REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the shareholders and the board of directors
of
Asia Equity Exchange Group, Inc.
We
have audited the accompanying consolidated balance sheets of Asia Equity Exchange Group, Inc. and its subsidiaries (collectively,
the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive
income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31,
2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December
31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statement. We believe that our audits provide a reasonable basis for our opinion.
/s/
Friedman LLP
We
have served as the Company’s auditor since 2018.
New
York, New York
April
13, 2018
Asia
Equity Exchange Group, Inc.
Consolidated
Balance Sheets
|
|
As
of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
512,729
|
|
|
$
|
55,371
|
|
Accounts
receivable
|
|
|
994,500
|
|
|
|
-
|
|
Loans
receivable
|
|
|
2,295,000
|
|
|
|
-
|
|
Short-term
investment
|
|
|
15,300,000
|
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
432,262
|
|
|
|
40,999
|
|
Total
current assets
|
|
|
19,534,491
|
|
|
|
96,370
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
76,040
|
|
|
|
40,230
|
|
Deferred
tax assets
|
|
|
93,349
|
|
|
|
-
|
|
Total
assets
|
|
$
|
19,703,880
|
|
|
$
|
136,600
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
2,315,123
|
|
|
$
|
-
|
|
Accrued
expense and other current liabilities
|
|
|
297,405
|
|
|
|
175,389
|
|
Taxes
payable
|
|
|
396,221
|
|
|
|
1,105
|
|
Due
to related party
|
|
|
583,787
|
|
|
|
423,570
|
|
Total
current liabilities
|
|
$
|
3,592,536
|
|
|
$
|
600,064
|
|
|
|
|
|
|
|
|
|
|
Income
tax payable – noncurrent portion
|
|
|
75,557
|
|
|
|
-
|
|
Total
liabilities
|
|
|
3,668,093
|
|
|
|
600,064
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, 1,000,000 shares authorized; par value $0.001, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, 300 million shares authorized; par value $0.001, 118,900,016 shares and 114,600,000 shares issued and outstanding,
respectively *
|
|
|
118,900
|
|
|
|
114,600
|
|
Additional
paid in capital
|
|
|
15,045,700
|
|
|
|
-
|
|
Statutory
reserve
|
|
|
63,950
|
|
|
|
-
|
|
Retained
earnings (accumulated deficit)
|
|
|
756,192
|
|
|
|
(590,918
|
)
|
Accumulated
other comprehensive income (loss)
|
|
|
51,045
|
|
|
|
12,854
|
|
Total
equity
|
|
|
16,035,787
|
|
|
|
(463,464
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
19,703,880
|
|
|
$
|
136,600
|
|
*
Giving retrospective effect of reverse merger transaction consummated on April 12, 2016 and the 1 for 10 reverse stock split effected
on July 21, 2017
The
accompanying notes are an integral parts to the consolidated financial statements
Asia
Equity Exchange Group, Inc.
Consolidated
Statements of Operations and Comprehensive Income (loss)
|
|
For
the Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,889,222
|
|
|
$
|
565,413
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
412,014
|
|
|
|
439,664
|
|
General
and administrative expenses
|
|
|
1,026,905
|
|
|
|
592,982
|
|
Total
Operating Expenses
|
|
|
1,438,919
|
|
|
|
1,032,646
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
1,450,303
|
|
|
|
(467,233
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
86,357
|
|
|
|
73
|
|
Foreign
currency transaction gain (loss)
|
|
|
247,976
|
|
|
|
(560
|
)
|
Other
expense
|
|
|
(13,566
|
)
|
|
|
(1,996
|
)
|
Total
other income (expense), net
|
|
|
320,767
|
|
|
|
(2,483
|
)
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax
|
|
|
1,771,070
|
|
|
|
(469,716
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
360,010
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
1,411,060
|
|
|
|
(469,716
|
)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
1,411,060
|
|
|
|
(469,716
|
)
|
Foreign
currency translation gain
|
|
|
38,191
|
|
|
|
13,867
|
|
Comprehensive
income (loss)
|
|
$
|
1,449,251
|
|
|
$
|
(455,849
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share Basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares Basic and diluted *
|
|
|
115,071,233
|
|
|
|
114,600,000
|
|
*
Giving retrospective effect of reverse merger transaction consummated on April 12, 2016 and the 1 for 10 reverse stock split effected
on July 21, 2017
The
