Item
1.
|
Financial
Statements.
|
The
following unaudited interim financial statements of Yangtze River Development Limited (referred to herein as the “Company,”
“we,” “us” or “our”) are included in this quarterly report on Form 10-Q:
Yangtze River
Development Limited
September
30, 2016 and 2015
Index to
the Consolidated Financial Statements
|
Pages
|
Condensed Consolidated Balance Sheets
|
2
|
Condensed Consolidated Statements of Operations and Comprehensive Loss
|
3
|
Condensed Consolidated Statements of Changes in Equity
|
4
|
Condensed Consolidated Statements of Cash Flows
|
5
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
6 – 19
|
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
Condensed
Consolidated Balance Sheets
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
53,559
|
|
|
$
|
512,569
|
|
Other assets and receivables
|
|
|
4,246,107
|
|
|
|
6,259,865
|
|
Real estate property completed
|
|
|
30,721,419
|
|
|
|
31,566,156
|
|
Real estate properties and land lots under development
|
|
|
355,315,562
|
|
|
|
364,876,105
|
|
Property and equipment, net
|
|
|
107,557
|
|
|
|
157,499
|
|
Deferred tax assets
|
|
|
4,390,429
|
|
|
|
3,614,419
|
|
Total Assets
|
|
$
|
394,834,633
|
|
|
$
|
406,986,613
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,371,544
|
|
|
$
|
5,526,610
|
|
Due to related parties
|
|
|
32,431,189
|
|
|
|
32,045,112
|
|
Other taxes payable
|
|
|
38,980
|
|
|
|
13,350
|
|
Other payables and accrued liabilities
|
|
|
7,010,317
|
|
|
|
560,830
|
|
Real estate property refund and compensation payable
|
|
|
25,668,811
|
|
|
|
25,274,753
|
|
Convertible note
|
|
|
75,000,000
|
|
|
|
75,000,000
|
|
Loans payable
|
|
|
43,237,084
|
|
|
|
44,502,981
|
|
Total Liabilities
|
|
$
|
188,757,925
|
|
|
$
|
182,923,636
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Preferred stock at $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding
|
|
$
|
-
|
|
|
$
|
-
|
|
Common stock at $0.0001 par value; 500,000,000 shares authorized; 172,269,446 and 172,254,446 shares issued and outstanding at September 30, 2016 and December 31, 2015 respectively
|
|
|
17,227
|
|
|
|
17,225
|
|
Additional paid-in capital
|
|
|
242,696,445
|
|
|
|
242,622,947
|
|
Accumulated losses
|
|
|
(26,409,392
|
)
|
|
|
(16,263,010
|
)
|
Accumulated other comprehensive loss
|
|
|
(10,227,572
|
)
|
|
|
(2,314,185
|
)
|
Total Equity
|
|
$
|
206,076,708
|
|
|
$
|
224,062,977
|
|
Total Liabilities and Equity
|
|
$
|
394,834,633
|
|
|
$
|
406,986,613
|
|
See
notes to unaudited condensed consolidated financial statements
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
Condensed
consolidated Statements of OPERATIONS and Comprehensive LOSS
|
|
For the nine months ended
September 30,
|
|
|
For the three months ended
September 30
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Costs of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
1,459
|
|
|
|
8,006
|
|
|
|
-
|
|
|
|
3,720
|
|
General and administrative expenses
|
|
|
4,558,102
|
|
|
|
1,470,700
|
|
|
|
763,361
|
|
|
|
488,076
|
|
Total operating expenses
|
|
|
4,559,561
|
|
|
|
1,478,706
|
|
|
|
763,361
|
|
|
|
491,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,559,561
|
)
|
|
|
(1,478,706
|
)
|
|
|
(763,361
|
)
|
|
|
(491,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
2,827
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expenses
|
|
|
(28
|
)
|
|
|
(3,110
|
)
|
|
|
-
|
|
|
|
(3,110
|
)
|
Interest income
|
|
|
174
|
|
|
|
33
|
|
|
|
42
|
|
|
|
7
|
|
Interest expenses
|
|
|
(6,474,519
|
)
|
|
|
(2,326,475
|
)
|
|
|
(2,156,558
|
)
|
|
|
(730,629
|
)
|
Total other expenses
|
|
|
(6,471,546
|
)
|
|
|
(2,329,552
|
)
|
|
|
(2,156,516
|
)
|
|
|
(733,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(11,031,107
|
)
|
|
|
(3,808,258
|
)
|
|
|
(2,919,877
|
)
|
|
|
(1,225,528
|
)
|
Income taxes expense
|
|
|
884,725
|
|
|
|
952,064
|
|
|
|
285,801
|
|
|
|
306,382
|
|
Net loss
|
|
$
|
(10,146,382
|
)
|
|
$
