UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to
______________
Commission File Number: 000-27195
DLD GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada |
98-0117139 |
(State or other jurisdiction of incorporation |
(I.R.S. Employer Identification No.) |
or organization) |
|
25 Fordham Drive
Buffalo, New York
14216
(Address of principal executive offices) (Zip Code)
(716) 868-6789
(Registrants telephone
number, including area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [
] No [X]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [ ] |
Accelerated
filer [
] |
Non-accelerated filer [ ] |
Smaller reporting company [X] |
(do not check if smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [X]
At August 31, 2015, the registrant had 2,388,215 shares of
common stock, par value $0.001 per share, issued and outstanding.
DLD GROUP, INC.
FORM 10-Q REPORT
June 30, 2015
TABLE OF CONTENTS
2
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this Report) contains
forward-looking statements. Forward-looking statements discuss matters that
are not historical facts. Because they discuss future events or conditions,
forward-looking statements may include words such as anticipate, believe,
estimate, intend, could, should, would, may, seek, plan,
might, will, expect, predict, project, forecast, potential,
continue negatives thereof or similar expressions. Forward-looking statements
speak only as of the date they are made, are based on various underlying
assumptions and current expectations about the future and are not guarantees.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results, level of activity, performance or achievement
to be materially different from the results of operations or plans expressed or
implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties.
Accordingly, such information should not be regarded as representations that the
results or conditions described in such statements or that our objectives and
plans will be achieved and we do not assume any responsibility for the accuracy
or completeness of any of these forward-looking statements. These
forward-looking statements are found at various places throughout this Report
and include information concerning possible or assumed future results of our
operations, including statements about potential acquisition or merger targets;
business strategies; future cash flows; financing plans; plans and objectives of
management, any other statements regarding future acquisitions, future cash
needs, future operations, business plans and future financial results, and any
other statements that are not historical facts.
These forward-looking statements represent our intentions,
plans, expectations, assumptions and beliefs about future events and are subject
to risks, uncertainties and other factors. Many of those factors are outside of
our control and could cause actual results to differ materially from the results
expressed or implied by those forward-looking statements. In light of these
risks, uncertainties and assumptions, the events described in the
forward-looking statements might not occur or might occur to a different extent
or at a different time than we have described. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this Report. All subsequent written and oral forward-looking statements
concerning other matters addressed in this Report and attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, a change in events, conditions,
circumstances or assumptions underlying such statements, or otherwise.
3
PART I - FINANCIAL INFORMATION
Item
1.
Financial Statements.
DLD Group, Inc.
June 30, 2015 and 2014
Index to the Consolidated Financial Statements
F-1
DLD Group, Inc.
Consolidated
Balance Sheets
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
2,317,731 |
|
$ |
1,524,467 |
|
Accounts receivable |
|
114,589 |
|
|
143,182 |
|
Prepayments and
other current assets |
|
3,442,388 |
|
|
7,671,318 |
|
|
|
|
|
|
|
|
Total current assets |
|
5,874,708 |
|
|
9,338,967 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
Property and equipment |
|
16,929,671 |
|
|
16,010,912 |
|
Accumulated
depreciation |
|
(2,524,290 |
) |
|
(1,946,369 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
14,405,381 |
|
|
14,064,543 |
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
Deferred expenses |
|
87,759 |
|
|
370,360 |
|
|
|
|
|
|
|
|
Total other
assets |
|
87,759 |
|
|
370,360 |
|
|
|
|
|
|
|
|
Total assets |
$ |
20,367,848 |
|
$ |
23,773,870 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) |
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts payable |
$ |
173,726 |
|
$ |
3,677 |
|
Taxes payable |
|
- |
|
|
76,249 |
|
Advances from stockholders |
|
8,336,510 |
|
|
8,659,481 |
|
Member deposits |
|
34,750,679 |
|
|
- |
|
Accured promotion cost |
|
8,110,277 |
|
|
- |
|
Other accrued
expenses and current liabilities |
|
4,521,327 |
|
|
1,042,853 |
|
Deferred revenue |
|
4,632,320 |
|
|
481,423 |
|
Advances from
affiliates |
|
736,798 |
|
|
444,425 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
61,261,637 |
|
|
10,708,108 |
|
|
|
|
|
|
|
|
Total liabilities |
|
61,261,637 |
|
|
10,708,108 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
(DEFICIT) |
|
|
|
|
|
|
Preferred stock par value
$0.01: 500,000 shares
authorized;
none
issued or outstanding |
|
- |
|
|
- |
|
Common
stock par value $0.001: 200,000,000 shares
authorized;
2,388,215 and 2,100,215 shares issued and outstanding,
respectively |
|
2,388 |
|
|
2,100 |
|
Additional paid-in capital |
|
24,798,512 |
|
|
24,798,512 |
|
Accumulated
deficit |
|
(65,611,097 |
) |
|
(11,721,222 |
) |
Accumulated other comprehensive
income (loss): |
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
(83,592 |
) |
|
(13,628 |
) |
|
|
|
|
|
|
|
Total stockholders' equity (deficit) |
|
(40,893,789 |
) |
|
13,065,762 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
(deficit) |
$ |
20,367,848 |
|
$ |
23,773,870 |
|
See accompanying notes to the consolidated financial
statements.
F-2
DLD Group, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Loss)
|
|
For the Six Months |
|
|
For the Three Months |
|
|
For the Six Months |
|
|
For the Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2015 |
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
|
June 30, 2014 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
services |
$ |
1,158,621 |
|
$ |
753,630 |
|
$ |
55,758 |
|
$ |
51,617 |
|
Terminal operator membership
fees |
|
80,781 |
|
|
58,062 |
|
|
3,039 |
|
|
1,513 |
|
Commission
income |
|
15,951 |
|
|
8,428 |
|
|
5,130 |
|
|
(20 |
) |
Rental income |
|
295,615 |
|
|
124,011 |
|
|
294,821 |
|
|
150,361 |
|
Total revenue |
|
1,550,968 |
|
|
944,131 |
|
|
358,748 |
|
|
203,471 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of rental
income |
|
422,168 |
|
|
204,215 |
|
|
431,994 |
|
|
203,585 |
|
Total cost of
revenue |
|
422,168 |
|
|
204,215 |
|
|
431,994 |
|
|
203,585 |
|
Gross margin |
|
1,128,800 |
|
|
739,916 |
|
|
(73,246 |
) |
|
(114 |
) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
costs |
|
6,179,906 |
|
|
184,039 |
|
|
40,704 |
|
|
(8,660 |
) |
Promotion costs |
|
36,130,864 |
|
|
31,084,985 |
|
|
- |
|
|
- |
|
Selling expenses |
|
9,379,847 |
|
|
8,048,106 |
|
|
591,450 |
|
|
544,912 |
|
Research and development
expenses |
|
1,140,169 |
|
|
534,389 |
|
|
623,508 |
|
|
397,256 |
|
General and
administrative expenses |
|
2,183,716 |
|
|
1,382,362 |
|
|
378,839 |
|
|
263,868 |
|
Total operating
expenses |
|
(55,014,502 |
) |
|
(41,233,881 |
) |
|
1,634,501 |
|
|
1,197,376 |
|
Loss from operations |
|
(55,885,702 |
) |
|
(40,493,965 |
) |
|
(1,707,747 |
) |
|
(1,197,490 |
) |
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
(1,608 |
) |
|
(1,369 |
) |
|
(88 |
) |
|
(85 |
) |
Other (income) expense |
|
5,781 |
|
|
4,559 |
|
|
640 |
|
|
674 |
|
Other (income) expense, net |
|
4,173 |
|
|
3,190 |
|
|
552 |
|
|
589 |
|
Loss before income tax provision |
|
(53,889,875 |
) |
|
(40,497,155 |
) |
|
(1,708,299 |
) |
|
(1,198,079 |
) |
Income tax provision |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Net loss |
|
(53,889,875 |
) |
|
(40,497,155 |
) |
|
(1,708,299 |
) |
|
(1,198,079 |
) |
Other comprehensive income
(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
gain (loss) |
|
(69,964 |
) |
|
(71,091 |
) |
|
6,950 |
|
|
(278 |
) |
Total other comprehensive income (loss) |
|
(69,964 |
) |
|
(71,091 |
) |
|
6,950 |
|
|
(278 |
) |
Comprehensive loss |
$ |
(53,959,839 |
) |
$ |
(40,568,246 |
) |
$ |
(1,701,349 |
) |
$ |
(1,198,357 |
) |
Earnings Per Share - Basic
and Diluted |
$ |
(25,37 |
) |
$ |
(18.86 |
) |
$ |
(0.85 |
) |
$ |
(0.60 |
) |
Weighted average common shares outstanding: -
basic and diluted |
|
2,124,090 |
|
|
2,147,677 |
|
|
2,000,000 |
|
|
2,000,000 |
|
See accompanying notes to the consolidated financial
statements.
F-3
DLD Group, Inc.
Consolidated Statement of Changes in
Stockholders' Equity (Deficit)
For
the Reporting Period Ended June 30, 2015 and December 31,
2014
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
Common stock par value $0.001: |
|
|
Additional |
|
|
|
|
|
Income (Loss) |
|
|
Total |
|
|
|
Number of |
|
|
|
|
|
Paid-in |
|
|
Accumulated |
|
|
Foreign Currency |
|
|
Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Translation Gain(loss) |
|
|
Equity (Deficit) |
|
Balance, December 31, 2013 |
|
2,000,000 |
|
$ |
2,000 |
|
$ |
7,135,671 |
|
$ |
(7,563,211 |
) |
$ |
(962 |
) |
$ |
(426,502 |
) |
Reverse acquisition adjustment |
|
100,215 |
|
|
100 |
|
|
(152,077 |
) |
|
|
|
|
|
|
|
(151,977 |
) |
Contributed
capital |
|
|
|
|
|
|
|
17,814,918 |
|
|
|
|
|
|
|
|
17,814,918 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(4,158,011 |
) |
|
|
|
|
(4,158,011 |
) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,666 |
) |
|
(12,666 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,170,677 |
) |
Balance, December 31, 2014 |
|
2,100,215 |
|
|
2,100 |
|
|
24,798,512 |
|
|
(11,721,222 |
) |
|
(13,628 |
) |
|
13,065,762 |
|
Shares issued for services |
|
288,000 |
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
288 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(53,889,875 |
) |
|
|
|
|
(53,899,875 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,964 |
) |
|
(69,964 |
) |
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,959,839 |
) |
Balance, June 30, 2015 |
|
2,388,215 |
|
$ |
2,388 |
|
$ |
24,798,512 |
|
$ |
(65,611,097 |
) |
$ |
(83,592 |
) |
$ |
(40,893,789 |
) |
See accompanying notes to the consolidated financial statements.
F-4
DLD Group, Inc.
Consolidated
Statements of Cash Flows
|
|
For the Six Months |
|
|
For the Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
Net loss |
$ |
(53,889,875 |
) |
$ |
(1,708,299 |
) |
Adjustments to
reconcile net loss to net cash provided by (used in) operating activities |
|
|
|
|
Depreciation expense |
|
564,552 |
|
|
370,481 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts
receivable |
|
(164,533 |
) |
|
(8,532 |
) |
Prepayments and other current assets |
|
4,491,569 |
|
|
(473,986 |
) |
Other long
term assets |
|
281,867 |
|
|
28,493 |
|
Accounts payable |
|
169,566 |
|
|
- |
|
Member deposits |
|
34,512,741 |
|
|
- |
|
Accured promotional cost |
|
8,088,298 |
|
|
- |
|
Taxes payable |
|
(107,883 |
) |
|
11,015 |
|
Other accrued expenses and current liabilities |
|
3,606,539 |
|
|
215,574 |
|
Deferred
revenue |
|
4,136,725 |
|
|
35,665 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
1,689,566 |
|
|
(1,529,589 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Purchases of property and equipment |
|
(819,061 |
) |
|
(18,526 |
) |
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
(819,061 |
) |
|
(18,526 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
Advances
from (repayment to) stockholders |
|
(374,650 |
) |
|
1,516,920 |
|
Advances from (repayments to) affiliates |
|
288,981 |
|
|
(41,623 |
) |
Capital
contribution |
|
- |
|
|
347,239 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
(85,669 |
) |
|
1,822,536 |
|
|
|
|
|
|
|
|
Effect of foreign exchange rate change on
cash |
|
8,428 |
|
|
211 |
|
|
|
|
|
|
|
|
Net change in cash |
|
793,264 |
|
|
274,632 |
|
|
|
|
|
|
|
|
Cash at beginning of the reporting period |
|
1,524,467 |
|
|
16,935 |
|
|
|
|
|
|
|
|
Cash at end of the reporting period |
$ |
2,317,731 |
|
$ |
291,567 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION: |
|
|
|
|
|
|
Interest paid |
$ |
- |
|
$ |
- |
|
Income tax
paid |
$ |
- |
|
$ |
- |
|
See accompanying notes to the consolidated financial
statements.
F-5
DLD Group, Inc.
June 30, 2015 and 2014
Notes to the
Consolidated Financial Statements
(Unaudited)
Note 1 Organization and Operations
DLD Group, Inc.
DLD Group, Inc. (formerly Europa Resources Inc. and EWRX
Internet Systems, Inc.) ("DLD Group" or the "Company") was incorporated on June
25, 1997 under the laws of the State of Nevada. DLD Group is currently a
non-operating holding entity with nominal assets and liabilities.
Acquisition of DLD Great Industry Limited and
Consolidated Entities (DLD BVI) Recognized as a Reverse Acquisition
On December 30, 2014, DLD Group entered into a share exchange
agreement (the Share Exchange Agreement) with all of the shareholders of DLD
BVI, representing 100% of the then issued and outstanding capital stock of DLD
BVI, and consummated the Share Exchange Agreement with the signing of the Share
Exchange Agreement. Pursuant to the terms of the Share Exchange Agreement, DLD
Group acquired all of the issued and outstanding shares of the capital stock of
DLD BVI in exchange for 2,000,000 shares of common stock of DLD Group. The
number of shares issued represented approximately 95.2% of the issued and
outstanding common stock immediately after the consummation of the Share
Exchange Agreement.
As a result of the controlling financial interest of the former
stockholders of DLD BVI, for financial statement reporting purposes, the
business combination between DLD Group and DLD BVI has been treated as a reverse
acquisition with DLD BVI deemed the accounting acquirer and DLD Group deemed the
accounting acquiree under the acquisition method of accounting in accordance
with FASB ASC Section 805-10-55. The reverse acquisition is deemed a capital
transaction and the net assets of DLD BVI (the accounting acquirer) are carried
forward to DLD Group (the legal acquirer and the reporting entity) at their
carrying value before the acquisition. The acquisition process utilizes the
capital structure of DLD Group and the assets and liabilities of DLD BVI which
are recorded at historical cost. The equity of the combined entity is the
historical equity of DLD BVI retroactively restated to reflect the number of
shares issued by DLD Group in the transaction.
