion picture produced by AHI Film is currently in
post-production stage. During fiscal 2015, AHI Film acquired 15 subsidiaries
which were all involved in TV and film production. In connection with the
acquisition of these 15 subsidiaries, the Company also assumed the debt that
these companies had incurred.
b)
Proprietary research knowledge – the proprietary knowledge was
acquired via the transaction with the BVI Company. The BVI Company engaged two
consulting firms which provided research on tourism development in Japan.
Subsequent
to December 31, 2016, the Company advanced an additional $6,047,831 to AHI Film
to pay off the creditors of AHI Film, AHI Records and the BVI Company. These
creditors are mainly Yu, Chien-Yang and Chen, Kuan-Yu who are considered to be
related parties.
The
Company performed an impairment test on the assets acquired after acquisition
and determined that the full balance of the assets are to be impaired due to
the uncertainty in the ultimate benefit to the Company. The Company decided to
purchase these assets to reimburse the original creditors for their advances
and expenses paid on behalf of these companies.
On
December 31, 2016, we entered into a stock purchase agreement
(“Agreement IV”) with Wu, Ting-Kuang (the “Seller”), the sole shareholder of Da Ren
International Insurance Brokers Co. Ltd. (the “Da Ren Insurance”), to purchase
the outstanding 300,000 shares of Da Ren Insurance (the “Da
Ren Insurance Shares”) in exchange for NTD$10,500,000, and the transaction under Agreement IV
has not been closed to date. The Company determined that the acquisition of Da
Ren Insurance will be an asset acquisition upon closing of the transaction.
F-10