Notes
to the Condensed Consolidated Financial Statements
June
30, 2018
(Expressed
in U.S. dollars)
(Unaudited)
NOTE
1- Organization and Description of Business
Image
International Group, Inc. (“IMGL”) was initially incorporated in the state of Nevada on July 25, 2005 under the name
of Eardley Ventures. On April 21, 2008, the Company’s name, Eardley Ventures, was changed to Owlhead Minerals Corp in order
to more appropriately reflect the Company’s business plan. On December 23, 2014, Owlhead Minerals Corp. filed an Amendment
to it Articles of Incorporation with the Nevada Secretary of State, changing its name from Owlhead Minerals Corp. to Image International
Group, Inc. and increasing its authorized capital from 100,000,000 common shares with a par value of $0.001 to 1,000,000,000 shares
common shares with a par value of $0.001.
Tang
Dynasty Investment Group Limited (“Tang Dynasty”) was incorporated under the laws of Hong Kong on March 22, 2017 and
its principal office is located at suites 502 and 503 on the 5th floor of Fourseas Building in Jordan, Hong Kong. It assumed a
full ownership and control of Shenzhen Gu Yue Environmental Protection Technology Co. Ltd (“Gu Yue”) on November 29,
2017.
Shenzhen
Gu Yue Environmental Protection Technology Co. Ltd (“Gu Yue”) was incorporated on November 8, 2010 as a domestic company
in the People’s Republic of China. It was converted to a Wholly Foreign-Owned Enterprise (“WFOE”) on November
29, 2017. Gu Yue is mainly an equity holding company.
Yangshuo
County Xing Yuan Lead-Zinc Mine Co., Ltd. (“Yangshuo”) was incorporated on January 22, 1996 under the laws of the
People’s Republic of China. Yangshuo primarily engages in lead, zinc and copper mining ore and generates revenue through
the sales of processed lead, zinc and copper to customers primarily in Guangxi province. Due to the Chinese government policy
on environmental protection, its traditional business of mining of lead, zinc and copper has been idled in recent years. Yangshuo
has been exploring business opportunities in the processing of lead-zinc tailings. During this transition period, Yangshuo made
its building and land available for lease and entered into operating leases with individual and business lessees. The leases with
individual lessees expire over the next 1 to 2 year(s) and the leases with commercial lessees expire over the next 3 years.
On
December 5, 2017, Gu Yue obtained a controlling interest of Yangshuo through a series of contractual agreements including Exclusive
Business Cooperation Agreement, Exclusive Option Agreement, Power of Attorney and Equity Pledge Agreement. As a result, Gu Yue
contractually controlled and managed an operating company, Yangshuo and conducted its business solely through Yangshuo, its variable
interest entity.
On
January 15, 2018, Image International Group, Inc. (“IMGL”) entered into a share exchange agreement (“Share Exchange
Agreement”) with (i) Tang Dynasty Investment Group Limited, a limited liability company formed under the laws of Hong Kong,
Special Administrative Region, China (“Tang Dynasty”). Pursuant to the terms of the Share Exchange Agreement, IMGL
issued 400,000,000 new shares of its common stock, par value at $0.001 per share for all of the outstanding common stock of Tang
Dynasty. As a result, Tang Dynasty became our wholly owned subsidiary. However, on June 10, 2018, the Company and shareholders
of Tang Dynasty agreed to amend the Share Exchange Agreement, in which the shareholders of Tang Dynasty have agreed to receive
99-million shares of the Company down from 400-million under the January 15, 2018 agreement. As a result, Common stock of IMGL
as of June 30, 2018 has been re-stated as $113,059, being 113,059,000 shares issued and outstanding.
Accordingly,
we refer to IMGL, its consolidated subsidiaries and variable interest entity collectively as the “Company”, “we”,
“us” and “our”.
NOTE
2 - Basis of Presentation and Significant Accounting Policies
Basis
of Presentation
The
accompanying Unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted
accounting principles in the United States of America (“U.S. GAAP”) for interim financial information pursuant to
the rules and regulations of the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily
indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction
with information included in the Company’s annual report on Form 8-K/A for the year ended December 31, 2017, that was filed
with the SEC on May 21, 2018.
Principles
of Consolidation
These
condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally
accepted in the United States and are expressed in U.S. dollars.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimate
and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may
differ from those estimates. Significant estimates reflected in the condensed consolidated financial statements include the collectability
of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived
assets, valuation of accruals for expenses and tax due.
