Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 -ORGANIZATION AND DESCRIPTION OF BUSINESS
Asia
Equity Exchange Group, Inc. (“the Company” or “AEEX”) is a Nevada corporation incorporated on July 15,
2013, under the name “I In The Sky, Inc.” (“SYYF”). The Company filed a name change to AEEX with the state
of Nevada on July 22, 2015.
The
Company’s original business plan was to manufacture and market low cost GPS tracking devices and software to businesses
and families. However, this business was not successful and the Company had no revenues generated from its business from its inception
until April 12, 2016 when it completed the reverse acquisition of Asian Equity Exchange Group Company Limited (“AEEGCL”).
On
November 30, 2015, the Company executed a Sale and Purchase Agreement (the “Purchase Agreement”) to acquire 100% of
the shares and assets of AEEGCL (the “Acquisition”). Pursuant to the Purchase Agreement, the Company issued one billion
(1,000,000,000) shares of common stock to the former owners of AEEGCL. The Acquisition was consummated on April 12, 2016. As a
result, AEEGCL became a wholly-owned subsidiary of the Company. The Company had a total of 146,000,000 shares of common stock
outstanding immediately prior to the closing of the Acquisition. Upon completion of the Acquisition, the Company had a total of
1,146,000,000 shares of common stock outstanding, with the former owners of AEEGCL controlled 87.3% of the total issued and outstanding
shares of the Company’s common stock.
The
acquisition of AEEGCL and its subsidiaries by us was accounted for as a reverse merger because there was a change of control,
and on a post-merger basis, the former shareholders of AEEGCL held a majority of our outstanding common stock on a fully-diluted
basis. As a result, AEEGCL is deemed to be the acquirer for accounting purposes. Accordingly, the consolidated financial statement
data presented are those of AEEGCL, recorded at the historical basis of AEEGCL, for all periods prior to our acquisition of AEEGCL
on April 12, 2016, and the financial statements of the historical operations of the consolidated companies from the effective
date of the closing of the reverse merger.
AEEGCL
was incorporated under the laws of Samoa on May 29, 2015. It offers an international equity assistance and information service
platform designed to provide listing assistance services, equity investment financing information and public relationship services
to enterprises in Asia, mainly in China. AEEGCL owns 100% of AEEX (HK) International Financial Service Limited (formerly known
as Yinfu International Enterprise Limited, “AEEX HK”), a, entity incorporated in Hong Kong on December 22, 2014. AEEX
HK owns 100% of Asia America Consultants (Shenzhen) Co., Ltd. (formerly known as Yinfu Guotai Investment Consultant (Shenzhen)
Co., Ltd., “AACCL”), a wholly-owned foreign enterprise organized under the laws of the People’s Republic of
China (the “PRC”) on April 15, 2015.
The
Company, through its subsidiaries AEEX HK and AACCL, engages in providing investment and corporate management consulting services
to customers.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of the “Company have been prepared in accordance with
generally accepted accounting principles (“U.S. GAAP”) for interim financial information pursuant to the rules and
regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating
results for the interim period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2018. The information included in this Form 10-Q should be read in conjunction with Management’s
Discussion and Analysis, and the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal
year ended December 31, 2017, filed with the SEC on April 13, 2018.
Principle
of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Company
reflect the principal activities of the following entities. All intercompany balances and transactions have been eliminated upon
consolidation.
Use
of Estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant
estimates required to be made by management, include, but are not limited to revenue recognition. Actual results could differ
from these estimates.
Cash
and Cash Equivalents
Cash
includes cash on hand and demand deposits in accounts maintained with commercial banks. The Company considers all highly liquid
investments with original maturities of three months or less when purchased to be cash equivalents. The Company maintained most
of the bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation
or other programs.
Accounts
Receivable, net
Accounts
receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible amounts. The Company
generally receives a cash payment before delivery of the services, but may extend unsecured credit to its customers in the ordinary
course of business. The Company mitigates the associated risks by performing credit checks and actively pursuing past due accounts.
