(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
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No
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Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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. Yesx Noo Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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Applicable Only to Issuer Involved in Bankruptcy Proceedings During the Preceding Five Years. N/A
Indicate by checkmark whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes
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No
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Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the most practicable date: As of April 16, 2018, there were 160,790,000 shares of Common Stock of the issuer outstanding.
PART I
As used throughout this Annual Report, the terms “Green Vision”, “Company”, “we”, “us”, “our” or “Registrant” refer to Green Vision Biotechnology Corp. and its subsidiaries.
Item 1. Business
Background
Green Vision Biotechnology Corp. (formerly known as Vibe Wireless Corp., originally known as Any Translation Corp.), (the “Company”, “GVBT”), was incorporated under the laws of the State of Nevada on July 5, 2012. We were founded to be in the business of translation and interpretation. On November 12, 2015, we changed our name from Any Translation Corp. to Vibe Wireless Corp. On September 30, 2016, we changed our name from Vibe Wireless Corp. to Green Vision Biotechnology Corp.
On September 30, 2016, the Company filed a Certificate of Amendment with the Nevada Secretary of State (the “Nevada SOS”) whereby it amended its Articles of Incorporation by increasing the Company’s authorized number of shares of common stock from 75 million to 750 million and increasing all of its issued and outstanding shares of common stock at a ratio of ten (10) shares for every one (1) share held. The Company’s Board of Directors approved this amendment on September 30, 2016. This stock split has been retroactively applied. The Company filed Articles of Merger with the Nevada SOS whereby it entered into a statutory merger with its wholly-owned subsidiary, Green Vision Biotechnology Corp. pursuant to Nevada Revised Statutes 92A.200 et. seq. The effect of such merger is that the Company is the sole surviving entity and changed its name to “Green Vision Biotechnology Corp.”
The investment transaction under the share exchange agreements and contractual agreements as described below (collectively the “Transaction Agreements”) was entered into, between each of the Shareholders of Lutu International Biotechnology Limited (“Lutu International”), a company incorporated under the laws of Cayman Islands and GVBT (the “Investment Transaction”) on May 12, 2017. As a result of closing the Investment Transaction, GVBT acquired part of the shares of Lutu International and assumed management of Lutu International and all its direct and indirect subsidiaries (“the Lutu Group”).
On May 12, 2017, GVBT entered into a share exchange agreement with Harcourt Capital Limited (“Harcourt”), a limited company incorporated in the British Virgin Islands, which holds 6% of the issued and outstanding shares of Lutu International; and Woodhead Investments Limited (“Woodhead”), a limited company incorporated in the British Virgin Islands, which holds 5% of the issued and outstanding shares of Lutu International (the “Minority Interest Exchange Agreement”). Under the Minority Interest Exchange Agreement, Woodhead agreed to transfer GVBT a total of 5% of the issued and outstanding shares of Lutu International. In consideration, GVBT agreed to grant Woodhead, or persons designated by Woodhead, a right to receive a total of 5 million shares of GVBT’s common stock. Under the Minority Interest Exchange Agreement, Harcourt agreed to transfer to GVBT a total of 6% of the issued and outstanding shares of Lutu International. In consideration, GVBT agreed to grant Harcourt, or persons designated by Harcourt, a right to receive a total of 6 million shares of GVBT’s common stock. The transactions under the Minority Interest Exchange Agreement were completed on May 12, 2017.
Able Lead has an outstanding loan of $4.43 million denominated in Renminbi (“RMB”) owed to an unrelated third party with its maturity date on January 22, 2018 (the “Outstanding Loan”). Able Lead is currently negotiating an extension of the Outstanding Loan to 2019 with the third party creditor. Shares of Lutu International held by Able Lead were offered by Able Lead as collateral to secure repayment of the Outstanding Loan (the “Security”).
On May 12, 2017, GVBT entered into a share exchange agreement (the “Majority Interest Exchange Agreement”) with Able Lead Holdings Limited (“Able Lead”), the 89% shareholder of Lutu International. Under the Majority Interest Exchange Agreement, Able Lead agreed to enter into a series of contractual arrangements with GVBT (collectively, the “Contractual Arrangements”) (as described below), in which GVBT assumed management control of the Lutu Group. Able Lead further agreed to deliver the shares of Lutu International to GVBT once the Outstanding Loan is fully repaid. In consideration, GVBT agreed to issue and deliver a total of 89 million shares of GVBT’s common stock to an escrow agent (issued in the name of the escrow agent or its nominee) (the “ Escrow Shares “). The Escrow Shares shall be held in escrow for a period of one year or such period of time to be agreed by GVBT and Able Lead upon the execution of the Majority Interest Exchange Agreement. Conditional upon the full repayment of the Outstanding Loan and the release of the Security, the Escrow Shares shall be released to Able Lead in exchange for the delivery of a total of 89% of the issued and outstanding shares of Lutu International by Able Lead to GVBT. In the event that Able Lead fully repays the Outstanding Loan and causes the release of the Security, then the Escrow Shares shall be delivered to Able Lead. In the event that Able Lead cannot fully repay the Outstanding Loan (within a period of one year, or such period of time to be agreed by GVBT and Able Lead) and cause the release of the Security, then the Escrow Shares shall be delivered to transfer agent for cancellation. Unless otherwise expressly agreed in writing by GVBT and Able Lead, the Majority Share Exchange Agreement shall be automatically terminated upon the termination of any of the agreements in the Contractual Arrangements described as below. The transactions under the Majority Interest Exchange Agreement were completed on May 12, 2017.
Pursuant to an escrow agreement (the “Escrow Agreement”) entered into between Booth Udall Fuller, PLC (the “Escrow Agent”) and GVBT on May 12, 2017, the Escrow Shares shall be held by Booth Udall Fuller, PLC for a year upon the execution of the Majority Share Exchange Agreement. The Escrow Shares shall not be subject to any lien, attachment, or any other judicial process of any creditor of GVBT, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Majority Share Exchange Agreement.
On May 12, 2017, GVBT entered into a series of contractual agreements as described below with Lutu International Biotechnology Limited (“Lutu International”) and/or Able Lead (the “Contractual Arrangements”). Upon execution of the Contractual Arrangements, GVBT assumed management of Lutu International and its subsidiaries (the “Lutu Group”) and received economic benefits which includes right to receive the expected residual returns and and/or obligation to absorb expected loss from the Lutu Group. Each agreement in the Contractual Arrangements constitutes valid and binding obligations of the parties of such agreements and is enforceable and valid in accordance with the laws of Cayman Islands. All agreements executed by Lutu International were duly approved by its board of directors and the Shareholders of Lutu International.
Consulting Services Agreement
Pursuant to the exclusive consulting services agreement entered into between GVBT and Lutu International on May 12, 2017, GVBT has the exclusive right to provide to the Lutu Group general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of bio-fertilizers. Further, GVBT owns the intellectual property rights developed or discovered through research and development, in the course of providing the consulting services, or derived from the provision of the consulting services. In consideration, Lutu International pays an annual consulting service fees to GVBT in the amount equivalent to all of Lutu International’s net profits for the relevant financial year. The term of this consulting service agreement is five (5) years from its effective date and may be terminated upon GVBT’s written confirmation prior to the expiration of this agreement.
Unless otherwise expressly agreed in writing by GVBT and Able Lead, the Consulting Services Agreement shall be automatically terminated upon the termination of any of the agreements in the Contractual Arrangements or the Majority Interest Exchange Agreement.
Operating Agreement
Pursuant to the operating agreement entered into between GVBT, Lutu International and Able Lead on May 12, 2017, GVBT agreed to provide guidance and instructions on the Lutu Group’s daily operations, financial management and employment issues. Able Lead agreed to designate candidates recommended by GVBT as their representatives on the boards of directors of each member of the Lutu Group. GVBT has the right to appoint senior executives of each member of the Lutu Group. In addition, GVBT agreed to guarantee the Lutu Group’s performance under any agreements or arrangements relating to the Lutu Group’s business arrangements with any third party. In consideration, Lutu International agrees that it will not, and will cause the Lutu Group not to, without the prior consent of GVBT, engage in any transactions that could materially affect their respective assets, liabilities, rights or operations, including but not limited to, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this operating agreement is five (5) years from its effective date and may be extended and terminated only upon GVBT’s written confirmation prior to the expiration of this agreement.
Unless otherwise expressly agreed in writing by GVBT and Able Lead, the Operating Agreement shall be automatically terminated upon the termination of any of the agreements in the Contractual Arrangements or the Majority Interest Exchange Agreement.
Proxy Agreement
Pursuant to the proxy agreement entered into between Able Lead, Lutu International, and GVBT on May 12, 2017, Able Lead agreed to irrevocably grant a person to be designated by GVBT the right to exercise its voting rights and other rights, including the attendance of, and the voting at the shareholders’ meetings of Lutu International for and on behalf of Able Lead (or the signing of written resolutions in lieu of such meetings) in accordance with applicable laws and its articles of association, including but not limited to the appointment and voting for the directors and chairman of the board as the authorized representative of Able Lead to exercise controlling power in the Lutu Group. The proxy agreement may be terminated by joint consent of the parties or upon 7-day written notice from GVBT.
Changes Resulting from the Investment Transaction
The closing of the Investment Transaction occurred on May 12, 2017, resulting in a change of control of GVBT. Prior to closing of the Investment Transaction, GVBT had a total of 60,790,000 shares of common stock issued and outstanding. As a result of the closing of the Investment Transaction, GVBT now has a total of 160,790,000 shares of its common stock issued and outstanding, of which 60,790,000 shares, or approximately 37.8%, are owned by the previous existing shareholders of GVBT, with the balance of 100,000,000 shares, or approximately 62.2%, owned by the previous shareholders of Lutu International, with certain shares held in escrow pursuant to the Escrow Agreement.