Going
Concern Consideration
These
condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant
revenues since inception and is unlikely to generate earnings in the immediate future. The continuation of the Company as a going
concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary
equity financing to continue operations, and the attainment of profitable operations. As at June 30, 2018, the Company has a working
capital deficiency of $3,674,870 and has an accumulated deficit of $470,803 since inception. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. These condensed financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. dollar. Tang Dynasty uses the local currency, Hong Kong Dollar, while Gu Yue and
Yangshuo use the local currency, Renminbi (RMB), as their functional currencies as determined based on the criteria of ASC 830,
“Foreign Currency Translation”. Assets and liabilities are translated at the unified exchange rate as quoted by the
U.S. Federal Reserve at the end of the period. Income and expense accounts are translated at the average translation rates and
the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated
other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated other comprehensive gain/(loss) for the three month ended June 30, 2018 and 2017,
for the six month ended June 30, 2018 and 2017, amounted to $21,352, $15,456, (698) and $23,124 respectively.
Below
is a table with foreign exchange rates used for translation:
(Average Rate)
|
|
June 30, 2018
|
|
June 30, 2017
|
Chinese Renminbi (RMB)
|
|
RMB
|
|
|
6.3655
|
|
|
RMB
|
|
|
6.8716
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
|
|
7.8381
|
|
|
HKD
|
|
|
7.774
|
|
United States dollar ($)
|
|
|
|
$
|
1.0000
|
|
|
|
|
$
|
1.0000
|
|
(Closing Rate)
|
|
June 30, 2018
|
|
December 31, 2017
|
Chinese Renminbi (RMB)
|
|
RMB
|
|
|
6.6171
|
|
|
RMB
|
|
|
6.5063
|
|
Hong Kong dollar (HKD)
|
|
HKD
|
|
|
7.8463
|
|
|
HKD
|
|
|
7.8128
|
|
United States dollar ($)
|
|
|
|
$
|
1.0000
|
|
|
|
|
$
|
1.0000
|
|
Cash
and Cash Equivalent
We
consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
We maintain with various financial institutions in Hong Kong and PRC. As of June 30, 2018, cash balances held in Hong Kong and
PRC banks are uninsured. We have not experienced any losses in bank accounts and believes we are not exposed to any risks on our
cash in bank accounts.
Financial
Instruments
The
carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate
fair value because of the immediate or short-term maturity of these financial instruments.
Plant,
Property, and Equipment
Plant,
property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions
of property and equipment are included in operating income (loss). Major additions, renewals and improvements are capitalized,
while maintenance and repairs are recognized as expense as incurred.
Depreciation
is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method
over the useful lives of the assets are as follows:
|
Classification
|
|
Estimated
useful life
|
|
Buildings
|
|
Over
the lease term
|
Intangibles
Intangible
assets are carried at cost less accumulated amortization.
We
account for its significant leases of land use rights for purposes of classification of operating or capital. At the inception
of the lease agreements, we will classify the leases as capital leases under ASC 840-30 if (a) transfer of ownership to lessee
at the end of the lease term, (b) bargain purchase option, (c) the lease term equals to or exceeds 75% of economic life of the
leased property, and/or (d) present value of minimum lease payments exceeds 90% of fair value of the lease property. Otherwise,
the leases will be classified as operating leases.
Intangible
assets with finite useful lives are amortized on a straight-line basis that align with it economic benefits of the intangible
assets to be consumed. The original estimated useful life for the land use rights ranged from 38 to 70 years stipulated on the
lease term.
Intangible
assets are reviewed at least annually to determine whether there are any circumstances arisen that may trigger the impairment
of their carrying values. Management considers intangible assets to be impaired if their carrying value exceeds the future projected
cash flows from the perspective operations. Management also evaluates the periods of amortization to identify if any subsequent
events or conditions that warrant revised estimates of useful lives.
Impairment
of Long-lived Assets
Long-lived
assets, including buildings and intangible assets with finite lives are reviewed for impairment whenever events or changes in
circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate
that the carrying value of an asset may not be recoverable. We assess the recoverability of the assets based on the undiscounted
future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows
expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the
carrying value of the asset. When we identify an impairment, we reduce the carrying amount of the asset to its estimated fair
value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of the period
ended June 30, 2018 and fiscal years ended December 31, 2017, management determined that there was no impairment.
Fair
Values of Financial Instruments
ASC
Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments,
whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all non-financial assets
and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.
The
accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement
and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value.
We
consider the carrying amount of cash, other receivables and other short-term payables, to approximate their fair values because
of the short period of time between the origination of such instruments and their expected realization.