DLD Great Industry Limited and Consolidated
Entities
DLD Great Industry
Limited
DLD Great Industry Limited (DLD BVI) was incorporated on
December 11, 2012 under the laws of the Territory of the British Virgin Islands
(BVI).
Formation of a Wholly Owned
Subsidiary, DLD International Group Limited
On August 29, 2013, DLD BVI formed a wholly owned subsidiary,
DLD International Group Limited ("DLD HK") under the laws of the Hong Kong
Special Administrative Region (HK SAR) of the Peoples Republic of China
(PRC).
On November 21, 2013, DLD HK formed a wholly owned foreign
enterprise, Beijing DLD Enterprise Management Consulting Co., Ltd. (DLD WOFE")
under the laws of the Peoples Republic of China (PRC) in the City of Beijing,
China.
Variable Interest Entity (VIE)
under Common Control
Formation/Acquisition of
VIEs
DLD Technology Co., Ltd. ("DLD Technology") was incorporated by
the same shareholders of DLD BVI on February 23, 2012 under the laws of the
Peoples Republic of China (PRC) in the City of Beijing, China. DLD Technology
engages in technology development, technology transfer, technology consulting,
technology services; computer system service; data processing; application
service; and software service (collectively, the Principal Business). On June
11, 2014, DLD Technology formed a wholly owned subsidiary, Henan DLD Information
Technology Co., Ltd. ("DLD Henan") under the laws of the Peoples Republic of
China (PRC) in the City of Zhengzhou, China. DLD Henan engages in the same
line of business of DLD Technology.
Shenzhen Tonychengyi Sanxing Weiye Network Technology Co., Ltd.
("STSW") was incorporated by the same shareholders of DLD BVI on August 14, 2009
under the laws of the Peoples Republic of China (PRC) in the City of
Shenzhen, Guangdong Province, China. STSW engages in research and development of
internet technology and social network.
Obtaining Control of VIE upon
Entry into a Series of Agreements
F-6
On November 25, 2014, DLD WOFE entered into a series of
agreements with DLD Technology and STSW (individually VIE or collectively
"VIEs") including an Exclusive Business Cooperation and Management Agreement, an
Equity Interest Pledge Agreement, an Exclusive Option Agreement and the power of
attorney executed by the shareholders of DLD Technology and STSW.
(i) Exclusive
Business Cooperation and Management Agreement
Under the Exclusive Business Cooperation and Management
Agreement, VIE appoints DLD WOFE as VIEs exclusive service provider to provide
VIE with complete business support, operational management and technical and
consulting services to the extent permitted by the currently effective laws of
China, which may include all services within the business scope of VIE as may be
determined from time to time by DLD WOFE, such as but not limited to technical
services, business consultations, equipment or property leasing and marketing
consultancy.
DLD WOFE shall be fully and exclusively responsible for the
operation of VIE, which includes the right to appoint and terminate members of
its Board of Directors and the right to hire managerial and administrative
personnel etc. DLD WOFE or its voting proxy shall make a shareholders
resolution and a Board of Directors resolution based on the decision of DLD
WOFE. DLD WOFE has the full and exclusive right to manage and control all cash
flow and assets of DLD WOFE. DLD WOFE has the full and exclusive right to decide
the use of the funds of VIE. DLD WOFE shall have the full and exclusive right to
control and administer the financial affairs and daily operations of VIE, such
as entering into and performance of contracts, and payment of fees and expenses
etc.
VIE further agrees that unless receiving DLD WOFE's prior
written consent, VIE shall not accept any similar consultations and/or services
provided by any third party and shall not establish a similar corporate
relationship with any third party regarding the matters contemplated by this
agreement.
VIE may enter into equipment or property leases with DLD WOFE
or any other party designated by DLD WOFE which shall permit VIE to use DLD WOFE
or third parties' relevant equipment or property based on the needs of the
business of VIE.
DLD WOFE shall have exclusive and proprietary rights and
interests in all rights, ownership, interests and intellectual properties
arising out of or created during the performance of this Agreement, including
but not limited to copyrights, patents, patent applications, software, technical
secrets, trade secrets and others.
The Agreement is valid for 10 years from November 24, 2014, the
date of signing, and may be extended if confirmed in writing by DLD WOFE prior
to the expiration thereof. The extended term shall be determined by DLD WOFE,
and VIE shall accept such extended term unconditionally. Unless renewed in
accordance with the relevant terms of this Agreement, the Agreement shall be
terminated upon the date of expiration hereof. During the term of the Agreement,
unless DLD WOFE commits gross negligence, or a fraudulent act, against VIE, VIE
shall not terminate the Agreement prior to its expiration date. Nevertheless,
DLD WOFE shall have the right to terminate the Agreement upon giving 30 days
prior written notice to VIE at any time.
VIE shall pay an annual service fee to DLD WOFE in the
equivalent amount of VIEs audited total amount of net income of such year (the
Annual Service Fee). If VIEs annual net income is zero, VIE is not required
to pay the Annual Service Fee; if VIE sustains losses in any fiscal year, all
such losses will be carried over to next year and deducted from next years
Annual Service Fee.
(ii) Equity Interest Pledge
Agreement
As collateral security for the timely and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of any or all of the payments due by VIE, including without limitation the
annual service fee payable to DLD WOFE under the Exclusive Business Cooperation
and Management Agreement, VIEs shareholders pledge to DLD WOFE a first security
interest in all of VIEs shareholders right, title and interest in the Equity
Interest of VIE. Prior to the full payment of the consulting and service fees
described in the Exclusive Business Cooperation and Management Agreement,
without DLD WOFEs written consent, VIEs shareholders shall not assign the
Pledge or the Equity Interest in VIE.
The Agreement is conditioned upon the performance of the
Exclusive Business Cooperation and Management Agreement and is terminated when
the Exclusive Business Cooperation and Management Agreement is terminated.
(iii) Exclusive Option
Agreement
VIEs shareholders grant DLD WOFE an irrevocable and exclusive
right to purchase, or designate one or more persons (each, a Designee) the
right to purchase the equity interests in VIE now or then held by VIE
shareholders (regardless of whether VIEs shareholders capital contribution
and/or shareholder ownership percentage is changed) at any time in part or in
whole at DLD WOFE's sole and absolute discretion to the extent permitted by
Chinese law.
Unless an appraisal is required by the laws of China applicable
to the Equity Interest Purchase Option when exercised by DLD WOFE, the purchase price of the Optioned Interests (the Equity
Interest Purchase Price) shall equal the actual capital contributions paid in
the registered capital of VIE by VIEs shareholders for the Optioned Interests.
F-7
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not in any manner supplement, change or amend the articles of
association and bylaws of VIE, increase or decrease its registered capital, or
change its structure of registered capital in other manners; VIE shareholders
shall maintain VIE's corporate existence in accordance with good financial and
business standards and practices by prudently and effectively operating its
business and handling its affairs.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not at any time following the date hereof, sell, transfer,
mortgage or dispose of in any manner any assets of VIE or legal or beneficial
interest in the business or revenues of VIE, or allow the encumbrance thereon of
any security interest; incur, inherit, guarantee or suffer the existence of any
debt, except for (i) debts incurred in the ordinary course of business other
than through loans; and (ii) debts disclosed to DLD WOFE for which DLD WOFE's
written consent has been obtained.
VIEs shareholders shall provide DLD WOFE with information on
VIEs business operations and financial condition at DLD WOFE's request; without
the prior written consent of DLD WOFE, VIEs shareholders shall not cause VIE to
provide any person with any loan or credit.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not cause VIE to execute any major contracts, except
contracts in the ordinary course of business (a contract with a value exceeding
RMB100,000 shall be deemed a major contract).
If requested by DLD WOFE, VIEs shareholders shall procure and
maintain insurance in respect of VIE's assets and business from an insurance
carrier acceptable to DLD WOFE, at an amount and type of coverage typical for
companies that operate similar businesses.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not cause or permit VIE to merge, consolidate with, acquire
or invest in any person. VIEs shareholders shall immediately notify DLD WOFE of
the occurrence or possible occurrence of any litigation, arbitration or
administrative proceedings relating to VIE' assets, business or revenue.
To maintain the ownership by VIE of all of its assets, VIEs
shareholders shall execute all necessary or appropriate documents, take all
necessary or appropriate actions and file all necessary or appropriate
complaints or raise necessary and appropriate defenses against all claims.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall ensure that VIE shall not in any manner distribute dividends
to its shareholders, provided that upon VIEs written request, VIE shall
immediately distribute all distributable profits to its shareholders. At the
request of DLD WOFE, VIEs shareholders shall appoint any persons designated by
DLD WOFE as the director and/or executive director of VIE.
The Agreement is valid for 10 years from November 24, 2014, the
date of signing.
(iv) Power of
Attorney
Each shareholder of VIE has granted DLD WOFE a Power of
Attorney to act on his/her behalf as his/her exclusive agent and attorney with
respect to all matters concerning their Shareholding, including without
limitation to: 1) attend shareholders meetings; 2) exercise all the
shareholder's rights and shareholder's voting rights, including but not limited
to the sale or transfer or pledge or disposition of their Shareholding in part
or in whole; and 3) designate and appoint on their behalf the legal
representative, the executive director and/or director, supervisor, the chief
executive officer and other senior management members of VIE.
DLD WOFE shall have the power and authority to execute the
Transfer Contracts stipulated in the Exclusive Option Agreement and to effect
the terms of the Share Pledge Agreement and Exclusive Option Agreement.
DLD WOFE is entitled to re-authorize or assign its rights
related to the aforesaid matters to any other person or entity at its own
discretion without giving prior notice to shareholder of VIE or obtaining their
consent.
Determination of VIE
Variable interest entity (VIE) refers to an entity (the
investee) in which the investor holds a controlling interest that is not based
on the majority of voting rights. A VIE is an entity meeting one of the
following three (3) criteria as elaborated in FASB ASC 810-10 [formerly FIN 46
(Revised)]:
|
1. |
The equity-at-risk is not sufficient to support the
entity's activities (e.g.: the entity is thinly capitalized, the group of
equity holders possesses no substantive voting rights, etc.); |
|
2. |
As a group, the equity-at-risk holders cannot control the
entity; or |
F-8
|
3. |
The economics do not coincide with the voting interests
(commonly known as the "anti-abuse rule"). |
Under the above described contractual arrangements, DLD
Technology and STSW became the variable interest entity of DLD WOFE on November
25, 2014 upon the entry into the above described agreements.
Presentation of the Total Assets
and Liabilities of the VIEs
Pursuant to ASC paragraph 810-10-45-25 a reporting entity shall
present each of the following separately on the face of the statement of
financial position: a. Assets of a consolidated variable interest entity (VIE)
that can be used only to settle obligations of the consolidated VIE, and b.
Liabilities of a consolidated VIE for which creditors (or beneficial interest
holders) do not have recourse to the general credit of the primary beneficiary.
The Company reports the disclosures about VIEs in the aggregate for all of its
VIE entities as they all are engaged in the same line of business and separate
reporting would not provide more useful information to financial statement users
in accordance with ASC paragraph 810-10-50-9.
The Companys total assets and liabilities presented in the
consolidated financial statements represent substantially all of total assets
and liabilities of the VIE and VIEs subsidiaries as DLD Group is a
non-operating holding entity with nominal assets and liabilities.
Note 2 Significant and Critical Accounting Policies and
Practices
The Management of the Company is responsible for the selection
and use of appropriate accounting policies and the appropriateness of accounting
policies and their application. Critical accounting policies and practices are
those that are both most important to the portrayal of the Companys financial
condition and results and require managements most difficult, subjective, or
complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain. The Companys significant and
critical accounting policies and practices are disclosed below as required by
generally accepted accounting principles.
Basis of Presentation - Unaudited Interim Financial
Information
The accompanying unaudited interim consolidated financial
statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP) for
interim financial information, and with the rules and regulations of the United
States Securities and Exchange Commission (SEC) to Form 10-Q and Article 8 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. The unaudited
interim financial statements furnished reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management, necessary to
a fair statement of the results for the interim periods presented. Interim
results are not necessarily indicative of the results for the full year. These
unaudited interim consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company as of and
for the year ended December 31, 2014 and notes thereto contained in the Annual
Report on Form 10-K of the Company as filed with the United States Securities
and Exchange Commission (SEC) on April 15, 2015.
Use of Estimates and Assumptions and Critical Accounting
Estimates and Assumptions
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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(s) of the financial statements and the reported amounts
of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates for which (a) the
nature of the estimate is material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change and (b) the impact of the estimate on financial
condition or operating performance is material. The Companys critical
accounting estimates and assumptions affecting the financial statements were:
(i) |
Assumption as a going concern: Management assumes
that the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of
liabilities in the normal course of business. |
(ii) |
Allowance for doubtful accounts: Managements
estimate of the allowance for doubtful accounts is based on historical
sales, historical loss levels, and an analysis of the collectability of
individual accounts; and general economic conditions that may affect a
clients ability to pay. The Company evaluated the key factors and
assumptions used to develop the allowance in determining that it is
reasonable in relation to the financial statements taken as a
whole. |
(iii) |
Fair value of long-lived assets: Fair value is
generally determined using the assets expected future discounted cash
flows or market value, if readily determinable. If long-lived assets are
determined to be recoverable, but the newly determined remaining estimated
useful lives are shorter than originally estimated, the net book values of
the long-lived assets are depreciated over the newly determined remaining
estimated useful lives. The Company considers the following to be some
examples of important indicators that may trigger an impairment review:
(i) significant under-performance or losses of assets relative to expected
historical or projected future operating results; (ii) significant changes
in the manner or use of assets or in the Companys overall strategy with respect to the manner or
use of the acquired assets or changes in the Companys overall business
strategy; (iii) significant negative industry or economic trends; (iv) increased
competitive pressures; (v) a significant decline in the Companys stock price
for a sustained period of time; and (vi) regulatory changes. The Company
evaluates acquired assets for potential impairment indicators at least annually
and more frequently upon the occurrence of such events. |
F-9
(iv) |
Valuation allowance for deferred tax assets:
Management assumes that the realization of the Companys net deferred tax
assets resulting from its net operating loss (NOL) carryforwards for
Federal income tax purposes that may be offset against future taxable
income was not considered more likely than not and accordingly, the
potential tax benefits of the net loss carry-forwards are offset by a full
valuation allowance. Management made this assumption based on (a) the
Company has incurred recurring losses, (b) general economic conditions,
and (c) its ability to raise additional funds to support its daily
operations by way of a public or private offering, among other
factors. |
These significant accounting estimates or assumptions bear the
risk of change due to the fact that there are uncertainties attached to these
estimates or assumptions, and certain estimates or assumptions are difficult to
measure or value.
Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable in relation to the
financial statements taken as a whole under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions
used to develop the estimates utilizing currently available information, changes
in facts and circumstances, historical experience and reasonable assumptions.
After such evaluations, if deemed appropriate, those estimates are adjusted
accordingly.
Actual results could differ from those estimates.
Principles of Consolidation
The Company applies the guidance of Topic 810 Consolidation of the FASB Accounting Standards Codification (ASC) to
determine whether and how to consolidate another entity.