|
(2,856,194
|
)
|
|
$
|
(2,634,076
|
)
|
|
$
|
(919,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(7,913,387
|
)
|
|
|
(682,081
|
)
|
|
|
(1,120,502
|
)
|
|
|
(817,493
|
)
|
Comprehensive loss
|
|
$
|
(18,059,769
|
)
|
|
$
|
(3,538,275
|
)
|
|
$
|
(3,754,578
|
)
|
|
$
|
(1,736,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
172,268,077
|
|
|
|
151,000,000
|
|
|
|
172,268,077
|
|
|
|
151,000,000
|
|
See
notes to unaudited condensed consolidated financial statements
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
condensed
consolidated Statements of CHANGES IN Equity
|
|
Common stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated
other
comprehensive
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
(loss)
|
|
|
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
losses
|
|
|
income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2015
|
|
|
151,000,000
|
|
|
$
|
15,100
|
|
|
$
|
27,955,331
|
|
|
$
|
(9,881,148
|
)
|
|
$
|
4,335,732
|
|
|
$
|
22,425,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness of loan from Wuhan Renhe
|
|
|
-
|
|
|
|
-
|
|
|
|
285,413,074
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,413,074
|
|
Effect of share exchange
|
|
|
20,596,546
|
|
|
|
2,060
|
|
|
|
(86,182,521
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(86,180,461
|
)
|
Restricted shares issued for services
|
|
|
657,900
|
|
|
|
65
|
|
|
|
3,749,965
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,750,030
|
|
Extinguishment of debt with a former officer
|
|
|
-
|
|
|
|
-
|
|
|
|
11,687,098
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,687,098
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,381,862
|
)
|
|
|
-
|
|
|
|
(6,381,862
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,649,917
|
)
|
|
|
(6,649,917
|
)
|
Balance as of December 31, 2015
|
|
|
172,254,446
|
|
|
$
|
17,225
|
|
|
$
|
242,622,947
|
|
|
$
|
(16,263,010
|
)
|
|
$
|
(2,314,185
|
)
|
|
$
|
224,062,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares issued for services
|
|
|
15,000
|
|
|
|
2
|
|
|
|
73,498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73,500
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,146,382
|
)
|
|
|
-
|
|
|
|
(10,146,382
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,913,387
|
)
|
|
|
(7,913,387
|
)
|
Balance as of September 30, 2016 (Unaudited)
|
|
|
172,269,446
|
|
|
$
|
17,227
|
|
|
$
|
242,696,445
|
|
|
$
|
(26,409,392
|
)
|
|
$
|
(10,227,572
|
)
|
|
$
|
206,076,708
|
|
See
notes to unaudited condensed consolidated financial statements
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
condensed
Consolidated Statements of Cash Flows
|
|
(Unaudited)
For the Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,146,382
|
)
|
|
$
|
(2,856,194
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property, and equipment
|
|
|
48,450
|
|
|
|
61,675
|
|
Deferred tax benefit
|
|
|
(884,725
|
)
|
|
|
(952,064
|
)
|
Share-based compensation expense
|
|
|
2,014,664
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets and receivables
|
|
|
-
|
|
|
|
72,151
|
|
Real estate property completed
|
|
|
-
|
|
|
|
(314,959
|
)
|
Real estate properties and land lots under development
|
|
|
(206,640
|
)
|
|
|
(702,362
|
)
|
Accounts payable
|
|
|
(7,376
|
)
|
|
|
-
|
|
Other taxes payable
|
|
|
26,343
|
|
|
|
(28,077
|
)
|
Other payables and accrued liabilities
|
|
|
6,486,134
|
|
|
|
94,571
|
|
Real estate property refund and compensation payables
|
|
|
1,085,137
|
|
|
|
1,145,440
|
|
Net Cash Used In Operating Activities
|
|
|
(1,584,395
|
)
|
|
|
(3,479,819
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,851
|
)
|
|
|
-
|
|
Net Cash Used In Investing Activities
|
|
|
(1,851
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Advances from related parties
|
|
|
1,203,672
|
|
|
|
3,587,869
|
|
Repayment of financial institution loans
|
|
|
(75,990
|
)
|
|
|
(161,983
|
)
|
Net Cash Provided By Financing Activities