Comprehensive
Income (Loss)
Other
comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as
an adjustment to stockholders’ equity. Our other comprehensive income (loss) is comprised of foreign currency translation
adjustments.
Concentration
of Risk
Credit
Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash
equivalents and other accounts receivable. As of June 30, 2018 and December 31, 2017 $616,277 and $986,821 were deposited with
various major financial institutions located in Hong Kong and the PRC, respectively. While management believes that these financial
institutions are of high credit quality, it also continually monitors their credit worthiness. Under the Deposit Scheme Protection
Rules of Hong Kong Special Administrative Region, China, eligible bank deposits with banks in Hong Kong are insured up to $63,724
(HKD500,000). Eligible bank deposits include all types of ordinary deposits in any currency such as current accounts, savings
accounts, secured deposits and time deposits with a maturity term no more than 5 years.
Historically,
deposits in Chinese banks are secure due to state policy to protect depositor interests. However, China promulgated a Bankruptcy
Law in August 2006 that came into effect on June 1, 2007, which contains a separate article expressly stating that the State Council
may promulgate implementation measures to provide for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the current
Bankruptcy Law, a Chinese bank may file bankruptcy if it deems itself to be insolvent. In addition, since China’s concession
to the World Trade Organization, foreign banks have been gradually permitted to operate in China and have intensified competition
in many aspects, especially since the opening of the Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy
at the institutions that the Company maintains deposits has increased. In the event of bankruptcy, the Company is unlikely to
reclaim its deposits in full since it is unlikely to be classified as a secured creditor under PRC laws.
Deposits
and other receivables consist of rental receivable, other receivable and deposit paid. These are typically unsecured and rental
receivable are derived from revenue earned from leasee, thereby exposed to credit risk. The risk is mitigated by the Company’s
assessment of its leasees’ creditworthiness and its ongoing monitoring of outstanding balances. The Company maintains reserves
for estimated credit losses, and such losses have generally been within expectations.
Income
Taxes
We
account for income taxes using an asset and liability method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against
deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the
deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
We
apply ASC 740,
Accounting for Income Taxes
, to account for uncertainty in income taxes and the evaluation of a tax position
is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained
upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.
The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than
50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial
reporting period in which the threshold is no longer met.
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide
range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction
with majority of the tax provision effective after December 31, 2017.
Certain
activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on IMGL when its subsidiaries,
controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal
Revenue Code beginning after December 31, 2017.
The
Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes
line of our consolidated statements of operations for the six months ended June 30, 2018 and year ended December 31, 2017. We
do not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.
Recent
Accounting Pronouncements
Recently
Adopted Accounting Standards
Revenue
Recognition
: Effective January 1, 2018, the Company adopted Topic 606, Revenue from Contracts with Customers, using modified
retrospective approach applied its contracts which were not completed as of January 1, 2018. Results for reporting periods beginning
after January 1, 2018 are accounted for and presented under Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with Topic 605. For the six months ended June 30, 2018 and 2017, the Company is still in the development
stage of its sand tailing business and has not generated revenue related to this business. The Company assessed that the adoption
of ASC 606 does not have significant impact on its condensed consolidated financial statements. During this transition period,
the Company has generated rental income from its buildings located in Yangshuo county, PRC and accounted for its rental income
in accordance with ASC 840-20, Leases, Operating Leases.
Financial
instrument
: In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted.
Accordingly, the standard is effective for us on January 1, 2018. Since the Company do not have any financial instruments, management
does not expect there will be any material impact on the financial statements.
Statement
of Cash Flows:
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this
Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement
of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues.
The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current
and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. The Company adopted this guidance on January 1,
2018 and evaluated that the Company does not have any specific type of cash flow issues identified in the guidance. Therefore,
the Company does not believe that this standard has a significant impact on the presentation of its consolidated statement of
cash flows.
Statement
of Cash Flows:
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted
Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period
in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This
update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted.
The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and
removal of the changes in restricted cash activity, which are currently recognized in other financing activities, on the Interim
Condensed Consolidated Statement of Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and
cash equivalents and restricted cash reported within the Interim Condensed Consolidated Balance Sheets to sum to the total shown
in the Interim Condensed Consolidated Statement of Cash Flows. The Company has already disclosed the restricted cash separately
on its Interim Condensed Consolidated Statements of Financial Position. Beginning the first quarter of 2018, the Company has adopted
and also included the restricted cash balances on the Interim Condensed Consolidated Statement of Cash Flows and reconciliation
of Cash, cash equivalent and restricted cash within its Interim Condensed Consolidated Statements of Financial Positions that
sum to the total of the same such amounts shown in Interim Condensed Consolidated Statement of Cash Flows and the Cash Flows of
six months ended June 30, 2017 has been applied retrospectively.
