GLOBALINK, LTD.
Condensed Consolidated
Balance Sheets
(Expressed
in U.S. Dollars)
(Unaudited)
|
|
June 30,
2016
|
|
December 31, 2015
|
|
|
$
|
|
$
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (note 3)
|
|
|
405,822
|
|
|
|
758,355
|
|
Accounts receivable (note 6)
|
|
|
130,862
|
|
|
|
92,464
|
|
Other current assets (note 4)
|
|
|
178,080
|
|
|
|
79,206
|
|
Total current assets
|
|
|
714,764
|
|
|
|
930,025
|
|
|
|
|
|
|
|
|
|
|
Inventories (note 5)
|
|
|
1,665
|
|
|
|
25,213
|
|
Construction in progress (note 8)
|
|
|
94,696
|
|
|
|
12,884
|
|
Growing crops (note 9)
|
|
|
348,454
|
|
|
|
132,168
|
|
Fixed assets (note 7)
|
|
|
158,234
|
|
|
|
54,402
|
|
Goodwill
|
|
|
274,449
|
|
|
|
274,449
|
|
Total assets
|
|
|
1,592,262
|
|
|
|
1,429,141
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities (note 10)
|
|
|
507,897
|
|
|
|
338,073
|
|
Amounts due to related parties (note 12)
|
|
|
21,564
|
|
|
|
—
|
|
Loan payable to related party (note 12)
|
|
|
225,723
|
|
|
|
—
|
|
Other current liabilities (note 11)
|
|
|
21,489
|
|
|
|
9,305
|
|
Total current liabilities
|
|
|
776,673
|
|
|
|
347,378
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
Common shares, $0.0002 par value;
Authorized - 500,000,000 common shares; shares issued and outstanding – 45,585,000 (December 31, 2015 – 43,585,000) (note 13)
|
|
|
9,117
|
|
|
|
8,717
|
|
Additional paid-in-capital (note 13)
|
|
|
1,824,136
|
|
|
|
1,660,415
|
|
Accumulated other comprehensive loss
|
|
|
(23,737
|
|
|
|
(20,013
|
)
|
Deficit
|
|
|
(993,927
|
|
|
|
(567,356
|
)
|
Total shareholders’ equity
|
|
|
815,589
|
|
|
|
1,081,763
|
|
Total liabilities and shareholders’ equity
|
|
|
1,592,262
|
|
|
|
1,429,141
|
|
Nature of operations (note 1)
|
|
|
|
|
|
|
|
|
Commitment (note 15)
|
|
|
|
|
|
|
|
|
The notes are
an integral part of these condensed consolidated interim financial statements.
GLOBALINK, LTD.
Condensed Consolidated
Statements of Comprehensive Loss
(Expressed in
U.S. Dollars)
(Unaudited)
|
|
Three months ended June 30, 2016
|
|
Three months ended June 30, 2015
|
|
Six months ended June 30, 2016
|
|
Six months ended June 30, 2015
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Revenue (note 14)
|
|
|
59,533
|
|
|
|
84,823
|
|
|
|
92,629
|
|
|
|
156,744
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting and legal
|
|
|
62,908
|
|
|
|
2,034
|
|
|
|
63,708
|
|
|
|
2,608
|
|
Amortization (note 7)
|
|
|
735
|
|
|
|
—
|
|
|
|
1,469
|
|
|
|
—
|
|
Director and management fees (note 12)
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
Foreign exchange (gain) loss
|
|
|
34,280
|
|
|
|
(8,982
|
)
|
|
|
38,767
|
|
|
|
(9,576
|
)
|
Investor relations (note 13)
|
|
|
26,767
|
|
|
|
—
|
|
|
|
27,144
|
|
|
|
—
|
|
Research and development
|
|
|
11,846
|
|
|
|
—
|
|
|
|
20,642
|
|
|
|
—
|
|
Rent
|
|
|
9,571
|
|
|
|
5,929
|
|
|
|
18,664
|
|
|
|
11,138
|
|
Salaries and benefits
|
|
|
75,388
|
|
|
|
58,240
|
|
|
|
162,414
|
|
|
|
110,582
|
|
Stock-based compensation (notes 12 and 13)
|
|
|
32,248
|
|
|
|
—
|
|
|
|
84,121
|
|
|
|
—
|
|
Telephone
|
|
|
1,566
|
|
|
|
1,545
|
|
|
|
3,609
|
|
|
|
3,415
|
|
Travel
|
|
|
17,796
|
|
|
|
836
|
|
|
|
18,225
|
|
|
|
7,976
|
|
Transfer agent and filing fees
|
|
|
3,493
|
|
|
|
965
|
|
|
|
28,543
|
|
|
|
16,850
|
|
Other general and administrative expenses
|
|
|
8,675
|
|
|
|
10,237
|
|
|
|
21,894
|
|
|
|
12,565
|
|
Total general and administrative expenses
|
|
|
(300,273
|
)
|
|
|
(85,804
|
)
|
|
|
(519,200
|
)
|
|
|
(185,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(240,740
|
)
|
|
|
(981
|
)
|
|
|
(426,571
|
)
|
|
|
(28,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange difference on translating foreign operations
|
|
|
(5,012
|
)
|
|
|
84
|
|
|
|
(3,724
|
)
|
|
|
1,780
|
|
Comprehensive loss
|
|
|
(245,752
|
)
|
|
|
(897
|
)
|
|
|
(430,295
|
)
|
|
|
(27,034
|
)
|
Basic and diluted weighted average number of common shares outstanding
|
|
|
44,485,000
|
|
|
|
42,485,000
|
|
|
|
45,134,451
|
|
|
|
42,485,000
|
|
Basic and diluted loss per common share
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.00
|
)
|
The notes are
an integral part of these condensed consolidated interim financial statements.
GLOBALINK, LTD.
Condensed Consolidated
Statements of Changes in Equity
(Expressed in
U.S. Dollars)
(Unaudited)
|
|
Common shares
|
|
Additional
paid-in capital
|
|
Accumulated other comprehensive income (loss)
|
|
Deficit
|
|
Total
|
|
|
|
#
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
December 31, 2014
|
|
|
42,485,000
|
|
|
|
8,497
|
|
|
|
1,459,703
|
|
|
|
(7,691
|
)
|
|
|
(289,066
|
)
|
|
|
1,171,443
|
|
Private placements
|
|
|
1,100,000
|
|
|
|
220
|
|
|
|
109,780
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110,000
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
90,932
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,932
|
|
Net loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(278,290
|
)
|
|
|
(278,290
|
)
|
Foreign currency translation difference
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,322
|
)
|
|
|
—
|
|
|
|
(12,322
|
)
|
December 31, 2015
|
|
|
43,585,000
|
|
|
|
8,717
|
|
|
|
1,660,415
|
|
|
|
(20,013
|
)
|
|
|
(567,356
|
)
|
|
|
1,081,763
|
|
Shares issued for
investor relations fee
|
|
|
2,000,000
|
|
|
|
400
|
|
|
|
79,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80,000
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
84,121
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84,121
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(426,571
|
)
|
|
|
(426,571
|
)
|
Foreign currency translation difference
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,724
|
)
|
|
|
—
|
|
|
|
(3,724
|
)
|
June 30, 2016
|
|
|
45,585,000
|
|
|
|
9,117
|
|
|
|
1,824,136
|
|
|
|
(23,737
|
)
|
|
|
(993,927
|
)
|
|
|
815,589
|
|
The notes are
an integral part of these condensed consolidated interim financial statements.