Pursuant to ASC Paragraph 810-10-15-10 all majority-owned
subsidiariesall entities in which a parent has a controlling financial
interestshall be consolidated except (1) when control does not rest with the
parent, the majority owner; (2) if the parent is a broker-dealer within the
scope of Topic 940 and control is likely to be temporary; (3) consolidation by
an investment company within the scope of Topic 946 of a non-investment-company
investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a
controlling financial interest is ownership of a majority voting interest, and,
therefore, as a general rule ownership by one reporting entity, directly or
indirectly, of more than 50 percent of the outstanding voting shares of another
entity is a condition pointing toward consolidation. The power to control may
also exist with a lesser percentage of ownership, for example, by contract,
lease, agreement with other stockholders, or by court decree. The Company
consolidates all less-than-majority-owned subsidiaries, if any, in which the
parents power to control exists.
Pursuant to ASC Paragraph 810-10-25-38 a reporting entity shall
consolidate a VIE if that reporting entity has a variable interest (or
combination of variable interests) that will absorb a majority of the VIE's
expected losses, receive a majority of the VIE's expected residual returns, or
both. A reporting entity shall consider the rights and obligations conveyed by
its variable interests and the relationship of its variable interests with
variable interests held by other parties to determine whether its variable
interests will absorb a majority of a VIE's expected losses, receive a majority
of the VIE's expected residual returns, or both. If one reporting entity will
absorb a majority of a VIE's expected losses and another reporting entity will
receive a majority of that VIE's expected residual returns, the reporting entity
absorbing a majority of the losses shall consolidate the VIE. A reporting entity
shall consolidate a VIE when that reporting entity has a variable interest (or
combination of variable interests) that provides the reporting entity with a
controlling financial interest on the basis of the provisions in paragraphs
810-10-25-38A through 25-38G. The reporting entity that consolidates a VIE is
called the primary beneficiary of that VIE. Pursuant to ASC Paragraph
810-10-35-3, the principles of consolidated financial statements apply to
primary beneficiaries accounting for consolidated variable interest entities
(VIEs). After the initial measurement, the assets, liabilities, and
non-controlling interests of a consolidated VIE shall be accounted for in
consolidated financial statements as if the VIE were consolidated based on
voting interests. Any specialized accounting requirements applicable to the type
of business in which the VIE operates shall be applied as they would be applied
to a consolidated subsidiary. The consolidated entity shall follow the
requirements for elimination of intra-entity balances and transactions and other
matters described in Section 810-10-45 and paragraphs 810-10-50-1 through 50-1B
and existing practices for consolidated subsidiaries. Fees or other sources of
income or expense between a primary beneficiary and a consolidated VIE shall be
eliminated against the related expense or income of the VIE. The resulting
effect of that elimination on the net income or expense of the VIE shall be
attributed to the primary beneficiary (and not to non-controlling interests) in
the consolidated financial statements.
Pursuant to ASC Paragraph 810-10-30-1 if the primary
beneficiary of a variable interest entity (VIE) and the VIE are under common
control, the primary beneficiary shall initially measure the assets,
liabilities, and non-controlling interests of the VIE at amounts at which they
are carried in the accounts of the reporting entity that controls the VIE (or
would be carried if the reporting entity issued financial statements prepared in conformity with generally accepted
accounting principles (U.S. GAAP).
F-10
Pursuant to ASC Paragraph 810-10-30-2 if the primary
beneficiary of a variable interest entity (VIE) and the VIE are not under common
control, the initial consolidation of a VIE that is a business is a business
combination and shall be accounted for in accordance with the provisions in
Topic 805.
The Company's consolidated subsidiaries and/or entities are as
follows:
Name of consolidated
subsidiary or entity |
|
State or
other jurisdiction of
incorporation or organization |
|
Date of
incorporation or formation
(date of acquisition, if
applicable) |
|
Attributable interest |
|
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
DLD Great
Industry Limited ("DLD BVI") |
|
British Virgin Islands |
|
November 12, 2012 |
|
100% |
|
|
|
|
|
|
|
DLD
International Group Limited ("DLD HK") |
|
Hong Kong SAR |
|
August 29, 2013 |
|
100% |
|
|
|
|
|
|
|
Beijing DLD
Enterprise Management Consulting Co., Ltd. (DLD WOFE) |
|
PRC |
|
November 21, 2013 |
|
100% |
|
|
|
|
|
|
|
Variable
Interest Entity (VIE) under Common Control with
DLD BVI |
|
|
|
|
|
|
|
|
|
|
|
|
|
DLD Technology
Co., Ltd. ("DLD Technology") |
|
PRC |
|
February 23, 2012 |
|
100% |
|
|
|
|
|
|
|
Shenzhen
Tongchengyi Sanxing Weiye Network Technology Co. Ltd. ("STSW") |
|
PRC |
|
August 14, 2009 |
|
100% |
The Company, the primary beneficiary, measures the assets,
liabilities, and non-controlling interests, if any, of the VIE at amounts at
which they are carried in the accounts of the reporting entity that controls the
VIE (or would be carried if the reporting entity issued financial statements
prepared in conformity with generally accepted accounting principles (U.S.
GAAP) due to the fact that the Company, through DLD WOFE, the primary
beneficiary of the variable interest entity (VIE) and the VIE are under common
control.
The consolidated financial statements include all accounts of
the Company and its consolidated subsidiaries and/or VIEs at the historical cost
as of the reporting period ending date(s) and for the reporting period(s) then
ended.
All inter-company and inter-entity balances and transactions
have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB
Accounting Standards Codification (Paragraph 820-10-35-37) to measure the fair
value of its financial instruments and paragraph 825-10-50-10 of the FASB
Accounting Standards Codification for disclosures about fair value of its
financial instruments. Paragraph 820-10-35-37 establishes a framework for
measuring fair value in accounting principles generally accepted in the United
States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value
measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels. The three (3) levels of fair
value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
Quoted market prices available in active
markets for identical assets or liabilities as of the reporting date. |
Level 2 |
Pricing inputs other than quoted prices in
active markets included in Level 1, which are either directly or
indirectly observable as of the reporting date. |
Level 3 |
Pricing inputs that are generally observable
inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values
are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is
unobservable.
F-11
The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the
financial assets and liabilities fall within more than one level described
above, the categorization is based on the lowest level input that is significant
to the fair value measurement of the instrument.
The carrying amounts of the Companys financial assets and
liabilities, such as cash and cash equivalents, accounts receivable, prepayments
and other current assets, accounts payable, taxes payable, accrued promotion
cost, other accrued expenses and current liabilities and deferred revenue
approximate their fair values because of the short maturity of these
instruments.
Transactions involving related parties cannot be presumed to be
carried out on an arm's-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about
transactions with related parties, if made, shall not imply that the related
party transactions were consummated on terms equivalent to those that prevail in
arm's-length transactions unless such representations can be substantiated.
Carrying Value, Recoverability and Impairment of
Long-Lived Assets
The Company has adopted Section 360-10-35 of the FASB
Accounting Standards Codification for its long-lived assets. Pursuant to ASC
Paragraph 360-10-35-17 an impairment loss shall be recognized only if the
carrying amount of a long-lived asset (asset group) is not recoverable and
exceeds its fair value. The carrying amount of a long-lived asset (asset group)
is not recoverable if it exceeds the sum of the undiscounted cash flows expected
to result from the use and eventual disposition of the asset (asset group). That
assessment shall be based on the carrying amount of the asset (asset group) at
the date it is tested for recoverability. An impairment loss shall be measured
as the amount by which the carrying amount of a long-lived asset (asset group)
exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment
loss is recognized, the adjusted carrying amount of a long-lived asset shall be
its new cost basis. For a depreciable long-lived asset, the new cost basis shall
be depreciated (amortized) over the remaining useful life of that asset.
Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the Companys long-lived
asset (asset group) is tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The
Company considers the following to be some examples of such events or changes in
circumstances that may trigger an impairment review: (a) significant decrease in
the market price of a long-lived asset (asset group); (b) A significant adverse
change in the extent or manner in which a long-lived asset (asset group) is
being used or in its physical condition; (c) A significant adverse change in
legal factors or in the business climate that could affect the value of a
long-lived asset (asset group), including an adverse action or assessment by a
regulator; (d) An accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a long-lived asset
(asset group); (e) A current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived asset
(asset group); and (f) A current expectation that, more likely than not, a
long-lived asset (asset group) will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life. The
Company tests its long-lived assets for potential impairment indicators at least
annually and more frequently upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-45-4 and 360-10-45-5 an
impairment loss recognized for a long-lived asset (asset group) to be held and
used shall be included in income from continuing operations before income taxes
in the income statement of a business entity. If a subtotal such as income from
operations is presented, it shall include the amount of that loss. A gain or
loss recognized on the sale of a long-lived asset (disposal group) that is not a
component of an entity shall be included in income from continuing operations
before income taxes in the income statement of a business entity. If a subtotal
such as income from operations is presented, it shall include the amounts of
those gains or losses.
Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to be cash
equivalents.
Accounts Receivable and Allowance for Doubtful
Accounts
Pursuant to FASB ASC paragraph 310-10-35-47 trade receivables
that management has the intent and ability to hold for the foreseeable future
shall be reported in the balance sheet at outstanding principal adjusted for any
charge-offs and the allowance for doubtful accounts. The Company follows FASB
ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for
doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9 Losses from
uncollectible receivables shall be accrued when both of the following conditions
are met: (a) Information available before the financial statements are issued or
are available to be issued (as discussed in Section 855-10-25) indicates that it
is probable that an asset has been impaired at the date of the financial
statements, and (b) The amount of the loss can be reasonably estimated. Those
conditions may be considered in relation to individual receivables or in
relation to groups of similar types of receivables. If the conditions are met,
accrual shall be made even though the particular receivables that are
uncollectible may not be identifiable. The Company reviews individually each
trade receivable for collectability and performs on-going credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customers current credit worthiness, as determined by the review of their current credit
information; and determines the allowance for doubtful accounts based on
historical write-off experience, customer specific facts and general economic
conditions that may affect a clients ability to pay. Bad debt expense is
included in general and administrative expenses, if any.
F-12
Pursuant to FASB ASC paragraph 310-10-35-41 Credit losses for
trade receivables (uncollectible trade receivables), which may be for all or
part of a particular trade receivable, shall be deducted from the allowance. The
related trade receivable balance shall be charged off in the period in which the
trade receivables are deemed uncollectible. Recoveries of trade receivables
previously charged off shall be recorded when received. The Company charges off
its trade account receivables against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote.
There was no allowance for doubtful accounts at June 30, 2015
or December 31, 2014.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for
major additions and betterments are capitalized. Maintenance and repairs are
charged to operations as incurred. Depreciation of property and equipment is
computed by the straight-line method (after taking into account their respective
estimated residual values) over the estimated useful lives of the respective
assets as follows:
|
Estimated Useful |
|
Life (Years) |
|
|
Buildings |
20 |
|
|
Equipment |
3-5 |
Upon sale or retirement, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
the statements of operations.
Leases
Lease agreements are evaluated to determine whether they are
capital leases or operating leases in accordance with paragraph 840-10-25-1 of
the FASB Accounting Standards Codification (Paragraph 840-10-25-1). Pursuant
to Paragraph 840-10-25-1 a lessee and a lessor shall consider whether a lease
meets any of the following four criteria as part of classifying the lease at its
inception under the guidance in the Lessees Subsection of this Section (for the
lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer
of ownership. The lease transfers ownership of the property to the lessee by the
end of the lease term. This criterion is met in situations in which the lease
agreement provides for the transfer of title at or shortly after the end of the
lease term in exchange for the payment of a nominal fee, for example, the
minimum required by statutory regulation to transfer title. b. Bargain purchase
option. The lease contains a bargain purchase option. c. Lease term. The lease
term is equal to 75 percent or more of the estimated economic life of the leased
property. d. Minimum lease payments. The present value at the beginning of the
lease term of the minimum lease payments, excluding that portion of the payments
representing executory costs such as insurance, maintenance, and taxes to be
paid by the lessor, including any profit thereon, equals or exceeds 90 percent
of the excess of the fair value of the leased property to the lessor at lease
inception over any related investment tax credit retained by the lessor and
expected to be realized by the lessor. In accordance with paragraphs
840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four
lease classification criteria in Paragraph 840-10-25-1, the lease shall be
classified by the lessee as a capital lease; and if none of the four criteria in
Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an
operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the
present value of the minimum lease payments using the lessee's incremental
borrowing rate unless both of the following conditions are met, in which
circumstance the lessee shall use the implicit rate: a. It is practicable for
the lessee to learn the implicit rate computed by the lessor. b. The implicit
rate computed by the lessor is less than the lessee's incremental borrowing
rate. Capital lease assets are depreciated on a straight line method, over the
capital lease assets estimated useful lives consistent with the Companys normal
depreciation policy for tangible fixed assets. Interest charges are expensed
over the period of the lease in relation to the carrying value of the capital
lease obligation.
Operating leases primarily relate to the Companys leases of
office spaces. When the terms of an operating lease include tenant improvement
allowances, periods of free rent, rent concessions, and/or rent escalation
amounts, the Company establishes a deferred rent liability for the difference
between the scheduled rent payment and the straight-line rent expense
recognized, which is amortized over the underlying lease term on a straight-line
basis as a reduction of rent expense.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting
Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant to Section 850-10-20 the related parties include a.
affiliates of the Company (Affiliate means, with respect to any specified Person, any other Person that, directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with such Person, as such terms are used in and construed under Rule 405
under the Securities Act); b. entities for which investments in their equity
securities would be required, absent the election of the fair value option under
the Fair Value Option Subsection of Section 8251015, to be accounted for by
the equity method by the investing entity; c. trusts for the benefit of
employees, such as pension and profit-sharing trusts that are managed by or
under the trusteeship of management; d. principal owners of the Company; e.
management of the Company; f. other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests; and g. other parties
that can significantly influence the management or operating policies of the
transacting parties or that have an ownership interest in one of the transacting
parties and can significantly influence the other to an extent that one or more
of the transacting parties might be prevented from fully pursuing its own
separate interests.
F-13
The financial statements shall include disclosures of material
related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However,
disclosure of transactions that are eliminated in the preparation of
consolidated or combined financial statements is not required in those
statements. The disclosures shall include: a. the nature of the relationship(s)
involved; b. a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which
income statements are presented, and such other information deemed necessary to
an understanding of the effects of the transactions on the financial statements;
c. the dollar amounts of transactions for each of the periods for which income
statements are presented and the effects of any change in the method of
establishing the terms from that used in the preceding period; and d. amounts
due from or to related parties as of the date of each balance sheet presented
and, if not otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting
Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the consolidated financial statements are
issued, which may result in a loss to the Company but which will only be
resolved when one or more future events occur or fail to occur. The Company
assesses such contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted claims that may
result in such proceedings, the Company evaluates the perceived merits of any
legal proceedings or un-asserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is
probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Companys
consolidated financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is
probable but cannot be estimated, then the nature of the contingent liability,
and an estimate of the range of possible losses, if determinable and material,
would be disclosed.