Business
Combination
: In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic
805): Clarifying the Definition of a Business
(ASU 2017-01), which revises the definition of a business and provides new guidance
in evaluating when a set of transferred assets and activities is a business. The Company has adopted this guidance effective for
us in the first quarter of 2018 on a prospective basis. This standard does not have a material impact on our consolidated financial
statements unless and until the Company plans an acquisition or deconsolidation in the future.
Stock-based
Compensation
: In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718):
Scope of modification accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes
to the terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities
that offer share based payment awards, ASU 2017-09 are effective for interim and annual reporting periods beginning after December
15, 2017. The Company will apply this standard beginning in the first quarter of 2018. The Company has not yet granted, delivered
or provided any stock-based compensation to its employees or third party service providers. This standard does not have a significant
impact on its consolidated financial statements.
On
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of
U.S. 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 Tax Cuts and Jobs Act (“the
Tax Act”). As of June 30, 2018, the Company has not completed our accounting for the effects of the Tax Act based on the
currently available information and has made a reasonable estimates in the first quarter of 2018. The Company will monitor future
guidance set forth by the Department of Treasury with regard to the tax provisions under the Act, and true up this estimate as
appropriate within the one year measurement period. If revisions are needed as new information becomes available, the final determination
of the deemed incremental income tax expense, deemed re-measurement of the deferred assets and liabilities or other applicable
provisions of the Tax Act will be completed as additional information becomes available within the 12 months re-measurement period.
In
January 2018, the FASB staff released Staff Q&A Topic 740 No. 5 which provides a guidance on accounting for tax provision
of Global Intangible Low-Taxed Income (“GILTI”) as provided under the Tax Cuts and Jobs Act (“the Act”).
The GILTI refers to the tax on the excess of a United States shareholder’s total net foreign income over a deemed return
on tangible assets. Based on the information available to us for the first quarter of 2018, the Company provisionally made a policy
election and accounted for its potential GILTI tax as a period cost when incurred.
In
June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting (“ASU 2018-07”). The amendments in this update expand the scope of Topic 718 to include share-based
payment transactions for acquiring goods or services from nonemployees. An entity should apply the requirements of Topic 718 to
nonemployee awards except in certain circumstances. ASU 2018-07 clarifies that Topic 718 applies to all share-based payment transactions
in which a grantor acquires goods or services to be consumed in a grantor’s operations unless the transaction effectively
provides financing to the grantor or are awarded under a contract accounted for under Topic 606 (as defined below). ASU 2018-07
is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The amendments
require that adjustments required upon application of the update be made through a cumulative-effect adjustment to retained earnings
as of the beginning of the fiscal year of adoption. We have historically awarded share-based compensation to nonemployees; however,
we do not currently have any outstanding share-based awards to nonemployees. Therefore, we do not believe the adoption of ASU
2018-07 will have an impact on our consolidated financial condition and results of operations unless share-based payments are
issued to nonemployees in the future.
Leases
:
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This accounting standard seeks to increase transparency
and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. Current US GAAP does not require lessees to recognize assets and liabilities arising from
operating leases on the balance sheet. This standard also provides guidance from the lessees’ perspective on how to determine
if a lease is an operating lease or a financing lease and the differences in accounting for each.
In
January 2018, the FASB issued ASU No. 2018-01, which allows for an entity to elect an optional transition practical expedient
for land easements that exist or expired before adoption of Topic 842. The adoption of this standard is required for interim and
fiscal periods beginning after December 15, 2018 and it is required to be applied using the modified retrospective approach. Early
adoption is permitted.
The
Company is currently evaluating the impact of the above standards on their consolidated financial statements. Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
In
July 2018, the FASB issued ASU 2018-10, “ Codification Improvements to Topic 842, Leases ”. These amendments
affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value
guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and
purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase
option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments,
transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications
to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and
leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct
costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that early adopted Topic 842,
the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic
842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the
effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the adoption of
ASU 2018-10 on its consolidated financial statements.
In
July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which works to improve on certain aspects
of ASU No. 2016-02 identified by stakeholders as problematic or difficult to implement, including the adoption method. Currently,
entities are required to adopt this ASU using a modified retrospective transition method. Under that transition method, an entity
initially applies this ASU at the beginning of the earliest period presented in its financial statements. ASU No. 2018-11 provides
another adoption method, which allows entities to initially apply ASU No. 2016-02 at the adoption date and recognize a cumulative
effect adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the impact
the standard may have on our consolidated financial statements and related disclosures.