|
|
|
1,127,682
|
|
|
|
3,425,886
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
(446
|
)
|
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
Net Decrease In Cash and Cash Equivalents
|
|
|
(459,010
|
)
|
|
|
(54,251
|
)
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
512,569
|
|
|
|
56,366
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
53,559
|
|
|
$
|
2,115
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest expenses
|
|
$
|
-
|
|
|
$
|
2,326,475
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Transaction:
|
|
|
|
|
|
|
|
|
Forgiveness of loans from an owner
|
|
$
|
-
|
|
|
$
|
285,413,074
|
|
See
notes to unaudited condensed consolidated financial statements
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO unaudited condensed FINANCIAL STATEMENTS
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
The
condensed consolidated financial statements include the financial statements of Yangtze River Development Limited (the “Company”
or “Yangtze River”) and its subsidiaries, Energetic Mind Limited (“Energetic Mind”), Ricofeliz Capital
(HK) Limited (“Ricofeliz Capital”), and Wuhan Yangtze River Newport Logistics Co., Ltd. (“Wuhan Newport”).
The
Company, formerly named as Kirin International Holding, Inc., and Ciglarette, Inc., was incorporated in the State of Nevada on
December 23, 2009. The Company was a development stage company and has not generated significant revenue since inception to March
1, 2011.
On
March 1, 2011, the Company entered into a share exchange agreement that Kirin China Holding Limited (“Kirin China”)
became the Company’s wholly-owned subsidiary. Kirin China engaged in the development and sales of residential and commercial
real estate properties, and development of land lots in People’s Republic of China (“China”, or the “PRC”).
On
December 19, 2015, the Company completed a share exchange (the “Share Exchange”) with Energetic Mind and all the shareholders
of Energetic Mind, whereby Yangtze River acquired 100% of the issued and outstanding capital stock of Energetic Mind, in exchange
for 151,000,000 shares of Yangtze River’s common stock, which constituted approximately 88% of its issued and outstanding
shares on a fully-diluted basis of Yangtze River immediately after the consummation of the Share Exchange, and an 8% convertible
note (the “Note”) in the principal amount of $150,000,000. As a result of the Share Exchange, Energetic Mind became
Yangtze River’s wholly-owned subsidiary and Jasper Lake Holdings Limited (“Jasper”), the former shareholder
of Energetic Mind, became Yangtze River’s controlling stockholder. The Share Exchange transaction with Energetic Mind was
treated as an acquisition, with Energetic Mind as the accounting acquirer and Yangtze River as the acquired party. The financial
statements before the date of the Share Exchange are those of Energetic Mind with the results of the Company being consolidated
from the date of the Share Exchange.
Energetic
Mind owns 100% of Ricofeliz Capital and operates its business through its subsidiary Wuhan Newport.
Wuhan
Newport was a wholly owned subsidiary of Wuhan Renhe Group Co., Ltd. (the “Wuhan Renhe”), a company incorporated in
the PRC as at September 23, 2002. On July 13, 2015, Wuhan Renhe transferred all of the equity interests of the Company to Ricofeliz
Capital, a company incorporated in Hong Kong on March 25, 2015. Ricofeliz Capital was incorporated by Energetic Mind, a company
incorporated in British Virgin Islands (“BVI”). Energetic Mind was incorporated by Mr. Liu Xiangyao on January 2,
2015, and was subsequently purchased by various companies incorporated in BVI or the United States of America (“USA”),
among whom Jasper became its 64% owner. Jasper was 100% owned by Mr. Liu Xiangyao, a Hong Kong citizen.
The
major assets of Wuhan Newport include land lots for developing commercial buildings that are in line with the principal activities
of Kirin China.