accompanying notes are an integral parts to the consolidated financial statements
Asia
Equity Exchange Group, Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
For
the Years Ended December 31, 2017 and 2016
|
|
Preferred
stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Retained
earnings
|
|
|
Other
income
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Number
of Shares *
|
|
|
Amount
|
|
|
Paid
in Capital
|
|
|
Statutory
Reserve
|
|
|
(accumulated
deficit)
|
|
|
Comprehensive
(loss)
|
|
|
Stockholders’
Equity
|
|
Balance
at December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
114,600,016
|
|
|
$
|
114,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(121,202
|
)
|
|
$
|
(1,013
|
)
|
|
$
|
(7,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(469,716
|
)
|
|
|
-
|
|
|
|
(469,716
|
)
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,867
|
|
|
|
13,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
|
|
-
|
|
|
|
|
|
|
|
114,600,016
|
|
|
$
|
114,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(590,918
|
)
|
|
$
|
12,854
|
|
|
$
|
(463,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued under private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
4,300,000
|
|
|
|
4,300
|
|
|
|
15,045,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,050,000
|
|
Appropriation
to statutory surplus reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,950
|
|
|
|
(63,950
|
)
|
|
|
-
|
|
|
|
-
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,411,060
|
|
|
|
-
|
|
|
|
1,411,060
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
38,191
|
|
|
|
38,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
118,900,016
|
|
|
$
|
118,900
|
|
|
$
|
15,045,700
|
|
|
$
|
63,950
|
|
|
$
|
756,192
|
|
|
$
|
51,045
|
|
|
$
|
16,035,787
|
|
*
Giving retrospective effect of reverse merger transaction consummated on April 12, 2016 and the 1 for 10 reverse stock split effected
on July 21, 2017
The
accompanying notes are an integral part of these consolidated financial statements
Asia
Equity Exchange Group, Inc.
Consolidated
Statements of Cash Flows
|
|
For the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,411,060
|
|
|
$
|
(469,716
|
)
|
Adjusted to reconcile
net income (loss) to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,313
|
|
|
|
11,858
|
|
|
|
|
|
|
|
|
|
|
Loss from disposal
of fixed assets
|
|
|
11,655
|
|
|
|
|
|
Deferred tax benefit
|
|
|
(90,360
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(962,650
|
)
|
|
|
9,475
|
|
Prepaid expenses
and other current assets
|
|
|
(380,237
|
)
|
|
|
3,286
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
2,242,678
|
|
|
|
-
|
|
Other payables and
accrued expenses
|
|
|
110,115
|
|
|
|
176,163
|
|
Income
taxes payable
|
|
|
459,454
|
|
|
|
(2,850
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
2,811,028
|
|
|
|
(271,784
|
)
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
|
|
(59,638
|
)
|
|
|
(28,078
|
)
|
Proceeds from disposal
of fixed assets
|
|
|
6,409
|
|
|
|
-
|
|
Loans to a third
party
|
|
|
(2,221,500
|
)
|
|
|
-
|
|
Short-term
investment
|
|
|
(15,050,000
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(17,324,729
|
)
|
|
|
(28,078
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds received
from related party
|
|
|
159,536
|
|
|
|
352,158
|
|
Proceeds
from stock issuance under a private placement
|
|
|
15,050,000
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
15,209,536
|
|
|
|
352,158
|
|
EFFECT
OF EXCHANGE RATES ON CASH
|
|
|
(238,477
|
)
|
|
|
(19,283
|
)
|
NET INCREASE IN CASH
|
|
|
457,358
|
|
|
|
33,013
|
|
CASH,
BEGINNING OF YEAR
|
|
|
55,371
|
|
|
|
22,358
|
|
CASH,
END OF YEAR
|
|
$
|
512,729
|
|
|
$
|
55,371
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid for interest expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income tax
|
|
$
|
7,226
|
|
|
$
|
2
,977
|
|
The
accompanying notes are an integral part of these consolidated financial statements
NOTE
1 -ORGANIZATION AND DESCRIPTION OF BUSINESS
Asia
Equity Exchange Group, Inc. (“the Company” or “AEEX”) is a Nevada corporation incorporated on July 15,
2013, under the name “I In The Sky, Inc.” (“SYYF”). The Company filed a name change to AEEX with the state
of Nevada on July 22, 2015.