Loss contingencies considered remote are generally not
disclosed unless they involve guarantees, in which case the guarantees would be
disclosed.
Revenue Recognition
The Company follows paragraph 605-10-S99-1 of the FASB
Accounting Standards Codification for revenue recognition. The Company
recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when all of the following
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the
product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured. In addition to the aforementioned general policy, the
following are the specific revenue recognition policies for each major category
of revenue:
Marketing services
The Companys marketing service revenues include advertising
fees for online advertising, direct mail, electronic direct mail service, and
selling discounted membership cards to online and offline customers who can
enjoy discounts and special prices when they shop in the Companys merchant
partners stores online and offline. Advertising revenue is recognized ratably
over the period in which the advertisement is displayed. Discounted membership
cards sales revenue is recognized when the card is delivered to the customer.
Terminal operator membership
fees
The Company earns membership fees from terminal operators. The
terminal operators pay membership fees upon the signing of the terminal operator
membership agreements which are initially deferred upon receipt and recognized
ratably over the term of the membership.
Commission income
The Company earns certain percentage of the transaction amount
from merchants as commission income when transactions are completed and settled through DLD supported payment system on
online and offline retail marketplace. Commission is earned and recognized when
the underlying transaction is completed.
F-14
Rental income
Rental income is recognized on a straight-line basis over the
term of the lease. Depreciation expense and maintenance cost of the property are
recorded as the cost of rental income.
Net revenues from the sale of services represent the invoiced
value of services provided, net of value added taxes (VAT). The Company is
subject to VAT which is levied on all of the Companys services on the invoiced
value of services provided. Sales or Output VAT is borne by customers in
addition to the invoiced value of services and Purchase or Input VAT is borne by
the Company in addition to the invoiced value of purchases to the extent not
refunded for export sales, if any.
Advertising Costs
The Company follows the guidance of the Section 720-35-25 of
the FASB Accounting Standards Codification (Section 720-35-25) as to when
advertising costs should be expensed. Pursuant to ASC Paragraph 720-35-25-1 the
costs of advertising shall be expensed either as incurred or the first time the
advertising takes place. The accounting policy the Company selected from these
two alternatives was to expense the advertising costs when the first time the
advertising takes place. Deferring the costs of advertising until the
advertising takes place assumes that the costs have been incurred for
advertising that will occur, such as the first public showing of a television
commercial for its intended purpose and the first appearance of a magazine
advertisement for its intended purpose. Such costs shall be expensed immediately
if such advertising is not expected to occur.
Pursuant to ASC Paragraph 720-35-25-5 costs of communicating
advertising are not incurred until the item or service has been received and
shall not be reported as expenses before the item or service has been received,
such as the costs of television airtime which shall not be reported as
advertising expense before the airtime is used. Once it is used, the costs shall
be expensed, unless the airtime was used for direct-response advertising
activities that meet the criteria for capitalization under ASC paragraph
340-20-25-4.
Research and Development
The Company follows paragraph 730-10-25-1 of the FASB
Accounting Standards Codification (formerly Statement of Financial Accounting
Standards No. 2 Accounting for Research and Development Costs) and
paragraph 730-20-25-11 of the FASB Accounting Standards Codification (formerly
Statement of Financial Accounting Standards No. 68 Research and Development
Arrangements) for research and development costs. Research and development
costs are charged to expense as incurred. Research and development costs consist
primarily of remuneration for research and development staff, depreciation and
maintenance expenses of research and development equipment, material and testing
costs for research and development as well as research and development
arrangements with third party research and development institutions.
Foreign Currency Transactions
The Company applies the guidelines as set out in Section
830-20-35 of the FASB Accounting Standards Codification (Section 830-20-35)
for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB
Accounting Standards Codification, foreign currency transactions are
transactions denominated in currencies other than U.S. Dollar, the Companys
reporting currency or Chinese Yuan or Renminbi, the Companys functional
currency. Foreign currency transactions may produce receivables or payables that
are fixed in terms of the amount of foreign currency that will be received or
paid. A change in exchange rates between the functional currency and the
currency in which a transaction is denominated increases or decreases the
expected amount of functional currency cash flows upon settlement of the
transaction. That increase or decrease in expected functional currency cash
flows is a foreign currency transaction gain or loss that generally shall
be included in determining net income for the period in which the exchange rate
changes. Likewise, a transaction gain or loss (measured from the transaction
date or the most recent intervening balance sheet date, whichever is
later) realized upon settlement of a foreign currency transaction generally
shall be included in determining net income for the period in which the
transaction is settled. The exceptions to this requirement for inclusion in net
income of transaction gains and losses pertain to certain intercompany
transactions and to transactions that are designated as, and effective as,
economic hedges of net investments and foreign currency commitments. Pursuant to
Section 830-20-25 of the FASB Accounting Standards Codification, the following
shall apply to all foreign currency transactions of an enterprise and its
investees: (a) at the date the transaction is recognized, each asset, liability,
revenue, expense, gain, or loss arising from the transaction shall be measured
and recorded in the functional currency of the recording entity by use of the
exchange rate in effect at that date as defined in section 830-10-20 of the FASB
Accounting Standards Codification; and (b) at each balance sheet date, recorded
balances that are denominated in currencies other than the functional currency
or reporting currency of the recording entity shall be adjusted to reflect the
current exchange rate.
Net gains and losses resulting from foreign exchange
transactions, if any, are included in the Companys statements of operations and
comprehensive income (loss).
F-15
Deferred Tax Assets andIncome Tax Provision
The Company accounts for income taxes under Section 740-10-30
of the FASB Accounting Standards Codification, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance to the
extent management concludes it is more likely than not that the assets will not
be realized. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of income and comprehensive income (loss) in the period
that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting
Standards Codification (Section 740-10-25). Section 740-10-25 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under Section 740-10-25,
the Company may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty (50) percent likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures.
The estimated future tax effects of temporary differences
between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carry-backs and
carry-forwards. The Company periodically reviews the recoverability of deferred
tax assets recorded on its consolidated balance sheets and provides valuation
allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax
laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple
taxing jurisdictions and is subject to audit in these jurisdictions. In
managements opinion, adequate provisions for income taxes have been made for
all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Tax years that remain subject to
examination by major tax jurisdictions
The Company discloses tax years that remain subject to
examination by major tax jurisdictions pursuant to the ASC Paragraph
740-10-50-15.
Foreign Currency Translation
The Company follows Section 830-10-45 of the FASB Accounting
Standards Codification (Section 830-10-45) for foreign currency translation to
translate the financial statements of the foreign subsidiary from the functional
currency, generally the local currency, into U.S. Dollars. Section 830-10-45
sets out the guidance relating to how a reporting entity determines the
functional currency of a foreign entity (including of a foreign entity in a
highly inflationary economy), re-measures the books of record (if necessary),
and characterizes transaction gains and losses. Pursuant to Section 830-10-45,
the assets, liabilities, and operations of a foreign entity shall be measured
using the functional currency of that entity. An entitys functional currency is
the currency of the primary economic environment in which the entity operates;
normally, that is the currency of the environment, or local currency, in which
an entity primarily generates and expends cash.
The functional currency of each foreign subsidiary is
determined based on managements judgment and involves consideration of all
relevant economic facts and circumstances affecting the subsidiary. Generally,
the currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and other expenditures, would be
considered the functional currency, but any dependency upon the parent and the
nature of the subsidiarys operations must also be considered. If a subsidiarys
functional currency is deemed to be the local currency, then any gain or loss
associated with the translation of that subsidiarys financial statements is
included in accumulated other comprehensive income. However, if the functional
currency is deemed to be the U.S. Dollar, then any gain or loss associated with
the re-measurement of these financial statements from the local currency to the
functional currency would be included in the consolidated statements of income
and comprehensive income (loss). If the Company disposes of foreign
subsidiaries, then any cumulative translation gains or losses would be recorded
into the consolidated statements of income and comprehensive income (loss). If
the Company determines that there has been a change in the functional currency
of a subsidiary to the U.S. Dollar, any translation gains or losses arising
after the date of change would be included within the statement of income and
comprehensive income (loss).
Based on an assessment of the factors discussed above, the
management of the Company determined the relevant subsidiarys local currency to
be the functional currency for its foreign subsidiary.
The financial records of the Company are maintained in their
local currency, the Renminbi (RMB), which is the functional currency.
F-16
Assets and liabilities are translated from the local currency
into the reporting currency, U.S. dollars, at the exchange rate prevailing at
the balance sheet date. Revenues and expenses are translated at weighted average
exchange rates for the period to approximate translation at the exchange rates
prevailing at the dates those elements are recognized in the financial
statements. Foreign currency translation gain (loss) resulting from the
process of translating the local currency financial statements into U.S. dollars
are included in determining accumulated other comprehensive income in the
statement of stockholders equity.
RMB is not a fully convertible currency. All foreign exchange
transactions involving RMB must take place either through the Peoples Bank of
China (the PBOC) or other institutions authorized to buy and sell foreign
exchange. The exchange rate adopted for the foreign exchange transactions are
the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China
adopted a managed floating exchange rate regime based on market demand and
supply with reference to a basket of currencies. The exchange rate of the US
dollar against the RMB was adjusted from approximately RMB 8.28 per U.S. dollar
to approximately RMB 8.11 per U.S. dollar on July 21, 2005. Since then, the PBOC
administers and regulates the exchange rate of the U.S. dollar against the RMB
taking into account demand and supply of RMB, as well as domestic and foreign
economic and financial conditions.
Unless otherwise noted, the rate presented below per U.S. $1.00
was the midpoint of the interbank rate as quoted by OANDA Corporation
(www.oanda.com) contained in its financial statements. Management
believes that the difference between RMB vs. U.S. dollar exchange rate quoted by
the PBOC and RMB vs. U.S. dollar exchange rate reported by OANDA Corporation
were immaterial. Translations do not imply that the RMB amounts actually
represent, or have been or could be converted into, equivalent amounts in U.S.
dollars. Translation of amounts from RMB into U.S. dollars has been made at the
following exchange rates for the respective periods:
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheets |
|
6.1088 |
|
|
6.1460 |
|
|
6.1565 |
|
|
6.1122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of operations and
comprehensive income (loss) |
|
6.1254 |
|
|
6.1457 |
|
|
6.1419 |
|
|
6.1943 |
|
Comprehensive Income (Loss)
The Company has applied section 220-10-45 of the FASB
Accounting Standards Codification (Section 220-10-45) to present comprehensive
income (loss). Section 220-10-45 establishes rules for the reporting of
comprehensive income (loss) and its components. Comprehensive income (loss), for
the Company, consists of net income and foreign currency translation adjustments
and is presented in the Companys consolidated statements of operations and
comprehensive income (loss) and stockholders equity.
Earnings per Share
Earnings per share ("EPS") is the amount of earnings
attributable to each share of common stock. For convenience, the term is used to
refer to either earnings or loss per share. EPS is computed pursuant to section
260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC
Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by
dividing income available to common stockholders (the numerator) by the
weighted-average number of common shares outstanding (the denominator) during
the period. Income available to common stockholders shall be computed by
deducting both the dividends declared in the period on preferred stock (whether
or not paid) and the dividends accumulated for the period on cumulative
preferred stock (whether or not earned) from income from continuing operations
(if that amount appears in the income statement) and also from net income. The
computation of diluted EPS is similar to the computation of basic EPS except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued during the period to reflect the potential dilution that could
occur from common shares issuable through contingent shares issuance
arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21 through
260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion
rate or exercise price from the standpoint of the security holder. The dilutive
effect of outstanding call options and warrants (and their equivalents) issued
by the reporting entity shall be reflected in diluted EPS by application of the
treasury stock method unless the provisions of paragraphs 260-10-45-35 through
45-36 and 260-10-55-8 through 55-11 require that another method be applied.
Equivalents of options and warrants include non-vested stock granted to
employees, stock purchase contracts, and partially paid stock subscriptions (see
paragraph 260105523). Anti-dilutive contracts, such as purchased put options
and purchased call options, shall be excluded from diluted EPS. Under the
treasury stock method: a. Exercise of options and warrants shall be assumed at
the beginning of the period (or at time of issuance, if later) and common shares
shall be assumed to be issued. b. The proceeds from exercise shall be assumed to
be used to purchase common stock at the average market price during the period.
(See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental
shares (the difference between the number of shares assumed issued and the
number of shares assumed purchased) shall be included in the denominator of the
diluted EPS computation.
The Company has no contingent shares issuance arrangement,
stock options or warrants for the reporting period ended June 30, 2015 or 2014.
F-17
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24 of the FASB
Accounting Standards Codification for cash flows reporting, classifies cash
receipts and payments according to whether they stem from operating, investing,
or financing activities and provides definitions of each category, and uses the
indirect or reconciliation method (Indirect method) as defined by paragraph
230-10-45-25 of the FASB Accounting Standards Codification to report net cash
flow from operating activities by adjusting net income to reconcile it to net
cash flow from operating activities by removing the effects of (a) all deferrals
of past operating cash receipts and payments and all accruals of expected future
operating cash receipts and payments and (b) all items that are included in net
income that do not affect operating cash receipts and payments.
The Company reports the reporting currency equivalent of
foreign currency cash flows, using the current exchange rate at the time of the
cash flows and the effect of exchange rate changes on cash held in foreign
currencies is reported as a separate item in the reconciliation of beginning and
ending balances of cash and cash equivalents and separately provides information
about investing and financing activities not resulting in cash receipts or
payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting
Standards Codification.
Subsequent Events
The Company follows the guidance in Section 855-10-50 of the
FASB Accounting Standards Codification for the disclosure of subsequent events.
The Company will evaluate subsequent events through the date when the financial
statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards
Codification, the Company as an SEC filer considers its financial statements
issued when they are widely distributed to users, such as through filing them on
EDGAR.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued the FASB Accounting Standards
Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) (ASU
2014-09).
This guidance amends the existing FASB Accounting Standards
Codification, creating a new Topic 606, Revenue from Contracts with
Customer. The core principle of the guidance 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 that core principle, an entity should apply the
following steps:
|
1. |
Identify the contract(s) with the customer |
|
2. |
Identify the performance obligations in the
contract |
|
3. |
Determine the transaction price |
|
4. |
Allocate the transaction price to the performance
obligations in the contract |
|
5. |
Recognize revenue when (or as) the entity satisfies a
performance obligations |
The ASU also provides guidance on disclosures that should be
provided to enable financial statement users to understand the nature, amount,
timing, and uncertainty of revenue recognition and cash flows arising from
contracts with customers. Qualitative and quantitative information is required
about the following:
|
1. |
Contracts with customers including revenue and
impairments recognized, disaggregation of revenue, and information about
contract balances and performance obligations (including the transaction
price allocated to the remaining performance obligations) |
|
2. |
Significant judgments and changes in judgments
determining the timing of satisfaction of performance obligations (over
time or at a point in time), and determining the transaction price and
amounts allocated to performance obligations |
|
3. |
Assets recognized from the costs to obtain or fulfill
a contract. |
ASU 2014-09 is effective for periods beginning after December
15, 2016, including interim reporting periods within that reporting period for
all public entities. Early application is not permitted.