An allowance for doubtful accounts is established and recorded based on management’s assessment of the credit history of
the customers and current relationships with them. At March 31, 2018 and December 31, 2017, there was no allowance recorded as
the Company considers all of the accounts receivable fully collectible.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. The straight-line depreciation method is used to compute depreciation over the estimated
useful lives of the assets, as follows:
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|
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Useful life
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Electronic equipment
|
|
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3 years
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Office furniture
|
|
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5 years
|
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Transportation vehicles
|
|
|
4 years
|
|
Computer software
|
|
|
5 years
|
|
Impairment
of Long-lived Assets
The
Company reviews long-lived assets, including definitive-lived intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of
the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and
written down to its fair value. There were no events or changes in circumstances that triggered a review of impairments of long-lived
assets as of March 31, 2018 and December 31, 2017.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation.
Fair
Value of Financial Instruments
Fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The
hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels
of inputs used to measure fair value are as follows:
Level
1- Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level
2- Observable inputs (other than Level 1 quoted prices) such as quoted prices active markets for similar assets or liabilities,
quoted prices in markets that are not active for identical or similar as or liabilities, or other inputs that are observable or
can be corroborated by observable market data.
Level
3- Inputs are unobservable inputs which reflect management’s assumptions based on the best available information.
The
Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents,
accounts receivable, loans receivable, prepaid expenses and other current assets, short-term investment, deferred revenue, accrued
and other liabilities, taxes payable and due to related party to approximate the fair value of the respective assets and liabilities
based upon the short-term nature of the assets and liabilities.
Revenue
recognition
The
Company adopted Accounting Standards Codification (“ASC”) 606 in the first quarter of 2018 using the modified retrospective
approach. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial
statements, no adjustments to opening retained earnings were made as of January 1, 2018 as the Company’s revenue was recognized
based on the amount of consideration expects to receive in exchange for satisfying the performance obligations.
ASC
606, Revenue from Contracts with Customers, establishes principles for reporting information about the nature, amount, timing
and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.
The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount
that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as
performance obligations are satisfied.
ASC
606 requires the use of a new
five
-step model to recognize revenue from customer contracts. The
five
-step model
requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract,
(iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future
reversal will
not
occur, (iv) allocate the transaction price to the respective performance obligations in the contract,
and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the
five
-step
model to the revenue streams compared to the prior guidance did
not
result in significant changes in the way the Company
records its revenue. The Company has assessed the impact of the guidance by reviewing its existing customer contracts and current
accounting policies and practices to identify differences that will result from applying the new requirements, including the evaluation
of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations.
Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its
current revenue streams in scope of Topic 606 and therefore there was no material changes to the Company’s consolidated
financial statements upon adoption of ASC 606.
The
Company’s revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied
and promised services have been rendered to the customers. Persuasive evidence of an arrangement is demonstrated via service contract
and invoice; and the sales price to the customer is fixed upon acceptance of the contract and there is no separate rebate, discount,
or volume incentive. The Company recognizes revenue when promised services are rendered and collectability of payment is reasonably
assured.
The
Company currently generates its revenue from the following main sources:
●
Revenue from membership fee
The
Company develops and attracts corporate enterprises to become members and join in the Company’s service platform www.aeexotcmarkets.com.
To become a member, customer needs to pay a one-time non-refundable registration fee first. The Company recognizes revenue from
membership fee when it posts member’s information and profiles on its platform
www.aeexotcmarkets.com,
which enables
the member’s corporate information and specific needs exposed to the public.
●
Revenue from consulting services
The
Company also provides various consulting services to its members, especially to those who have the intention to be publicly listed
in the stock exchanges in the United States and other countries. The Company categorizes its consulting services into three Phases:
Phase
I consulting services primarily include due diligence review, market research and feasibility study, business plan drafting, accounting
record review, and business analysis and recommendations etc. Management estimates that Phase I normally takes around three months
to complete based on its past experiences.
Phase
II consulting services primarily include reorganization, pre-listing education and tutoring, talent search, legal and audit firm
recommendation and coordination, VIE contracts and other public-listing related documents review, merger and acquisition planning,
investor referral and pre-listing equity financing source identification and recommendation, independent directors and audit committee
candidates recommendation etc. Management estimates that Phase II normally takes about eight months to complete based its past
experiences.