The
Company’s original business plan was to manufacture and market low cost GPS tracking devices and software to businesses
and families. However, this business was not successful and the Company had no revenues generated from its business from its inception
until April 12, 2016 when it completed the reverse acquisition of Asian Equity Exchange Group Company Limited (“AEEGCL”).
On
November 30, 2015, the Company executed a Sale and Purchase Agreement (the “Purchase Agreement”) to acquire 100% of
the shares and assets of AEEGCL (the “Acquisition”). Pursuant to the Purchase Agreement, the Company issued one billion
(1,000,000,000) shares of common stock to the former owners of AEEGCL. The Acquisition was consummated on April 12, 2016. As a
result, AEEGCL became a wholly-owned subsidiary of the Company. The Company had a total of 146,000,000 shares of common stock
outstanding immediately prior to the closing of the Acquisition. Upon completion of the Acquisition, the Company had a total of
1,146,000,000 shares of common stock outstanding, with the former owners of AEEGCL controlled 87.3% of the total issued and outstanding
shares of the Company’s common stock.
The
acquisition of AEEGCL and its subsidiaries by us was accounted for as a reverse merger because there was a change of control,
and on a post-merger basis, the former shareholders of AEEGCL held a majority of our outstanding common stock on a fully-diluted
basis. As a result, AEEGCL is deemed to be the acquirer for accounting purposes. Accordingly, the consolidated financial statement
data presented are those of AEEGCL, recorded at the historical basis of AEEGCL, for all
periods
prior to our acquisition of AEEGCL on April 12, 2016, and the financial statements of the historical operations of the consolidated
companies from the effective date of the closing of the reverse merger.
AEEGCL
was incorporated under the laws of Samoa on May 29, 2015. It offers an international equity assistance and information service
platform designed to provide listing assistance services, equity investment financing information and public relationship services
to enterprises in Asia, mainly in China. AEEGCL owns 100% of AEEX (HK) International Financial Service Limited (formerly known
as Yinfu International Enterprise Limited, “AEEX HK”), a, entity incorporated in Hong Kong on December 22, 2014. AEEX
HK owns 100% of Asia America Consultants (Shenzhen) Co., Ltd. (formerly known as Yinfu Guotai Investment Consultant (Shenzhen)
Co., Ltd., “AACCL”), a wholly-owned foreign enterprise organized under the laws of the People’s Republic of
China (the “PRC”) on April 15, 2015.
The
Company, through its subsidiaries AEEX HK and AACCL, engages in providing investment and corporate management consulting services
to customers.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Company reflect the principal
activities of the following entities. All intercompany balances and transactions have been eliminated upon consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates required to be
made by management, include, but are not limited to, the valuation of accounts and loans receivable, useful lives of property
and equipment, the recoverability of long-lived assets, realization of deferred income tax assets, revenue recognition and provision
necessary for contingent liabilities. Actual results could differ from these estimates.
Cash
and Cash Equivalents
Cash
includes cash on hand and demand deposits in accounts maintained with commercial banks. The Company considers all highly liquid
investments with original maturities of three months or less when purchased to be cash equivalents. The Company maintained most
of the bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation
or other programs.
Accounts
Receivable, net
Accounts
receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible amounts. The Company
generally receives a cash payment before delivery of the services, but may extend unsecured credit to its customers in the ordinary
course of business. The Company mitigates the associated risks by performing credit checks and actively pursuing past due accounts.
An allowance for doubtful accounts is established and recorded based on management’s assessment of the credit history of
the customers and current relationships with them. At December 31, 2017 and 2016, there was no allowance recorded as the Company
considers all of the accounts receivable fully collectible.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. The straight-line depreciation method is used to compute depreciation over the estimated
useful lives of the assets, as follows:
|
|
Useful life
|
Electronic equipment
|
|
3 years
|
Office furniture
|
|
5 years
|
Transportation vehicles
|
|
4 years
|
Computer software
|
|
5 years
|
Expenditures
for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures which substantially increase the useful lives of the related assets are capitalized. Expenditures for major renewals
and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation
of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements
of operations and other comprehensive income (loss) in other income or expenses.
Impairment
of Long-lived Assets
The
Company reviews long-lived assets, including definitive-lived intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of
the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and
written down to its fair value. There were no events or changes in circumstances that triggered a review of impairments of long-lived
assets as of December 31, 2017 and 2016.
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year presentation.