Following the closing of the Investment Transaction, GVBT will carry on the business of the Lutu Group. The Lutu Group, with its operation primarily located in the Shanxi Province of China, is engaged in the biotechnology industry, in particular, the production and distribution of bio-fertilizers. Revenues of the Lutu Group are currently generated from China.
Changes to the Board of Directors and Officers
Simultaneous with the closing of the Investment Transaction, there was a change in the officers and directors of GVBT. As authorized by the bylaws, the existing director of GVBT, Mr. Ma Wai Kin, appointed two (2) additional members to the Board of GVBT. Such members are Mr. Lam Ching Wan (also known as William Lam) and Mr. Leung Kwong Tak (also known as Dr. Michael Leung). Mr. Ma also appointed Mr. William Lam as GVBT’s Chief Executive Officer and Mr. Lo Kwok Leung as GVBT’s Chief Financial Officer. Mr. Lo Kwok Leung is not related to Dr. Michael Leung.
All members of the Board shall hold their respective offices for a term of one year from their respective dates of appointment, or until the election and qualification of their successors, and thereafter to resign as a director of GVBT. In accordance with the bylaws, officers are elected by the board of directors and serve at the discretion of the board of directors.
Accounting Treatment
The Investment Transaction is being accounted for as a reverse-merger and recapitalization. For financial reporting purposes, Lutu International is the acquirer and GVBT is the acquired company. After completion of the transaction, the assets, liabilities, operations results and cash flow of GVBT that will be reflected in the historical consolidated financial statements prior to the Investment Transaction will be those of Lutu International and its subsidiaries and will be recorded at the historical cost basis of Lutu International and its subsidiaries. The Company changed its fiscal year ended from January 31 to December 31.
Tax Treatment and SEC Filer Status: Small Business Issuer
The Investment Transaction is intended to constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code growth”), or such other tax free reorganization exemptions that may be available under the Code. Immediately following the Investment Transaction, the filer status of GVBT is an “ company” as defined in Item 10(f)(1) of Regulation S-K, as promulgated by SEC.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; and
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an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes- Oxley Act of 2002.
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We may take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company, and if we do, the information that we provide to the stockholders may be different than you might get from other public companies in which you hold equity. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our ordinary shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.
Item 1A. Risk Factors
Risk factors related to our business
In order to grow at the pace expected by management, we will require additional capital to support our long-term growth strategies. If we are unable to obtain additional capital, we may be unable to proceed with our plans and we may be forced to curtail our operations.
We will require additional working capital to support our long-term growth strategies and better utilize our production capacity, which includes development of marketing and research and development of new products. Our working capital requirements and the cash flow provided by future operating activities, if any, may vary greatly from quarter to quarter, depending on the volume of business during the period, and other matters. We may not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources. Additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities. If we are unable to raise additional financing, we may be unable to implement our long-term growth strategies, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, or at all. Even if additional financings are available, they may be on terms that we deem unacceptable or are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms.
Substantially all of our business, assets and operations are located in the PRC.
Substantially all of our business, assets and operations are located in the PRC. The economy of the PRC differs from the economies of most developed countries in many respects. The economy of the PRC has been transitioning from a planned economy to a market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC are still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry by imposing industrial policies. It also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Some of these measures benefit the overall economy of the PRC, but may have a negative effect on us.
Our planned expansion could be delayed or adversely affected by, among other things, difficulties in obtaining sufficient financing, technical difficulties, or human or other resource constraints.
Our planned expansion in our production capacity in bio-fertilizers could be delayed or adversely affected by, among other things, difficulties in obtaining sufficient financing, technical difficulties, or human or other resource constraints. Moreover, the costs involved in these projects may exceed those originally contemplated. Costs savings and other economic benefits expected from these projects may not materialize as a result of any such project delays, cost overruns or changes in market circumstances. Failure to obtain intended economic benefits from these projects could adversely affect our business, financial condition and operating performances.
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.
Our limited operating history may not provide a meaningful basis for evaluating our business. The Company entered into business in 2012. We cannot guarantee that we will achieve profitability or that we will not incur net losses in the future. We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:
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a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; and
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an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes- Oxley Act of 2002.
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obtain sufficient working capital to support our expansion;
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expand our product offerings and maintain the high quality of our products;
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manage our expanding operations and continue to fill customers’ orders on time;
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maintain adequate control of our expenses allowing us to realize anticipated income growth;
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implement our product development, sales, and acquisition strategies and adapt and modify them as needed;
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successfully integrate any future acquisitions; and
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anticipate and adapt to changing conditions in the electronics and information technology industry resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics
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If we are not successful in addressing any or all of the foregoing risks, our results of operations may be materially and adversely affected.
We will incur significant costs to ensure compliance with United States corporate governance and accounting requirements.
We will incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. Since we had no obligations as a public company prior to completion of the Investment Transaction, we did not have any such expenses prior to that date. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
The audit report included in this Annual Report was prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as a result, you are deprived of the benefits of such inspection
The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in Hong Kong SAR, China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the local authorities, our auditors are not currently inspected by the PCAOB.
Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections in China prevents the PCAOB from regularly evaluating our auditor’s statements, audits and quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors in Hong Kong SAR and China makes it more difficult to evaluate the effectiveness of our auditor’s quality control and audit procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.
We may not be able to meet the internal control reporting requirements imposed by the SEC resulting in a possible decline in the price of our common stock and our inability to obtain future financing.
As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. Although the Dodd-Frank Wall Street Reform and Consumer Protection Act exempts companies with a public float of less than $75 million from the requirement that our independent registered public accounting firm attest to our financial controls, this exemption does not affect the requirement that we include a report of management on our internal control over financial reporting and does not affect the requirement to include the independent registered public accounting firm’s attestation if our public float exceeds $75 million.
While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. Regardless of whether we are required to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, if we are unable to do so, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the SEC, which could also adversely affect the market for and the market price of our common stock and our ability to secure additional financing as needed.
We depend on a network of distributors to sustain our business. If our relationship with our distributors is disrupted, our revenue will be reduced, and our business could become unprofitable.
Our sales to our distributors remain the main source of our revenues. If a distributor terminated its relationship with us, or if its sales of our products were seriously impaired for any reason, our overall sales results would be diminished. In addition, if our distributors were to act in concert to change the economic terms of our relationship with them, the result could have a negative effect on our profitability.
Our demands are seasonal and our production capacity has not been utilized, we need to expand our sales and have better production planning
The sowing and harvesting cycle is different across different parts of China. For illustrations, users in the Northeastern part of China usually apply fertilizers in spring during the sowing season. They generally have only one harvest in a year and will therefore only place orders in around February and March before the sowing season starts. On the other hand, plantations in the southern and south-western parts of China can produce two to three harvests a year and generally customers place orders twice a year in around February and August respectively. Most of our customers will usually place orders during the sowing season, which lasts for only one to two months. During the non-sowing season of our clients, we may not be able to utilize our production capacity due to a lack of orders.
Therefore, we need to expand our sales networks across different parts of China. Only by doing so, we will have a greater chance of securing orders all year around and hence our production capacity can be better utilized.
There is a time gap between placements of orders and payments from clients, we may face liquidity problems during this time gap
It is a market practice in China that customers usually place orders in the sowing season and settle the majority of payments with the Company after harvest when the crops are sold on the market and their working capital is recouped. As a result, some of our customers will pay the balance of the purchase price 6 to 12 months after they place their orders. This is especially true for the northern part of China as crop growth is slower and there is only one harvest during the year. Some users may agree to paying an upfront payment of around 30%, given they can have multiple harvests during the year.
Therefore, there is a significant working capital requirement upfront to start production due to the time gap between placement of orders and payments. We need to raise more working capital to provide more liquidity to the Company and to help the Company pay production costs more easily. Our failure to raise sufficient working capital would have a material adverse effect on our results of operations and financial condition. On the other hand, in order to reduce our risk, we are negotiating with our potential customers to incorporate full upfront payments of purchase price as a term in the sales contract.
If Able Lead cannot repay the Outstanding Loan, we may not be able to acquire the majority shares of Lutu International without any encumbrances.
As mentioned above, under the Majority Interest Exchange Agreement, Able Lead needs to repay the Outstanding Loan in the sum of $4.43 million before we can acquire the 89% of shares in Lutu International through the share exchange. There is a risk that Able Lead cannot raise enough funds and there will be a delay for us to acquire all the outstanding shares of Lutu International, or we may not be able to acquire all the outstanding shares of Lutu International. Able Lead is currently negotiating an extension of the Outstanding Loan with the third party creditor to 2019. There is no guarantee that the Outstanding Loan can be successfully extended. If the Outstanding Loan cannot be extended, there is a risk that Able Lead may default and we may not be able to acquire the majority shares of Lutu International without any encumbrances.
In the event that the Company is not able to acquire the remaining eighty-nine percent (89%) interest in Lutu Group, the VIE arrangement entered into with Able Lead will continue. In such case, the Company will continue to receive all of Lutu Group’s annual net profits during the term of the Contractual Arrangements, which is a period five (5) years from its effective date. After such five (5) years, if the loan under which the shares of Lutu Group are serving as collateral is not repaid and Able Lead cannot deliver the shares of Lutu Group representing such eighty-nine percent (89%) interest, there is no guarantee that the Company will continue to realize any economic benefit from its investment in Lutu Group.
Our current dependence on a limited number of customers may cause significant fluctuations or declines in our revenues.
Consequently, any one of the following events may cause material declines in our revenues and have a material adverse effect on our results of operations:
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reduction, delay or cancellation of orders from one or more of our significant customers due to a reduction in our customers’ product sales, or other reasons;
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selection by one or more of our significant customers of our competitors’ products;
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decision by one or more of our significant customers to self-produce products that are currently provided by us;
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loss of one or more of our significant customers and our failure to obtain additional or replacement customers to replace the lost sales volume; and
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failure of any of our significant customers to make timely payment for our products.
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Failure to make strategic acquisitions and to establish and maintain strategic relationships, could have a material adverse effect on our revenue growth and prospects.