Phase
III consulting services primarily include shell company identification and recommendation for customers expecting to become publicly
listed through reverse merger transaction; assistance in preparation of customers’ registration statement under IPO transactions
or Form 8-K under reverse merger transactions; assistance in answering comments and questions received from regulatory agencies
etc. Management believes it is very difficult to estimate the timing of this phase of service as the completion of Phase III services
is not within the Company’s control.
Each
phase of consulting services are standalone and fees associated with each phase are clearly identified in service agreements.
Revenue from providing Phase I and Phase II consulting services to customers is recognized ratably over the estimated completion
period of each phase. Revenue from providing Phase III consulting services to customers is recognized upon completion of reverse
merger transaction or IPO transaction, which is evidenced by filing of 8-K for reverse merger transaction or receipt of effective
notice from regulatory agencies for IPO transaction. Revenue that has been billed and not yet recognized is reflected as deferred
revenue on the balance sheet.
Depending
on the complexity of the underlying service arrangement and related terms and conditions, significant judgments, assumptions and
estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing
obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods
in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements,
adjustment may be made to the judgments, assumptions and estimates regarding contracts executed in any specific period.
The
table below presents the impact of applying the new revenue recognition standard to the components of total revenue within the
unaudited condensed consolidated statement of income and comprehensive income for the three months ended March 31,
2018. The Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous
standards and using the
five
-step model under the new guidance and concluded that there were no differences in the pattern
of revenue recognition:
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Three Months Ended March 31, 2018
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As
Reported
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|
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Financial Results Prior to Adoption of
Revenue Recognition Standard
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Impact of Adoption of Revenue
Recognition Standard
|
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Membership fee
|
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$
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37,736
|
|
|
$
|
37,736
|
|
|
$
|
-
|
|
Consulting service fee
|
|
|
1,887,461
|
|
|
|
1,887,461
|
|
|
|
-
|
|
Total revenue
|
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$
|
1,925,197
|
|
|
$
|
1,925,197
|
|
|
$
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-
|
|
Contract
Balances and Remaining Performance Obligations
Contract
balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration
occurs. Our contract assets, consist primarily of accounts receivable related to providing public listing related consulting services
to our customers when revenue is recognized prior to payment and we have an unconditional right to payment. We had accounts receivable
related to revenues from contracts with customers of $1,279,087 and $994,500 as of March 31, 2018 and December 31, 2017. We had
no impairments related to these receivables during the three months ended March 31, 2018. Our contract liabilities, which are
reflected in our unaudited condensed consolidated balance sheets as deferred revenue, consist primarily of customer payments for
membership and public listing related consulting services in advance of satisfying our performance obligations. The Company’s
performance obligations related to contract liabilities of $0.93 million as of January 1, 2018 were recognized as revenue during
the first quarter of 2018. The Company’s performance obligations related to contract liabilities of approximately $1 million
as of March 31, 2018 are expected to be recognized as revenue in the second quarter of 2018.
We
do not disclose information about remaining performance obligations pertaining to service contracts that either (i) contracts
with an original expected term of one year or less, or (ii) contracts for which revenue is recognized in proportion to the amount
the Company has the right to invoice for services rendered.
Income
Tax
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
The
provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold
for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return.
This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related
disclosures. The Company does not believe that there was any uncertain tax position at March 31, 2018 and December 31, 2017.
To
the extent applicable, the Company records interest and penalties as a general and administrative expense. The Company’s
subsidiaries in China and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. The statute of limitations for
the Company’s U.S. federal income tax returns and certain state income tax returns remains open for tax years 2013 and after.
As of March 31, 2018 the tax years ended December 31, 2015 through December 31, 2017 for the Company’s PRC subsidiary remain
open for statutory examination by PRC tax authorities.
On
December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of The Act,
the U.S. corporate tax rate decreased from 35% to 21%. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation
of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has
caused the Company to re-measure all U.S. deferred income tax assets and liabilities for temporary differences. Net operating
loss (“NOL”) carryforwards are limited to 80% of taxable income and can be carried forward indefinitely.