Fair
Value of Financial Instruments
The
Company follows the provision of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures,” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes
the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the
use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level
1- Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level
2- Observable inputs (other than Level 1 quoted prices) such as quoted prices active markets for similar assets or liabilities,
quoted prices in markets that are not active for identical or similar as or liabilities, or other inputs that are observable or
can be corroborated by observable market data.
Level
3- Inputs are unobservable inputs which reflect management’s assumptions based on the best available information.
The
Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents,
accounts receivable, loans receivable, prepaid expenses and other current assets, short-term investment, deferred revenue, accrued
and other liabilities, taxes payable and due to related party to approximate the fair value of the respective assets and liabilities
at December 31, 2017 and 2016 based upon the short-term nature of the assets and liabilities.
Revenue
recognition
The
Company’s revenue is recognized when persuasive evidence of an arrangement exists, service has occurred and all obligations
have been performed pursuant to the terms of the agreement, the sales price is fixed or determinable, and collectability is reasonably
assured.
The
Company currently generates its revenue from the following main sources:
●
Revenue from membership fee
The
Company develops and attracts corporate enterprises to become members and join in the Company’s service platform www.aeexotcmarkets.com.
To become a member, customer needs to pay a one-time non-refundable registration fee first. The Company recognizes revenue from
membership fee when it posts member’s information and profiles on its platform
www.aeexotcmarkets.com,
which enables
the member’s corporate information and specific needs exposed to the public.
●
Revenue from consulting services
The
Company also provides various consulting services to its members, especially to those who have the intention to be publicly listed
in the stock exchanges in the United States and other countries. The Company categorizes its consulting services into three Phases:
Phase
I consulting services primarily include due diligence review, market research and feasibility study, business plan drafting, accounting
record review, and business analysis and recommendations etc. Management estimates that Phase I normally takes around three months
to complete based on its past experiences.
Phase
II consulting services primarily include reorganization, pre-listing education and tutoring, talent search, legal and audit firm
recommendation and coordination, VIE contracts and other public-listing related documents review, merger and acquisition planning,
investor referral and pre-listing equity financing source identification and recommendation, independent directors and audit committee
candidates recommendation etc. Management estimates that Phase II normally takes about eight months to complete based its past
experiences.
Phase
III consulting services primarily include shell company identification and recommendation for customers expecting to become publicly
listed through reverse merger transaction; assistance in preparation of customers’ registration statement under IPO transactions
or Form 8-K under reverse merger transactions; assistance in answering comments and questions received from regulatory agencies
etc. Management believes it is very difficult to estimate the timing of this phase of service as the completion of Phase III services
is not within the Company’s control.
Each
phase of consulting services are standalone and fees associated with each phase are clearly identified in service agreements.
Revenue from providing Phase I and Phase II consulting services to customers is recognized ratably over the estimated completion
period of each phase. Revenue from providing Phase III consulting services to customers is recognized upon completion of reverse
merger transaction or IPO transaction, which is evidenced by filing of 8-K for reverse merger transaction or receipt of effective
notice from regulatory agencies for IPO transaction. Revenue that has been billed and not yet recognized is reflected as deferred
revenue on the balance sheet.
Depending
on the complexity of the underlying service arrangement and related terms and conditions, significant judgments, assumptions and
estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing
obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods
in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements,
adjustment may be made to the judgments, assumptions and estimates regarding contracts executed in any specific period.
Income
Tax
The
Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. 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 income in the period including the enactment date. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The
provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold
for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return.
This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related
disclosures. The Company does not believe that there was any uncertain tax position at December 31, 2017 and 2016.
To
the extent applicable, the Company records interest and penalties as a general and administrative expense. The Company’s
subsidiaries in China and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. The statute of limitations for
the Company’s U.S. federal income tax returns and certain state income tax returns remains open for tax years 2013 and after.
As of December 31, 2017, the tax years ended December 31, 2015 through December 31, 2017 for the Company’s PRC subsidiary
remain open for statutory examination by PRC tax authorities.
On
December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of The Act,
the U.S. corporate tax rate decreased from 35% to 21%. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation
of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has
caused the Company to re-measure all U.S. deferred income tax assets and liabilities for temporary differences. Net operating
loss (“NOL”) carryforwards are limited to 80% of taxable income and can be carried forward indefinitely.
Earnings
(Loss) Per Share
Basic
earnings (loss) per share are computed by dividing income (loss) available to ordinary shareholders of the Company by the weighted
average ordinary shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that
could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. As of
December 31, 2017 and 2016, there were no dilutive shares.