On
December 31, 2015, the Company entered into certain stock purchase and business sale agreements (the “Agreements”)
with Kirin Global Enterprises, Inc. (the “Purchaser”), a California corporation and an entity controlled by a former
officer and director of the Company whereby the Company sold its interest in certain subsidiaries (see note 11) for an aggregate
of $75,000,002. (the “Sale”).
Pursuant
to the terms of the Agreements, Jasper agreed to finance the Sale by reducing Company’s financial obligations of the Note
by an aggregate of $75,000,000. In addition, the Purchaser agreed to pay the remaining two dollars in cash.
Upon
completion of the Sale, the Company operates its business solely through its subsidiary Wuhan Newport, primarily engaging in the
business as a port logistic center located in the middle reaches of the Yangtze River in the PRC.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO unaudited condensed FINANCIAL STATEMENTS
2.
Summary of Significant Accounting Policies
2.1
Basis of presentation
The
accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“GAAP”).
The
condensed consolidated financial statements include the financial statements of all the subsidiaries. All transactions and balances
between the Company and its subsidiaries have been eliminated upon consolidation.
The
condensed consolidated balance sheets are presented unclassified because the time required to complete real estate projects and
the Company’s working capital considerations usually stretch for more than one-year period.
2.2
Use of estimates
The
preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available
information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates
reflected in the condensed consolidated financial statements include: (i) the allowance for doubtful debts; (ii) accrual of estimated
liabilities; and (iii) contingencies; (iv) deferred tax assets; (v) impairment of long-lived assets; (vi) useful lives of property
plant and equipment; and (vii) real estate property refunds and compensation payables.
2.3
Cash and cash equivalents
Cash
and cash equivalents consist of cash and bank deposits with original maturities of three months or less, which are unrestricted
as to withdrawal and use the Company maintains accounts at banks and has not experienced any losses from such concentrations.
2.4
Property and equipment
The
property and equipment are stated at cost less accumulated depreciation. The depreciation is computed on a straight-line method
over the estimated useful lives of the assets with 5% salvage value. Estimated useful lives of property and equipment are stated
in Note 7.
The
Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes
any gain or loss in the statement of income. The Company charges maintenance, repairs and minor renewals directly to expenses
as incurred; major additions and betterment to equipment are capitalized.
2.5
Impairment of long-lived assets
The
Company applies the provisions of ASC No. 360 Sub topic 10, “Impairment or Disposal of Long-Lived Assets”(ASC 360- 10)
issued by the Financial Accounting Standards Board (“FASB”). ASC 360-10 requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable
through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever
any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair
value.
The
Company tests long-lived assets, including property and equipment and finite lived intangible assets, for impairment at least
annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater
than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent
of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its
evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected
to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows,
the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation
of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential
investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections
are considered necessary. There were no impairment losses in the nine months ended September 30, 2016 and 2015.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
2.6
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 nonfinancial assets
and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.
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.
As
of September 30, 2016 and 2015, financial instruments of the Company primarily comprise of cash, accrued interest receivables,
other receivables, short-term bank loans, deposits payables and accrued expenses, which were carried at cost on the balance sheets,
and carrying amounts approximated their fair values because of their generally short maturities.
2.7
Convertible notes
In
accordance with ASC subtopic 470-20, the convertible notes are initially carried at the principal amount of the convertible notes.
Debt premium or discounts, which are the differences between the carrying value and the principal amount of convertible notes
at the issuance date, together with related debts issuance cost, are subsequently amortized using effective interest method as
adjustments to interest expense from the debt issuance date to its first redemption date. Convertible notes are classified as
a current liability if they are or will be callable by the Company or puttable by the debt holders within one year from the balance
sheet date, even though liquidation may not be expected within that period.
2.8
Foreign currency translation and transactions
The
Company’s condensed consolidated financial statements are presented in the U.S. dollar (US$), which is the Company’s
reporting currency. Yangtze River, Energetic Mind, and Ricofeliz Capital uses US$ as its functional currency. Wuhan Newport uses
Renminbi Yuan (“RMB”) as its functional currency. Transactions in foreign currencies are initially recorded at the
functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement
amount are recorded as a gain or loss on foreign currency transaction in the statements of operations.