We may make strategic acquisitions and establish and maintain strategic relationships with third parties. In addition, we may enter into strategic relationships with third parties to gain access to capital or funding for research and development programs, process development programs and commercialization activities, or to reduce the risk of developing and scaling-up for commercial production of our anticipated pipeline of products.
We cannot assure you, however, that we will be able to successfully make such strategic acquisitions or establish strategic relationships with third parties that will prove to be beneficial for our business. Our inability in this regard could have a material adverse effect on our revenue growth and prospects. In addition, strategic acquisitions and relationships with third parties could subject us to a number of risks, including but not limited to:
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our inability to integrate new operations, products, personnel, services or technologies;
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unforeseen or hidden liabilities;
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disagreement with our strategic relationship partners;
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our inability to generate sufficient revenues to offset the costs and expenses of strategic acquisitions or other strategic relationships; and
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potential loss of, or harm to, employees or customer relationships.
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Any of these events could impair our ability to manage our business, which in turn could have a material adverse effect on our financial condition and results of operations. Such risks could also result in our failure to derive the intended benefits of the strategic acquisitions or strategic relationships and we may be unable to recover our investment in such initiatives.
Our Production may be halted due to local environmental regulations
In 2017, local government of Jinzhong City, Shanxi Province, China (where Shanxi Lutu and our production plant is located) has promulgated a new set of environmental regulations restricting the use of coal-fired boilers in factories. Since coal-powered generators were used in our production plant, our production activities in 2017 were restricted to a certain extent.
We cannot ensure that we can comply with the new environmental regulations in time. If that is the case, our production capacity may be reduced as a result. This will affect our ability to generate income and to meet the demand of our customers, which in turn could have a material adverse effect on our financial condition and results of operations.
Risk factors in doing business in China
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. Dollar and Renminbi, and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of Renminbi relative to the U.S. Dollar would affect our financial results reported in U.S. Dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we may issue that will be exchanged into U.S. Dollars as well as earnings from, and the value of, any U.S. Dollar-denominated investments we may make in the future.
Since July 2005, Renminbi is no longer pegged to the U.S. Dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, Renminbi may appreciate or depreciate significantly in value against the U.S. Dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market.
Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currencies.
Restrictions under PRC law on Shanxi Lutu’s ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.
Practically all of our revenues are earned by Shanxi Lutu. PRC regulations restrict the ability of Shanxi Lutu to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividends by Shanxi Lutu only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Shanxi Lutu also is required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of its registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of Shanxi Lutu to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.
We conduct substantially all of our business through our operating subsidiaries and affiliate in the PRC. Our principal operating subsidiaries, Shanxi Lutu and Shenzhen Lutu, are subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. As a result, it could be difficult for investors to effect service of process in the United States or to enforce a judgment obtained in the United States against our operations, subsidiaries and affiliates in China.
Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively.
All our sales revenue and expenses are denominated in Renminbi. Under PRC law, Renminbi is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. The relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside China that are denominated in foreign currencies.
Foreign exchange transactions by our PRC operating subsidiary under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if our PRC operating subsidiary borrows foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiary by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or their respective local counterparts. These limitations could affect their ability to obtain foreign exchange through debt or equity financing.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and PRC anti-corruption law, and any determination that we violated these laws could have a material adverse effect on our business.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers for the purpose of obtaining or retaining business. We are also subject to the PRC anti-corruption law, which strictly prohibits the payment of bribes to government officials.
We principally have operations, agreements with third parties and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of our employees, consultants or distributors, because these parties are not always subject to our control. We believe that to date we have complied in all material respects with the provisions of the FCPA and PRC anti-corruption law. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA or PRC anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Risks Relating to the VIE Structure
Our ability to manage and operate Lutu International under the Contractual Arrangements may not be as effective as direct ownership.
We obtain the management of Lutu International by adopting a VIE structure through the Contractual Arrangements. Virtually all of our revenues will be generated through Lutu International. Our plans for future growth are based substantially on growing the operations of Lutu International. However, the Contractual Arrangements may not be as effective in providing us with management control over Lutu International as direct ownership. Under the Contractual Arrangement, as a legal matter, if Lutu International fails to perform its obligations under these contractual arrangements, we may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under the laws of Cayman Islands, which we cannot be sure would be effective. Therefore, if we are unable to effectively control Lutu International, it may have an adverse effect on our ability to achieve our business objectives and grow our revenues.
Shareholders of Able Lead have potential conflicts of interest with us, which may adversely affect our business.
Dr. Leung Kwong Tak, Michael (“Dr. Leung”), the sole shareholder of Able Lead, which owns 89% of Lutu International’s outstanding equity interests, is also a beneficial owner of the common stock of GVBT. Equity interests held by Dr. Leung in GVBT is less than its interest in Lutu International as a result of the Investment Transaction. In addition, the shareholders’ equity interest in GVBT may be further diluted as a result of any future offering of equity securities. Conflicts of interest may arise as a result of such dual shareholding and governance structure.
If such conflicts arise, Dr. Leung may not act in our best interests, and such conflicts of interest may not be resolved in our favor. In addition, Dr. Leung may breach or cause Lutu International to breach or refuse to renew the Contractual Arrangements that allow us to exercise effective control over Lutu International and to receive economic benefits from Lutu International. If we cannot resolve any conflicts of interest or disputes between us and such shareholders or any future beneficial owners of Lutu International, we would have to rely on arbitral or legal proceedings to remedy the situation. Such arbitral and legal proceedings may cost us substantial financial and other resources and result in disruption of our business, the outcome of which may adversely affect GVBT.
Our proposed acquisition of shares of Lutu International from Able Lead is subject to the repayment of the Outstanding Loan
Our proposed acquisition of shares of Lutu International from Able Lead is conditional upon the shares of Lutu International being free from encumbrances. Therefore, it is critical whether Able Lead can repay the Outstanding Loan before the maturity date. There is a risk that the current VIE structure has to be continued for an indefinite period of time. Currently, Able Lead is negotiating an extension of the Outstanding Loan with the third party creditor to 2019. There is no guarantee that the Outstanding Loan can be successfully extended. If the Outstanding Loan cannot be extended, there is a risk that Able Lead may default.
Risks Related to Our Intellectual Property
If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate profitably.
Our success will depend, in part, on our ability to obtain patents, protect our existing patent, operate without infringing the proprietary rights of others, and maintain trade secrets, both in China and other countries. Patent matters in the biotechnology and pharmaceutical industries can be highly uncertain and involve complex legal and factual questions. Accordingly, the validity, breadth and enforceability of our patent, and any s and the existence of potentially blocking patent rights of others cannot be predicted, either in China or other countries.
In addition, competitors may manufacture and sell our potential products in those foreign countries where we have not filed for patent protection or where patent protection may be unavailable, not obtainable or ultimately not enforceable. In addition, even where patent protection is obtained, third-party competitors may challenge our patent claims in the patent office of China. The ability of such competitors to sell such products in the United States or in foreign countries where we have obtained patents is usually governed by the patent laws of the countries in which the product is sold.
We will incur significant ongoing expenses in maintaining our patent and our patent applications. Should we lack the funds to maintain our patent and patent applications, or to enforce our rights against infringers, we could be adversely impacted. Even if claims of infringement are without merit, any such action could divert the time and attention of management and impair our ability to access additional capital and/or cost us significant funds to defend.
Currently, we have one patent issued in the name of Shanxi Lutu, which expires January 20, 2019. Our patent applications are pending and there is a risk that these patent applications are eventually unsuccessful.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make alternative technology and processes which can also produce potash bio-fertilizers that are substitutes for our products but that are not covered by the claims of our patent, our patent applications, or other technology or processes that we may in the future either own or exclusively license.
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
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The patents of others may have an adverse effect on our business.
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We may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue and uncertain in its outcome in China
Our success also will depend, in part, on our refraining from infringing patents or otherwise violating intellectual property owned or controlled by others. Pharmaceutical companies, biotechnology companies, universities, research institutions and others may have filed patent applications or have received, or may obtain, issued patents in the United States or elsewhere relating to aspects of our technology. It is uncertain whether the issuance of any third-party patents will require us to alter our products or processes, obtain licenses, or cease certain activities. Some third-party applications or patents may conflict with our issued patent or pending applications. Any such conflict could result in a significant reduction of the scope or value of our issued patent, any patents that may result from our patent applications, or any license rights we may have with respect to patents or technology of others.
Our patents may be challenged under the PRC Patent System
Competitors may successfully challenge our patents. Our patent may be challenged, invalidated or held unenforceable, which could materially and adversely harm our business and results of operations. Our pending patent applications may not be approved or the scope of claims may be restricted in the final approvals, which may provide insufficient protection for our technologies, processes or products.
In addition, it is possible that competitors could, under PRC patent law, apply for and obtain a compulsory license to our patent, and any future patents we may obtain, should we refuse to grant a license for those patents on reasonable terms. Furthermore, the existence of a patent does not provide assurance that the production, sale or use of our products does not infringe the patent rights of another. Third parties may also have blocking patents that could be used to prevent us from marketing products utilizing our patented technologies or processes.
Furthermore, it is possible that our technologies, processes or products may infringe on patents that have not yet been issued. Specifically, in China and many other jurisdictions, patent protection starts from the date the application is first filed. Therefore our attempt to enforce any PRC patent may be defeated by third-party patents issued on a later date if the applications for those patents were filed before ours and the technologies or processes underlying such patents are the same or substantially similar to ours. In such a case, a third party with an earlier application could force us to pay to license its patented technology, sue us for patent infringement and challenge the validity of our patent, and any future patents we may obtain.
Risks Related to the Market for Our Stock Generally
There is only a very limited market for our common stock.
While our common stock is listed for quotation on the OTC Pink Market, there is currently no trading in our common stock. We cannot provide any assurances as to when, or if, an active market will develop for our common stock.
Our common stock is subject to penny stock rules.