Reporting
of Comprehensive Income:
In
February 2018, the FASB issued ASU 2018-02—Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance is effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update
is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial
statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not
yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively
to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act is recognized. The adoption of this ASU is not expected to have an impact on our financial statements.
Income
Tax:
In
March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC paragraphs pursuant to SEC Staff Accounting
Bulletin No. 118 (“ASU 2018-05”). The amendments in this update add various SEC paragraphs pursuant to the issuance
of SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”).
SAB 118 directs taxpayers to consider the implications of the Tax Cuts and Jobs Act (“Tax Act”) as provisional when
it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for
the change in the tax law. SAB 118 provides a one-year measurement period from a registrant’s reporting period that includes
the Tax Act’s enactment date to allow the registrant sufficient time to obtain, prepare and analyze information to complete
the required accounting under ASC 740. As described in the 2017 Form 10-K, we reflected the impact of the changes in rates on
our deferred tax assets and liabilities at December 31, 2017, as we are required to reflect the change in the period in which
the law is enacted. We are still analyzing certain aspects of the Tax Act, which could potentially affect the measurement of our
income tax balances and future income tax expense or benefit. The ultimate impact of the Tax Act may differ from the estimates
provided herein, possibly materially, due to additional regulatory guidance, changes in interpretations and assumptions, and other
actions as a result of the Tax Act.
Codification
Improvements:
In
July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (“ASU 2018-09”). The amendments in this update
include changes to clarify and make other incremental improvements to GAAP under the FASB’s perpetual project to address
suggestions from stakeholders. The amendments in this update affect a wide variety of topics and apply to all reporting entities
within the scope of the affected accounting guidance. The transition and effective date guidance is based on the facts and circumstances
of each amendment. A number of the amendments do not require transition guidance and are effective as of the issuance of the update
while many of the updates that have transition guidance are effective for annual periods beginning after December 15, 2018. For
amendments relating to issued but not effective guidance, the effective date of these amendments follows that of the originally
issued update. We are currently assessing the potential impact of the many amendments within ASU 2018-09 and are currently unable
to quantify the impact, if any, the standard will have on our consolidated financial condition and results of operations.
Investments:
In
March 2018, the FASB issued ASU No. 2018-04, Investments—Debt Securities (Topic 320 and Regulated Operations (Topic 980):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273, which supersedes previous
SEC guidance in the Codification in SAB Topic 5.M, Other-Than-Temporary Impairment of Certain Investments in Equity Securities
and special balance sheet requirements in Regulation S-X Rule 3A-05 for Public Utility Holding Companies. The changes are effective
when issued. The adoption of these updates did not have a material impact on our consolidated financial statements.
Financial
Instruments:
In
February 2018, the FASB issued ASU 2018-03—Technical Corrections and Improvements to Financial Instruments—Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is effective for
fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public
business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments
until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June
15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01.
For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these
amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as
they have adopted Update 2016-01. The adoption of this ASU is not expected to have an impact on our financial statements.
Accounting
Pronouncements Issued But Not Yet Adopted
Leases
:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease
amendments to the FASB Accounting Standard Codification. This ASU will be effective for us on January 1, 2019. We are currently
in the process of evaluating the impact of the adoption of ASU 2016-2 on our consolidated financial statements.
Financial
Instruments - Credit Losses:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be
presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing
its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates
more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial
statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is still evaluating the effect that this guidance will have on the Company’s
consolidated financial statements and related disclosures.
Financial
Instruments - Credit Losses
: In June 2017, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be
presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing
its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates
more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial
statements. ASU 2017-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is still evaluating the impact of this standard on the Company’s consolidated
financial statements and related disclosures.
Leases:
In September 2017, the FASB issued ASU 2017-13, Leases (Topic 842). The main objective of this pronouncement is to clarify
the effective date of the adoption ASC Topic 842. ASU 2016-12 requires that “a public business entity and certain other
specified entities adopt ASC Topic 842 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. All other entities are required to adopt ASC Topic 842 for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020”. ASU 2017-13 clarifies that the SEC would not object certain
public business entities to elect to use the non-public business entities effective dates for applying ASC 606 and ASC 842. ASU
2017-13, however, limits such election to certain public business entities that “otherwise would not meet the definition
of a public business entity except for a requirement to include or inclusion of its financial statements or financial information
in another entity’s filings with the SEC”. The Company elected to adopt and ASC Topic 842 beginning January 1, 2019,
respectively.