Earnings
Per Share
Basic
earnings per share are computed by dividing income available to ordinary shareholders of the Company by the weighted average ordinary
shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. There were no dilutive
shares for the three months ended March 31, 2018 and 2017.
Foreign
Currency Translation
The
accounts of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the
entity operates (the “functional currency”). The Company’s functional currency is the U.S. dollar (“USD”)
while its subsidiary in Hong Kong reports its financial positions and results of operations in Hong Kong Dollar and the Company’s
subsidiary in China reports its financial position sand results of operations in Renminbi (“RMB”). The accompanying
unaudited condensed consolidated financial statements are presented in United States Dollar (USD). The unaudited condensed consolidated
statements of income and comprehensive income and cash flows denominated in foreign currency are translated at the average rate
of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average
translation rate, amounts related to assets and liabilities reported on the unaudited condensed consolidated statements of cash
flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments
arising from the use of different exchange rates from period to period are included as a separate component of accumulated other
comprehensive income included in unaudited condensed consolidated balance sheets. Gains and losses from foreign currency transactions
are included in the unaudited condensed consolidated statements of income and comprehensive income.
The
following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this
report:
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March 31,
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December 31,
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|
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Three months ended March 31,
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|
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2018
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|
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2017
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|
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2018
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|
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2017
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|
Foreign currency
|
|
Balance Sheet
|
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|
Balance Sheet
|
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Profits/Loss
|
|
|
Profits/Loss
|
|
RMB:1USD
|
|
|
0.1590
|
|
|
|
0.1530
|
|
|
|
0.1583
|
|
|
|
0.1454
|
|
HKD:1USD
|
|
|
0.1274
|
|
|
|
0.1279
|
|
|
|
0.1277
|
|
|
|
0.1288
|
|
Risks
and Uncertainty
The
Company’s major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in the
PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition,
and results of operations.
The
Company’s major operations in the PRC are subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These include risks associated with, among others, the political, economic,
and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect
to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company
has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including
its organization and structure disclosed in Note 1, this may not be indicative of future results.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014-09), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition,
including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle
of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, which
deferred the effective date of ASU 2014-09 to fiscal years beginning after December 31, 2017, and interim periods within those
fiscal years, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, the FASB issued
ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability
and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of Topic
606: identifying performance obligations and the licensing implementation guidance; ASU 2016-12, Revenue from Contracts with Customers
(Topic 606): Narrow-Scope Improvements and Practical Expedients, which contains certain provisions and practical expedients in
response to identified implementation issues; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from
Contracts with Customers, which is intended to clarify the Codification or to correct unintended application of guidance. ASU
2014-09 allows for either full retrospective or modified retrospective adoption. The Company adopted ASU 2014-09 and the related
ASUs on January 1, 2018 using the modified retrospective method, which will not result in a cumulative catch-up adjustment to
the opening balance sheet of retained earnings at the effective date.
In
February 2018, the FASB has issued Accounting Standards Update (ASU) No. 2018-02, “Reclassification of Certain Tax Effects
From Accumulated Other Comprehensive Income.” The ASU amends ASC 220,
Income Statement — Reporting Comprehensive
Income
, to “allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax
effects resulting from the Tax Cuts and Jobs Act.” In addition, under the ASU, an entity will be required to provide certain
disclosures regarding stranded tax effects. The ASU is effective for all entities for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years. The adoption of this guidance will not have a material impact on its consolidated
financial statements.
In
March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based
on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin
No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions
that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international
tax consequences for many companies that operate internationally. The Company has evaluated the impact of the Act as well as the
guidance of SAB 118 and incorporated the changes into the determination of a reasonable estimate of its deferred tax liability
and appropriate disclosures in the notes to its consolidated financial statements (See Note 9). The Company will continue to evaluate
the impact this tax reform legislation may have on its results of operations, financial position, cash flows and related disclosures.
Except
for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on
the unaudited condensed consolidated financial position, statements of operations and cash flows.