Our common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers which sell our common stock to persons other than established customers and “accredited investors” (generally, individuals with net worth’s in excess of $1,000,000 or annual incomes exceeding $200,000 (or $300,000 together with their spouses)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares of common stock.
Additionally, our common stock is subject to the SEC regulations for “penny stock.” Penny stock includes any equity security that is not listed on a national exchange and has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.
You may experience dilution of your ownership interests because of the future issuance of additional shares of the common stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and the purchasers of common stock offered hereby. We are currently authorized to issue an aggregate of 750,000,000 shares of capital stock consisting of shares of common stock. As of the closing of the Share Exchange, there will be 160,790,000 shares of our common stock outstanding. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of its securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of the common stock will be initially quoted on the OTC Pink market.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
The JOBS Act permits “emerging growth companies” like us to rely on some of the reduced disclosure requirements that are already available to companies having a public float of less than $75 million, for as long as we qualify as an emerging growth company. During that period, we are permitted to omit the auditor’s attestation on internal control over financial reporting that would otherwise be required by the Sarbanes-Oxley Act. Companies with a public float of $75 million or more must otherwise procure such an attestation beginning with their second annual report after their initial public offering. For as long as we qualify as an emerging growth company, we are also excluded from the requirement to submit “say-on-pay”, “say-on-pay frequency” and “say-on-parachute” votes to our stockholders and may avail ourselves of reduced executive compensation disclosure compared to larger companies. In addition, as an emerging growth company we can take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. Until such time as we cease to qualify as an emerging growth company, investors may find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Item 1B. Unresolved Staff Comment
None
Item 2. Properties
We acquired a piece of industrial land in Jinzhong city in Shanxi Province in 2011 as a manufacturing plant. The industrial land use right lasts until 2054. The size of the manufacturing plant is 34,256 square meters. We have completed the phase 1 facilities with an annual production capacity of 100,000 tons per annum. The facilities were tested and adjusted, and are now ready for full scale production.
According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through the land use rights granted by the government. The land use rights represent cost of the rights to use the land in respect of properties located in the PRC.
Lutu currently owns the land use right of the production plant. The expiry date of the land use right is May 8, 2054. The building and land use right are under the name of “Shanxi Lutu” or Shanxi Green Biotechnology Industry Limited. Regarding the cost of the land use right and building, please refer to Audit Report F21 and F22: the cost of Land use rights is USD 1,158,222 and Buildings are USD 2,877,610. The address of Lutu’s production plant is Chang Ning Town West, Chang Ning Village, Yuci District, Jinzhong City, Shanxi Province, China.
Item 3. Legal Proceedings
Ongoing civil case with Mr. Yao Gui Mu
As reported in the last 10-Q for the period ending on 30 September 2017, Yao Gui Mu (“the Plaintiff”), former operation manager of our subsidiary in Shanxi, Shanxi Green Biotechnology Industry Company Limited (“our Shanxi Subsidiary”), brought a lawsuit against our Shanxi Subsidiary, in the District People’s Court of Jin Zhong City, Yu Ci District. The subject dispute of the lawsuit concerns an unsettled current account balance of $133,108 (RMB900,000) which was claimed to be a loan advanced to the Company by the Plaintiff. The Company’s PRC lawyer had submitted a Statement of Defense on November 23, 2017 to The District People’s Court of Yuci District, Jin Zhong City (“the Court”). A court hearing was held on December 5, 2017. Upon the request by the Court, our Shanxi Subsidiary provided supplemental evidence to the Court on 16 January 2018. Our Shanxi Subsidiary is awaiting notice for a second hearing from the Court.
Management has sought legal advice from the Chinese legal advisor of the Company. Management was informed that there is no prima facie case of any lender and borrower relationship ever existed between Mr. Mu and the Company. In addition, the documents provided by Mr. Mu which claims to be loan receipts were not affixed with the corporate seal of our Shanxi Subsidiary and hence were not duly executed. The Management is of the view that there is a reasonable prospect of defending this lawsuit successfully. Hence, no provisions have been made for any probable and material loss as a result of the lawsuit.
Criminal investigation with regard to a potential fraud
Management of the Company suspects that there was a potential fraud committed in the sales made to one of its previous customers. Management reported to the local police of Yuci District, Jinzhong City, Shanxi Province, China about the said potential fraud. The Bureau of Public Security of Yuci District officially undertook our case and initiated investigation procedures on 11 September 2017. Management has been informed that the case is currently under criminal investigation by relevant authorities in China.
Management was provided with a Chinese legal opinion by the Company’s legal advisor in China which opines that disclosure of any information with regard to ongoing criminal investigations is against the laws of China. As a result, the Company is obliged to keep the details surrounding this case confidential at this stage. We will disclose the details and particulars of our claim once the relevant authorities decide to initiate prosecution proceedings against the accused and we are advised that such disclosure complies with the laws and regulations of China.
Criminal investigation against one of GVBT’s former employee
Management of the Company suspects that one of our former senior staff may have committed the offence of “unlawfully taking possession of company property through taking advantage of his position” under his employment with the Company. Management reported to the local police of Yuci District, Jinzhong City, Shanxi Province, China about the said potential misconduct on 10 October, 2017. The Bureau of Public Security of Yuci District officially undertook our case and initiated investigation procedures on 28 January 2018. Management has been informed that the case is currently under criminal investigation by relevant authorities in China.
Management was provided with a Chinese legal opinion by the Company’s legal advisor in China which opines that disclosure of any information with regard to ongoing criminal investigations is against the laws of China. As a result, the Company is obliged to keep the details surrounding this case confidential at this stage. We will disclose the details and particulars of our claim once the relevant authorities decide to initiate prosecution proceedings against the accused and we are advised that such disclosure complies with the laws and regulations of China.
Item 4. Mine Safety Disclosure
Not Applicable
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
Green Vision Biotechnology Corp. (formerly known as Vibe Wireless Corp., originally known as Any Translation Corp.), (the “Company”, “GVBT”), was incorporated under the laws of the State of Nevada on July 5, 2012. The Company was founded to be in the business of translation and interpretation. On November 12, 2015, the Company changed its name from Any Translation Corp. to Vibe Wireless Corp. On September 30, 2016, we changed our name from Vibe Wireless Corp. to Green Vision Biotechnology Corp.
On September 30, 2016, the Company filed a Certificate of Amendment with the Nevada Secretary of State (the “Nevada SOS”) whereby it amended its Articles of Incorporation by increasing the Company’s authorized number of shares of common stock from 75 million to 750 million and increasing all of its issued and outstanding shares of common stock at a ratio of ten (10) shares for every one (1) share held. The Company’s Board of Directors approved this amendment on September 30, 2016. This stock split has been retroactively applied.
On the same date, September 30, 2016, the Company filed Articles of Merger with the Nevada SOS whereby it entered into a statutory merger with its wholly-owned subsidiary, Green Vision Biotechnology Corp. pursuant to Nevada Revised Statutes 92A.200 et. seq. The effect of such merger is that the Company is the sole surviving entity and changed its name to “Green Vision Biotechnology Corp.”
The investment transaction under the share exchange agreements and contractual agreements as described below (collectively the “Transaction Agreements”) was entered into, between each of the Shareholders of Lutu International Biotechnology Limited (“Lutu International”), a company incorporated under the laws of Cayman Islands and GVBT (the “Investment Transaction”) on May 12, 2017. As a result of closing the Investment Transaction, GVBT acquired part of the shares of Lutu International and assumed management of Lutu International and all its direct and indirect subsidiaries (“the Lutu Group”).
On May 12, 2017, GVBT entered into a share exchange agreement with Harcourt Capital Limited (“Harcourt”), a limited company incorporated in the British Virgin Islands, which holds 6% of the issued and outstanding shares of Lutu International; and Woodhead Investments Limited (“Woodhead”), a limited company incorporated in the British Virgin Islands, which holds 5% of the issued and outstanding shares of Lutu International (the “Minority Interest Exchange Agreement”). Under the Minority Interest Exchange Agreement, Woodhead agreed to transfer GVBT a total of 5% of the issued and outstanding shares of Lutu International. In consideration, GVBT agreed to grant Woodhead, or persons designated by Woodhead, a right to receive a total of 5 million shares of GVBT’s common stock. Under the Minority Interest Exchange Agreement, Harcourt agreed to transfer to GVBT a total of 6% of the issued and outstanding shares of Lutu International. In consideration, GVBT agreed to grant Harcourt, or persons designated by Harcourt, a right to receive a total of 6 million shares of GVBT’s common stock. The transactions under the Minority Interest Exchange Agreement were completed on May 12, 2017.
Able Lead has an outstanding loan of $4.43 million denominated in Renminbi (“RMB”) owed to an unrelated third party with its maturity date on January 22, 2018 (the “Outstanding Loan”). Able Lead is currently negotiating an extension of the Outstanding Loan to 2019 with the third party creditor. Shares of Lutu International held by Able Lead were offered by Able Lead as collateral to secure repayment of the Outstanding Loan (the “Security”)..