Except
for the ASU above, in the period from February 2018 through May 2018, the FASB has issued ASU No. 2018-02 through ASU 2018-05,
which are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE
3 – Prepayment, Deposits and Other Receivables
Prepayment,
deposits and other receivables consisted of the following:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Rental receivable
|
|
$
|
22,316
|
|
|
$
|
13,193
|
|
Deposit paid
|
|
|
26,134
|
|
|
|
26,246
|
|
Other receivables
|
|
|
10,443
|
|
|
|
-
|
|
Less: allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Total deposits and other receivables, net
|
|
$
|
58,893
|
|
|
$
|
39,439
|
|
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant and equipment consisted of the following:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Buildings, at cost
|
|
$
|
211,573
|
|
|
$
|
215,176
|
|
Office equipment, at cost
|
|
|
604
|
|
|
|
-
|
|
Less: accumulated depreciation and impairment charges
|
|
|
(19,059
|
)
|
|
|
(16,628
|
)
|
Total property, plant and equipment, net
|
|
$
|
193,118
|
|
|
$
|
198,548
|
|
The
depreciation expenses for three months ended June 30, 2018 and 2017, and six months ended June 30, 2018 and 2017 were $1,420,
$1,296, $2,818 and $2,586 respectively.
NOTE
5 – INTANGIBLES, NET
Intangible
assets consisted of the following:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Land use rights
|
|
$
|
1,858,820
|
|
|
$
|
1,890,475
|
|
Less: accumulated amortization
|
|
|
(156,457
|
)
|
|
|
(136,568
|
)
|
Total intangibles, net
|
|
$
|
1,702,363
|
|
|
$
|
1,753,907
|
|
The
amortization expenses of land use rights for the three months ended June 30, 2018 and 2017, and six months ended June 30, 2018
and 2017 were $11,568, $10,640, $23,052 and $21,237 respectively.
The
estimated amortization expenses for each of the five succeeding years is as follows:
Year ending December 31,
|
|
Estimated
amortization expense
|
|
|
|
|
|
2018 (remaining period)
|
|
$
|
22,543
|
|
2019
|
|
|
44,720
|
|
2020
|
|
|
44,720
|
|
2021
|
|
|
44,720
|
|
2022
|
|
|
44,720
|
|
Thereafter
|
|
|
1,500,940
|
|
Total
|
|
$
|
1,702,363
|
|
NOTE
6 – SHORT TERM LOANS AND LOAN PAYABLE
Short-term
loans represented amounts due to bank and government agency, normally due within one year. The principal of the loans is due at
maturity but can be renewed at the bank’s option. Interest is due monthly.
Short
term loans due to bank and government consisted of the following as of the years indicated:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Loan from Agricultural Bank of China with original principal amount at RMB 1,497,945 at a variable interest rate. Average interest rate is 4.9% for the quarter ended June 30, 2018 and the fiscal year ended December 31, 2017. The loan is matured in October 1989. Yangshuo is negotiating an extension with the lender.
|
|
$
|
226,375
|
|
|
$
|
230,230
|
|
|
|
|
|
|
|
|
|
|
Loan from the Yangshuo County Bureau of Finance with original principal amount RMB 652,794 at a fixed interest rate. Interest rate is 7.92% per annum for the quarter ended June 30, 2018 and the fiscal year ended December 31, 2017. The loan is repayable on demand.
|
|
|
98,652
|
|
|
|
100,333
|
|
|
|
|
|
|
|
|
|
|
Loan from the Yangshuo County Bureau of finance with original loan amount RMB 1,000,000 at a zero interest rate. The loan is repayable on demand.
|
|
|
151,124
|
|
|
|
153,697
|
|
|
|
|
|
|
|
|
|
|
Total short-term loans
|
|
$
|
476,151
|
|
|
$
|
484,260
|
|
Interest
expense on short term loans for the three months ended June 30, 2018 and 2017, and six months ended June 30, 2018 and 2017 amounted
to $4,891, $4,498, $9,746 and $8,978 respectively. No interest expense has been capitalized into property, plant and equipment
as all borrowings were for working capital purposes.