In
accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US$ using the rate of
exchange prevailing at the applicable balance sheet date and the statements of operations and cash flows are translated at an
average rate during the reporting period. Adjustments resulting from the translation are recorded in owners’ equity as part
of accumulated other comprehensive income.
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Balance sheet items, except for equity accounts
|
|
|
6.6702
|
|
|
|
6.4917
|
|
|
|
For the nine months ended September 30,
|
|
|
For the three months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items in the statements of operations and comprehensive income, and statement of
cash flows
|
|
|
6.5798
|
|
|
|
6.1735
|
|
|
|
6.6667
|
|
|
|
6.3031
|
|
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
2.9
Revenue recognition
The
Company recognizes revenue from steel trading when persuasive evidence of an arrangement exists, delivery has occurred, the price
is fixed or determinable and collection is reasonably assured.
Real
estate sales are reported in accordance with the provisions of ASC 360-20, Property, Plant and Equipment, Real Estate Sales.
Revenue
from the sales of completed properties and properties where the construction period is twelve months or less is recognized by
the full accrual method when (a) sale is consummated; (b) the buyer’s initial and continuing involvements are adequate to
demonstrate a commitment to pay for the property; (c) the receivable is not subject to future subordination; (d) the Company has
transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have
a substantial continuing involvement with the property. A sale is not considered consummated until (a) the parties are bound by
the terms of a contract or agreement, (b) all consideration has been exchanged, (c) any permanent financing for which the seller
is responsible has been arranged, (d) all conditions precedent to closing have been performed. Fair value of buyer’s payments
to be received in future periods pursuant to sales contract is classified under accounts receivable. Sales transactions not meeting
all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method,
all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.
Revenue
and profit from the sale of development properties where the construction period is more than twelve months is recognized by the
percentage-of-completion method on the sale of individual units when the following conditions are met: (a)construction is beyond
a preliminary stage; (b) the buyer is committed to the extent of being unable to require a refund except for non-delivery of the
unit; (c) sufficient units have already been sold to assure that the entire property will not revert to rental property; (d) sales
prices are collectible and (e) aggregate sales proceeds and costs can be reasonably estimated. If any of these criteria are not
met, proceeds are accounted for as deposits until the criteria are met and/or the sale consummated.
The
Company has not generated any revenue from the sales of real estate property for the nine months and three months ended September
30, 2016 and 2015.
2.10
Real estate capitalization and cost allocation
Real
estate property completed and real estate properties and land lots under development consist of commercial units under construction
and units completed. Properties under development or completed are stated at cost or estimated net realizable value, whichever
is lower. Cost capitalization of development and redevelopment activities begins during the predevelopment period, which we define
as the activities that are necessary to begin the development of the property. We cease capitalization upon substantial completion
of the project, but no later than one year from cessation of major construction activity. We also cease capitalization when activities
necessary to prepare the property for its intended use have been suspended. Costs include costs of land use rights, direct development
costs, interest on indebtedness, construction overhead and indirect project costs. The Company acquires land use rights with lease
terms of 40 years through government sale transaction. Land use rights are divided and transferred to customers after the Company
delivers properties. The Company capitalizes payments for obtaining the land use rights, and allocates to specific units within
a project based on units’ gross floor area. Costs of land use rights for the purpose of property development are not amortized.
Other costs are allocated to units within a project based on the ratio of the sales value of units to the estimated total sales
value.
2.11
Capitalization of interest
In
accordance with ASC 360, Property, Plant and Equipment, interest incurred during construction is capitalized to properties under
development. For the nine months ended September 30, 2016 and 2015, $nil and $nil were capitalized as properties under development,
respectively.
2.12
Advertising expenses
Advertising
costs are expensed as incurred, or the first time the advertising takes place, in accordance with ASC 720-35, Advertising Costs.
For the nine months ended September 30, 2016 and 2015, the Company recorded advertising expenses of $1,459 and $nil, respectively.
For the three months ended September 30, 2016 and 2015, the company recorded advertising expenses of $nil and $nil, respectively.
2.13
Share-based compensation
The
Company grants restricted shares to its non-employee consultants. Awards granted to non-employees are measured at fair value at
the earlier of the commitment date or the date the services are completed, and are recognized using graded vesting method over
the period the service is provided.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
2.14
Income taxes
Current
income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing
condensed consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions
in which it operates. The Company accounts for income taxes using the liability method. Under this method, deferred income taxes
are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported
amounts in the condensed consolidated financial statements at each year-end and tax loss carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.