GLOBALINK, LTD.
Condensed Consolidated
Statements of Cash Flows
(Expressed in
U.S. Dollars)
(Unaudited)
For the six months
ended June 30,
|
|
2016
|
|
2015
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(426,571
|
)
|
|
|
(28,814
|
)
|
Non-cash items:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1,469
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
84,121
|
|
|
|
—
|
|
Shares issued for investor relations fee
|
|
|
36,000
|
|
|
|
—
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(31,415
|
)
|
|
|
(146,927
|
)
|
(Increase) Decrease in other current assets
|
|
|
(60,727
|
)
|
|
|
4,003
|
|
Increase in accounts payable and accrued liabilities
|
|
|
152,261
|
|
|
|
238,544
|
|
Increase in amounts due to related parties
|
|
|
21,564
|
|
|
|
—
|
|
Increase in other current liabilities
|
|
|
11,359
|
|
|
|
11,535
|
|
Total cash provided by (used in) operating activities
|
|
|
(211,938
|
)
|
|
|
78,341
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets
|
|
|
(2,692
|
)
|
|
|
—
|
|
Proceeds on disposal of fixed assets
|
|
|
12,697
|
|
|
|
—
|
|
Inventories
|
|
|
(1,309
|
)
|
|
|
—
|
|
Construction in progress
|
|
|
(204,179
|
)
|
|
|
—
|
|
Growing crops
|
|
|
(185,315
|
)
|
|
|
—
|
|
Total cash used in investing activities
|
|
|
(380,798
|
)
|
|
|
—
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Loan proceeds from related party
|
|
|
225,723
|
|
|
|
—
|
|
Total cash provided by financing activities
|
|
|
225,723
|
|
|
|
—
|
|
Increase (Decrease) in cash and cash equivalents
|
|
|
(367,013
|
)
|
|
|
78,341
|
|
Effect of exchange rate changes on balance of cash held in foreign currencies
|
|
|
14,480
|
|
|
|
(9,906
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
758,355
|
|
|
|
1,236,137
|
|
Cash and cash equivalents, end of the period
|
|
|
405,822
|
|
|
|
1,304,572
|
|
Supplemental information on cash flows
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
—
|
|
|
|
—
|
|
Interest paid
|
|
|
—
|
|
|
|
—
|
|
Supplemental disclosure with respect
to cash flows (note 16)
The notes are
an integral part of these condensed consolidated interim financial statements.
GLOBALINK LTD.
Notes to Condensed
Consolidated Financial Statements
For the three
months ended June 30, 2016
(Expressed in
U.S. Dollars)
(Unaudited)
1. NATURE
OF OPERATIONS
Globalink, Ltd.
(the “Company”) was incorporated in the State of Nevada on February 3, 2006. The Company has focused its efforts on
internet hotel booking services and has developed a proprietary online hotel booking program for connecting users with available
rooms in hotels across the world. In order to gain the access to hotels, the Company acquired OneWorld Hotel Destination Service
Inc. (“OneWorld”) in Vancouver, British Columbia, Canada on October 31, 2008. OneWorld is a hotel booking company
which has established relationships with major hotel chains. As a result of the acquisition, OneWorld became a wholly-owned subsidiary
of the Company and goodwill of $274,449 was recognized on completion of the acquisition.
On May 4, 2014,
the Company entered into a joint venture agreement (the “Agreement”) with Shizhen Bio-Technology Co., Ltd. (“Shizhen
Biotech”) in Jiangsu Province, China. On May 22, 2014, Globalink (Xuzhou) Bio-Technology Co., Ltd. (“Globalink Xuzhou”)
was incorporated in Pizhou City, Jiangsu Province, China pursuant to the Agreement. Globalink Xuzhou will have total registered
capital of $10,000,000, $8,000,000 of which will be invested by the Company to earn an 80% interest, with the remaining $2,000,000
being invested by Shizhen Biotech to earn the remaining 20%. Globalink Xuzhou will be involved in the business of biological sciences
and technology research, biological technology popularization services, and fruit and vegetable distribution. Currently, Globalink
Xuzhou will continue to focus on gingko cultivation and extraction. In August 2015, the Company transferred $500,000 to Globalink
Xuzhou to start developing a gingko plantation in Pizhou City, Jiangsu Province. The Company transferred an additional $300,000
in October 2015. As at June 30, 2016 and December 31, 2015, the Company owns 100% of Globalink Xuzhou.
On October 13,
2015, the Company incorporated a wholly-owned subsidiary, Globalink (Zhejiang) Bio-Technology Co. Ltd. (“Globalink Zhejiang”)
in Ningbo City, Jiangsu Province, China. Globalink Zhejiang will be involved in the research and development, cultivation, extraction,
and application of gingko trees and other economic plants. Globalink Xuzhou transferred RMB800,000 ($123,200) to Globalink Zhejiang
in October 2015 to start its operations.
2. SIGNIFICANT
ACCOUNTING POLICIES
Statement
of presentation
These unaudited
condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting
principles (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission, including
Form 10-Q and Regulation S-K. Certain information and footnote disclosures normally present in annual financial statements have
been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the
information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction
with the audited financial statements and explanatory notes for the year ended December 31, 2015 as disclosed in the Company’s
Form 10-K as filed with the Securities and Exchange Commission on April 4, 2016. Operating results for the six month period ended
June 30, 2016 may not necessarily be indicative of the results for the year ending December 31, 2016.
Continuance
of operation
These consolidated
financial statements prepared in conformity with US GAAP contemplate continuation of the Company as a going concern. As of June
30, 2016, the Company has an accumulated deficit of $993,927 since inception. Its ability to continue as a going concern depends
upon whether it develops profitable operations and continues to raise adequate financing. However, management believes that the
Company has sufficient working capital to meet its projected minimum financial obligations for the next fiscal year. The accompanying
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue
as a going concern.
Consolidation
The consolidated
financial statements include the financial statements of the Company and its wholly owned subsidiaries. Subsidiaries are the entities
controlled by the Company. All inter-company transactions and balances between the Company and its subsidiaries have been eliminated
upon consolidation.
The subsidiaries
are consolidated from the date on which control is transferred to the Company and will cease to be consolidated from the date
on which control is transferred out of the Company.
Details of the
Company’s subsidiaries are as follows:
Name
|
Date
of incorporation or acquisition
|
Location
|
Ownership
|
Principal
activities
|
OneWorld
Hotel Destination Service Inc. (“OneWorld”)
|
October
31, 2008
|
Vancouver,
Canada
|
100%
|
Hotel
booking
|
Globalink
(Xuzhou) Bio-Technology Co., Ltd. (“Globalink Xuzhou”)
|
May
22, 2014
|
Pizhou
City, Jiangsu Province, China
|
100%
|
Gingko
cultivation
|
Globalink
(Zhejiang) Bio-Technology Co. Ltd. (“Globalink Zhejiang”)
|
October
13, 2015
|
Ningbo
City, Jiangsu Province, China
|
100%
|
Bio-technology
research and development
|
Use of
estimates
The preparation
of consolidated financial statements in conformity with US GAAP requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amount of assets, liabilities and provisions, income and expenses
and the disclosure of contingent assets and liabilities at the date of these financial statements. Estimates are used for, but
not limited to, the selection of the useful lives of fixed assets, allowance for doubtful debt associated with accounts receivable,
fair values, revenue recognition, and taxes. Management believes that the estimates utilized in preparing its consolidated financial
statements are reasonable and prudent. Actual results may differ from these estimates.