NOTE
7 – OTHER PAYABLES AND ACCRUED LIABILITIES
Other
payables and accrued liabilities as of June 30, 2018 and December 31, 2017 consisted of:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Security deposits & other payable
|
|
$
|
90,480
|
|
|
$
|
96,847
|
|
Accrued loan interest expenses
|
|
|
410,467
|
|
|
|
407,923
|
|
Payroll payable
|
|
|
9,265
|
|
|
|
3,927
|
|
Accrued expenses
|
|
|
61,812
|
|
|
|
50,881
|
|
Total
|
|
$
|
572,024
|
|
|
$
|
559,578
|
|
NOTE
8- RELATED PARTY TRANSACTIONS
On
July 15, 2017, Tang Dynasty entered into consulting agreements with two of its former shareholders, Cheuk Kau Herman Kwong and
Kwok Leung Lee (“the consultants”). The agreements provide that the monthly compensation for January and February
2018, $2,552 (HKD20,000), for March to June 2018, $1,275 (HKD10,000), is payable to each of the consultants for the financial
and project management services rendered to Tang Dynasty. Pursuant to these agreements, Tang Dynasty has incurred and paid $3,827
(HKD30,000) and $10,206 (HKD80,000) and to each of the consultants during the three months period and six months period ended
June 30, 2018 respectively.
IMGL
has incurred $30,000 and $60,000 as management consulting fee to Hoi Ming Chan, Chief Executive Officer, in respect of his services
rendered to IMGL for the three months period ended June 30, 2018 and the six month period ended period ended June 30, 2018 respectively.
IMGL has incurred and paid $10,500 and $21,000 as financial consulting fee to AE Financial Management Ltd. in respect of the services
rendered by Edward Low, Chief Financial Officer, for the three months period ended June 30, 2018 and the six month period ended
June 30, 2018 respectively.
Other
receivables-related parties
Other
receivables - related parties are those non-trade receivables arising from transactions between the Company and certain related
parties, such as loans and employee advances to such related parties. The loans are unsecured, non-interest bearing and due in
the next 12 months.
Other
receivables - related parties consisted of the following
Name of related parties
|
|
Relationship
|
|
Nature of transactions
|
|
June 30, 2018 (Unaudited)
|
|
|
December 31, 2017 (Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Image International Group Inc.
|
|
Mr. Hoi Ming Chan is the Chief Executive Officer
|
|
Loan for funding business development activities
|
|
$
|
-
|
|
|
$
|
57,955
|
|
Hui Zhang
|
|
Director of Yangshuo
|
|
Loan for funding business development activities
|
|
|
188,168
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
188,168
|
|
|
$
|
57,955
|
|
Other
payables-related parties
Other
payables - related parties consisted of the following:
Name of related parties
|
|
Relationship
|
|
Nature of transactions
|
|
June 30, 2018 (Unaudited)
|
|
|
December 31, 2017 (Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Hui Zhang
|
|
Director of Yangshuo
|
|
Funds to former shareholders
|
|
$
|
-
|
|
|
$
|
392,235
|
|
Ni Qin
|
|
Director of Shenzhen Guyue Environmental Technology Co. Ltd.
|
|
Loan from director for operating cash flows
|
|
|
318,002
|
|
|
|
16,008
|
|
Hoi Ming Chan
|
|
Chief Executive Officer of IMGL and Director of Tang Dynasty
|
|
Advances from director to support the operation of Tang Dynasty and compensation for consulting service to IMGL
|
|
|
3,169,302
|
|
|
|
2,575,428
|
|
Zhi Yuan Chen
|
|
Supervisor of Shenzhen Guyue Environmental Technology Co. Ltd.
|
|
Loan from supervisor for Gu Yue’s operating cash flow
|
|
|
2,729
|
|
|
|
19,681
|
|
Shenzhen Dongyuan Dongli Battery Co., Ltd
|
|
Zhi Yuan CHEN is the corporate representative of the Company
|
|
Loan for Gu Yue’s operating cash flows
|
|
|
-
|
|
|
|
799
|
|
Huizhou Shiji Wufeng Agricultural Industry Co., Ltd
|
|
Owned by Shenzhen Dongyuan Dongli Battery Co., Ltd and Zhi Yuan CHEN
|
|
Loan for Gu Yue’s operating cash flows
|
|
|
-
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
3,490,033
|
|
|
|
3,005,353
|
|
Total other payables - related parties - current
|
|
|
|
|
|
|
3,490,033
|
|
|
|
3,005,353
|
|
Total other payables - related parties - non-current
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
9 – NON-OPERATING REVENUE
Non-operating
revenue mainly consists of rental revenue. Yangshuo has recognized its rental revenue in an amount of $8,247 and $16,526 for the
three months and six months ended June 30, 2018 respectively.