Foreign
Currency Translation
The
accounts of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the
entity operates (the “functional currency”). The Company’s functional currency is the U.S. dollar (“USD”)
while its subsidiary in Hong Kong reports its financial positions and results of operations in Hong Kong Dollar and the Company’s
subsidiary in China reports its financial position sand results of operations in Renminbi (“RMB”). The accompanying
consolidated financial statements are presented in United States Dollar (USD). The results of operations and the consolidated
statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period.
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange
in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at
the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to
assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding
balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period
to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements
of changes in equity. Gains and losses from foreign currency transactions are included in the results of operations.
The
following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this
report:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Foreign
currency
|
|
Balance
Sheet
|
|
|
Profits/Loss
|
|
|
Balance
Sheet
|
|
|
Profits/Loss
|
|
RMB:1USD
|
|
|
0.1530
|
|
|
|
0.1481
|
|
|
|
0.1442
|
|
|
|
0.1504
|
|
HKD:1USD
|
|
|
0.1279
|
|
|
|
0.1283
|
|
|
|
0.1289
|
|
|
|
0.1288
|
|
Risks
and Uncertainty
The
Company’s major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in the
PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition,
and results of operations.
The
Company’s major operations in the PRC are subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These include risks associated with, among others, the political, economic,
and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect
to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company
has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including
its organization and structure disclosed in Note 1, this may not be indicative of future results.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts
with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue
to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most
existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective and permits the
use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance in ASU 2014-09
will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those
periods), which means it will be effective for the Company’s fiscal year beginning January 1, 2018. In March 2016, the FASB
issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”),
which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard.
In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”),
which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and
understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements
and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash
consideration and the presentation of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical
Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes
minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting
practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and
provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments
have the same effective date as the new revenue standard. The Company’s current revenue recognition policies are generally
consistent with the new revenue recognition standards set forth in ASU 2014-09. Potential adjustments to input measures are not
expected to be pervasive to the majority of the Company’s contracts.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”.
The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Basically these
amendments provide a screen to determine when a set is not a business. If the screen is not met, the amendments in this ASU first,
require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create output and second, remove the evaluation of whether a market participant could replace missing
elements. These amendments take effect for fiscal years beginning after December 15, 2017 and interim periods within those periods.
The adoption of this guidance will not have a material impact on its consolidated financial statements.
In
February 2017, the FASB issued ASU No. 2017-05 (“ASU 2017-05”) to provide guidance for recognizing gains and losses
from the transfer of nonfinancial assets and in-substance nonfinancial assets in contracts with non-customers, unless other specific
guidance applies. The standard requires a company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial
asset or distinct in substance nonfinancial asset. Additionally, when a company transfers its controlling interest in a nonfinancial
asset, but retains a noncontrolling ownership interest, the company is required to measure any noncontrolling interest it receives
or retains at fair value. The guidance requires companies to recognize a full gain or loss on the transaction. As a result of
the new guidance, the guidance specific to real estate sales in ASC 360-20 will be eliminated. ASU 2017-05 is effective for annual
periods beginning after December 15, 2017, including interim periods within that reporting period. The effective date of this
guidance coincides with revenue recognition guidance. The adoption of this guidance will not have a material impact on its consolidated
financial statements.
In
September 2017, the FASB has issued ASU No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers
(Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the
July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU
No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No.
2016-02. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and
ASU 2016-02. The adoption of this guidance will not have a material impact on its consolidated financial statements.
In
November 2017, the FASB issued ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic
605), and Revenue from Contracts with Customers (Topic 606). This Accounting Standards Update supersedes various SEC paragraphs
and amends an SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 116 and SEC Release No.33-10403. Management
plans to adopt this ASU during the year ending December 2019. The Company does not believe the adoption of this ASU would have
a material effect on the Company’s consolidated financial statements.
In
February 2018, the FASB has issued Accounting Standards Update (ASU) No. 2018-02, “Reclassification of Certain Tax Effects
From Accumulated Other Comprehensive Income.” The ASU amends ASC 220,
Income Statement — Reporting Comprehensive
Income
, to “allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax
effects resulting from the Tax Cuts and Jobs Act.” In addition, under the ASU, an entity will be required to provide certain
disclosures regarding stranded tax effects. The ASU is effective for all entities for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years. The adoption of this guidance will not have a material impact on its consolidated
financial statements.