The
Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon settlement. As of September 30, 2016 and 2015, the Company did not have any uncertain
tax position.
2.15
Land Appreciation Tax (“LAT”)
In
accordance with the relevant taxation laws in the PRC, the Company is subject to LAT based on progressive rates ranging from 30%
to 60% on the appreciation of land value, which is calculated as the proceeds of sales of properties less deductible expenditures,
including borrowing costs and all property development expenditures. LAT is prepaid at 1% to 2% of the pre-sales proceeds each
year as required by the local tax authorities, and is settled generally after the construction of the real estate project is completed
and majority of the units are sold. The Company provides LAT as expensed when the related revenue is recognized based on estimate
of the full amount of applicable LAT for the real estate projects in accordance with the requirements set forth in the relevant
PRC laws and regulations. LAT would be included in income tax expense in the statements of operations and comprehensive income
(loss).
2.16
Earnings (loss) per share
Basic
earnings (loss) per share is computed using the weighted average number of common shares outstanding during the year. Diluted
earnings per share is computed using the weighted average number of common shares and potential common shares outstanding during
the period for convertible notes under if-convertible method, if dilutive. Potential common shares are not included in the denominator
of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which
a net loss is recorded.
2.17
Comprehensive loss
Comprehensive
loss includes net income (loss) and foreign currency adjustments. Comprehensive loss is reported in the condensed consolidated
statements of operations and comprehensive loss. Accumulated other comprehensive loss, as presented on the condensed consolidated
balance sheets are the cumulative foreign currency translation adjustments.
2.18
Contingencies
In
the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out
of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance
with ASC No. 450 Sub topic 20, “Loss Contingencies”, the Company records accruals for such loss contingencies when
it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
2.19
Recently issued accounting pronouncements
The
Company does not believe other recently issued but not yet effective accounting standards from ASU 2016-15, if currently adopted,
would have a material effect of the condensed consolidated financial position, results of operation and cash flows.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
3.
Risks
(a)
Liquidity risk
The
Company is exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to
meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring
procedures.
(b)
Foreign currency risk
A
majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are
denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either
through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted
by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application
form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies
and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System
market.
4.
OTHER assets and receivables
Other
assets and receivables as of September 30, 2016 and December 31, 2015 consisted of:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Deposits
|
|
$
|
825
|
|
|
$
|
847
|
|
Prepaid consulting and legal fees
|
|
|
-
|
|
|
|
1,941,163
|
|
Underwriting commission and rental deposit
|
|
|
1,606,000
|
|
|
|
1,606,000
|
|
Excessive business tax and related urban construction and education surcharge
|
|
|
1,680,207
|
|
|
|
1,726,408
|
|
Excessive land appreciation tax
|
|
|
959,075
|
|
|
|
985,447
|
|
|
|
$
|
4,246,107
|
|
|
$
|
6,259,865
|
|
Business
tax and LAT are payable each year at 5% and 1% - 2% respectively of customer deposits received. The Company recognizes sales related
business tax and LAT in the income statement to the extent that they are proportionate to the revenue recognized each period.
Any excessive amounts of business and LAT liabilities recognized at period-end pursuant to tax laws and regulations over the amounts
recognized in the income statement are capitalized in prepayments and will be expensed in subsequent periods.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
5.
REAL ESTATE PROPERTY COMPLETED
The
account balance and components of the real estate property completed were as follow:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Properties completed
|
|
|
|
|
|
|
Wuhan Centre China Grand Steel Market
|
|
|
|
|
|
|
Costs of land use rights
|
|
$
|
7,510,480
|
|
|
$
|
7,716,994
|
|
Other development costs
|
|
|
23,210,939
|
|
|
|
23,849,162
|
|
|
|
$
|
30,721,419
|
|
|
$
|
31,566,156
|
|
As
of September 30, 2016, the sole and wholly owned developing project of the Company is called Wuhan Centre China Grand Steel Market
(Phase 1) Commercial Building in the south of Hans Road, Wuhan Yangluo Economic Development Zone with approximately 222,496.6
square meters of total construction area. Since June 2009, the Company commenced the construction of the project that funded through
a combination of bank loans and advances from shareholders. The Company has obtained certificates representing titles of the land
use rights used for the development of the project. As of September 30, 2016, the Company has completed the construction of four
buildings covering area of approximately 35,350.4 square meters of construction area. The Company values the real estate assets
based on estimates using present value by quoted prices for comparable real estate projects.