On May 12, 2017, GVBT entered into a share exchange agreement (the “Majority Interest Exchange Agreement”) with Able Lead, the 89% shareholder of Lutu International. Under the Majority Interest Exchange Agreement, Able Lead agreed to enter into a series of contractual arrangements with GVBT (collectively, the “Contractual Arrangements”) (as described below), in which GVBT assumed management control of the Lutu Group. Able Lead further agreed to deliver the shares of Lutu International to GVBT once the Outstanding Loan is fully repaid. In consideration, GVBT agreed to issue and deliver a total of 89 million shares of GVBT’s common stock to an escrow agent (issued in the name of the escrow agent or its nominee) (the “ Escrow Shares “). The Escrow Shares shall be held in escrow for a period of one year or such period of time to be agreed by GVBT and Able Lead upon the execution of the Majority Interest Exchange Agreement. Conditional upon the full repayment of the Outstanding Loan and the release of the Security, the Escrow Shares shall be released to Able Lead in exchange for the delivery of a total of 89% of the issued and outstanding shares of Lutu International by Able Lead to GVBT. In the event that Able Lead fully repays the Outstanding Loan and causes the release of the Security, then the Escrow Shares shall be delivered to Able Lead. In the event that Able Lead cannot fully repay the Outstanding Loan (within a period of one year, or such period of time to be agreed by GVBT and Able Lead) and cause the release of the Security, then the Escrow Shares shall be delivered to transfer agent for cancellation. Unless otherwise expressly agreed in writing by GVBT and Able Lead, the Majority Share Exchange Agreement shall be automatically terminated upon the termination of any of the agreements in the Contractual Arrangements described as below. The transactions under the Majority Interest Exchange Agreement were completed on May 12, 2017.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS (continued)
Pursuant to an escrow agreement (the “Escrow Agreement”) entered into between Booth Udall Fuller, PLC (the “Escrow Agent”) and GVBT on May 12, 2017, the Escrow Shares shall be held by Booth Udall Fuller, PLC for a year upon the execution of the Majority Share Exchange Agreement. The Escrow Shares shall not be subject to any lien, attachment, or any other judicial process of any creditor of GVBT, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Majority Share Exchange Agreement.
On May 12, 2017, GVBT entered into a series of contractual agreements as described below with Lutu International and/or Able Lead (the “Contractual Arrangements”). Upon execution of the Contractual Arrangements, GVBT assumed management of Lutu International and its subsidiaries (the “Lutu Group”) and received economic benefits which includes right to receive the expected residual returns and and/or obligation to absorb expected loss from the Lutu Group. Each agreement in the Contractual Arrangements constitutes valid and binding obligations of the parties of such agreements and is enforceable and valid in accordance with the laws of Cayman Islands. All agreements executed by Lutu International were duly approved by its board of directors and the Shareholders of Lutu International.
Consulting Services Agreement
Pursuant to the exclusive consulting services agreement entered into between GVBT and Lutu International on May 12, 2017, GVBT has the exclusive right to provide to the Lutu Group general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of bio-fertilizers. Further, GVBT owns the intellectual property rights developed or discovered through research and development, in the course of providing the consulting services, or derived from the provision of the consulting services. In consideration, Lutu International pays an annual consulting service fees to GVBT in the amount equivalent to all of Lutu International’s net profits for the relevant financial year. The term of this consulting service agreement is five (5) years from its effective date and may be terminated upon GVBT’s written confirmation prior to the expiration of this agreement.
Unless otherwise expressly agreed in writing by GVBT and Able Lead, the Consulting Services Agreement shall be automatically terminated upon the termination of any of the agreements in the Contractual Arrangements or the Majority Interest Exchange Agreement.
Operating Agreement
Pursuant to the operating agreement entered into between GVBT, Lutu International and Able Lead on May 12, 2017, GVBT agreed to provide guidance and instructions on the Lutu Group’s daily operations, financial management and employment issues. Able Lead agreed to designate candidates recommended by GVBT as their representatives on the boards of directors of each member of the Lutu Group. GVBT has the right to appoint senior executives of each member of the Lutu Group. In addition, GVBT agreed to guarantee the Lutu Group’s performance under any agreements or arrangements relating to the Lutu Group’s business arrangements with any third party. In consideration, Lutu International agrees that it will not, and will cause the Lutu Group not to, without the prior consent of GVBT, engage in any transactions that could materially affect their respective assets, liabilities, rights or operations, including but not limited to, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this operating agreement is five (5) years from its effective date and may be extended and terminated only upon GVBT’s written confirmation prior to the expiration of this agreement.
Unless otherwise expressly agreed in writing by GVBT and Able Lead, the Operating Agreement shall be automatically terminated upon the termination of any of the agreements in the Contractual Arrangements or the Majority Interest Exchange Agreement.
Proxy Agreement
Pursuant to the proxy agreement entered into between Able Lead, Lutu International, and GVBT on May 12, 2017, Able Lead agreed to irrevocably grant a person to be designated by GVBT the right to exercise its voting rights and other rights, including the attendance of, and the voting at the shareholders’ meetings of Lutu International for and on behalf of Able Lead (or the signing of written resolutions in lieu of such meetings) in accordance with applicable laws and its articles of association, including but not limited to the appointment and voting for the directors and chairman of the board as the authorized representative of Able Lead to exercise controlling power in the Lutu Group. The proxy agreement may be terminated by joint consent of the parties or upon 7-day written notice from GVBT.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS (continued)
Changes Resulting from the Investment Transaction
The closing of the Investment Transaction occurred on May 12, 2017, resulting in a change of control of GVBT. Prior to closing of the Investment Transaction, GVBT had a total of 60,790,000 shares of common stock issued and outstanding. As a result of the closing of the Investment Transaction, GVBT now has a total of 160,790,000 shares of its common stock issued and outstanding, of which 60,790,000 shares, or approximately 37.8%, are owned by the previous existing shareholders of GVBT, with the balance of 100,000,000 shares, or approximately 62.2%, owned by the previous shareholders of Lutu International, with certain shares held in escrow pursuant to the Escrow Agreement.
Following the closing of the Investment Transaction, GVBT will carry on the business of the Lutu Group. The Lutu Group, with its operation primarily located in the Shanxi Province of China, is engaged in the biotechnology industry, in particular, the production and distribution of bio-fertilizers. Revenues of the Lutu Group are currently generated from China.
Changes to the Board of Directors and Officers
Simultaneous with the closing of the Investment Transaction, there was a change in the officers and directors of GVBT. As authorized by the bylaws, the existing director of GVBT, Mr. Ma Wai Kin, appointed two (2) additional members to the Board of GVBT. Such members are Mr. Lam Ching Wan (also known as William Lam) and Mr. Leung Kwong Tak (also known as Dr. Michael Leung). Mr. Ma also appointed Mr. William Lam as GVBT’s Chief Executive Officer and Mr. Lo Kwok Leung as GVBT’s Chief Financial Officer. Mr. Lo Kwok Leung is not related to Dr. Michael Leung.
All members of the Board shall hold their respective offices for a term of one year from their respective dates of appointment, or until the election and qualification of their successors, and thereafter to resign as a director of GVBT. In accordance with the bylaws, officers are elected by the board of directors and serve at the discretion of the board of directors.
Accounting Treatment
The Investment Transaction is being accounted for as a reverse-merger and recapitalization. For financial reporting purposes, Lutu International is the acquirer and GVBT is the acquired company. After completion of the transaction, the assets, liabilities, operations results and cash flow of GVBT that will be reflected in the historical consolidated financial statements prior to the Investment Transaction will be those of Lutu International and its subsidiaries and will be recorded at the historical cost basis of Lutu International and its subsidiaries. Number of shares deemed to be outstanding for the period from January 1, 2016 to the acquisition date will be reflected in the balance of the common stock and paid in capital. The Company changed its fiscal year ended from January 31 to December 31.
Tax Treatment and SEC Filer Status: Small Business Issuer
The Investment Transaction is intended to constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization exemptions that may be available under the Code. Immediately following the Investment Transaction, the filer status of GVBT will be a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K, as promulgated by SEC.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our last fiscal year, the Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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·
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a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; and
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·
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an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes- Oxley Act of 2002.
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The Company may take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of their initial public offering or such earlier time that they are no longer an emerging growth company, and if they do, the information that they provide to the stockholders may be different than you might get from other public companies in which you hold equity. The Company would cease to be an emerging growth company if they have more than $1.0 billion in annual revenue, have more than $700 million in market value of their ordinary shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. The JOBS Act permits an “emerging growth company” like the Company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for consolidated financial reporting.
Summary of significant accounting policies
Principles of Consolidation and Presentation
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The historical presentation of the consolidated financial statements includes the financial statements of LUTU INTERNATIONAL BIOTECHNOLOGY LIMITED, and its wholly-owned subsidiaries (collectively referred to herein as the “Company”). All intercompany accounts, transactions, and profits have been eliminated upon consolidation.
The following table depicts the identity of the subsidiaries:
Name of Subsidiary
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Place of
Incorporation
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Attributable
Equity
Interest %
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|
Registered
Capital
|
|
Lutu International Biotechnology Limited (RTO accounting acquirer) (1)
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Cayman Islands
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100
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USD100
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Light Raise Limited (2)
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BVI
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|
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100
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|
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USD 1
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Hong Kong Prolific Mineral Resources Holdings Limited (3)
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HKD
|
|
|
100
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|
|
HKD 2
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Shanxi Green Biotechnology Industry Company Limited (4)
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PRC
|
|
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100
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|
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RMB 100,000,000
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Shenzhen Qianhai Lutu Supply Chain Management Company Limited (5)
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PRC
|
|
|
100
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|
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RMB 5,000,000
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Note:
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(1)
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Wholly owned subsidiary of Green Vision Biotechnology Corp.
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(2)
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Wholly owned subsidiary of Lutu International Biotechnology Limited
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(3)
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Wholly owned subsidiary of Light Raise Limited
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(4)
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Wholly owned subsidiary of Hong Kong Prolific Mineral Resources Holdings Limited
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(5)
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Wholly owned subsidiary of Shanxi Green Biotechnology Industry Company Limited
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Use of estimates
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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
Significant estimates and judgments inherent in the preparation of these consolidated financial statements include, among other things, accounting for asset impairments, allowances for doubtful accounts, depreciation and amortization, the collection of revenues from the Agricultural Cooperative.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING (continued)
Economic and political risks
The Company’s operations are mainly conducted in the Hong Kong Special Administrative Region (“Hong Kong”) and the People’s Republic of China (“China”) (for the purpose of this Current Report on Form 10-Q, China does not include Hong Kong, Macau Special Administrative Region of the People’s Republic of China and Taiwan (The Republic of China) and a large number of customers are located in northern China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in Hong Kong and China, and by the general state of the economy in Hong Kong and China.