In August 2014, the FASB issued the FASB Accounting Standards
Update No. 2014-15 Presentation of Financial StatementsGoing Concern
(Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to
Continue as a Going Concern (ASU 2014-15).
In connection with preparing financial statements for each
annual and interim reporting period, an entitys management should evaluate
whether there are conditions or events, considered in the aggregate, that raise
substantial doubt about the entitys ability to continue as a going concern
within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are
available to be issued when applicable). Managements evaluation should be
based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial
statements are available to be issued when applicable). Substantial doubt
about an entitys ability to continue as a going concern exists when relevant
conditions and events, considered in the aggregate, indicate that it is probable
that the entity will be unable to meet its obligations as they become due within
one year after the date that the financial statements are issued (or available
to be issued). The term probable is used consistently with its use in
Topic 450, Contingencies.
F-18
When management identifies conditions or events that raise
substantial doubt about an entitys ability to continue as a going concern,
management should consider whether its plans that are intended to mitigate those
relevant conditions or events will alleviate the substantial doubt. The
mitigating effect of managements plans should be considered only to the extent
that (1) it is probable that the plans will be effectively implemented and, if
so, (2) it is probable that the plans will mitigate the conditions or events
that raise substantial doubt about the entitys ability to continue as a going
concern.
If conditions or events raise substantial doubt about an
entitys ability to continue as a going concern, but the substantial doubt is
alleviated as a result of consideration of managements plans, the entity should
disclose information that enables users of the financial statements to
understand all of the following (or refer to similar information disclosed
elsewhere in the footnotes):
|
a. |
Principal conditions or events that raised substantial
doubt about the entitys ability to continue as a going concern (before
consideration of managements plans) |
|
b. |
Managements evaluation of the significance of those
conditions or events in relation to the entitys ability to meet its
obligations |
|
c. |
Managements plans that alleviated substantial doubt
about the entitys ability to continue as a going
concern. |
If conditions or events raise substantial doubt about an
entitys ability to continue as a going concern, and substantial doubt is not
alleviated after consideration of managements plans, an entity should include a
statement in the footnotes indicating that there is substantial doubt about
the entitys ability to continue as a going concern within one year after
the date that the financial statements are issued (or available to be issued).
Additionally, the entity should disclose information that enables users of the
financial statements to understand all of the following:
|
a. |
Principal conditions or events that raise substantial
doubt about the entitys ability to continue as a going concern |
|
b. |
Managements evaluation of the significance of those
conditions or events in relation to the entitys ability to meet its
obligations |
|
c. |
Managements plans that are intended to mitigate the
conditions or events that raise substantial doubt about the entitys
ability to continue as a going concern. |
The amendments in this Update are effective for the annual
period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early application is permitted.
In November 2014, the FASB issued the FASB Accounting Standards
Update No. 2014-16 Derivatives and Hedging (Topic 815): Determining
Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of
a Share Is More Akin to Debt or to Equity (ASU 2014-16).
The amendments in ASU No. 2014-16 clarify that an entity must
take into account all relevant terms and features when reviewing the nature of
the host contract. Additionally, the amendments state that no one term or
feature would define the host contracts economic characteristics and risks.
Instead, the economic characteristics and risks of the hybrid financial
instrument as a whole would determine the nature of the host contract.
The amendments in this Update are effective for public business
entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption, including adoption in an
interim period, is permitted.
In January 2015, the FASB issued the FASB Accounting Standards
Update No. 2015-01 Income StatementExtraordinary and Unusual Items
(Subtopic 225-20): Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items (ASU 2015-01).
This Update eliminates from GAAP the concept of extraordinary
items and the requirements in Subtopic 225-20 for reporting entities to
separately classify, present, and disclose extraordinary events and
transactions.
The amendments in this Update are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15,
2015. Early adoption is permitted provided that the guidance is applied from the
beginning of the fiscal year of adoption.
In February 2015, the FASB issued the FASB Accounting Standards
Update No. 2015-02 Consolidation (Topic 810) - Amendments to the
Consolidation Analysis (ASU 2015-02) to improve certain areas of
consolidation guidance for reporting organizations (i.e., public, private, and
not-for-profit) that are required to evaluate whether to consolidate certain
legal entities such as limited partnerships, limited liability corporations, and securitization structures
(e.g., collateralized debt/loan obligations).
F-19
All legal entities are subject to reevaluation under the
revised consolidation model. Specifically, the amendments:
|
|
Eliminating the presumption that a general
partner should consolidate a limited partnership. |
|
|
Eliminating the indefinite deferral of FASB
Statement No. 167, thereby reducing the number of Variable Interest Entity
(VIE) consolidation models from four to two (including the limited
partnership consolidation model). |
|
|
Clarifying when fees paid to a decision maker
should be a factor to include in the consolidation of VIEs. Note: a VIE is
a legal entity in which consolidation is not based on a majority of voting
rights. |
|
|
Amending the guidance for assessing how related
party relationships affect VIE consolidation analysis. |
|
|
Excluding certain money market funds from the
consolidation guidance. |
The amendments in this Update are effective for public business
entities for fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted, including
adoption in an interim period.
Management does not believe that any recently issued, but not
yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying consolidated financial statements.
Note 3 Going Concern
The Company has elected to adopt early application of
Accounting Standards Update No. 2014-15, Presentation of Financial
StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an
Entitys Ability to Continue as a Going Concern (ASU 2014-15).
The Companys consolidated financial statements have been
prepared assuming that it will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities
in the normal course of business.
As reflected in the consolidated financial statements, the
Company had an accumulated deficit at June 30, 2015, and a net loss for the
reporting period then ended. These factors raise substantial doubt about the
Companys ability to continue as a going concern.
The Company is trying to further implement its business plan
and generate sufficient revenue; however, the Companys cash position may not be
sufficient to support its daily operations. Management intends to raise
additional funds by way of a private or public debt/equity offering. While the
Company believes in the viability of its strategy to further implement its
business plan and generate sufficient revenue and in its ability to raise
additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon its ability to further
implement its business plan and generate sufficient revenue and its ability to
raise additional funds by way of a public or private debt/equity offering.
The consolidated financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company is unable to continue as a going concern.
Note 4 Prepayments and other current assets
Prepayments and other current assets consisted of the
following:
|
|
June 30, |
|
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Prepaid advertising fees (i) |
$ |
736,642 |
|
$ |
1,498,902 |
|
|
|
|
|
|
|
|
Prepaid television airtime
(ii) |
|
- |
|
|
5,044,883 |
|
|
|
|
|
|
|
|
Prepaid server hosting and
broadband fees (iii) |
|
107,755 |
|
|
259,079 |
|
|
|
|
|
|
|
|
Prepaid value added tax (iv) |
|
225,905 |
|
|
- |
|
|
|
|
|
|
|
|
Other receivable-short term
lending (v) |
|
235,231 |
|
|
325,415 |
|
|
|
|
|
|
|
|
Prepaid rent and services |
|
369,631 |
|
|
322,079 |
|
|
|
|
|
|
|
|
Membership card deposits
receivable (vi) |
|
1,180,724 |
|
|
- |
|
|
|
|
|
|
|
|
Other prepayments |
|
586,500 |
|
|
220,960 |
|
|
|
|
|
|
|
|
|
$ |
3,442,388 |
|
$ |
7,671,318 |
|
F-20
(i) |
Prepaid advertising fees represent prepayments to third
parties for advertising services, mainly through internet and outdoor
media. The advertising expenses are expensed when the services are
received. |
|
|
(ii) |
Prepaid television airtime represents prepayments to the
China Central Television (CCTV) for airtime to be aired on February 18,
2015 during the Chinese Spring Festival New Years Eve Concert. The
Company expensed the prepaid television airtime upon communicating its
advertisement on February 18, 2015. |
|
|
(iii) |
Prepaid server hosting and broadband fees represent
prepayments to third parties for server hosting and broadband services.
These prepayments are expensed when the services are received. |
|
|
(iv) |
Prepaid value added tax. |
|
|
(v) |
The balance at December 31, 2014 was returned to the
Company on January 9, 2015. |
|
|
(vi) |
As of September 7, 2015, the Company received all of the
membership card deposits. |
Note 5 Property and Equipment
Property and equipment, stated at cost, less accumulated
depreciation consisted of the following:
|
|
Estimated Useful |
|
|
|
|
|
|
|
|
|
Life (Years) |
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
Buildings |
|
20 |
|
$ |
14,864,589 |
|
$ |
14,774,618 |
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
3-5 |
|
|
2,065,082 |
|
|
1,236,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,929,671 |
|
|
16,010,912 |
|
|
|
|
|
|
|
|
|
|
|
Less accumulated
depreciation |
|
|
|
|
(2,524,290 |
) |
|
(1,946,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,405,381 |
|
$ |
14,064,543 |
|
Impairment Testing and Depreciation Expense
(i) Impairment
Testing
The Company completed its annual impairment testing of property
and equipment and determined that there was no impairment as their fair value,
exceeded their carrying values at December 31, 2014.
(ii) Depreciation
Expense
Depreciation expense was $564,552 and $370,481 for the
reporting period ended June 30, 2015 and 2014, respectively.
Note 6 Related Party Transactions
Related parties
Related parties with whom the Company had transactions are:
Related Parties |
|
Relationship |
|
Related Party
Transactions |
|
Business Purpose of |
|
|
|
|
|
|
transactions |
|
|
|
|
|
|
|
Management and
significant stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Wang, Fenglin |
|
Chairman, CEO and
significant stockholder |
|
(i) Advances to
the Company; (ii) Operating lease |
|
(i) Working
capital; (ii) Office lease |
|
|
|
|
|
|
|
Mr. Wang, Wenyong |
|
Significant
stockholder, Mr. Wang, Fenglins son |
|
Advances to the
Company |
|
Working capital |
|
|
|
|
|
|
|
Mr. Wang, Lei |
|
Mr. Wang,
Fenglins son |
|
Advances to the
Company |
|
Working capital |
F-21
Entities under
common control |
|
|
|
|
|
|
|
|
|
|
|
|
|
DLD Henan Network Technology
Co., Ltd. ("DLD Network") |
|
An entity
majority-owned and controlled by Chairman, CEO and significant stockholder |
|
Operating lease |
|
Office lease |
|
|
|
|
|
|
|
DLD Industry Development Co.,
Ltd. (DLD Industry) |
|
An entity
majority-owned and controlled by Chairman, CEO and significant stockholder |
|
Advances to the
Company |
|
Working capital |
|
|
|
|
|
|
|
DLD Beijing Hotel Co., Ltd.
("DLD Hotel") |
|
An entity
majority-owned and controlled by Chairman, CEO and significant stockholder |
|
Advances to the
Company |
|
Working capital |
|
|
|
|
|
|
|
DLD E-Payment Co., Ltd. ("DLD
E-payment") |
|
An entity
majority-owned and controlled by Chairman, CEO and significant stockholder |
|
Advances to the
Company |
|
Working capital |
|
|
|
|
|
|
|
Zhengzhou DLD Trade and
Business Co., Ltd. ("DLD Zhengzhou Trade) |
|
An entity
majority-owned and controlled by Chairman, CEO and significant stockholder |
|
Advances to the
Company |
|
Working capital |
Advances from Significant Stockholders
From time to time, the Chairman, CEO and significant
stockholders of the Company advance funds to the Company for working capital
purpose. These advances are unsecured, non-interest bearing and due upon
demand.
Operating Lease from Chairman and CEO
On June 6, 2014, DLD Henan entered into a non-cancellable
operating lease for its 119.99 square meters commercial office space in the City
of Zhengzhou, Henan Province, PRC from Mr. Wang for RMB36,000 per year expiring
on June 8, 2015. Rent expense was RMB 15,000 (approximately $2,455) for the six
months ended June 30, 2015.
Operating Lease from DLD Henan Network Technology Co.,
Ltd. (DLD Network)
On June 30, 2014, DLD Henan entered into a non-cancellable
operating lease for its commercial office space in the City of Zhengzhou, Henan
Province, PRC from DLD Network for RMB2,160,000 for a period of two years
expiring on June 30, 2016. Rent expense was RMB540,000 (approximately $88,397)
for the six months ended June 30, 2015. Future minimum lease payments are
RMB1,080,000 (approximately $176,794) for the remainder of the lease term.
Advances from (repayments to) Affiliates
From time to time, certain affiliates of the Company advance
funds from (to) the Company for working capital purpose. These advances are
unsecured, non-interest bearing and due upon demand.
Note 7 Commitments and Contingencies
Operating Leases
(i) Operating Lease
DLD Technology Office Space
On July 10, 2012, DLD Technology entered into a non-cancelable
operating lease for office space that expired on July 10, 2015. The annual lease
payment was RMB1,900,000 (approximately $311,027).
On September 24, 2014, DLD Technology and DLD E-payment entered
into a rent sharing agreement for the sharing of leased office space. Per the
rent sharing agreement, DLD Technology and DLD E-payment will each pay RMB600,
000 (approximately $98,219) and RMB1,300,000 (approximately $212,808),
respectively, effective August 1, 2014.
On July 10, 2015, DLD Technology renewed the non-cancelable
operating lease for expanded office space for another two years that will expire
on July 10, 2017. The annual lease payment is RMB 3,300,000 (approximately
$540,204).
F-22
On July 30, 2015, DLD Technology and DLD E-payment entered into
a renewal rent sharing agreement for the sharing of leased office space. Per the
rent sharing agreement, DLD Technology and DLD E-payment will each pay annual
lease RMB1,100,000 (approximately $180,068) and RMB2,200,000 (approximately
$360,136), respectively, effective August 1, 2015.
Future minimum lease payments required under this
non-cancelable office lease without consideration of rent sharing agreement were
as follows:
Year Ending December 31: |
|
RMB |
|
|
$ |
|
|
|
|
|
|
|
|
2015 (remainder of the year) |
|
786,575 |
|
$ |
128,761 |
|
|
|
|
|
|
|
|
2016 |
|
1,650,000 |
|
|
270,102 |
|
|
|
|
|
|
|
|
2017 |
|
863,425 |
|
|
141,341 |
|
|
|
|
|
|
|
|
|
|
3,300,000 |
|
$ |
540,204 |
|
(ii) Operating Lease STSW
Office Space
On August 7, 2013, STSW entered into a non-cancelable operating
lease for office space expiring on January 6, 2016. The annual lease payment is
RMB 417,540 (approximately $68,351).
Future minimum lease payments required under this
non-cancelable office lease were as follows:
Years Ending December 31: |
|
RMB |
|
|
$ |
|
|
|
|
|
|
|
|
2015 (remainder of the year) |
|
208,770 |
|
$ |
34,175 |
|
|
|
|
|
|
|
|
2016 |
|
6,959 |
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
215,729 |
|
$ |
35,314 |
|
Note 8 - Stockholders Equity (Deficit)
Shares Authorized
Upon formation the total number of shares of all classes of
stock which the Company is authorized to issue is Fifty Million and Five Hundred
Thousand (50,500,000) shares of which Five Hundred Thousand (500,000) shares
shall be Preferred Stock, par value $0.01 per share, and Fifty Million
(50,000,000) shares shall be Common Stock, par value $0.001 per share.