Foreign
currency translation
Functional
and presentation currency
Items included
in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic
environment in which the subsidiary operates (“the functional currency”), which is the Chinese Renminbi (“RMB”)
for Globalink Xuzhou and Globalink Zhejiang, and the Canadian dollar (“CAD”) for Oneworld. The consolidated financial
statements are presented in United States dollar (“USD”), which is the functional currency of the parent company.
The operating subsidiaries’ financial statements are prepared in its respective functional currencies before translating
to the presentation currency which is the USD. The Company translates items in the statement of operations and comprehensive loss
using the average exchange rate for the year. Assets and liabilities are translated at the year-end rate. All resulting exchange
differences are reported as a separate component of other comprehensive income (loss).
Transactions
and balances
Foreign currency
transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions
or valuations where items are re-measured. Foreign exchange gains and losses resulting from settlement of such transactions and
from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized
in profit or loss as a “foreign exchange (gain) loss”.
Growing
crops
Gingko trees
are valued at historical cost, which include all cultivation costs incurred for planting, growing and maintaining the gingko trees
during a year other than the harvest season that lasts about 2 months. The cultivation costs include costs of land lease, equipment
lease, equipment amortization, labour, consulting, fertilizer, materials and supplies, and other direct growing costs.
At the end of
each reporting period, the Company reviews the carrying amounts of the growing crops to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). A reliable market price is usually available for mature gingko
trees in China. Under certain circumstances, when a reliable market price is not available, the fair value of the growing crops
is measured using the discounted expected future cash flow method. Under this method, expected future revenues less costs to complete
and harvest is discounted to present value.
The growing
crops will be amortized using the straight-line method over an estimated useful life of 5 years. The Company intends to sell all
of the gingko trees after 5 years and replant seedlings in order to optimize the effective ingredients in leaves harvested from
younger trees.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) and market value. Inventories as of June 30, 2016 consist
of supplies and fertilizers. Inventories as of December 31, 2015 mainly consisted of gingko seeds which were planted in March
2016. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.
Accounts
receivable
Trade receivables
are carried at original invoice amount. Accounts receivable are written off to bad debt expense using the direct write-off method.
Receivables past due for more than 120 days are considered delinquent. Management determines uncollectible accounts by regularly
evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current
economic conditions and by using historical experience applied to an aging of accounts. Recoveries of trade receivables previously
written off are recorded when received.
Fixed
assets
Fixed assets
are recorded at cost less accumulated amortization. Amortization of fixed assets is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
Computer equipment
|
3 years
|
Lab equipment
|
3 years
|
Office furniture and fixtures
|
5 years
|
Storage
|
5 years
|
Agricultural machinery
|
4 years
|
Infrastructure
|
10 years
|
Fair value
The Company
measures fair value in accordance with accounting guidance that defines fair value, provides guidance for measuring fair value
and requires certain disclosures. The guidance also discusses valuation techniques, such as the market approach (comparable market
prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service
capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
–
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
–
|
Level
2: Inputs other than quoted prices that are observable for the asset or liability, either
directly or indirectly. These include quoted prices for similar assets or liabilities
in active markets and quoted prices for identical or similar assets or liabilities in
markets that are not active.
|
|
–
|
Level
3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
The inputs used
in the fair value measurement should be from the highest level available. In instances where the measurement is based on inputs
from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is
significant to the fair value measurement in its entirety.
As at June 30,
2016, the Company’s financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities, amounts due to related parties, loan payable to related party and other current liabilities. Cash and
cash equivalents are measured at fair value using Level 1 inputs. With the exception of cash and cash equivalents, all financial
instruments held by the Company are measured at amortized cost. The fair values of these financial instruments approximate their
carrying value due to their short-term maturities.
Goodwill
The Company
recognizes goodwill in accordance with ASC 805 “Business Combinations”. Goodwill represents the excess of the purchase
price over the fair value of assets acquired and liabilities assumed, if any. The goodwill impairment test compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair
value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied
fair value of a reporting unit's goodwill is compared to the carrying amount of that goodwill. If the carrying amount of a reporting
unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is indicated. The Company concluded that there
were no indicators of impairment with respect to the Company's goodwill as of June 30, 2016.
Impairment
reviews for long-lived assets
Long-lived assets
such as property, equipment and goodwill are reviewed for impairment whenever facts and circumstances indicate that the carrying
value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value
of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available,
or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted
cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When
fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate
with the risk associated with the recovery of the assets. The Company did not recognize any impairment losses for any periods
presented.
Revenue
recognition
The Company
recognizes revenue from its hotel booking services once the service is rendered and all the significant risks and rewards of the
service have been transferred to the customer. As a result, revenue from hotel booking services are recognized when customers
check in to the hotels. Amounts received from customers for services not yet rendered are included in other current liabilities
as unearned revenue.
In accordance
with the ASC 605 “Revenue Recognition”, the Company reports its revenue as an agent, on the net amount retained, which
is the amount billed to a customer less the amount paid to a hotel.
During the six
months ended June 30, 2016 and 2015, all revenue was derived from hotel booking services.
Research
and development
Research and
development costs are expensed as incurred. The costs primarily consist of consulting fees paid to the technical team for development
and improvement of gingko cultivation methods. Research and development costs for the six months ended June 30, 2016 and 2015
were $20,642 and $Nil, respectively, and are included in general and administrative expenses.
Income
taxes
The Company
accounts for income taxes following the asset and liability method in accordance with ASC 740 “Income Taxes.” Under
such method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company
applies the accounting guidance issued to address the accounting for uncertain tax positions. This guidance clarifies the accounting
for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in
the financial statements as well as provides guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years that the asset is expected to be recovered or the liability settled.
Earnings
(loss) per common share
Basic earnings
(loss) per common share is determined by dividing earnings (loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings (loss) per common share is determined by dividing earnings (loss) by the diluted weighted
average number of shares outstanding. Diluted weighted average number of shares reflects the dilutive equity instruments, if any,
of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods
with reported net operating losses, all common stock options and warrants are deemed anti-dilutive such that basic net loss per
share and diluted net loss per share are equal. The 6,000,000 stock options outstanding as of June 30, 2016 were excluded from
the calculation of diluted loss per common share for the three and six months ended June 30, 2016.
Stock-based
compensation
The Company
accounts for stock compensation with employees in accordance with ASC 718 “Compensation – Stock Compensation”,
which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards
expected to vest. The fair value of stock options is determined using the Black-Scholes Option Pricing Model.
The Company
accounts for stock compensation arrangements with non-employees in accordance with ASC 505-50 “Stock-Based Transactions
with Nonemployees””, which requires that such equity instruments are recorded at their fair value on the measurement
date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair
value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over
the vesting period.