NOTE
3 - LOANS RECEIVABLE
From
September to December 2017, the Company advanced a total of $2,295,000 (RMB 15 million) one year short-term loans to a former
customer as working capital. Among the RMB 15 million loan, RMB 5 million is non-interest bearing and RMB 10 million are interest-bearing
loans with interest rate of 5% per annum. The Company collected RMB 5 million (approximately $791,500) non-interest bearing
portion of the loan from Shangyuan during the quarter ended March 31, 2018 and expects to fully collect the remaining RMB 10 million
before June 30, 2018. Interest income of $19,603 was accrued and reflected in the unaudited condensed consolidated statements
of income and comprehensive income for the three months ended March 31, 2018.
NOTE
4 - SHORT-TERM INVESTMENT
On
November 21, 2017, the Company entered into an investment agreement with China Construction Bank (“the Bank”). The
agreement allows the Company to invest RMB 100 million ($15.3 million) with the Bank for a six-month term maturing on May 20,
2018. The Bank invests the Company’s fund in certain financial instruments including money market funds, bonds or mutual
funds. The rates of return on these instruments was guaranteed at 4.8% per annum. The Company’s investment is not subject
to market fluctuation and therefore, the Company did not record any gain or loss on its investment. Interest income of $190,800
was accrued for the three months ended March 31, 2018.
NOTE
5 – DEFERRED REVENUE
Deferred
revenue consists of amounts received from customers for membership and public listing related consulting services not yet completed
as of the balance sheets date. The details of customer deposits are as follows:
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As of
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Customer deposit for membership
|
|
$
|
256,442
|
|
|
$
|
53,077
|
|
Customer deposits for consulting services
|
|
|
1,849,492
|
|
|
|
2,262,046
|
|
Total deferred revenue
|
|
$
|
2,105,934
|
|
|
$
|
2,315,123
|
|
NOTE
6 - RELATED PARTY TRANSACTION
As
of March 31, 2018 and December 31, 2017, the balances due to a major stockholder are comprised of non-interest bearing advances
used for working capital. The balance due to stockholder is due upon demand and unsecured.
NOTE
7 – TAXES
The
Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each
entity is domiciled
.
AEEX
is incorporated in the United States and has accumulative net operating loss carry forwards of approximately $192,000 as of March
31, 2018. Such net operating loss is available for offsetting against future taxable U.S. income, expiring in 2037. Management
believes that the realization of the benefits from these losses is uncertain due to its history of continuing losses in the United
States. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been
recorded. The valuation allowance as of March 31, 2018 and December 31, 2017 was approximately $67,000 and $45,000, respectively.
AEEGCL
was incorporated under the International Companies Act 1988 of Samoa as a non-resident company. Under current laws of Samoa, income
earned is not subject to income tax.
AEEX
HK is subject to Hong Kong profits tax at a rate of 16.5%, and did not have any assessable profits arising in or derived from
Hong Kong for the three months ended March 31, 2018 and 2017, and accordingly no provision for Hong Kong profits tax made in these
periods.
AACCL
is incorporated in the PRC and is subject to PRC income tax, which is computed according to the relevant laws and regulations
in the PRC. The applicable tax rate is 25% for the three months ended March 31, 2018 and 2017. The Company recorded $97,010 and
$93,349 deferred income tax assets as of March 31, 2018 and December 31, 2017, respectively, derived from prior year net operating
loss carryforward assessed and recognized by local tax authority.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to
the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective
for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a
territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December
31, 2017.
On
December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP
in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations)
in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company
has recorded a provisional amount for its one-time transition tax for all of its foreign subsidiaries, resulting in an increase
in income tax expense of $82,127 for the year ended December 31, 2017. The one-time transition tax was calculated using the Company’s
total post-1986 overseas net earnings and profits which amounted to approximately $0.92 million. The one-time transition tax is
taxed at the rate of 15.5% for the Company’s cash and cash equivalents and 8% for the other assets to be paid over 8 years.