Amendment to the Articles of Incorporation on May 14,
1999
On May 14, 1999, the Board of the Directors of the Company
unanimously adopted resolutions declaring the advisability of, and recommended
that Stockholders approve the amendment to the Companys Articles of
Incorporation to authorize the Company to file a certificate of amendment to its
Articles of Incorporation to increase the number of authorized shares of common
stock par value $0.001 from Fifty Million (50,000,000) shares to One Hundred
Million (100,000,000) shares. The amendment became effective upon the filing of
the Certificate of Amendment to the Articles of Incorporation with the Secretary
of State of Nevada on May 18, 1999.
Amendment to the Articles of Incorporation on November 5,
2009
On November 5, 2009, the Board of the Directors of the Company
unanimously adopted resolutions declaring the advisability of, and recommended
that Stockholders approve the amendment to the Companys Articles of
Incorporation to authorize the Company to file a certificate of amendment to its
Articles of Incorporation to increase the number of authorized shares of common
stock par value $0.001 from One Hundred Million (100,000,000) shares to Two
Hundred Million (200,000,000) shares. The amendment became effective upon the
filing of the Certificate of Amendment to the Articles of Incorporation with the
Secretary of State of Nevada on November 5, 2009.
Common Stock
Immediately prior to the consummation of the Share Exchange
Agreement on December 30, 2014, the Company had 100,215 common shares issued and
outstanding.
Upon consummation of the Share Exchange Agreement on December
30, 2014, the Company issued 2,000,000 shares of its common stock for the
acquisition of 100% of the issued and outstanding capital stock of DLD BVI.
F-23
During the reporting period ended June 30, 2015, the Company
issued 288,000 shares of the Companys common stock as promotion expenses to
terminal operators. The shares were value at par, or $288 and recorded as
promotion expenses.
Note 9 Promotion Costs
To enhance the Companys market penetration and raise the
Companys brand awareness, the Company intensified its marketing and promotion
efforts during the six months ended June 30, 2015. The Company launched two
special promotions by distributing free membership card and by offering a
discount to the face value of the Companys membership cards. Discount rates
varied between 14% and 20% depending upon the value of cards sold. Total costs
of promotions were $36,130,864 for the six months ended June 30, 2015.
Note 10 Concentrations and Credit Risk
Credit Risk Arising from Financial Instruments
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash and cash
equivalents.
As of June 30, 2015, substantially all of the Companys cash
and cash equivalents were held in major financial institutions located in the
PRC, none of which are insured. However, the Company has not experienced any
losses on these accounts and management believes that the Company is not exposed
to significant risks on such accounts.
Customers and Credit Concentrations
Customer concentrations and credit concentrations are as
follows:
|
|
Net Sales |
|
|
|
for the reporting period ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Customer A |
|
15.0% |
|
|
64.7% |
|
|
|
|
|
|
|
|
Customer B |
|
20.9% |
|
|
-% |
|
|
|
|
|
|
|
|
Customer C |
|
19.9% |
|
|
-% |
|
|
|
|
|
|
|
|
Customer D |
|
11.9% |
|
|
-% |
|
|
|
|
|
|
|
|
|
|
67.7% |
|
|
64.7% |
|
|
|
Accounts Receivable at |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Customer A |
|
100.0% |
|
|
79.5% |
|
|
|
|
|
|
|
|
Customer B |
|
-% |
|
|
20.5% |
|
|
|
|
|
|
|
|
|
|
100.0% |
|
|
100.0% |
|
A reduction in sales from or loss of such customers would have
a material adverse effect on the Companys results of operations and financial
condition.
Note 11 - Foreign Operations
Operations
Substantially all of the Companys operations are carried out
and all of its assets are located in the PRC, which may be adversely affected by
significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies since 1980, no
assurance can be given that the PRC Government will continue to pursue such
policies or that such policies may not be significantly altered, especially in the
event of a change in leadership, social or political disruption or unforeseen
circumstances affecting the PRCs political, economic and social conditions; nor
that the PRC governments pursuit of economic reforms will be consistent or
effective.
F-24
Currency Convertibility Risk
Substantially all of the Companys businesses are transacted in
RMB, which is not freely convertible into foreign currencies. Under Chinas
Foreign Exchange Currency Regulation and Administration, the Company is
permitted to exchange RMB for foreign currencies through banks authorized to
conduct foreign exchange business. All foreign exchange transactions continue to
take place either through the Peoples Bank of China or other banks authorized
to buy and sell foreign currencies at the exchange rates quoted by the Peoples
Bank of China. Approval of foreign currency payments by the Peoples Bank of
China or other institutions requires submitting a payment application form
together with invoices and signed contracts.
Foreign Currency Exchange Rate Risk
On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the RMB to U.S. Dollar. Under the new policy, the
RMB is permitted to fluctuate within a narrow and managed band against a basket
of certain foreign currencies. While the international reaction to the RMB
revaluation has generally been positive, there remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in a further and more significant volatility of the RMB
against the U.S. Dollar.
Any significant revaluation of RMB may materially and adversely
affect the cash flows, revenues, earnings and financial position reported in
U.S. Dollar.
The Company had no foreign currency hedges in place to reduce
such exposure.
Note 12 Subsequent Events
The Company has evaluated all events that occurred after the
balance sheet date through the date when the financial statements were issued.
The Management of the Company determined that there were no reportable
subsequent events to be disclosed.
F-25
Item
2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion of the financial condition and
results of operation of DLD Group Inc. for Three months ended June 30, 2015 and
2014, and for six months ended June 30, 2015 and 2014 should be read in
conjunction with the selected consolidated financial data, the financial
statements and the notes to those statements that are included elsewhere in this
report (the Report). In addition to historical information, the following
discussion contains certain forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements relate to our future plans, objectives, expectations and intentions.
These statements may be identified by the use of words such as may, will,
could, expect, anticipate, intend, believe, estimate, plan,
predict, and similar terms or terminology, or the negative of such terms or
other comparable terminology. Although we believe the expectations expressed in
these forward-looking statements are based on reasonable assumptions within the
bound of our knowledge of our business, our actual results could differ
materially from those discussed in these statements. Factors that could
contribute to such differences include, but are not limited to, those discussed
in the Risk Factors section. We undertake no obligation to update publicly any
forward-looking statements for any reason even if new information becomes
available or other events occur in the future.
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 and Hong
Kong Dollar were translated into U.S. Dollars at various pertinent dates and for
pertinent periods.
Overview
We are operating as a discount product information platform
which integrates online, offline and mobile commerce in China. We consolidate
discount information by operating DLD Discount Web Http://www.dld.com, an
online-to-offline O2O promotional information marketplace, DLD E-mall, an
online shopping marketplace, and E-supermarket, an online supermarket. We sell
membership cards to offline customers who can enjoy discounts and special price
when they shop in our merchant partners store offline. Our three online
marketplaces and offline membership service and together with our mobile apps as
a whole enables both our online and offline local merchant partners and
brick-and-mortar retailers to reach consumers in a more effective and efficient
manner. Our headquarter resides in the city of Beijing in China.3rd and 4th
Floor, Building 3, Number 11 East Xinyuanli, North of Dongsanhuan road, Chaoyang
District, Beijing, China The size of our headquarter office building is 1200
m2
Online Business
Discount Web: We start our business by launching our DLD
Discount Web http://www.dld.com, which is an O2O promotional information
marketplace that helps local merchants to release their daily marketing and
promotional information online to capture our customers in-store spending
needs in 2010 in the city of Shenzhen. To help our customers find more
information about the shops more efficiently and have the most updated
information about shops promotions, DLD Discount Web has grown to cover Chinas
31 provinces, across diverse categories, including food, entertainment, travel,
accommodation, and lifestyle. The number of promotion messages has reached more
than 1000 pieces daily by now. Online member has grown significantly from
1,042,500 at the end of 2012 to 6,238,485 at the end of June 2015. Registered
customers are able to enjoy the discounts and special price offer when they go
shopping both online and offline, which are pre-negotiated by our company. We
also foster an online interactive user community which allows customers to
discuss, rate and review products, and services offered by the offline shops ,
and share shopping experiences with each other in our online community. We
believe it will be the word-of-mouth spread and help attract more potential
customers to our services more effectively.
E-Supermarket: Our online supermarket DLD E-Supermarket
features a great selection of good quality products, convenient online service
and certainly the low prices. We select quality partners in each city to ensure
the service maintained with the same standards. We are planning to penetrate
lower tier cities to capture the increasing demand for customers daily shopping
needs. DLD E-Supermarket was built in May 2013, by the end of June 2015, there
are more than 18,100 different types of products selling on DLD E-supermarket
website through B2C model. So far it only operates in the city of Zhengzhou and
we are planning to expand this business to the rest part of China. We will start
from major city like Shanghai and Beijing soon.
DLD E-mall: Our online shopping marketplace DLD E-mall enables
individuals to leverage the power of the Internet to establish their online
presence and conduct commerce with consumers no matter where they are. We offer
customers a wide selection of physical goods including apparel, makeups and
jewelries, consumer electronics, baby products, home furnishings, sport wear,
recreational supplies and many more. It is mainly a C2C business. DLD E-mall was
established in March 2014, till the end of June 2015, DLD E-mall presents
around, 18,540 merchant partners with more than 22,480 types of products.
Smart-Life Channel: One of the latest product is
Smart-Life channel that we launched on DLD Discount Web recently. It is a
Groupon type of business, but without requirement of a minimum number of
purchasers. We believe the more convenient experience they have with us, the
higher chances that they will stay with our service. Our payment system provides
high security for customers to make a payment online, so that customers would
not have any concerns of making online payment.
Offline Business
To help our offline customers, we start distributing membership
cards in 2012 in the city of Beijing. Our members can enjoy the discounts and
special price pre-negotiated by our company with our local partners when they
shop offline. Since we launched offline business, our offline customers base
has been enjoying strong growth momentum, and has grown significantly from
5,236,200 at the end of 2014 to 12,656,476 at the end of June 2015.
DLD as a whole offers customers the most convenient shopping
experience no matter they are online, offline, or on mobile. Our membership
cards together with our major shopping websites http://www.dld.com and mobile apps will capture and
serve customers shopping needs in most of perspectives. One of our new
initiatives is that we will launch a global-shopping site to expand our merchant
partners to foreign countries. We are aiming at bringing the competitive
products and prices to our customers. In the long term, we will grow our online
and mobile business, at the same time, maintain our offline competitive
advantage, expand our product offerings and expend to more regions.
Results of Operations for the Three Months Ended June 30,
2015 Compared to the Three Months Ended June 30, 2014
Revenues
Our revenues generate primarily from marketing services,
memberships, commissions on transactions and rent income.
For the three months ended June 30, 2015, we had net revenues
of $944,139, as compared to those of $203,471 for the three months ended June
30, 2014, an increase of approximately $740,660 or 364.0% . The increase in net
revenues was primarily due to core business showed the sign of business rally in
2015.
Revenue from marketing service amounted to $753,630 for the
three months ended June 30, 2015 as compared to $51,617 for the three months
ended June 30, 2014. Revenue from marketing service significantly increased as a
result of our efforts in promoting our products and services. Membership income
amounted to $58,062 for the three months ended June 30, 2015 as compared to
$1,513 for the same period in 2014 as the number of participated member
increment sped up. Commissions on transactions gained $8,428 for the three
months ended June 30, 2015 and none for the three ended June 30, 2014. Rent
income was $124,011 for the three months ended June 30, 2015, a decrease of
$26,350 or -17.5%, as compared to $150,361 for the same period in 2014.
Cost of Revenue
Cost of revenue mainly came from cost of rental business. We
purchased a portion of a building situated in a growing CBD in Beijing, China in
August 2012. The real property are offices with total 4763 square meters for the
purpose of rental business. The investment in this real property cost
approximately $14,393,812 (RMB 90,804,800). Rental income amounted to $124,011
for the three months ended June 30, 2015 as compared to the rental income of
$150,361 for the same period in 2014. Costs of rental were $204,215 and $203,585
for the three months ended June 30, 2015 and 2014, respectively. The cost of
rental primarily consists of depreciation ($172,343), exercise tax ($426) and
property taxes ($31,446) for the three months ended June 30, 2015 as compared to
the depreciation ($170,675), exercise tax ($1,768) and property taxes ($31,142)
for the three months ended June 30, 2014.
Gross profit
The gross profits were dramatically increased to $739,916 for
the three months ended June 30, 2015 as compared to gross loss of $114 for the
three months ended June 30, 2014. As discussed above, the depreciation of rental
real property was part of cost of revenue.
Selling expenses
Selling expenses, mainly consist of salaries and wages for our
sales and marketing personnel, promotion expenses and other operating expenses
that are associated with sales and marketing activities.
Selling expenses were $8,048,106 and $544,912, for the three
months ended June 30, 2015 and 2014, respectively, increased by $7,503,194 or
1377.0% . Low costs in the second quarter of 2014 were primarily due to the
business still in the start-up status and some subsidiaries either have not been
created or in the business preparation. And higher costs in the second quarter
of 2015 were mainly due to increment of salaries and wages of salespersons in
promotion.
Selling expenses consisted of the following:
|
|
For
the Three Months Ended June 30 |
|
|
Increase/decrease |
|
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Salary, wage and related benefits |
|
7,780,690 |
|
|
498,448 |
|
|
7,282,242 |
|
|
1461.0% |
|
Promotion |
|
59,554 |
|
|
40,117 |
|
|
19,437 |
|
|
48.5% |
|
Web system maintenance |
|
92,196 |
|
|
6,109 |
|
|
86,087 |
|
|
1409.2% |
|
Rent expense |
|
47,460 |
|
|
- |
|
|
47,460 |
|
|
100.0% |
|
Others |
|
68,206 |
|
|
238 |
|
|
67,968 |
|
|
28558.0% |
|
Total |
|
8,048,106 |
|
|
544,912 |
|
|
7,503,194 |
|
|
1377.0% |
|
Selling expenses as % of operating revenue |
|
981.33% |
|
|
1026.01% |
|
|
- |
|
|
-44.67% |
|
Compensation and related benefits increased by $7,282,242, or
1461.0%, for the three months ended June 30, 2015 compared to the three months
ended June 30, 2014, as aforementioned, some subsidiaries were not formed yet,
and higher costs in second quarter of 2015 due to the sales force re-enforced in
the expansion of business. Sales and service offices are expended from 29 sales
offices by the end of June 2014 to 156 sales offices or locations across the
country by the three months ended June 30, 2015.
Promotion expense increased by $19,437 or 48.5% as the
promotion was the part of efforts to promote our e-marketplace and products in
additional to the advertisement.
Web systems maintenance mainly consisted of server system
maintenance, web traffic and web utility fees. Maintenance expenses increased by
$86,087 or 1409.2%, as a result of the maintaining in volume traffic and
transactions.