Segment
reporting
ASC 280 “Segment
Reporting” 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.
As of June 30,
2016, the Company is organized into three main business segments: hotel booking services, gingko plantation cultivation and bio-technology
research and development.
Recent
accounting pronouncements
In May 2014,
the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard for contracts
with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle
of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is
recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value
of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies
are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is prohibited. The standard
permits the use of either the retrospective or cumulative effect transition method. This guidance will be applicable to the Company
at the beginning of its first quarter of fiscal year 2017. The adoption of this guidance is not expected to have a material impact
on the Company’s consolidated financial statements.
In August 2014,
the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as
a Going Concern, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties
in their financial statements. The new standard requires management to perform interim and annual assessment of an entity’s
ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements (or
within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity
must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern.
The requirement is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption
is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial
statements.
3. CASH AND
CASH EQUIVALENTS
Cash of $106,915
(December 31, 2015 - $442,542) is held in China and is subject to local exchange control regulations. Chinese exchange control
regulations provide for restrictions on exporting capital from China, other than through normal dividends.
4. OTHER
CURRENT ASSETS
The items comprising
the Company’s other current assets are summarized below:
|
June 30,
2016
|
December 31,
2015
|
|
$
|
$
|
Deposits to hotels
|
18,570
|
22,564
|
Prepaid investor
relations fees
|
51,233
|
-
|
Deposits for lab
equipment
|
25,357
|
25,949
|
Deposits for construction
work
|
52,669
|
-
|
Other
deposits and receivables
|
30,251
|
30,693
|
Total
other current assets
|
178,080
|
79,206
|
5. INVENTORIES
The items comprising
the Company’s inventories are summarized below:
|
June 30,
2016
|
December 31,
2015
|
|
$
|
$
|
Gingko seeds
|
-
|
24,658
|
Fertilizer
and supplies
|
1,665
|
555
|
Total
inventories
|
1,665
|
25,213
|
6. ACCOUNTS
RECEIVABLE
Accounts receivable
consist of trade receivables from travel agents. There are no allowances for doubtful accounts recorded as at June 30, 2016 and
December 31, 2015.
7. FIXED
ASSETS
The items comprising
the Company’s fixed assets are summarized below:
|
June 30,
2016
|
December 31,
2015
|
|
$
|
$
|
Computer equipment
|
7,230
|
26,903
|
Office furniture
and fixtures
|
1,663
|
16,080
|
Agricultural machinery
|
32,178
|
44,879
|
Infrastructure
|
122,368
|
-
|
Lab equipment
|
1,109
|
1,109
|
Storage
|
1,102
|
1,102
|
|
165,650
|
90,073
|
|
|
|
Less:
accumulated amortization
|
(7,416)
|
(35,671)
|
|
|
|
|
158,234
|
54,402
|
During the six
months ended June 30, 2016, amortization expense of $1,469 (2015 - $Nil) was recognized and capitalized as costs associated with
the Company’s growing crops and $6,114 (2015 - $Nil) was recorded in the statement of operations and comprehensive loss.
8. CONSTRUCTION
IN PROGRESS
Construction
in progress consists of direct costs of infrastructure construction at the Company’s gingko plantation including roads,
fencing, security, electricity and an irrigation system. Capitalization of these costs will cease and the construction in progress
will be transferred to fixed assets when all the activities necessary to prepare the assets for their intended use are substantially
completed. No amortization will be recorded until construction is completed and the facilities are put into use.
9. GROWING
CROPS
Growing crops
consist of direct cultivation costs incurred for planting, growing and maintaining the gingko trees.
|
Gingko
trees
|
Grape
vines
|
Total
|
|
$
|
$
|
$
|
Balance, December
31, 2014
|
-
|
-
|
-
|
Acquisition of seeds
or seedlings
|
-
|
1,078
|
1,078
|
Amortization of agricultural
machinery
|
1,040
|
-
|
1,040
|
Land lease
|
113,931
|
-
|
113,931
|
Labour
|
804
|
-
|
804
|
Materials
|
2,945
|
-
|
2,945
|
Machine operation
|
3,879
|
-
|
3,879
|
Miscellaneous
|
3,178
|
-
|
3,178
|
Technical
consultants
|
5,313
|
-
|
5,313
|
Balance, December
31, 2015
|
131,090
|
1,078
|
132,168
|
Acquisition of seeds
or seedlings
|
21,951
|
-
|
21,951
|
Amortization of agricultural
machinery
|
6,114
|
-
|
6,114
|
Electricity
|
1,206
|
-
|
1,206
|
Fertilizer
|
84,080
|
-
|
84,080
|
Irrigation
|
1,382
|
-
|
1,382
|
Labour
|
42,444
|
471
|
42,915
|
Land use
|
4,589
|
-
|
4,589
|
Materials
|
9,133
|
203
|
9,336
|
Machine operation
|
14,747
|
-
|
14,747
|
Miscellaneous
|
13,811
|
-
|
13,811
|
Technical
consultants
|
16,001
|
153
|
16,154
|
Balance,
June 30, 2016
|
346,548
|
1,905
|
348,454
|
10. ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
Accounts payable
and accrued liabilities mainly consist of trade payables to hotels and travel service suppliers.
11. OTHER
CURRENT LIABILITIES
The items comprising
the Company’s other current liabilities are summarized below:
|
June 30,
2016
|
December 31,
2015
|
|
$
|
$
|
Unearned revenue
|
21,489
|
7,650
|
Taxes
payable
|
-
|
1,655
|
Total
other current liabilities
|
21,489
|
9,305
|
12. TRANSACTIONS
WITH RELATED PARTIES
During the six
months ended June 30, 2016, the Company paid or accrued management fees of $18,000 (2015 - $18,000) to a company controlled by
a director and Corporate Secretary. As of June 30, 2016, $6,000 of accured management fees was owing to the company.
During the six
months ended June 30, 2016, the Company paid or accrued management fees of $12,000 (2015 - $12,000) to a company controlled by
a director and Chief Financial Officer. As of June 30, 2016, $4,000 of accrued management fees and $11,564 in expenses was owing
to the company.
In January 2016,
the Chief Executive Officer of the Company loaned an amount of $225,723 to Globalink Xuzhou. The loan is non-interest bearing,
unsecured, and has no fixed terms of repayment.
On September
16, 2015, 5,250,000 stock options were granted to directors and officers with a total fair value of $260,439 at the date of grant,
$84,121 of which was amortized and recorded in the statement of loss and comprehensive loss during the six months ended June 30,
2016 (2015 -$Nil).
13. SHAREHOLDERS’
EQUITY
Share
capital
Authorized
- 500,000,000
common voting shares with a par value of $0.0002 per share.
Issued and
outstanding
As of June 30,
2016, the Company has 45,585,000 shares (December 31, 2015 – 43,585,000) issued and outstanding.
During the six
months ended June 30, 2016:
In February
2016, the Company issued 2,000,000 common shares (valued at $80,000) pursuant to an investor relations contract with a defined
term to December 31, 2016.
During the year
ended December 31, 2015:
In September
2015, the Company issued 1,100,000 common shares to an arm’s length party for total proceeds of $110,000 ($0.10 per share).