In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification
and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and
Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act
changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and
may additionally have international tax consequences for many companies that operate internationally. The Company has evaluated
the impact of the Act as well as the guidance of SAB 118 and incorporated the changes into the determination of a reasonable estimate
of its deferred tax liability and appropriate disclosures in the notes to its consolidated financial statements (See Note 9).
The Company will continue to evaluate the impact this tax reform legislation may have on its results of operations, financial
position, cash flows and related disclosures.
NOTE
3 - ACCOUNTS RECEIVABLE, NET
The
Company’s net accounts receivable is as follows:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Accounts
receivable
|
|
$
|
994,500
|
|
|
$
|
-
|
|
Less:
allowances for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts
receivables, net
|
|
$
|
994,500
|
|
|
$
|
-
|
|
Accounts
receivable of $994,500 resulted from balance due from providing public listing related consulting services to customer Guangdong
Donggao High-tech Materials Co,, Ltd., who successfully filed the Form 8-K with SEC on November 27, 2017 to consummate the reverse
merger transaction. This is the first customer that the Company completed the comprehensive consulting services and accordingly
the Company extended the credit term to this customer for additional six months. The Company subsequently collected approximately
$236,593 (RMB 1.5 million) of this outstanding account receivable from this customer and expects to fully collect the remaining
balance before June 30, 2018.
NOTE
4 - LOANS RECEIVABLE
From
September to December 2017, the Company advanced a total of $2,295,000 (RMB 15 million) one year short-term loans to a former
customer, Shenzhen Shangyuan Electronic Business Development Co., Ltd. (“Shangyuan”) as working capital. Among the
RMB 15 million loan, RMB 5 million is non-interest bearing and RMB 10 million are interest-bearing loans with interest rate of
5% per annum. Interest income of $6,350 was accrued for the year ended December 31, 2017. The Company subsequently collected RMB
5 million (approximately $781,250) non-interest bearing portion of the loan from Shangyuan in the first quarter of 2018.
NOTE
5 - SHORT-TERM INVESTMENT
On
November 21, 2017, the Company entered into an investment agreement with China Construction Bank (“the Bank”). The
agreement allows the Company to invest RMB 100 million ($15.3 million) with the Bank for a six-month term maturing on May 20,
2018. The Bank invests the Company’s fund in certain financial instruments including money market funds, bonds or
mutual funds. The rates of return on these instruments was guaranteed as 4.8% per annum. The Company’s investment
is not subject to market fluctuation and therefore, the Company did not experience gain or loss on its investment. However, the
Company’s funds deposited with the Bank is not insured. Interest income of $78,987 was accrued and reflected in the consolidated
statements of operations and comprehensive income (loss) for the years ended December 31, 2017.
NOTE
6. PROPERTY AND EQUIPMENT, NET
As
of December 31, 2017 and 2016, property and equipment was as follows:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Office equipment
|
|
$
|
33,114
|
|
|
$
|
5,379
|
|
Furniture
|
|
|
47,226
|
|
|
|
14,488
|
|
Computer software
|
|
|
8,369
|
|
|
|
7,023
|
|
Automobiles
|
|
|
930
|
|
|
|
27,036
|
|
Total
|
|
|
89,639
|
|
|
|
53,926
|
|
Less: accumulated
depreciation
|
|
|
(13,599
|
)
|
|
|
(13,696
|
)
|
Property and
equipment, net
|
|
$
|
76,040
|
|
|
$
|
40,230
|
|
Depreciation
expense for the years ended December 31, 2017 and 2016 was $9,313 and $11,858, respectively.
NOTE
7 – DEFERRED REVENUE
Deferred
revenue consists of amounts received from customers for membership and public listing related consulting services not yet completed
as of the balance sheets date. The details of customer deposits are as follows:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Customer deposit for
membership
|
|
$
|
53,077
|
|
|
$
|
-
|
|
Customer deposits
for consulting services
|
|
|
2,262,046
|
|
|
|
-
|
|
Total deferred
revenue
|
|
$
|
2,315,123
|
|
|
$
|
-
|
|
NOTE
8 - RELATED PARTY TRANSACTION
As
of December 31, 2017 and 2016, the balances due to a major stockholder are comprised of non-interest bearing advances used for
working capital.
NOTE
9 – TAXES
The
Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each
entity is domiciled
.