Other expense includes vehicle maintenance and miscellaneous
expenses.
Advertising expense
Advertising expense mainly consists of advertising on various
channels such as billboard and mobile billboard, television, celebrity branding,
and other traditional off-line media, and advertising design and production.
Advertising costs were $184,039 for the three months ended June
30, 2015 in a normal course of business; and our business was in a start-up
status in first and second quarters of 2014.
Special Sales Promotion
During the three month period ended June 30, 2015, in order to
increase market shares, raise our companys brand awareness, and develop
membership, especially business terminal operators, a more aggressive marketing
promotion was launched by offering new VIP membership cards with discount 10%,
15% and 20% of card value. The discount rate depends on the value of card
purchased by new individual and business members, terminal operators and
consumers. The promotion carried out in more than 140 cities and places across
the country. The promotion was successful. As a result, membership increased by
3.3 million and the value of cards purchased amounted to approximately RMB 1.6
billion (approximately $260 million), and received approximately 1 million
consumer purchase orders online during the promotion. Total costs of the
promotion were $31,084,985.
Research and Development Expenses
Research and development expenses mainly consist of salaries,
benefits for product development and engineering personnel and other operating
expenses such as rental and depreciation of equipment that are associated with
product development and engineering activities. Total research and development
expenditures were $534,390 and $397,256 for the three months ended June 30, 2015
and 2014, respectively, a 34.5% increased. System maintenance and development
cost $48,077 and $10,136, and other material and testing cost for $16,163 and
$10,626, for the three months ended June 30, 2015 and 2014, respectively, due to
increased utility of system for research and development. Salaries and wages in
research and development amounted to $395,307 for the three months ended June
2015 compared to $359,566 in 2014 mainly due to more high salaried engineers and
professionals hired, and rent expenses were $74,843 and $16,928 for the three
months ended June 30, 2015 and 2014, respectively, due to working space
increased.
General and administrative expenses
General and administrative expenses amounted to $1,382,362 for the three months ended June 30, 2015, as compared to $263,868 for the same period in 2014, an increase of $1,118,494 or 423.9%. As previously stated the business was in a start-up status for the three months ended June 30, 2014, therefore, general and administrative expenses were lower. General and administrative expenses consisted of the following:
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
June
30 |
|
|
Increase/decrease |
|
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Salary Wage and related benefits |
|
117,848 |
|
|
- |
|
|
117,848 |
|
|
100.0% |
|
Depreciation |
|
112,560 |
|
|
13,636 |
|
|
98,924 |
|
|
725.5% |
|
Office expenses |
|
99,135 |
|
|
1,857 |
|
|
97,278 |
|
|
5238.4% |
|
Professional fees |
|
105,248 |
|
|
77,863 |
|
|
27,385 |
|
|
35.2% |
|
Rent |
|
56,599 |
|
|
127,070 |
|
|
-70,471 |
|
|
-55.5% |
|
Travel & meeting |
|
48,432 |
|
|
10,614 |
|
|
37,818 |
|
|
356.3% |
|
Other expenses |
|
842,540 |
|
|
32,828 |
|
|
809,712 |
|
|
2466.5% |
|
Total |
|
1,382,362 |
|
|
263,868 |
|
|
1,118,494 |
|
|
423.9% |
|
G&A expense as % of operating revenue |
|
168.56% |
|
|
496.83% |
|
|
- |
|
|
-328.27% |
|
Salary and wages expenses incurred $117,848 in general and
administration for the three months ended June 30, 2015 as compared to $0 for
the three months ended June 30, 2014 as start-up year, mainly because business
rapid expansion and management and administration personals and staff were
hired.
Depreciation expense increased by $98,924, or 725.5%, in the
three months ended June 30, 2015, as compared to the same period in 2014. The
increase was primarily due to the additional equipment purchased in second half
year of 2014.
Office and office related expenses increased by $97,278, in the
three months ended June 30, 2015, as compared to a few dollars spent the same
period in 2014. As the business expanded office expense increased
accordingly.
Professional service fees increased by $27,385 in the three
months ended June 30, 2015, as compared to the same period in 2014. The increase
was due to most of consulting, accounting and legal fees incurred and paid in
current period.
Rent expenses incurred for offices of the subsidiaries located
in China. Rent expense decreased by 70,471, or -55.5%, for the three months
ended June 30, 2015, as compared to the same period in 2014. The decrease was
primarily because office space adjustments in order to fulfill the tasks and
support the marketing forces.
Travel and meeting increased to $48,432 in the three months
ended June 30, 2014 as compared to $10,614 in the same period of 2014. As the
business activities increased.
Other general and administrative expenses included allowance for uncollectible membership card deposits in the amount of $820,664 for the three months ended June 30, 2015. The remaining other general and administrative expenses mainly included local transportation, repairs, annual filling fees and certain low-value miscellaneous items. Their amounts varied period over period due to different circumstances.
Loss from operations
For the three months ended June 30, 2015, loss from operations was $40,493,965, as compared to the loss $1,197,490 for the three months ended June 30, 2014, a loss increase by $39,296,475 or 3281.57%, mainly due to the aggressive business expansion in increasing in the advertising, marketing promotions and labor force, R&D expenditure and general and administrative costs
Other income (expenses)
For the three months ended June 30, 2015 and 2014, other income
(expense) mainly came from interest income and other expenses.
Income tax expense
For the three months ended June 30, 2015 and June 30, 2014,
income tax amounted to $0 due to the operating losses.
Net loss
As a result of the factors described above, our net losses for the three months ended June 30, 2015 was loss of $40,497,155. For the three months ended June 30, 2014, we had net loss of $1,198,079.
Foreign currency translation gain
The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using year end rates of exchange for assets and liabilities, and average rates of exchange (for the year) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $71,091 for the three months ended June 30, 2015 as compared to the loss of $278 for the same period in 2014. This non-cash loss had the effect of decreasing our reported comprehensive income.
Comprehensive loss
For the three months ended June 30, 2015 and 2014, comprehensive losses of $40,568,246 or ($18.86) per share and $1,198,357 or ($0.60) per share were derived from the sum of our net losses plus foreign currency translation losses, respectively.
Results of Operations for the Six Months Ended June 30, 2015
Compared to the Six Months Ended June 30, 2014
Revenues
Our revenues generate primarily from marketing services,
memberships, commissions on transactions and rent income.
For the six months ended June 30, 2015, we had net revenues of
$1,550,968, as compared to those of $358,748 for the six months ended June 30,
2014, an increase of approximately $1,192,220 or 332.3% . The increase in net
revenues was primarily due to core business showed the sign of business rally in
2015.
Revenue from marketing service amounted to $1,158,621 for the
six months ended June 30, 2015 as compared to $55,758 for the six months ended
June 30, 2014. Revenue from marketing service significantly increased as a
result of our efforts in promoting our products and services. Membership income
amounted to $80,781 for the six months ended June 30, 2015 as compared to $3,039
for the same period in 2014 as the number of participated member increment sped
up. Commissions on transactions gained $15,951 for the six months ended June 30,
2015 and $5,130 for the six ended June 30, 2014. Rent income was $295,615 for
the six months ended June 30, 2015, as compared to $294,821 for the same period
in 2014.
Cost of Revenue
Cost of revenue mainly came from cost of rental business. We
purchased a portion of a building situated in a growing CBD in Beijing, China in
August 2012. The real property are offices with total 4763 square meters for the
purpose of rental business. The investment in this real property cost
approximately $14,393,812 (RMB 90,804,800). Rental income amounted to $295,615
for the six months ended June 30, 2015 as compared to the rental income of
$294,821 for the same period in 2014. Costs of rental were $422,168 and $431,994
for the six months ended June 30, 2015 and 2014, respectively. The cost of
rental primarily consists of depreciation ($343,623), exercise tax ($15,847) and
property taxes ($62,698) for the six months ended June 30, 2015 as compared to
the depreciation ($342,700), exercise tax ($26,764) and property taxes ($62,530)
for the six months ended June 30, 2014.
Gross profit
The gross profits were dramatically increased to $1,128,800 for
the six months ended June 30, 2015 as compared to gross loss of $73,246 for the
six months ended June 30, 2014. As discussed above, the depreciation of rental
real property was part of cost of revenue.
Selling expenses
Selling expenses, mainly consist of salaries and wages for our
sales and marketing personnel, promotion expenses and other operating expenses
that are associated with sales and marketing activities.
Selling expenses were $9,379,847 and $591,450, for the six
months ended June 30, 2015 and 2014, respectively, increased by $8,788,397 or
1485.9% . Low costs in the first six months of 2014 were primarily due to the
business still in the start-up status and some subsidiaries either have not been
created or in the business preparation. And higher costs in the first six months
of 2015 were mainly due to increment of salaries and wages of salespersons in
promotion.
Selling expenses consisted of the following:
|
|
For
the Six Months Ended June 30 |
|
|
Increase/decrease |
|
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Salary, wage and related benefits |
|
8,853,978 |
|
|
529,111 |
|
|
8,324,867 |
|
|
1573.4% |
|
Promotion |
|
114,000 |
|
|
48,780 |
|
|
65,220 |
|
|
133.7% |
|
Web system maintenance |
|
208,165 |
|
|
12,102 |
|
|
196,063 |
|
|
1620.1% |
|
Rent expense |
|
77,189 |
|
|
- |
|
|
77,189 |
|
|
100.0% |
|
Others |
|
126,515 |
|
|
1,457 |
|
|
125,058 |
|
|
8583.3% |
|
Total |
|
9,379,847 |
|
|
591,450 |
|
|
8,788,397 |
|
|
1485.9% |
|
Selling expenses as % of operating revenue |
|
747.19% |
|
|
925.20% |
|
|
- |
|
|
-178.01% |
|
Compensation and related benefits increased by $8,324,867, or
1573.4%, in the six months ended June 30, 2015 compared to the six months ended
June 30, 2014, as aforementioned, some subsidiaries were not formed yet, and
higher costs in six months of 2015 due to the sales force re-enforced in the
expansion of business. Sales and service offices are expended from 29 sales
offices by the end of June 2014 to 156 sales offices or locations across the
country by the six months ended June 30, 2015.
Promotion expense increased by $65,220 or 133.7% as the promotion was the part of efforts to promote our e-marketplace and products in additional to the advertisement.
Web systems maintenance mainly consisted of server system maintenance, web traffic and web utility fees. Maintenance expenses increased by $196,063 or 1620.1%, as a result of the maintaining in volume traffic and transactions.
Other expense includes vehicle maintenance and miscellaneous expenses.
Advertising expense
Advertising expense mainly consists of advertising on various channels such as billboard and mobile billboard, television, celebrity branding, and other traditional off-line media, and advertising design and production.
Advertising costs amounted to $6,179,906 for the six months ended June 30, 2015 with a special TV program advertising in the first quarter of 2015; and our business was in a start-up status in first and second quarters of 2014.
As a part of business campaign strategy, we re-launch advertising campaign in 2015 to introduce and promote the public awareness of our service, particularly through advertising on the China Central Television station (”CCTV”) ,
China’s biggest television network. An advertising in the amount of $5,044,833 expensed when the program aired on CCTV on February 18, 2015 during the Chinese Spring Festival New Year’s Eve Concert, a highest audience share in a
year.
Special Sales Promotion
In February 2015, in order to keep existing online and offline business members and individual members and attract new members and consumers, and enhance the exchange local terminal operators’ cash flows, the management decided to launch an
aggressive promotion by disseminating 3 million member cards with RMB 10 bonus (approximately US dollar $1.6) each card for those who were participating the program or register online to become members. Total spending was 31 million RMB
(approximately $5,045,879) during the Chinese Spring Festival New Year. The promotion was successful. As a result the membership increased by approximately 3.5 million from 5,236,200 at the end of 2014 to 8,761,128 at the end of March 2015.
During the three month period ended June 30, 2015, in order to increase market shares, raise our company’s brand awareness, and develop membership, especially business terminal operators, a more aggressive marketing promotion was launched by
offering new VIP membership cards with discount 10%, 15% and 20% of card value. The discount rate depends on the value of card purchased by new individual and business members, terminal operators and consumers. The promotion carried out in more than
140 cities and places across the country. The promotion was successful. As a result, membership increased by 3.3 million and the value of cards purchased amounted to approximately RMB 1.6 billion (approximately $260 million), and received
approximately 1 million consumer purchase orders online during the promotion. Total costs of the promotion were $36,130,864 for the six months ended June 30, 2015.
Research and Development Expenses
Research and development expenses mainly consist of salaries, benefits for product development and engineering personnel and other operating expenses such as rental and depreciation of equipment that are associated with product development and
engineering activities. Total research and development expenditures were $1,140,169 and $623,508 for the six months ended June 30, 2015 and 2014, respectively, a 82.9% increased. System maintenance and development cost $90,010 and
$20,352, and other material and testing cost for $31,038 and $12,477, for the six months ended June 30, 2015 and 2014, respectively, due to increased utility of system for research and development. Salaries and wages in research and
development amounted to $5,513,454 for the six months ended June 2015 compared to $556,688 in 2014 mainly due to more high salaried engineers and professionals hired, and rent expenses were $119,018 and $33,991 for the six months
ended June 30, 2015 and 2014, respectively, due to working space increased.
General and administrative expenses
General and administrative expenses amounted to $2,183,716 for the six months ended June 30, 2015, as compared to $378,839 for the same period in 2014, an increase of $1,804,877 or 476.4%. As previously stated the business was in a start-up status for the six months ended June 30, 2014, therefore, general and administrative expenses were lower. General and administrative expenses consisted of the following:
|
|
For
the Six Months Ended June 30 |
|
|
Increase/decrease |
|
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Salary Wage and related benefits |
|
472,240 |
|
|
- |
|
|
472,240 |
|
|
100.0% |
|
Depreciation |
|
211,658 |
|
|
24,276 |
|
|
187,382 |
|
|
771.9% |
|
Office expenses |
|
132,381 |
|
|
2,087 |
|
|
130,294 |
|
|
6243.1% |
|
Professional fees |
|
283,138 |
|
|
84,902 |
|
|
198,236 |
|
|
233.5% |
|
Rent |
|
145,704 |
|
|
204,712 |
|
|
-59,008 |
|
|
-28.8% |
|
Travel & meeting |
|
92,198 |
|
|
29,223 |
|
|
62,975 |
|
|
215.5% |
|
Other expenses |
|
846,397 |
|
|
33,639 |
|
|
812,758 |
|
|
2416.1% |
|
Total |
|
2,183,716 |
|
|
378,839 |
|
|
1,804,877 |
|
|
476.4% |
|
G&A expense as % of operating revenue |
|
173.95% |
|
|
592.61% |
|
|
- |
|
|
-418.66% |
|
Salary and wages expenses incurred $472,240 in general and
administration for the six months ended June 30, 2015 as compared to $0 for the
six months ended June 30, 2014 as start-up year, mainly because business rapid
expansion and management and administration personals and staff were hired.