Proposed
financing
On May 12, 2016,
the Company filed Form S-1 with the Securities and Exchange Committee (“SEC”), pursuant to which the Company intends
to offer a maximum of 20,000,000 common shares at a price of $0.25 per share for a maximum gross proceeds of $5,000,000 on a best
efforts basis.
Stock
options
The Company
adopted a Stock Awards Plan under which it is authorized to grant options to directors, employees and consultants, to acquire
up to 6,000,000 common shares. The exercise price of each option is based on the market price of the Company's stock for a period
preceding the date of grant. The options can be granted for a maximum term of 5 years and the vesting terms of the options are
determined by the board of directors at the time of grant.
On September
16, 2015, 6,000,000 stock options were granted to directors, officers and consultants with an exercise price of $0.075 expiring
on September 16, 2020, 10% of the options vest as of the grant date, with the remaining 90% vesting at a rate of 15% every six
months thereafter. The Company uses the Black-Scholes Option Pricing Model to determine the fair value of options granted. The
fair value of the stock options granted was $297,645 ($0.0496 per option), of which $84,121 was amortized and recorded and expensed
during the six months ended June 30, 2016.
The fair value
of the stock options granted was determined using the following assumptions:
|
Year
ended
December
31, 2015
|
Risk
free interest rate
|
1.44%
|
Volatility
|
242.72%
|
Expected
life of options
|
5
years
|
Dividend
rate
|
0%
|
Expected
forfeiture rate
|
0%
|
Stock option
transactions are summarized as follows:
|
Number
of Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic Values
|
|
|
|
|
Balance, December 31, 2014
|
-
|
$ -
|
$ -
|
Granted
|
6,000,000
|
0.075
|
|
|
|
|
|
Balance,
at December 31, 2015 and June 30, 2016
|
6,000,000
|
$ 0.075
|
$ -
|
Exercisable, at December
31, 2015 and June 30, 2016
|
1,500,000
|
$ 0.075
|
$ -
|
As at June 30,
2016, the following incentive stock options are outstanding:
Number
of Options
|
|
Exercise
Price
|
|
Expiry Date
|
|
|
|
|
|
6,000,000
|
|
$ 0.075
|
|
September
16, 2020
|
14. REVENUE
The Company
reports its revenue as an agent on a net basis. The following table shows the gross amount the Company accrued or received from
customers and the booking costs during the six months ended June 30, 2016 and 2015:
For
the period ended
|
June 30,
2016
|
June
30,
2015
|
|
$
|
$
|
Gross amount received
|
933,848
|
1,224,608
|
Costs
|
(841,219)
|
(1,067,864)
|
Revenue
|
92,629
|
156,744
|
15. COMMITMENT
Research
and development agreement
The Company
entered into a Technology Development Service Agreement (the “Technology Agreement”) in January 2016 with Zhejiang
Pharmaceutical College (the “College”) with a term of 3 years. Pursuant to the Technology Agreement, the College will
conduct research and development on induction of callus of gingko leaves and extraction, and identification of flavone and lactone
therefrom on the Company’s behalf. As consideration, the Company shall pay the College an annual research fee of RMB100,000
($15,400) (RMB100,000 paid in March 2016) and monthly consulting fees to professors and staff.
Farmland
lease agreements
The Company
leased approximately 100 acres of farmland in Pizhou City, Jiangsu Province, China from local individual farmers for a period
from October 2015 to August 2027. The lease fees may be renegotiated.
Year
|
2016
|
2017
|
2018
|
2019
|
2020-2027
|
Amount
|
$ 114,000
|
$ 114,000
|
$ 114,000
|
$ 114,000
|
$ 912,000
|
16. SUPPLEMENTAL
DISCLOSURE WITH RESPECT TO CASH FLOWS
During the six
months ended June 30, 2016, the Company had the following non-cash transactions:
a) transferred
$122,367 of completed work from construction in progress to fixed assets;
b) transferred
$24,857 of gingko seeds from inventories to growing crops after completing seeding in the six months ended June 30, 2016;
c) included
$6,114 of amortization of agricultural machinery into growing crops;
d) issued 2,000,000
common shares (valued at $80,000) pursuant to an investor relations contract.
There were no
significant non-cash transaction during the six months ended June 30, 2015.
17. SEGMENTED
INFORMATION
The Company
formerly operated in one business segment: hotel booking services. Accordingly, the Company did not have separately reportable
segments in previous periods. In September 2015, the Company started to develop a gingko plantation cultivation business in China.
In October 2015, the Company incorporated Globalink Zhejiang, whose business is to research and develop technologies in relation
to gingko trees and other economic plants.
As of June 30,
2016, management of the Company has determined that the Company is organized into three main business segments: hotel booking
services, gingko plantation cultivation and bio-technology research and development.
The table below
provides information regarding the Company’s identified segments for the six months ended June 30, 2016:
|
|
Hotel booking
|
|
Gingko
plantation
|
|
Research and development
|
|
Totals
|
Revenue
|
|
$
|
92,629
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92,629
|
|
Operating loss
|
|
$
|
(58,176
|
)
|
|
$
|
(290,947
|
)
|
|
$
|
(77,448
|
)
|
|
$
|
(426,571
|
)
|
Fixed assets
|
|
$
|
—
|
|
|
$
|
156,519
|
|
|
$
|
1,715
|
|
|
$
|
158,234
|
|
Construction in progress
|
|
$
|
—
|
|
|
$
|
94,696
|
|
|
$
|
—
|
|
|
$
|
94,696
|
|
Growing crops
|
|
$
|
—
|
|
|
$
|
348,454
|
|
|
$
|
—
|
|
|
$
|
348,454
|
|
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
Introduction
The following discussion and analysis
should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto, for the fiscal
years ended December 31, 2015 and 2014 included elsewhere herein.
This Management’s Discussion
and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Special Note Regarding
Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions
associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.
Our financial statements are prepared
in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See “Critical Accounting
Policies and Estimates — Foreign currency translation” below for information concerning the exchanges rates at which
Renminbi were translated into U.S. Dollars at various pertinent dates and for pertinent periods.
Business Overview
Globalink, Ltd. conducts business
through its three wholly owned subsidiaries OneWorld Hotel Destination Service Inc., a Canadian corporation (“OneWorld”),
Globalink (Xuzhou) Bio-Technology Co., Ltd. (“Globalink Xuzhou”) and Globalink (Zhejiang) Bio-Technology Co. Ltd.
(“Globalink Zhejiang” and, together with Globalink Xuzhou, our “PRC Subsidiaries”), which are incorporated
in the PRC. Our business is divided into two segments:
|
-
|
online business to business hotel
booking; and
|
|
-
|
agriculture, which includes (i)
the development and operation of a ginkgo tree plantation in the PRC, the business of
which is the cultivation and sale of dried ginkgo leaves to manufacturers of ginkgo extract,
the principal ingredient of ginkgo-based herbal supplement products that have gained
popularity around the world, and (ii) research and development, cultivation, extraction,
and application of gingko trees and other economic plants.