AEEX
is incorporated in the United States and has incurred net operating loss for income tax purposes for 2017 and 2016. The Company
has loss carry forwards of approximately $166,000 for U.S. income tax purposes available for offsetting against future taxable
U.S. income, expiring in 2037. Management believes that the realization of the benefits from these losses is uncertain due to
its history of continuing losses in the United States. Accordingly, a full deferred tax asset valuation allowance has been provided
and no deferred tax asset benefit has been recorded. The valuation allowance as of December 31, 2017 and 2016 was approximately
$45,000 and $29,000, respectively. The changes in the valuation allowance for the years ended December 31, 2017 and 2016 was approximately
$16,300 and $16,000, respectively.
AEEGCL
was incorporated under the International Companies Act 1988 of Samoa as a non-resident company. Under current laws of Samoa, income
earned is not subject to income tax.
AEEX
HK is subject to Hong Kong profits tax at a rate of 16.5%, and did not have any assessable profits arising in or derived from
Hong Kong for the fiscal year ended December 31, 2017 and 2016, and accordingly no provision for Hong Kong profits tax made in
these periods.
AACCL
is incorporated in the PRC and is subject to PRC income tax, which is computed according to the relevant laws and regulations
in the PRC. The applicable tax rate is 25% for the years ended December 31, 2017 and 2016. The Company recorded $93,349 and $Nil
deferred income tax assets as of December 31, 2017 and 2016, respectively.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to
the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective
for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a
territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December
31, 2017.
On
December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP
in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations)
in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company
has recorded a provisional amount for its one-time transition tax for all of its foreign subsidiaries, resulting in an increase
in income tax expense of $82,127 for the year ended December 31, 2017. The one-time transition tax was calculated using the Company’s
total post-1986 overseas net earnings and profits which amounted to approximately $0.92 million. The one-time transition tax is
taxed at the rate of 15.5% for the Company’s cash and cash equivalents and 8% for the other assets to be paid over 8 years.
Additional work is necessary to conduct a more detailed analysis of the Act as well as potential correlative adjustments. Any
subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2018 when the analysis is complete.
The
Company’s income tax expense (benefit) for the years ended December 31, 2017 and 2016 are as follows:
|
|
For
the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current income tax (benefit)
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
82,127
|
|
|
$
|
-
|
|
Samoa
|
|
|
-
|
|
|
|
-
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
368,243
|
|
|
|
-
|
|
|
|
|
450,370
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit)
|
|
|
|
|
|
|
|
|
China
|
|
|
(90,360
|
)
|
|
|
-
|
|
|
|
|
(90,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
tax expense
|
|
$
|
360,010
|
|
|
$
|
-
|
|
The
Company’s deferred tax assets are comprised of the following:
|
|
For
the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net
operating loss
|
|
|
148,074
|
|
|
|
119,993
|
|
Total deferred tax assets
|
|
|
148,074
|
|
|
|
119,993
|
|
Valuation allowance
|
|
|
(54,725
|
)
|
|
|
(119,993
|
)
|
Deferred tax
assets, long-term
|
|
$
|
93,349
|
|
|
$
|
-
|
|
The
Company’s taxes payable consists of the following:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
VAT tax payable
|
|
$
|
14,470
|
|
|
$
|
839
|
|
Corporate income tax payable
|
|
|
455,017
|
|
|
|
-
|
|
Others
|
|
|
2,291
|
|
|
|
266
|
|
Total tax payable
|
|
|
471,778
|
|
|
|
1,105
|
|
Less: noncurrent
portion
|
|
|
(75,557
|
)
|
|
|
-
|
|
Total tax payable-
current portion
|
|
$
|
396,221
|
|
|
$
|
1,105
|
|
NOTE
10 - EQUITY
Preferred
Stock
The
Company has authorized 1,000,000 preferred shares with par value of $0.001 per share. None issued and outstanding as of December
31, 2017 and 2016. The following mentioned reverse stock split has no impact on the Company’s authorized preferred stock.
Common
Stock
On
November 30, 2015, the Company executed a Sale and Purchase Agreement (the “Purchase Agreement”) to acquire 100% of
the shares and assets of AEEGCL (the “Acquisition”). Pursuant to the Purchase Agreement, the Company issued one billion
(1,000,000,000) shares of common stock to the former owners of AEEGCL. The Acquisition was consummated on April 12, 2016. As a
result, AEEGCL became a wholly-owned subsidiary of the Company and the business of AEEGCL became current business of the Company.