6.
REAL ESTATE PROPERTIES AND LAND LOTS UNDER DEVELOPMENT
The
components of real estate properties and land lots under development were as follows:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Properties under development
|
|
|
|
|
|
|
Wuhan Centre China Grand Steel Market
|
|
|
|
|
|
|
Costs of land use rights
|
|
$
|
9,057,886
|
|
|
$
|
9,306,948
|
|
Other development costs
|
|
|
38,143,366
|
|
|
|
38,982,735
|
|
|
|
|
|
|
|
|
|
|
Land lots under development Costs of land use rights
|
|
|
308,114,310
|
|
|
|
316,586,422
|
|
|
|
$
|
355,315,562
|
|
|
$
|
364,876,105
|
|
The
investments in undeveloped land were acquired in September, 2007. The Company leases the land under land use right leases with
various terms from the PRC government, and does not have ownership of the underlying land.
As
of September 30, 2016, the Company has three buildings under development of the project described in Note 5 covering area of approximately
57,450.4 square meters of construction area.
Land
use right with net book value of $176,435,688, including in real estate held for development and land lots undeveloped were pledged
as collateral for the
financial institution
loan as at September 30, 2016.
(See Note 10).
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
7.
Property and Equipment
The
Company’s property and equipment used to conduct day-to-day business are recorded at cost less accumulated depreciation.
Depreciation expenses are calculated using straight-line method over the estimated useful life with 5% of estimated salvage value
below:
|
|
Useful life years
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Fixture, furniture and office equipment
|
|
5
|
|
$
|
63,860
|
|
|
$
|
63,474
|
|
Vehicles
|
|
5
|
|
|
514,283
|
|
|
|
528,424
|
|
Less: accumulated depreciation
|
|
|
|
|
(470,586
|
)
|
|
|
(434,399
|
)
|
Property and equipment, net
|
|
|
|
$
|
107,557
|
|
|
$
|
157,499
|
|
Depreciation
expense totaled $48,450 and $61,675 for the nine months ended September 30, 2016 and 2015, respectively. For the three months
ended September 30, 2016 and 2015, the company recorded depreciation expenses of $14,533 and $21,151, respectively.
8.
OTHER PAYABLES AND ACCRUED LIABILITIES
Other
payables and accrued liabilities as of September 30, 2016 and December 31, 2015 consisted of:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Salaries payable
|
|
$
|
189,946
|
|
|
$
|
182,716
|
|
Business tax and related urban construction and education surcharge
|
|
|
11,939
|
|
|
|
12,947
|
|
Deposits from contractors
|
|
|
163,413
|
|
|
|
167,907
|
|
Convertible bond interest payable
|
|
|
4,697,260
|
|
|
|
197,260
|
|
Interest payable
|
|
|
1,947,759
|
|
|
|
-
|
|
|
|
$
|
7,010,317
|
|
|
$
|
560,830
|
|
9.
REAL ESTATE PROPERTY REFUND AND COMPENSATION PAYABLe
During
the years 2012 and 2011, the Company signed 443 binding agreements of sales of commercial offices of the project with floor area
of 22,790 square meters to unrelated purchasers (the transactions or the real estate sales transactions). The Company received
deposits and considerations from the purchasers as required by the agreements. The construction commenced in the 2010, which was
originally expected to be delivered to customers in late of 2012. No revenue was recognized from the sales of the commercial offices
due to the reason stated below.
Owing
to commercial reasons, the Company decided to terminate the agreements made for the sale of the real estate properties in relation
to the project of Wuhan Centre China Grand Market. According to the agreements of sales, the Company is obliged to compensate
the purchaser at a rate equal to 6% per annum or 0.05% per day on the deposits paid. In the nine months ended September 30, 2016
and 2015, the Company incurred $1,085,137 and $1,156,554 compensation expenses which were included in general and administrative
expenses.