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We operate a hotel booking service
for travel agents located in Canada. We enter into agreements with hotel chains and individual hotels in Canada that agree to
make rooms available to us at discounted prices. We currently have relationships with five hotel chains and over two hundred individual
hotels. We also enter into agreements with travel agents throughout Canada who view room selection on our web site and contact
us directly to book rooms. Travel agents typically book blocks of rooms for their leisure and business traveler clients. Currently,
all room booking is completed manually and no credit card or other personal data is transmitted electronically or retained by
us. We generate revenue for our services based on the difference between the total amount the customer pays for the room and the
negotiated net rate plus estimated taxes that the hotel charges for the room. We recognize revenue when rooms are booked and remit
payment to the hotel promptly.
We are developing a ginkgo tree plantation
(“Plantation”) through our Globalink Xuzhou subsidiary that will comprise approximately 1,553 acres over the next
five years. As of June 30, 2016, our Plantation had 100 acres of land under cultivation that it leased from local farmers pursuant
to land leases that extend through 2027. Since we proposed the project in 2015, we have developed a comprehensive business plan
that projects approximate costs, output and revenues over the next five years. As of the date of this Form 10-Q, we have invested
a total of $800,000 in Globalink Xuzhou, comprising $500,000 invested in August 2015, and $300,000 invested in October 2015. During
January 2016, Hin Kwok Sheung, our principal stockholder and the president and chief executive officer and a director of the Company,
loaned the sum of $250,000 (RMB1,500,000) to Globalink Xuzhou. The loan bears no interest and has no fixed term of repayment.
During the winter of 2015, we began
purchasing equipment and other materials required to commence agricultural operations. We are planting our first crop of seeds
this spring and, assuming typical growing conditions, we expect to harvest approximately 60 tons of dried ginkgo leaves for sale
during the fall of 2016. Our Plantation brings modern scientific and technical practices to China’s archaic agricultural
industry and we expect to become one of the largest independent producers of ginkgo leaves in the PRC.
We expect to sell our output of ginkgo
leaves to ginkgo extract manufacturers that will use the finished product in a variety of health and herbal supplement products.
Initially, we expect to sell our entire output in China and eventually expand our marketing efforts to Europe and North America.
Sales are recorded on a per kilo or per ton of dried leaf basis. In addition, as our trees reach six years of age and the content
of the active beneficial ingredients in the ginkgo leaves declines, rendering the leaves of no value to extract manufacturers,
we will seek to sell trees to local consumers who use them for ornamental or landscaping purposes. To the extent we are able to
sell trees, the price typically is based upon the circumference of the trunk.
As of the date of this Form 10-Q,
we own all of the outstanding capital of Globalink Xuzhou, our PRC subsidiary that is developing our Plantation, equal to RMB
5,099,000 ($800,000) of Globalink Xuzhou’s total registered capital of RMB 60 million. Globalink Xuzhou was organized pursuant
to a joint venture agreement (the “JV Agreement”) with Shizhen Bio-Technology Co., Ltd. (“Shizhen Biotech”)
which provides, among other things, that we have the right to own 80% of Globalink Xuzhou’s registered capital for a total
investment of RMB 48 million ($8 million) and Shizhen Biotech has the right to own 20% of Globalink Xuzhou’s registered
capital for a total investment of RMB 12 million ($2 million). As of the date of this Form 10-Q, Shizhen Biotech has not invested
any funds into Globalink Xuzhou and does not own any of that company’s registered capital. To the extent that Shizhen Biotech
makes its investment in Globalink Xuzhou, our percentage of the profits of that company will be reduced by a corresponding amount
up to 20%.
Globalink Zhejiang engages in research
and development, cultivation, extraction, and application of gingko trees and other economic plants. In January 2016, Globalink
Zhejiang entered into a Technology Development Service Agreement with Zhejiang Pharmaceutical College, or the College, under which
the College has agreed to perform research with respect to accelerating the development of the active ingredients within the ginkgo
tree and optimizing the processes of extracting flavone and lactone in order to enhance yield. We expect to receive a summary
of the research project by the end of 2016, which may lead to a conclusion as to whether we can apply the technology to commercial
production of gingko trees in a controlled laboratory environment.
We currently derive all of our revenues
from our online hotel booking business; however, we expect that over the next three years, sales of ginkgo leaves by our Plantation
operations will become our principal source of revenue. For the foreseeable future, we expect to reinvest any net profits into
the development of our Plantation.
Growth Strategies and Outlook
Though we expect to focus our immediate
efforts of the development of our Plantation, we have identified several growth strategies for our online hotel booking business.
We believe that we have the opportunity
to expand our booking business by (i) offering our products directly to consumers, and (ii) targeting travelers from China to
North America. Official China tourism statistics indicate that the number of outbound tourists was 107 million in 2014, an increase
of almost 20% over the previous year. International travel from China has grown as a result of increased disposable income, relaxed
restrictions within China with respect to travel and a concurrent easing of visa arrangements for visitors from China by many
countries, including the U.S. and Canada, where our hotels rooms are located. In order to take advantage of these trends, we would
need to both build a more robust
booking platform that is accessible to businesses and consumers and commence marketing initiatives directly to Chinese travel
agencies and consumers. We are in the process of evaluating the costs and other resources required to take advantage of this potentially
significant opportunity.
The business plan we have prepared
for our Plantation contemplates that we will have over 1,500 acres under cultivation over the next five years. After the first
year, we expect to increase our land under cultivation by leasing additional lands from individual farmers on terms that we believe
will be comparable to those currently in place. In our second, third, fourth and fifth years of operations, we expect to have
approximately 600 acres, 750 acres, and 800 acres, respectively, of land under cultivation and that by the fifth year of operations
we could be producing up to 5,500 metric tons of dried ginkgo leaves that conform to GAP standards and that contain the optimum
levels of the active ingredients. We believe that from a cost and operations perspective, as we add lands and the labor, equipment,
management, utilities and other input required to produce the output of leaves we project, our project scales up proportionately.
We expect to harvest ginkgo leaves at the end of our first season, the fall of 2016, and that output production will increase
in each of our first five years as we add additional lands under cultivation and our trees continue to grow to maturity. We currently
are marketing our anticipated product to ginkgo extract manufacturers and expect to have the entire output pre-sold prior to the
harvest. As of the fall of 2015, high quality dried ginkgo leaves were being sold to pharmaceutical companies at prices ranging
from RMB 18 – RMB 22 ($3.00 - $3.60) per kilogram. We believe that we have an experienced and deep team to execute our business
plan, however, agricultural operations are subject to significant risks beyond our control. Moreover, our Plantation will be subject
to all of the risks of doing business in the PRC.
We believe that ginkgo cultivation
represents a favorable opportunity for our Company both because (i) ginkgo is a key ingredient in TCM and is widely used in the
PRC, (ii) the ginkgo growing industry is fragmented among large number of small producers who continue to utilize archaic farming
techniques and a small number of agribusinesses that are subsidiaries of or otherwise connected with ginkgo extract manufacturers
and (iii) ginkgo and other TCM ingredients enjoy increasing usage among consumers worldwide and are currently accepted under U.S.
and EU regulations with only minimal government intervention.
TCM is widely practiced among PRC
residents and is considered to be an integral part of the health care system. Ginkgo is a fundamental ingredient in TCM which
posits that ginkgo is imbued with healing qualities and is prescribed by TCM practitioners to address a wide range of ailments.