The
following is a schedule by years of minimum future rentals on non-cancelable operating leases as of June 30, 2018:
Year ending December 31:
|
|
|
|
2018
|
|
$
|
9,465
|
|
2019
|
|
|
10,148
|
|
2020
|
|
|
6,840
|
|
Total minimum future rentals receivable
|
|
$
|
26,453
|
|
NOTE
10 – INCOME TAXES
We
are subject to income taxes in both the United States and multiple foreign jurisdictions. Significant judgments and estimates
are required in determining the consolidated income tax expense.
U.S.
Prior
to January 31, 2018, IMGL, incorporated in Nevada, is subject to federal income tax rate at 34%. On December 22, 2017, the U.S
government enacted the Tax Cuts and Jobs Act which covers a wide range of changes to the U.S. tax code, including, but not limited
to (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time
transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income
taxes on dividends from foreign subsidiaries (4) providing modification to subpart F provisions and new taxes on certain foreign
earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions
go into effect starting January 1, 2018.
The
share exchange between IMGL and Tang Dynasty was closed on January 18, 2018 and thus the business combination was effective on
the same day. Accordingly, the Company was not subject to the one-time transition tax which was in effect in the calendar year
2017. Beginning the first quarter 2018, we are subject to GILTI and applying the guidance in SAB 118 when accounting for the enactment
date effects of the Act.
On
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of
U.S. 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 Tax Act. As of June 30, 2018,
we have not completed our accounting for all the tax effects of the Tax Act. Since our foreign subsidiaries incurred losses for
the three months ended June 30, 2018, we anticipated that the tax effects of the Tax Act is nominal. We will continue to evaluate
the tax effects of the Tax Act and refine our estimate when additional information is available. Our estimate could be changed
as we obtain a more thorough understanding of the Tax Act. Changes to the provisional estimate of the tax effect of the Tax Act
will be recorded as a discrete item during the interim period.
Hong
Kong
Tang
Dynasty Investment Group Limited, incorporated in Hong Kong, SAR, is subject to Hong Kong Profits tax at 16.5%.
PRC
Our
subsidiary, Gu Yue and VIE, Yangshuo are incorporated in the People’s Republic of China and governed by the income tax laws
of the PRC. The income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable
income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income
Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate
tax adjustments.
Under
the EIT Laws, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject
to PRC withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain countries.
Effective
tax rates for the six months ended June 30, 2018 and 2017 were nil. The Company and its subsidiaries have incurred operating losses
historically. The Company believes that it is more likely than not that its accumulated operating losses from IMGL, Tang Dynasty,
Gu Yue and Yangshuo will not be utilized before they are expired. Therefore, the Company has provided full valuation allowance
for the deferred tax assets and accumulated net operating losses. Accordingly, the Company has no net deferred tax assets.
The
Company did not recognize any interest and penalties related to uncertain tax positions in its provision for income taxes for
the six months ended June 30, 2018 and year ended December 31, 2017. The Company does not expect that its assessment regarding
unrecognized tax positions will materially change over the next 12 months.
NOTE
11 - STATUTORY RESERVE
Pursuant
to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory
surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual
appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined
under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). Gu Yue and Yangshuo did
not make appropriations to statutory reserve for the six months ended June 30, 2018 as both entities have incurred accounting
losses and tax losses during that period.
NOTE
12 - COMMITMENTS AND CONTINGENCIES
As
of the reporting date, the Company has not incurred any unrecognized or recognized commitments or loss contingencies that are
subject to disclosure requirements.
NOTE
13 – CONTINGENT LIABILITY
In
an administrative litigation in 2017, the plaintiff Yunsheng YANG, an independent third party to Yangshuo, filed a claim against
the Yangshuo County People’s Government (the “Government”) naming Yangshuo as the third party in revoking the
State-owned Land Use Certificate (Shuo Guo Yong (2015) No.500), which states that Yangshuo has the right to use the land involved
of area of approximately 734.4 ㎡ (the “Land”). On August 10, 2017, the Guilin Intermediate People’s Court
held that there was no evidence could prove the plaintiff has any right regarding the Land and dismiss all the plaintiff’s
claims.
The
plaintiff was unsatisfied with the judgment and appealed to the Guangxi Zhuang Autonomous Region Higher People’s Court.
The second trial is pending at the date of this report.
According
to the PRC legal opinion of the counsel of Yangshuo , the possible impact is that if the judge held in favor of the plaintiff’s
claims, Yangshuo might lose the right to use the Land which carrying amount as of June 30, 2018 was US$258,436. However, the director
of Yangshuo opined that the probability of losing the case is less than probable based on the judgement of the court of first
instance. As such, no impairment loss is provided on the involved land as of the report date.