The Company had a total of 146,000,000 shares of common stock outstanding immediately prior to the closing of the Acquisition.
After the closing of the Acquisition, the Company had a total of 1,146,000,000 shares of common stock outstanding.
On
July 21, 2017, the Company’s Board of Directors approved a reverse stock split of the Company’s common stock at a
ratio of 1-for-10. Total 1,031,399,984 shares of the Company’s common stock has been cancelled accordingly. As a result
of this stock reverse split, the Company’s equity statement has been retroactively restated so that the ending outstanding
share balance as of the stock split date is equal to the number of post stock shares.
On
November 21, 2017, the Company entered into a Subscription Agreement with an investor, pursuant to which the investor purchased
4.3 million shares of the Company’s common stock at $3.5 per share for an aggregate purchase price of $15,050,000.
Statutory
reserve
In
accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, a foreign invested
enterprise established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise
expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC
statutory accounts. A wholly-owned foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit
to the general reserve until such reserve has reached 50% of its respective registered capital based on the enterprise’s
PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion
of the board of directors for all foreign invested enterprises. These reserves can only be used for specific purposes and are
not distributable as cash dividends. The Company’s subsidiary AACCL was established as a wholly-owned foreign invested enterprise
and therefore is subject to the above mandated restrictions on distributable profits.
Additionally,
in accordance with the Company Law of the PRC, a domestic enterprise is required to provide statutory common reserve at least
10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s
PRC statutory accounts. A domestic enterprise is also required to provide for discretionary surplus reserve, at the discretion
of the board of directors, from the profits determined in accordance with the enterprise’s PRC statutory accounts. These
reserves can only be used for specific purposes and are not distributable as cash dividends.
As
a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior
to payment of dividends as general reserve fund, the Company’s PRC subsidiary is restricted in its ability to transfer a
portion of their net assets to the Company. The restricted amounts include paid-in capital and statutory reserve funds of the
Company’s PRC subsidiary as determined pursuant to PRC generally accepted accounting principles, totaling $63,950 and $Nil
at December 31, 2017 and 2016,respectively.
NOTE
11 – CONCENTRATIONS AND RISKS
The
Company maintains certain bank accounts in the PRC and Hong Kong, which are not insured by Federal Deposit Insurance Corporation
(“FDIC”) insurance or other insurance. As of December 31, 2017 and 2016, cash balances of $512,324 and $55,059, respectively,
were maintained at financial institutions in the PRC and Hong Kong, which were not insured by any of the authorities.
For
the years ended December 31, 2017 and 2016, substantial of the Company’s assets were located in the PRC and substantial
of the Company’s revenues were derived from its subsidiaries located in the PRC.
For
the year ended December 31, 2017, three customers accounted for approximately 10.5%, 18.4% and 62.1% of the Company’s total
revenue. For the year ended December 31, 2016, one customer accounted for approximately 88.8% of the Company’s total revenue.
For
the year ended December 31, 2017, one customer accounted for 100% of the Company’s outstanding accounts receivable.
NOTE
12 – COMMITMENTS
Lease
Obligation
The
Company leases office spaces under operating leases. Operating lease expense amounted to $445,117 and $209,479 for the years ended
December 31, 2017 and 2016, respectively.
Future
minimum lease payments under non-cancelable operating leases are as follows as of December 31, 2017:
Year ending December 31,
|
|
|
|
2018
|
|
$
|
563,943
|
|
2019
|
|
|
340,147
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
904,090
|
|
Up-listing
Commitment
November
21, 2017, the Company entered into a Subscription Agreement with an investor, pursuant to which the investor purchased 4.3 million
shares of the Company’s common stock at $3.5 per share for an aggregate purchase price of $15,050,000(see Note 10).
Pursuant
to the Subscription Agreement, the Company will apply to be listed on the NASDAQ Capital Market or similar national securities
exchange as is reasonably acceptable to the Purchaser, so that the Company’s Common Stock will commence trading on one of
the National Exchanges (the “Uplisting”) no later than December 31, 2018 (the “Uplisting Deadline”). If
the Company does not complete Uplisting on or before the Uplisting Deadline, the Investor, within 30 days following the Uplisting
Deadline, has the right to request the Company to buy back any number of the Shares, at the same price of the Purchase Price Per
Share, subject to the terms and conditions of the Subscription Agreement.