China’s National Bureau of Statistics estimates that the TCM market in China totaled more than RMB515 billion in 2012, accounting
for 31.24% of China’s total medicine industry. We believe that ginkgo will continue to be a staple of TCM and that there
will be an active market for our output.
In China, TCM products are regulated
by the China FDA and typically are produced by pharmaceutical companies. In many instances, these companies grow the preponderance
of the raw materials, such as ginkgo, that they use in their products at company-operated farms. Those PRC companies that do not
control their own production, as well as international manufacturers of herbal supplements and other related products, must purchase
TCM raw materials from independent farmers. Our internal investigation and research demonstrates that ginkgo continues to be grown
by a diverse group of small farmers that rely on antiquated agricultural practices. Our Plantation will incorporate modern GAP
practices to maximize output and ensure the highest content of the active ingredients in our leaves. Leaves will be packaged in
parcels to which we will affix pertinent information, such as the growth records of the specific product and the flavone and lactone
content of the leaves, as a means of exhibiting our transparency and to assure customers that our product meets their quality
specifications. We believe these features will distinguish us from other independent growers of ginkgo and attract domestic and
international customers.
China’s National Bureau of
Statistics estimates that the worldwide TCM market is increasing by between 10% to 20% each year. Over the last several decades,
the usage of ginkgo-based products have proliferated across Europe and North America where ginkgo is becoming widely accepted
as an herbal remedy for a variety of health conditions, principally memory loss and dementia. Sales of ginkgo-based products are
difficult to estimate but in 2012 worldwide sales were believed to be worth approximately $500 million. In Europe and the United
States, products incorporating ginkgo are among the five top-selling herbal supplements. In 2002, ginkgo was the number one selling
herbal supplement in the United States. We believe that the market for TCM products will continue to grow as Western consumers,
particularly an aging population, look for products that they believe to be safe and inexpensive alternatives to modern pharmaceutical
preparations, as a treatment to mitigate the effects of cognitive decline, such as dementia, which is one of the principal uses
for ginkgo.
Government regulation of ginkgo-based
products in North America and the EU has been relatively benign. In the U.S. gingko is regulated as a category of food known as
“dietary supplements” under the Dietary Supplement Health and Education Act of 1994 and not as a drug. Ginkgo and
other herbal supplements may be sold in the U.S. without regulation, provided that manufacturers do not make health claims on
the labels or in advertising. Moreover, there are no regulations specific to the manufacturing of individual dietary supplements,
though there are general safety rules on manufacturing, packaging, labeling, and storage. In the EU, “traditional herbal
medicinal products” which meet certain criteria, including ginkgo-based products, may be manufactured and sold within European
Union, or EU, member states without authorization or registration. In view of these conditions, we believe that Western markets
represent a receptive and growing market for our product.
We believe that we have developed
a business plan that presents a reasonable and rational path to success and that our current management possesses the skills and
experience to achieve all of the goals we have set over the next five years and beyond.
Critical Accounting Policies and
Use of Estimates
Accounting policies are an integral
part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported
results of operations and our financial position. Management believes that the critical accounting policies and estimates discussed
below involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used. Our significant
accounting policies are described in Note 2 to our condensed consolidated financial statements included elsewhere in this report.
While our significant accounting
policies are fully described in Note 2, we believe the following accounting policies and estimates are the most critical to aid
you in fully understanding and evaluating this management’s discussion and analysis. Some of them involve significant judgments
and uncertainties and could potentially result in materially different results under different assumptions and conditions.
Use of Estimates
The preparation of consolidated financial
statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities
and provisions, income and expenses and the disclosure of contingent assets and liabilities at the date of these financial statements.
Estimates are used for, but not limited to, the selection of the useful lives of fixed assets, allowance for doubtful debt associated
with accounts receivable, fair values, revenue recognition, and taxes. Management believes that the estimates utilized in preparing
its consolidated financial statements are reasonable and prudent. Actual results may differ from these estimates.
Growing crops
Gingko trees are valued at historical
cost, which include all cultivation costs incurred for planting, growing and maintaining the gingko trees during a year other
than the harvest season that lasts about two months. The cultivation costs include costs of land lease, equipment lease, equipment
amortization, labor, consulting, fertilizer, materials and supplies, and other direct growing costs.
At the end of each reporting period,
the Company reviews the carrying amounts of the growing crops to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). A reliable market price is usually available for mature gingko trees in China. Under
certain circumstances, when a reliable market price is not available, the fair value of the growing crops is measured using the
discounted expected future cash flow method. Under this method, expected future revenues less costs to complete and harvest is
discounted to present value.
The growing crops will be amortized
using the straight-line method over an estimated useful life of 5 years. The Company intends to sell all of the gingko trees after
5 years and replant seedlings in order to optimize the effective ingredients in leaves harvested from younger trees.
Inventories
Inventories are valued at the lower
of cost (determined on a weighted average basis) and market value. Inventories as of June 30, 2016 consist of supplies and fertilizers.
Inventories as of December 31, 2015 mainly consisted of gingko seeds which were planted in March 2016. The Company reviews its
inventories regularly for possible obsolete goods and establishes reserves when determined necessary.
Revenue recognition
The Company recognizes revenue from
its hotel booking services once the service is rendered and all the significant risks and rewards of the service have been transferred
to the customer. As a result, revenue from hotel booking services are recognized when customers check in to the hotels. Amounts
received from customers for services not yet rendered are included in other current liabilities as unearned revenue.
In accordance with the ASC 605 “Revenue
Recognition”, the Company reports its revenue as an agent, on the net amount retained, which is the amount billed to a customer
less the amount paid to a hotel.
Stock-based compensation
The Company accounts for stock compensation
with employees in accordance with ASC 718 “Compensation – Stock Compensation”, which recognizes awards at fair
value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value
of stock options is determined using the Black-Scholes Option Pricing Model.
The Company accounts for stock compensation
arrangements with non-employees in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which
requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based
compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated
using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.
Accounts receivable
Trade receivables are carried at
original invoice amount. Accounts receivable are written off to bad debt expense using the direct write-off method. Receivables
past due for more than 120 days are considered delinquent. Management determines uncollectible accounts by regularly evaluating
individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions
and by using historical experience applied to an aging of accounts. Recoveries of trade receivables previously written off are
recorded when received.
Foreign currency translation
Functional and presentation currency
Items included in the financial statements
of the Company’s PRC Subsidiaries are measured using the currency of the primary economic environment in which the subsidiary
operates (“the functional currency”), which is the Chinese Renminbi for Globalink Xuzhou and Globalink Zhejiang, and
the Canadian dollar for OneWorld. The consolidated financial statements are presented in United States dollar, which is the functional
currency of the parent company. The operating subsidiaries’ financial statements are prepared in its respective functional
currencies before translating to the presentation currency which is the USD. The Company translates items in the statement of
loss and comprehensive loss using the average exchange rate for the year. Assets and liabilities are translated at the year-end
rate. All resulting exchange differences are reported as a separate component of other comprehensive income (loss).
Transactions and balances
Foreign currency transactions are
translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations where
items are re-measured. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation
at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit
or loss in “foreign exchange (gain) loss”.