The
Company’s income tax expense for the three months ended March 31, 2018 and 2017 are as follows:
|
|
For the three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current income tax
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
Samoa
|
|
|
-
|
|
|
|
-
|
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
301,002
|
|
|
|
49,409
|
|
|
|
|
301,002
|
|
|
|
49,409
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
China
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
301,002
|
|
|
$
|
49,409
|
|
The
following table reconciles the statutory rates to the Company’s effective tax rate for the three months ended March 31,
2018 and 2017:
|
|
For the three months ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Statutory PRC income tax rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Permanent difference
|
|
|
0.2
|
|
|
|
0.0
|
|
Rate exemption
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
24.6
|
%
|
|
|
24.7
|
%
|
The
Company’s deferred tax assets are comprised of the following:
|
|
As of
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
211,599
|
|
|
$
|
148,074
|
|
Total deferred tax assets
|
|
|
211,599
|
|
|
|
148,074
|
|
Valuation allowance
|
|
|
(114,589
|
)
|
|
|
(54,725
|
)
|
Deferred tax assets, long-term
|
|
$
|
97,010
|
|
|
$
|
93,349
|
|
The
Company’s taxes payable consists of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
VAT tax payable
|
|
$
|
39,092
|
|
|
$
|
14,470
|
|
Corporate income tax payable
|
|
|
755,678
|
|
|
|
455,017
|
|
Others
|
|
|
4,813
|
|
|
|
2,291
|
|
Total tax payable
|
|
|
799,583
|
|
|
|
471,778
|
|
Less: noncurrent portion
|
|
|
(75,557
|
)
|
|
|
(75,557
|
)
|
Total tax payable- current portion
|
|
$
|
724,026
|
|
|
$
|
396,221
|
|
NOTE
8 – CONCENTRATIONS AND RISKS
The
Company maintains certain bank accounts in the PRC and Hong Kong, which are not insured by Federal Deposit Insurance Corporation
(“FDIC”) insurance or other insurance. As of March 31, 2018 and December 31, 2017, cash balances of $1,284,245 and
$512,324, respectively, were maintained at financial institutions in the PRC and Hong Kong, which were not insured by any of the
authorities. In addition, the Company’s short-term investment fund deposited with China Construction Bank is also not insured
(Note 5).
For
the three months ended March 31, 2018 and 2017, substantial of the Company’s assets were located in the PRC and substantial
of the Company’s revenues were derived from its subsidiaries located in the PRC.
For
the three months ended March 31, 2018, two customers accounted for approximately 47.6% and 26.0% of the Company’s total
revenue. For the three months ended March 31, 2017, one customer accounted for approximately 15.4% of the Company’s total
revenue.
For
the three months ended March 31, 2018, two customers accounted for 80.8% and 11.4% of the Company’s outstanding accounts
receivable. No single customer accounted for more than 10% of the Company’s outstanding accounts receivable for the three
months ended March 31, 2017.
NOTE
9 – COMMITMENTS
Lease
Obligation
The
Company leases office spaces under operating leases. Operating lease expense amounted to $93,174 and $37,383 for the three months
ended March 31, 2018 and 2017, respectively.
Future
minimum lease payments under non-cancelable operating leases are as follows as of March 31, 2018:
Twelve months ending March 31,
|
|
|
|
2019
|
|
$
|
545,547
|
|
2020
|
|
|
258,164
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
803,711
|
|
Up-listing
Commitment
November
21, 2017, the Company entered into a Subscription Agreement with an investor, pursuant to which the investor purchased 4.3 million
shares of the Company’s common stock at $3.5 per share for an aggregate purchase price of $15,050,000(see Note 10).
Pursuant
to the Subscription Agreement, the Company will apply to be listed on the NASDAQ Capital Market or similar national securities
exchange as is reasonably acceptable to the Purchaser, so that the Company’s Common Stock will commence trading on one of
the National Exchanges (the “Uplisting”) no later than December 31, 2018 (the “Uplisting Deadline”). If
the Company does not complete Uplisting on or before the Uplisting Deadline, the Investor, within 30 days following the Uplisting
Deadline, has the right to request the Company to buy back any number of the Shares, at the same price of the Purchase Price Per
Share, subject to the terms and conditions of the Subscription Agreement.
NOTE
10 - SUBSEQUENT EVENTS
Management has evaluated all events and transactions that occurred after March 31, 2018 through the date of
these unaudited condensed consolidated financial statements were issued, and concluded that no subsequent events required disclosure
in the unaudited condensed consolidated financial statements.