The Company’s operations and customers in Hong Kong and China 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 environments, and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in Hong Kong and China, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
Foreign Currency Translation
The Company’s financial statements are presented in the U.S. dollar ($), which is the Company’s reporting currency, while its functional currency are Chinese Renminbi (RMB) and Hong Kong Dollar (HKD). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income.
In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US $ using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income.
Below is a table with foreign exchange rates used for translation:
For the years ended December 31, (Average Rate)
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2017
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|
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2016
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Chinese Renminbi (RMB)
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RMB
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|
|
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6.76141
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|
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RMB
|
|
|
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6.64330
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United States dollar ($)
|
|
|
|
|
|
$
|
1.00000
|
|
|
|
|
|
|
$
|
1.00000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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As of December 31, (Closing Rate)
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2017
|
|
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2016
|
|
Chinese Renminbi (RMB)
|
|
|
RMB
|
|
|
|
6.62061
|
|
|
|
RMB
|
|
|
|
6.95566
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United States dollar ($)
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|
|
|
|
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$
|
1.00000
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|
|
|
|
|
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$
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1.00000
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|
|
|
|
|
|
|
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|
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|
|
|
|
|
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For the years ended December 31, (Average Rate)
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|
2017
|
|
|
2016
|
|
Hong Kong (HKD)
|
|
|
HKD
|
|
|
|
7.79197
|
|
|
|
HKD
|
|
|
|
7.76224
|
|
United States dollar ($)
|
|
|
|
|
|
$
|
1.00000
|
|
|
|
|
|
|
$
|
1.00000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, (Closing Rate)
|
|
2017
|
|
|
2016
|
|
Hong Kong (HKD)
|
|
|
HKD
|
|
|
|
7.80715
|
|
|
|
HKD
|
|
|
|
7.75652
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|
United States dollar ($)
|
|
|
|
|
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$
|
1.00000
|
|
|
|
|
|
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$
|
1.00000
|
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GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING (continued)
Revenue Recognition
The Company earns revenue by selling merchandise to end using customers primarily through distribution agent and directly to customers.
Revenue is recognized when merchandise is purchased by and delivered to the customer and confirmed and collectability is reasonably assured. Revenue from wholesale agent is recognized after goods delivered, amount fixed or determined and collectability is reasonably assured.
All revenues are shown net of estimated returns during the relevant period represented by estimated allowance for sales returns based upon historical experience.
The Company records sales tax collected from its customers on a net basis, and therefore excludes it from revenue as defined in ASC 605, Revenue Recognition.
During the year ended December 31, 2017 and 2016, the provision of sales return were $ Nil respectively.
Cost of Goods Sold
Cost of goods sold includes the cost of materials, labor, and relevant manufacturing expenses.
Selling Expenses
Selling expenses include packaging and shipping costs, as well as advertising and certain expenses associated with operating the Company’s corporate headquarters.
Advertising Costs
The Company expensed all advertising costs as incurred. Advertising expense, net of reimbursement from suppliers, amounted to $10,432 and $53,938 for the year ended December 31, 2017 and 2016 respectively. Advertising expense is included in selling expense and general and administrative expenses in the accompanying consolidated statements of income.
Leases
The Company accounts for its leases under the provisions of ASC 840, Leases. Certain of the Company’s operating leases provide for minimum annual payments that change over the life of the lease. The aggregate minimum annual payments are expensed on the straight-line basis over the minimum lease term. The Company recognizes a deferred rent liability for minimum step rents when the amount of rent expense exceeds the actual lease payments and it reduces the deferred rent liability when the actual lease payments exceeds the amount of straight-line rent expense. Rent holidays and tenant improvement allowances for office remodels are amortized on the straight-line basis over the initial term of the lease and any option period that is reasonably assured of being exercised.
The Company did not have a lease that met the criteria of a capital lease. Leases that do not qualify as a capital lease are classified as an operating lease. Operating lease rental expenses included in selling, general and administrative expenses for year ended December 31, 2017 and 2016 were $17,986 and $17,890 respectively.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts Receivable
Accounts receivable is recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers based on a variety of factors, including the industry practice, the length of time the receivables are past due, significant one-time events and historical experience. The Company is selling products delivered to certain customers which are closed to Agriculture Cooperatives as defined by ASC 905 “Agriculture”. The collection cycle may be varied and depended on the growing crops cycle.
Management reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collectability of outstanding accounts receivable. The Company evaluates the credit risk of its customers utilizing historical data and estimates of future performance. Bad debts are written off as incurred. During the years ended December 31, 2017 and 2016, the bad debts incurred were $Nil and $Nil respectively.
Outstanding accounts balances are reviewed individually for collectability. The Company does not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.
During the years ended December 31, 2017 and 2016, the provision of doubtful debts were $865,942 and $Nil respectively.
Inventories
Inventories primarily consist of merchandise inventories and are stated at lower of cost or market and net realizable value. Cost of inventories is calculated on the weighted average basis which approximates cost.
Management regularly reviews inventories and records valuation reserves for damaged and defective returns, inventories with slow-moving or obsolescence exposure and inventories with carrying value that exceeds market value. Because of its product mix, the Company has not historically experienced significant occurrences of obsolescence.
Inventory shrinkage is accrued as a percentage of revenues based on historical inventory shrinkage trends. The Company performs physical inventory count of its stores once per quarter and cycle counts inventories at its distribution centers once per quarter throughout the year. The reserve for inventory shrinkage represents an estimate for inventory shrinkage for each store since the last physical inventory date through the reporting date.
These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future economic conditions, consumer demand and competitive environments differ from expectations.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation is provided over the estimated useful lives, using the straight-line method with 5% scrape value as follows:
Buildings
|
|
20 years
|
Machinery & equipment
|
|
10 years
|
Office equipment
|
|
3 years
|
Motor vehicles
|
|
4 years
|
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND Summary of significant accounting policies (continued)
Land Use Rights
According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through the land use rights granted by the government. The land use rights represent cost of the rights to use the land in respect of properties located in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 years.
Goodwill
Goodwill represents the excess of purchase price over fair value of net assets acquired. Under ASC 350, Intangibles — Goodwill and Other, goodwill is not amortized but evaluated for impairment annually or whenever events or changes in circumstances indicate that the value may not be recoverable.
The Company performed an annual impairment test as of the end of fiscal year 2017, and determined that an impairment loss in the amount of $nil were recorded in 2017.
Long-lived Assets
The Company reviews long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows, usually at the store level. The carrying amount of a long-lived asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. If the asset is determined not to be recoverable, then it is considered to be impaired and the impairment to be recognized is the amount by which the carrying amount of the asset exceeds the fair value of the asset, determined using discounted cash flow valuation techniques, as defined in ASC 360, Property, Plant, and Equipment.
The Company determined the sum of the undiscounted cash flows expected to result from the use of the asset by projecting future revenue and operating expense for each store under consideration for impairment. The estimates of future cash flows involve management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions.
During the reporting year, the Company performed the evaluation and impairment loss of $13,975 in 2017 was recorded.
Cash and Concentration of Credit Risk
The Company maintains cash in bank deposit accounts in Hong Kong and PRC, and considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company performs ongoing evaluations of the institution to limit its concentration risk exposure.
The Company’s customers are mainly located in the northeastern China. Because of this, the Company is subject to regional risks, such as the economy, regional financial conditions and unemployment, weather conditions, power outages, and other natural disasters specific to the region in which the Company operates.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND Summary of significant accounting policies (continued)
Retirement Benefit Plans
Full time employees of the Company in China participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Company accounts the mandated defined contribution plan under the vested benefit obligations approach based on the guidance of ASC 715, Compensation—Retirement Benefits.
The total amounts for such employee benefits which were expensed were $15,136 and $17,804 for the year ended December 31, 2017 and 2016 respectively.
Income Taxes
The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.
Comprehensive income
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial statements. The Company’s current component of comprehensive income is the net income and foreign currency translation adjustment.
Segment Reporting
The Company operates in one industry segment, operating manufacturing and selling of organic bio-fertilizer. ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Given the economic characteristics of the similar nature of the products sold, the type of customer and the method of distribution, the Company operates as one reportable segment as defined by ASC 280, Segment Reporting.
Basic and diluted earnings (loss) per share
In accordance with ASC No. 260 “Earnings Per Share”, the basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed similarly to basic earnings (loss) per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND Summary of significant accounting policies (continued)
Recently Issued Accounting Guidance
FASB Clarifies the Definition of a Business. The FASB has issued Accounting Standards Update No. 2017-01,
Business Combinations
(Topic 805):
Clarifying the Definition of a Business
, clarifying the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business.
The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. They also provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable.
For public companies, the amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other companies and organizations, the amendments are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
The FASB has issued Accounting Standards Update No. 2017-06,
Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting.
The amendments relate primarily to the reporting by an employee benefit plan (a plan) for its interest in a master trust. A master trust is a trust for which a regulated financial institution (bank, trust company, or similar financial institution that is regulated, supervised, and subject to periodic examination by a state or federal agency) serves as a trustee or custodian and in which assets of more than one plan sponsored by a single employer or by a group of employers under common control are held.
The amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied retrospectively to each period for which financial statements are presented. The amendments apply to reporting entities within the scope of Topic 960,
Plan Accounting - Defined Benefit Pension Plans
, Topic 962,
Plan Accounting - Defined Contribution Pension Plans
, or Topic 965,
Plan Accounting - Health and Welfare Benefit Plans
.
Under Topic 960, investments in master trusts are presented in a single line item in the statement of net assets available for benefits. Similar guidance is not provided in Topic 962 or 965, which has resulted in diversity in practice. For each master trust in which a plan holds an interest, the amendments require a plan’s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively.
Topics 960 and 962 require plans to disclose their percentage interest in the master trust and a list of the investments held by the master trust, presented by general type, within the plan’s financial statements. The amendments remove the requirement to disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of those general types of investments.