Impairment reviews for long-lived
assets
Long-lived assets such as property,
equipment and goodwill are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be
recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset.
The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent
appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an
impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are
not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the
risk associated with the recovery of the assets. The Company did not recognize any impairment losses for any periods presented.
Capital and Sources of Liquidity
For the six months ended June 30,
2016, we incurred a net loss of $426,571. We had the following adjustments for non-cash items: $1,469 for amortization, $84,121
for stock-based compensation, and $36,000 as a result of shares issued for investor relations fees. We had the following changes
in non-cash working capital: We had an increase in accounts receivable of $31,415, an increase in other current assets of $60,727,
an increase in accounts payable and accrued liabilities of $152,261, an increase in amounts due to related parties of $21,564,
and an increase in other current liabilities of $11,359. As a result, we had total cash used in operating activities of $211,938
for the period.
For the six months ended June 30,
2015, we incurred a net loss of $28,814. We had the following changes in non-cash working capital: We had an increase in accounts
receivable of $146,927, a decrease in other current assets of $4,003, an increase in accounts payable and accrued liabilities
of $238,544, and an increase in other current liabilities of $11,535. As a result, we had total cash provided by operating activities
of $78,341 for the period.
For the six months ended June 30,
2016, we spent $2,692 on the acquisition of fixed assets. We received $12,697 as proceeds on disposal of fixed assets and spent
$1,309 on inventories. We spent $204,179 on construction in progress and $185,315 on growing crops. As a result, we had total
cash used in investing activities of $380,798 for the period.
For the six months ended June 30,
2015, we did not pursue any investing activities.
For the six months ended June 30,
2016, we received $225,723 from loan proceeds from a related party. As a result, we had total cash provided by financing activities
of $225,723 for the period.
For the six months ended June 30,
2015, we did not pursue any financing activities.
Results of Operations
For the three months ended June 30,
2016, we recorded revenues of $59,533. We recorded the following general and administrative expenses: We had $62,908 in accounting
and legal, $735 due to amortization, $15,000 in director and management fees, and $34,280 due to a foreign exchange loss. We incurred
$26,767 on investor relations, $11,846 on research and development, and $9,571 on rent expenses. We incurred $75,388 on salaries
and benefits, $32,248 on stock-based compensation, and $1,566 on telephone expenses. We incurred $17,796 on travel expenses, $3,493
on transfer agent and filing fees, and other general and administrative expenses of $8,675. As a result, we had total general
and administrative expenses of $300,273 and a net loss of $240,740 for the period. We had a $5,012 exchange difference on translating
foreign operations, resulting in a comprehensive loss of $245,752 for the three months ended June 30, 2016.
For the three months ended June 30,
2015, we recorded revenues of $84,823. We recorded the following general and administrative expenses: We had $2,034 in accounting
and legal, $15,000 in director and management fees, and had an $8,982 foreign exchange gain. We incurred $5,929 on rent expenses,
$58,240 on salaries and benefits, and telephone expenses of $1,545. We had travel expenses of $836, transfer agent and filing
fees of $965, and other general and administrative expenses of $10,237. As a result, we had total general and administrative expenses
of $85,804 and a net loss of $981. We gained $84 from an exchange on difference on translating foreign operations, resulting in
a comprehensive loss of $897 for the three months ended June 30, 2015.
Our net loss increased by $239,759
for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. This is due to greatly increased general
and administrative expenses combined with a $25,290, or 29.8%, decrease in revenues. Our revenues decreased due to a reduced profit
margin due to competition and a weaker Canadian dollar against US dollars, as revenue earned through our hotel booking operations
are recorded in Canadian dollars and translated and presented in US dollars in the financial statements. Our accounting and legal
fees increased by $60,874 as a result of preparing and filing a registration statement on Form S-1, and we spent a total of $71,596
for amortization, investor relations, research and development, and stock-based compensation that we did not incur during the
three months ended June 30, 2015. These factors all contributed to the increased net loss.
For the six months ended June 30,
2016, we recorded revenues of $92,629. We recorded the following general and administrative expenses: We had $63,708 in accounting
and legal expenses, $1,469 in amortization, and $30,000 in director and management fees. We had a foreign exchange loss of $38,767,
we incurred $27,144 on investor relations, $20,642 in research and development, and $18,664 on rent expenses. We incurred
$162,414 on salaries and benefits,
$84,121 on stock-based compensation, and $3,609 on telephone expenses. We incurred $18,225 on travel expenses, $28,543 on transfer
agent and filing fees, and $21,894 on other general and administrative expenses. As a result, we had total general and administrative
expenses of $519,200, and a net loss of $426,571 for the period. We had a loss of $3,724 due to the exchange difference on translating
foreign operations, resulting in a comprehensive loss of $430,295 for the six months ended June 30, 2016.
For the six months ended June 30,
2015, we recorded revenues of $156,744. We recorded the following general and administrative expenses: We had $2,608 in accounting
and legal expenses, $30,000 in director and management fees, and a $9,576 gain on foreign exchange. We incurred rent expenses
of $11,138, salaries and benefits of $110,582, and telephone expenses of $3,415. We incurred travel expenses of $7,976, transfer
agent and filing fees of $16,850, and other general and administrative expenses of $12,565. As a result, we had total general
and administrative expenses of $185,558, resulting in a net loss of $28,814. We recognized a gain of $1,780 due to the exchange
difference on translating foreign operations, resulting in a comprehensive loss of $27,034 for the six months ended June 30, 2015.
Our net loss increased by $397,757
for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. This is due to greatly increased general
and administrative expenses combined with a $64,115, or 40.9%, decrease in revenues. Our revenues decreased due to a reduced profit
margin due to competition and a weaker Canadian dollar against US dollars, as revenue earned through our hotel booking operations
are recorded in Canadian dollars and translated and presented in US dollars in the financial statements. Our accounting and legal
fees increased by 61,100 as a result of preparing and filing a registration statement on Form S-1, and we spent a total of $133,376
for amortization, investor relations, research and development, and stock-based compensation that we did not incur during the
six months ended June 30, 2015. These factors all contributed to the increased net loss.
Off-Balance Sheet Arrangements
The Company had no material off-balance
sheet arrangements as of June 30, 2016.
Contractual Obligations
Research
and development agreement
The Company
entered into a Technology Development Service Agreement (the “Technology Agreement”) in January 2016 with Zhejiang
Pharmaceutical College (the “College”) with a term of 3 years. Pursuant to the Technology Agreement, the College will
conduct research and development on induction of callus of gingko leaves and extraction, and identification of flavone and lactone
therefrom on the Company’s behalf. As consideration, the Company shall pay the College an annual research fee of RMB100,000
($15,400) (RMB100,000 paid in March 2016) and monthly consulting fees to professors and staff.
Farmland
lease agreements
The Company leased about 100
acres of farmland in Pizhou City, Jiangsu Province, China from local individual farmers for a period from October 2015 to August
2027. The lease fees may be renegotiated.
Year
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2016
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2017
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2018
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2019
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2020-2027
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Amount
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$114,000
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$114,000
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$114,000
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$114,000
|
$912,000
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New Accounting Pronouncements
The Company has adopted all recently
issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated
to have a material effect on the financial position or results of operations of the Company.