Depreciation expense increased by $187,382, or 771.9%, in the
six months ended June 30, 2015, as compared to the same period in 2014. The
increase was primarily due to the additional equipment purchased in second half
year of 2014.
Office and office related expenses increased by $130,294, in
the six months ended June 30, 2015, as compared to a few dollars spent the same
period in 2014. As the business expanded office expense increased
accordingly.
Professional service fees increased by $198,236 in the six
months ended June 30, 2015, as compared to the same period in 2014. The increase
was due to most of consulting, accounting and legal fees incurred and paid in
current period.
Rent expenses incurred for offices of the subsidiaries located
in China. Rent expense decreased by 59,008, or -28.8%, for the six months ended
June 30, 2015, as compared to the same period in 2014. The decrease was primarily
because office space adjustments in order to fulfill the tasks and support the
marketing forces.
Travel and meeting increased to $92,198 in the six months ended
June 30, 2014 as compared to $29,223 in the same period of 2014. As the business
activities increased.
Other general and administrative expenses included allowance for uncollectible membership card deposits in the amount of $820,664 for the six months ended June 30, 2015. The remaining other general and administrative expenses mainly included local transportation, repairs, annual filling fees and certain low-value miscellaneous items. Their amounts varied period over period due to different circumstances.
Loss from operations
For the six months ended June 30, 2015, loss from operations was $53,885,702, as compared to the loss $1,707,747 for the six months ended June 30, 2014, a loss increase by $52,177,955 or 3055.37%, mainly due to the aggressive business expansion in increasing in the advertising, marketing promotions and labor force, R&D expenditure and general and administrative costs
Other income (expenses)
For the six months ended June 30, 2015 and 2014, other income
(expense) mainly came from interest income and other expenses.
Income tax expense
For the three months ended June 30, 2015 and June 30, 2014,
income tax amounted to $0 due to the operating losses.
Net loss
As a result of the factors described above, our net losses for the six months ended June 30, 2015 was loss of $53,889,875. For the six months ended June 30, 2014, we had net loss of $1,708,299.
Foreign currency translation gain
The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using year end rates of exchange for assets and liabilities, and average rates of exchange (for the year) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $69,964 for the six months ended June 30, 2015 as compared to the gain of $6,950 for the same period in 2014. This non-cash loss had the effect of decreasing our reported comprehensive income.
Comprehensive loss
For the six months ended June 30, 2015 and 2014, comprehensive losses of $53,959,839 or ($25.37) per share and $1,701,349 or ($0.85) per share were derived from the sum of our net losses plus foreign currency translation losses, respectively.
Liquidity and Capital Resources
We have funded our operation primarily through paid-in capital,
sales of services, and advance from stockholders. Currently cash flows generated
through advance from shareholders and officers and operations, major
shareholders will continue to either infuse the capital or advance the cash in
order to sustain current level operations and expansion for the next twelve
months.
As of June 30, 2015, our balance of cash and cash equivalents
was $2,317,731. As of June 30, 2014, our balance of cash and cash equivalents
was $291,567, an increase of $2,026,164 or 694.9%, mainly due to net cash
provided by operating activities.
The following summarizes the key components of the cash flows
for the six months ended June 30, 2015 and 2014:
|
|
For
the Six Months Ended June 30, |
|
|
Increase/decrease |
|
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Net cash provided by (used in) operating
activities |
|
1,689,566 |
|
|
(1,529,589 |
) |
|
3,219,155 |
|
|
-210.5% |
|
Net cash used in investing activities |
|
(819,061 |
) |
|
(18,526 |
) |
|
(800,535 |
) |
|
4321.1% |
|
Net cash provided by (used in) financing
activities |
|
(85,669 |
) |
|
1,822,536 |
|
|
(1,908,205 |
) |
|
-104.7% |
|
Effect of foreign currency translation |
|
8,428 |
|
|
211 |
|
|
8,217 |
|
|
3893.8% |
|
Net increase(decrease) in cash and cash
equivalents |
|
793,264 |
|
|
274,632 |
|
|
518,632 |
|
|
188.8% |
|
In summary, our cash flows were:
Net cash provided by operating activities increased for the six months ended June 30, 2015 by $3,219,155 to $1,689,566, from net cash used in operating activities of $1,529,589 for the six months ended June 30, 2014. These changes were mainly caused by the following changes: an increase in net loss of $52,181,576, an increase in depreciation of $194,071, a decrease in accounts receivable of $156,001, an increase in various prepayments of $4,965,555, an increase of customers deposits for $34,512,741, an increase in accrued promotion expense of $8,088,298, an increase in accrued benefit expense for $253,374, an increase in account payable of $169,566, an increase in cash provided in accrued expenses and other current liabilities of $3,390,965, and an increase in deferred revenue by $4,101,060.
Net cash used in investing activity increased by $800,535, from
$18,526, for the six months ended June 30, 2015 compared to the same period
ended in 2014, which is mainly due to increases in purchases of hardware for
research and development, various office furniture and equipment as office space
and labor increased.
Net cash provided by financing activities decreased by
$1,908,205 or -104.7% for the six months ended June 30, 2015 compared to
$1,822,536 provided by financing activities at the same period ended in 2014.
These changes were mainly caused by following changes: a decrease in advance
from shareholders in the amount of $1,891,570, an increase in advances from
affiliates for $330,604 and a decrease in capital contribution for $347,239.
Working capital decreased by $54,017,788 to deficit of $55,386,929 as of June 30, 2015 from working capital deficit of $1,369,141 as of December 31, 2014. Major items caused working capital deficit widen were advertising costs and special sales promotions in total approximately $42,310,770. In order to stay cost competitive in the long-run, we plan to introduce venture capital as many venture capitalists find our profitable business model and remarkable progress.
On November 26, 2014, we received capital contribution in the
amount of RMB 107.5 million (approximately $17,814,917), and paid off majority
short term advances and payables. We will continue to invest in our business,
with expected positive operating cash flow fueled by our profit. We will also
plan to restructure the debts and advances from major shareholders to keep
sufficient operating cash to sustain current level operations for at least the
next twelve months.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be
considered off-balance sheet arrangements. We do not participate in transactions
that create relationships with unconsolidated entities or financial
partnerships, which would have been established for the purpose of facilitating
off-balance sheet arrangements. We have not entered into any off-balance sheet
financing arrangements, established any special purpose entities, guaranteed any
debt or commitments of other entities, or entered into any non-financial assets.
Going concern
The Report of Our Independent Registered Public Accounting
Firm Contains Explanatory Language That Substantial Doubt Exists About Our
Ability To Continue As A Going Concern.
As reflected in the accompanying unaudited consolidated financial statements, we had an accumulated deficit of $65,611,097, a working capital deficiency of $55,386,929 as of June 30, 2015 and a net loss of $53,889,875 for the six months ended June 30, 2015. These factors raise substantial doubt about our ability to continue as a going concern. Management intends to further implement its business plan and generate sufficient revenue and to raise additional funds by way of a private or public offering. While we believes in the viability of our strategy to further implement our business plan and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of our company to continue as a going concern is dependent upon our ability to further implement our business plan and generate sufficient revenue and our ability to raise additional funds by way of a public or private offering. Our consolidated financial statements do not include any adjustments that might be necessary if our company is unable to continue as a going concern.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We continually evaluate our estimates, including those related to
bad debts, inventories, recovery of long-lived assets, income taxes, and the
valuation of equity transactions. We base our estimates on historical experience
and on various other assumptions that we believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Any future changes to these estimates and assumptions could cause
a material change to our reported amounts of revenues, expenses, assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
the financial statements.
While our significant accounting policies are fully described
in Note 2 to our consolidated financial statements for the six months ended June
30, 2015 and 2014, we believe that the following accounting policies are the
most critical to aid you in fully understanding and evaluating this managements
discussion and analysis.
Accounts receivable
Accounts receivable are recorded net of allowance for doubtful
accounts. We provide an allowance for doubtful accounts equal to the estimated
uncollectible amounts. Periodically, our management assesses customer credit
history and relationships as well as performs accounts receivable aging
analysis. Based on the results, our management determines whether certain
balances are deemed uncollectible at the end of each period. Currently, we have
no, or have a few accounts receivables due to our nature of business.
Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using straight-line method over the
estimated useful lives of the assets. The estimated useful lives of the assets
are as follows:
|
Estimated Useful Life |
Electronic equipment |
3 years |
Office furniture |
5 years |
Buildings |
20 years |
Revenue recognition
We derive our core revenues primarily from marketing services,
memberships, commissions and membership. Revenue is recognized when persuasive
evidence of an arrangement exists, the price is fixed or determinable, service
is performed and collectability of the related fee is reasonably assured.
Marketing services mainly consists of online and offline
membership card sales, advertising income from direct mail (DM),electronic
direct email(EDM) and Advertising revenue is recognized ratably over the period
in which the advertisement by displaying of an online storefront on our
marketplace through our e-commerce platform. Discounted membership cards sales
revenue is recognized when the card is delivered to the customer
Membership is a terminal operating merchant of our e-commerce
platform. Members can buy our membership card at discount rate and resale of the
membership cards to general consumers. Membership fee income is recognized
ratably over the term of the membership when membership service is provided.
Commissions on transactions are the income shared the profits
with our contracted or associated online and offline stores when cardholder
shopping with that store by using membership cards. Commission income is earned
when a transaction is completed and settled through the DLD supported payment
system on online and offline retail marketplace. Commission on the transaction
is recognized when the underlying transaction is completed.
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
Foreign Currency Translation and Transactions
Our accompanying audited consolidated financial statements are
presented in U.S. dollars (USD). DLD Group, Inc. and DLD Great Industries Ltd.
are kept in US dollars, and DLD International Group Limiteds functional
currency in portion is Hong Kong Dollar (HKD) but keep the accounting book in
US dollars; Beijing DLD Enterprise Management Consulting Co. Ltd.(DLD WOFE), DLD
Technology Co., Ltd. and its 7 branch companies, and its subsidiary company
Henan Dianliandian Information Technology Co., Ltd. and Shenzhen Tonychengyi
Sanxing Weiye Internet Technology Co., Ltd.s functional currency is Chinese
Yuan Renminbi (RMB). Our audited consolidated financial statements are
translated into USD in accordance with the Codification ASC 830, Foreign
Currency Matters. All assets and liabilities were translated at the current
exchange rate, at respective balance sheet dates, stockholders equity is
translated at the historical rates and income statement items are translated at
the average exchange rate for the reporting periods. The resulting translation
adjustments are reported as other comprehensive income and accumulated other
comprehensive income in stockholders equity in Accordance with the Codification
ASC 220, Comprehensive Income.
Transaction gains and losses that arise from exchange rate
fluctuations from transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred. There
were no material transaction gains or losses in the periods presented.
Cash flow from our operations included in the statement of cash
flows is calculated based upon the functional currency using the average
translation rate. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with
arithmetical changes in the corresponding balances on the consolidated balance
sheets. No presentation is made that the RMB amounts could have been, or could
be, converted into USD at the rates used in translation.
The PRC government imposes significant exchange restrictions on
fund transfers out of the PRC that are not related to business operations. These
restrictions have not had a material impact on us since we have not engaged in
any significant transactions that are subject to the restrictions.
The exchange rates used to translate amounts in RMB into USD
for the purposes of preparing our consolidated financial statements were as
follows:
Quarter end and year end RMB: USD exchange rate
June 30, 2015 |
December 31, 2014 |
June
30, 2014 |
December 31, 2013 |
|
|
|
|
6.1088 |
6.146 |
6.1565 |
6.1122 |
Average quarterly and yearly RMB: USD exchange rate
June 30, 2015 |
December 31, 2014 |
June
30, 2014 |
December 31, 2013 |
|
|
|
|
6.1254 |
6.1457 |
6.1419 |
6.1943 |
Recently Issued Accounting Pronouncements
Refer to Note 2 in our accompanying consolidated audited
financial statements.
Item
3.
Quantitative and Qualitative Disclosures About Market Risk.
Smaller reporting companies are not required to provide the
information required by this item.
Item
4.
Controls and Procedures.
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934 (Exchange Act), the Company carried out an evaluation, with the
participation of the Company's management, including the Company's Chief
Executive Officer (the Company's principal executive officer and interim
principal accounting officer), of the effectiveness of the Company's disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based upon that evaluation,
the Company's Chief Executive Officer concluded that the Company's disclosure
controls and procedures were not effective as of June 30, 2015 based on the
material weaknesses in the Company's internal control over financial reporting
as disclosed below.
|
The Company does not have sufficient accounting
personnel, which would provide segregation of duties within our internal
control procedures to support the accurate and timely reporting of our
financial results; |
|
The Companys current accounting personal lack experience
and knowledge in identifying and resolving complex accounting issues under
U.S. General Accepted Accounting Principles (GAAP); and |
|
The Company currently does not have an audit committee to
oversight the financial reporting process. |
Changes in Internal Control over Financial Reporting
No changes were made to our internal control over financial
reporting during our most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item
1. Legal
Proceedings.
We are currently not involved in any litigation that we believe
could have a material adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of
our company or any of our subsidiaries, threatened against or affecting our
company, our common stock, any of our subsidiaries or of our companies or our
subsidiaries officers or directors in their capacities as such, in which an
adverse decision could have a material adverse effect.
Item
1A. Risk Factors.
Smaller reporting companies are not required to provide the
information under this item.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3.
Defaults Upon Senior Securities.
None.
Item
4. Mine
Safety Disclosures.
Not applicable.
Item
5. Other
Information.
None.
Item
6.
Exhibits
+In accordance with SEC Release 33-8238, Exhibit 32.1 is being
furnished and not filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
DLD GROUP, INC. |
|
By:/s/ Fenglin Wang |
|
Fenglin Wang |
|
Chief Executive Officer |
|
(Duly Authorized Officer, Principal Executive
Officer |
|
and interim Principal Financial Officer) |
|
|
|
Dated: October 16, 2015
|
EXHIBIT 31.1
CERTIFICATION
OF PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE
SARBANES-OXLEY ACT OF 2002
I, Fenglin Wang, certify that:
1. I have reviewed this Quarterly
Report on Form 10-Q of DLD Group, Inc.;
2. Based on my knowledge, this
report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the
financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrants other
certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
(b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
(c) |
Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
(d) |
Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and |
5. The registrants other
certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrants ability
to record, process, summarize and report financial information;
and |
|
|
|
|
(b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting. |
Date: October 16, 2015
/s/ Fenglin Wang
Fenglin Wang
Chief
Executive Officer
Chief Financial Officer
(Principal Executive Officer)
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT
OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States
Code), the undersigned officer of DLD Group, Inc. (the Company), does
hereby certify, to such officers knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June
30, 2015 (the Form 10-Q) of the Company fully complies with the requirements
of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company as
of, and for, the periods presented in the Form 10-Q.
Date: October 16, 2015
/s/ Fenglin Wang
Fenglin Wang
Chief
Executive Officer
Chief Financial Officer
(Principal Executive Officer)
(Principal Financial Officer)
The foregoing certification is being furnished as an exhibit to
the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and, accordingly, is not being filed as part
of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and is not incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.