Current U.S. GAAP does not require disclosure by plans of the master trust’s other assets and liabilities. Examples of those balances include amounts due from brokers for securities sold, amounts due to brokers for securities purchased, accrued interest and dividends, and accrued expenses. The amendments require all plans to disclose: (a) their master trust’s other asset and liability balances; and (b) the dollar amount of the plan’s interest in each of those balances.
Lastly, investment disclosures (e.g., those required by Topics 815 and 820) relating to 401(h) account assets are generally provided in both the defined benefit pension plan financial statements and the health and welfare benefit plan financial statements. Stakeholders noted that the disclosures are redundant. The amendments remove that redundancy and do not require that the investment disclosures relating to the 401(h) account assets be provided in the health and welfare benefit plan’s financial statements. The amendments will require the health and welfare benefit plan to disclose the name of the defined benefit pension plan in which those investment disclosures are provided, so that participants can easily access those statements for information about the 401(h) account assets, if needed.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND Summary of significant accounting policies (continued)
Recently Issued Accounting Guidance (continued)
The FASB has issued Accounting Standards Update (ASU) No. 2017-07,
Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The amendments apply to all employers, including not-for-profit entities, that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715,
Compensation — Retirement Benefits
.
The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.
The amendments also allow only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset).
The amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. For other entities, the amendments are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.
The FASB has issued Accounting Standards Update (ASU) No. 2017-09,
Compensation—Stock Compensation (Topic 718) — Scope of Modification Accounting
. ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award.
The FASB adopted ASU 2017-09 to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718,
Compensation—Stock Compensation
, to the modification of the terms and conditions of a share-based payment award.
Diversity in practice has arisen in part because some entities apply modification accounting under Topic 718 for modifications to terms and conditions that they consider substantive, but do not when they conclude that particular modifications are not substantive. Others apply modification accounting for any change to an award, except for changes that they consider purely administrative in nature. Still others apply modification accounting when a change to an award changes the fair value, the vesting, or the classification of the award. In practice, it appears that the evaluation of a change in fair value, vesting, or classification may be used to evaluate whether a change is substantive.
Although the Master Glossary of the FASB Accounting Standards Codification™ currently defines the term modification as “a change in any of the terms or conditions of a share-based payment award,” Topic 718 does not contain guidance on what changes are substantive or purely administrative.
The amendments in ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND Summary of significant accounting policies (continued)
Recently Issued Accounting Guidance (continued)
These amendments require the entity to account for the effects of a modification unless all of the following conditions are met:
|
·
|
The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;
|
|
|
|
|
·
|
The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and
|
|
|
|
|
·
|
The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
|
The amendments are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.
Early adoption is permitted, including adoption in any interim period for: (a) public business entities for reporting periods for which financial statements have not yet been issued, and (b) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments should be applied prospectively to an award modified on or after the adoption date.
The FASB has issued Accounting Standards Update (ASU) No. 2017-13.This ASU adds, amends, and supersedes SEC paragraphs of the Accounting Standards Codification (ASC) related to the adoption and transition provisions of ASU No. 2014-09,
Revenue From Contracts with Customers
and ASU 2016-02,
Leases
, for public business entities. The ASU is titled 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
.
ASU 2017-13 codifies portions of an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting essentially delaying the effective date of the revenue recognition and leases standards for a subset of public entities . The SEC Observer made the following SEC Staff Announcement, “Transition Related to Accounting Standards Updates No. 2014-09 and 2016-02,” at the July 20, 2017 EITF meeting:
The SEC staff would not object to a public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC adopting (1) ASC Topic 606,
Revenue from Contracts with Customers
for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and (2) ASC Topic 842,
Leases
for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC may still elect to adopt ASC Topic 606 and ASC Topic 842 according to the public business entity effective dates.
This announcement is applicable only to public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC. This announcement is not applicable to other public business entities.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. GOING CONCERN
As of December 31, 2017 and 2016, the Company has an accumulated deficit of $4,883,120 and $3,199,950 respectively, and its current liabilities exceed its current assets resulting in negative working capital of $9,029,045 and $7,333,603 respectively. In view of the matters described above, recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company’s ability to raise additional financing and to succeed in its future operations. The Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors and/or stockholders of the Company. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing (i) additional funding which would enhance capital employed; and (ii) strategic partners which would increase revenue bases or reduce operation expenses. Management believes that the above actions will allow the Company to continue its operations throughout this fiscal year.
NOTE 4. OTHER RECEIVABLES
Other receivables consisted of the following:
|
|
Dec 31, 2017
|
|
|
Dec 31, 2016
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
108,930
|
|
|
$
|
101,124
|
|
Prepaid expenses
|
|
|
82
|
|
|
|
3,992
|
|
Advance to employee
|
|
|
43,013
|
|
|
|
1,033
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful debts
|
|
|
(105,967
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,058
|
|
|
$
|
106,149
|
|
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following:
|
|
Dec 31, 2017
|
|
|
Dec 31, 2016
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
3,020,685
|
|
|
$
|
2,877,610
|
|
Machinery & equipment
|
|
|
573,427
|
|
|
|
545,864
|
|
Office equipment
|
|
|
68,495
|
|
|
|
65,175
|
|
Motor vehicles
|
|
|
100,775
|
|
|
|
143,273
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
3,763,382
|
|
|
|
3,631,922
|
|
Less: accumulated depreciation and impairment charges
|
|
|
(750,221
|
)
|
|
|
(514,473
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
3,013,161
|
|
|
$
|
3,117,449
|
|
The depreciation expenses for the year ended December 31, 2017 and 2016 were $240,526 and $250,251 respectively.
NOTE 6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
Dec 31, 2017
|
|
|
Dec 31, 2016
|
|
|
|
|
|
|
|
|
Land use rights
|
|
$
|
1,205,819
|
|
|
$
|
1,158,222
|
|
Software system
|
|
|
1,326
|
|
|
|
1,263
|
|
Less – accumulated amortization
|
|
|
(333,647
|
)
|
|
|
(294,504
|
)
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
883,488
|
|
|
$
|
864,981
|
|
The amortization expenses of land use rights and software systems for the year ended December 31, 2017 and 2016 were $24,000 and $24,684 respectively.
Future amortization of land use rights and software systems is as follows:
Years ending December 31,
|
|
Amount
|
|
2018
|
|
$
|
24,000
|
|
2019
|
|
|
24,000
|
|
2020
|
|
|
24,000
|
|
2021
|
|
|
24,000
|
|
2022
|
|
|
24,000
|
|
Thereafter
|
|
|
763,488
|
|
|
|
|
|
|
Total
|
|
$
|
883,488
|
|
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. INVENTORIES
Inventories consisted of the following:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
110,841
|
|
|
$
|
87,862
|
|
Work in progress
|
|
|
7,044
|
|
|
|
-
|
|
Finished goods
|
|
|
139,988
|
|
|
|
144,114
|
|
Goods on consignment
|
|
|
20,213
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
278,086
|
|
|
$
|
231,976
|
|
NOTE 8. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Sales:
Customer
|
|
As at December 31, 2017
|
|
|
As at December 31, 2016
|
|
A
|
|
$
|
33,022
|
|
|
|
24
|
%
|
|
$
|
820,900
|
|
|
|
64
|
%
|
B
|
|
|
32,255
|
|
|
|
24
|
%
|
|
|
74,128
|
|
|
|
6
|
%
|
C
|
|
|
26,632
|
|
|
|
20
|
%
|
|
|
70,875
|
|
|
|
6
|
%
|
D
|
|
|
14,914
|
|
|
|
11
|
%
|
|
|
-
|
|
|
|
-
|
%
|
E
|
|
|
13,316
|
|
|
|
10
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
$
|
120,139
|
|
|
|
89
|
%
|
|
$
|
965,903
|
|
|
|
76
|
%
|
Purchases:
Supplier
|
|
As at December 31, 2017
|
|
|
As at December 31, 2016
|
|
AA
|
|
$
|
41,882
|
|
|
|
49
|
%
|
|
$
|
222,269
|
|
|
|
56
|
%
|
BB
|
|
|
17,549
|
|
|
|
21
|
%
|
|
|
80,284
|
|
|
|
20
|
%
|
CC
|
|
|
11,849
|
|
|
|
14
|
%
|
|
|
59,900
|
|
|
|
15
|
%
|
DD
|
|
|
5,203
|
|
|
|
6
|
%
|
|
|
9,529
|
|
|
|
2
|
%
|
EE
|
|
|
2,444
|
|
|
|
3
|
%
|
|
|
7,123
|
|
|
|
2
|
%
|
Total
|
|
$
|
78,927
|
|
|
|
93
|
%
|
|
$
|
379,105
|
|
|
|
95
|
%
|
NOTE 9. OTHER PAYABLES
Other payables consisted of the following:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
5,826
|
|
|
$
|
162,153
|
|
Miscellaneous
|
|
|
41,450
|
|
|
|
21,059
|
|
|
|
|
|
|
|
|
|
|
Total other payables
|
|
$
|
47,276
|
|
|
$
|
183,212
|
|
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. LOSS PER SHARE
The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Potentially dilutive common shares consist of convertible preferred stock (using the if-converted method) and exercisable warrants and stock options outstanding (using the treasury method). The following table sets forth the computation of basic and diluted net income per common share:
The following table sets forth the computation of basic and diluted net income per common share:
Year ended December 31,
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders for computing basic net loss per ordinary share
|
|
$
|
(1,683,170
|
)
|
|
$
|
(1,049,897
|
)
|
Weighted-average shares of common stock outstanding in computing net loss per common stock
|
|
|
|
|
|
|
|
|
Basic
|
|
|
138,972,219
|
|
|
|
100,000,000
|
|
Diluted
|
|
|
138,972,219
|
|
|
|
100,000,000
|
|
Basic loss per share of common stock
|
|
|
(1.21) cents
|
|
|
|
(1.05)cents
|
|
Diluted loss per share
|
|
|
(1.21) cents
|
|
|
|
(1.05)cents
|
|
NOTE 11. AMOUNT DUE FROM / TO RELATED PARTIES
The details for amount due from / to related parties were as follows:
Amount as at
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Amount due from related parties:
|
|
|
|
|
|
|
Well Supreme Limited (c)
|
|
$
|
-
|
|
|
$
|
207,825
|
|
China Mineral Resources Holdings Limited (a) (c)
|
|
|
-
|
|
|
|
9,141
|
|
Shanxi Lukun Mining Technology Co., Ltd (a)
|
|
|
-
|
|
|
|
1,119,750
|
|
Isparta Holdings Limited (a) (b) (c)
|
|
|
-
|
|
|
|
477,417
|
|
|
|
$
|
-
|
|
|
$
|
1,814,133
|
|
Amount as at
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Amount due to related parties:
|
|
|
|
|
|
|
Shanxi Chengkai Mining Technology Co., Ltd (a)
|
|
$
|
-
|
|
|
$
|
1,234,520
|
|
Hong Kong Prolific Mineral Technologies Ltd (a)
|
|
|
-
|
|
|
|
1,518,078
|
|
Pilot Sunshine Limited (a) (c)
|
|
|
-
|
|
|
|
5,157
|
|
Able High Holdings Limited (a) (b) (c)
|
|
|
-
|
|
|
|
2,780,449
|
|
Hong Kong Prolific Eco-Technology Limited (a)
|
|
|
-
|
|
|
|
55,398
|
|
Holmsun Capital Limited (a) (b)
|
|
|
5,300,859
|
|
|
|
393,150
|
|
Hui & Lam Solicitors LLP (c)
|
|
|
-
|
|
|
|
21,380
|
|
Maycrown Capital Limited (a) (b)
|
|
|
-
|
|
|
|
399,401
|
|
View Strong Limited (a) (b) (c)
|
|
|
-
|
|
|
|
11,603
|
|
|
|
$
|
5,300,859
|
|
|
$
|
6,419,136
|
|
(a)
|
Common director, LEUNG Kwong Tak of operating subsidiary Lutu International Biotechnology Limited
|
(b)
|
Common shareholder, LEUNG Kwong Tak of operating subsidiary Lutu International Biotechnology Limited
|
(c)
|
Common director LAM Ching Wan of the Company
|
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INCOME TAXES
The Company and its subsidiaries have no operation in United States, Cayman Islands and British Virgin Islands, and are not subject to any domestic income tax. Therefore, no domestic income tax of United States, Cayman Islands and British Virgin Islands are paid in the years ended December 31, 2017 and year ended December 31, 2016.
Hong Kong Prolific Mineral Resources Holdings Limited was incorporated in Hong Kong and is subjected to Hong Kong profits tax rate of 16.5% for the years ended December 31, 2017 and 2016. Income tax (reversal) expense amounted to $Nil for the years ended December 31, 2017 and year ended December 31, 2016.
A reconciliation of the provision for income taxes with amounts determined by applying the Hong Kong profit rate of 16.5% to income before income taxes is as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Profit (Loss) before income tax
|
|
$
|
(333,619
|
)
|
|
$
|
(453,066
|
)
|
Temporary Difference
|
|
|
-
|
|
|
|
-
|
|
Permanent Difference
|
|
|
-
|
|
|
|
-
|
|
Taxable loss
|
|
$
|
(333,619
|
)
|
|
$
|
(453,066
|
)
|
Hong Kong Profits Tax rate
|
|
|
16.5
|
%
|
|
|
16.5
|
%
|
Current tax credit
|
|
$
|
55,047
|
|
|
$
|
74,756
|
|
Less: Valuation allowance
|
|
|
(55,047
|
)
|
|
|
(74,756
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
No deferred tax has been provided as there are no material temporary differences arising during the years ended December 31, 2017 and 2016.
Shanxi Green Biotechnology Industry Company Limited and Shenzhen Qianhai Lutu Supply Chain Management Company Limited were incorporated in the PRC and are subjected to income taxes under the current laws of the PRC. The EIT rate of PRC was 25% for the years ended December 31, 2017 and 2016.
Profit (loss) before income tax of $(1,272,919) and $(484,914) for the years ended December 31, 2017 and 2016, respectively, were attributed to operations in China. The income tax expenses consisted of the following:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Profit (Loss) before income tax
|
|
$
|
(1,272,919
|
)
|
|
$
|
(484,914
|
)
|
Temporary Difference
|
|
|
-
|
|
|
|
-
|
|
Permanent Difference
|
|
|
-
|
|
|
|
-
|
|
Taxable loss
|
|
$
|
(1,272,919
|
)
|
|
$
|
(484,914
|
)
|
China Enterprise Income Tax rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Current tax credit
|
|
$
|
318,230
|
|
|
$
|
121,229
|
|
Less: Valuation allowance
|
|
|
(318,230
|
)
|
|
|
(121,229
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
No deferred tax has been provided as there are no material temporary differences arising during the years ended December 31, 2017 and 2016.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. SEGMENT INFORMATION
FASB Accounting Standard Codification Topic 280 (ASC 280) “Segment Reporting” establishes standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
In the year ended December 31, 2017 and 2016, the Company is regarded as a single operating segment, being engaged in the manufacturing of bio-fertilizer. This principal activity and geographical market are substantially based in China, accordingly, no operating or geographical segment information are presented.
NOTE 14. COMPREHENSIVE INCOME
Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the consolidated statements of income and are recorded directly into a separate section of shareholders’ equity on the consolidated balance sheets. Comprehensive income and its components consist of the following:
Year Ended December 31
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,683,170
|
)
|
|
$
|
(1,049,897
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
86,565
|
|
|
|
(122,997
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(1,596,605
|
)
|
|
$
|
(1,172,894
|
)
|
NOTE 15. COMMITMENTS AND CONTINGENCIES
Operating Leases
Certain of our real properties are operated under lease agreements. Rental expense under operating leases was as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Rent expense
|
|
$
|
17,986
|
|
|
$
|
17,890
|
|
|
|
|
|
|
|
|
|
|
Total rent expense, net
|
|
$
|
17,986
|
|
|
$
|
17,890
|
|
Annual minimum payments under operating leases are as follows:
Years Ended December 31,
|
|
Minimum Lease
Payment
|
|
|
|
|
|
2018
|
|
$
|
17,577
|
|
2019
|
|
|
9,521
|
|
|
|
|
|
|
Total
|
|
$
|
27,098
|
|
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. RELATED PARTY TRANSACTIONS
The Board must approve all related party transactions. All material related party transactions will be made or entered into on terms that are no less favorable to the Company than can be obtained from unaffiliated third parties.
The following table lists the transaction with related party in 2017 and 2016:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Consultancy fee paid to KM International Property Consultants Limited
|
|
$
|
62,115
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Consultancy fee, net
|
|
$
|
62,115
|
|
|
$
|
-
|
|
Mr. Ma Wai Kin, Chief Operation Officer and Director of the Company, has a 100% ownership interest in KM International Property Consultants Limited (“KM”). The main transaction between the Company and KM is the consulting service regarding the marketing activities of GVBT provided by KM.
NOTE 17. LEGAL PROCEEDINGS
Civil case with Mr. Yao Gui Mu
Yao Gui Mu (“the Plaintiff”), former operation manager of the subsidiary in Shanxi, Shanxi Green Biotechnology Industry Company Limited (“the Shanxi Subsidiary”), brought a lawsuit against the Shanxi Subsidiary, in the District People’s Court of Jin Zhong City, Yu Ci District. The subject dispute of the lawsuit concerns an unsettled current account balance of $133,108 (RMB900,000) which was claimed to be a loan advanced to the Company by the Plaintiff. Together with the subject dispute, the Plaintiff also claimed the relevant interest was RMB513,100 calculated from November 6, 2012 to August 15, 2017 with 1% monthly interest rate. The Company’s PRC lawyer had submitted a Statement of Defense on November 23, 2017 to The District People’s Court of Yuci District, Jin Zhong City (“the Court”). A court hearing was held on December 5, 2017. Upon the request by the Court, Shanxi Subsidiary provided supplemental evidence to the Court on 16 January 2018. Shanxi Subsidiary is awaiting notice for a second hearing from the Court.
For the relevant interest of RMB513,100 claimed by the Plaintiff, there is no evidence showing that it is more likely not that the Company will be liable for the said interest. Hence, no provision was made as at December 31, 2017.
Criminal investigation regarding a potential fraud with one of its former customers
Management of the Company suspects that there was a potential fraud committed in the sales made to one of its previous customers. Management reported to the local police of Yuci District, Jinzhong City, Shanxi Province, China about the said potential fraud. The Bureau of Public Security of Yuci District officially undertook the case and initiated investigation procedures on 11 September 2017. Management has been informed that the case is currently under criminal investigation by relevant authorities. As the receivable amount regarding the sales to aforementioned customer was long outstanding and it is uncertain that the amount can be settled, the Company has made a provision of doubtful debt regarding the amount receivables of $710,454 (RMB4,703,640) as at December 31, 2017.
Criminal investigation against one of GVBT’s former employee
Management of the Company suspects that one of its former senior staff may have committed the offence of “unlawfully taking possession of company property through taking advantage of his position” under his employment with the Company. Management reported to the local police of Yuci District, Jinzhong City, Shanxi Province, China about the said potential fraud on 10 October, 2017. The Bureau of Public Security of Yuci District officially undertook its case and initiated investigation procedures on 28 January 2018. Management has been informed that the case is currently under criminal investigation by relevant authorities in China.
NOTE 18. SUBSEQUENT EVENT
Management has evaluated all activities and concluded that there was no other subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
GREEN VISION BIOTECHNOLOGY CORP. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
We are an emerging growth company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
SCHEDULE III
QUARTERLY INFORMATION (UNAUDITED)
We are an emerging gowth company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.