As
at September 30, 2016, 375 out of 443 agreements were cancelled, and no completed office (or real estate certificate) has been
delivered to the purchaser. The Company is still in the progress of negotiating with the purchasers for the cancellation of the
remaining agreements. The directors of the Company are of the opinion that almost all of the purchasers shall accept the cancellation.
If, finally the purchaser insisted on the execution of the agreement, the Company will accept.
Real
estate property refund and compensation payable represent the amount of customer deposits received and the compensation calculated
in accordance with the provisions in the sales agreements. The payable consists of the followings:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Property sales deposits
|
|
$
|
19,613,351
|
|
|
$
|
20,152,652
|
|
Compensation
|
|
|
6,055,460
|
|
|
|
5,122,101
|
|
|
|
$
|
25,668,811
|
|
|
$
|
25,274,753
|
|
|
|
|
|
|
|
|
|
|
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
10.
Loans payable
Bank name
|
|
Weighted average
interest rate
|
|
Term
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
China Construction Bank
|
|
Fixed annual rate of 5.936%
|
|
From May 30, 2014 to May 29, 2020
|
|
$
|
43,237,084
|
|
|
$
|
44,502,981
|
|
|
|
|
|
|
|
$
|
43,237,084
|
|
|
$
|
44,502,981
|
|
Interest
expenses incurred on loans payable for the nine months ended September 30, 2016 and 2015 was $1,974,519 and $2,326,475, respectively.
Land
use right with net book value of $176,435,688, including in real estate held for development and land lots under development were
pledged as collateral for the loan as at September 30, 2016.
The
aggregate maturities of loans payable of each of years subsequent to September 30, 2016 are as follows:
|
|
(Unaudited)
|
|
2016
|
|
$
|
74,960
|
|
2017
|
|
|
10,494,438
|
|
2018
|
|
|
10,494,438
|
|
2019
|
|
|
11,993,643
|
|
2020
|
|
|
10,179,605
|
|
|
|
$
|
43,237,084
|
|
11.
CONVERTIBLE NOTE
On
December 19, 2015, the Company issued an 8% convertible note in the principal amount of $150,000,000 to Jasper, a related party,
in the Share Exchange (see note 1). The holder of the Note may convert all or any portion of the then aggregate outstanding principal
amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share.
On
December 31, 2015, pursuant to the terms and conditions of the Agreements, Jasper, financed the Purchaser for the Sale by reducing
Company’s financial obligations under the Note by an aggregate of $75,000,000 (see note 1). As a result of the Sale, the
outstanding balance due to Jasper under the Note was $75,000,000 plus any accrued interest.
There
was no beneficial conversion feature attributable to the Note as the set conversion price of the Note was greater than the fair
value of the common share price at the date of issuance. The Company has accounted for the Note in accordance with ASC 470-20,
as a single instrument as a non-current liability. The Note is initially carried at the gross cash received at the issuance date.
The
interest expense for the convertible note included in the condensed consolidated statements of operations is $4,500,000 and $nil
for the nine months ended September 30, 2016 and 2015. Note issuance costs are immaterial.
12.
Employee Retirement Benefit
The
Company has made employee benefit contribution in accordance with Chinese relevant regulations, including retirement insurance,
unemployment insurance, medical insurance, work injury insurance and birth insurance. The Company recorded the contribution in
the salary and employee charges when incurred. The contributions made by the Company were $103,505 and $24,503 for the nine months
ended September 30, 2016 and 2015, respectively.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
13.
INCOME TAXES
The
Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate
income tax. No provision for federal corporate income tax has been made in the financial statements as there are no assessable
profits.
Energetic
Mind was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, Energetic Mind is not
subject to tax on income.
Ricofeliz
Capital was incorporated in Hong Kong. No provision for Hong Kong profits tax has been made in the financial statements as there
are no assessable profits.
Wuhan
Newport was incorporated in the PRC, was governed by the income tax law of the PRC and is subject to PRC enterprise income tax
(“EIT”). The EIT rate of PRC is 25%.
Income
tax expenses for the nine months and three months ended September 30, 2016 and 2015 are summarized as follows:
|
|
For the nine months ended September 30,
|
|
|
For the three months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Deferred tax benefit
|
|
$
|
884,725
|
|
|
$
|
952,064
|
|
|
$
|
285,801
|
|
|
$
|
306,382
|
|
|
|
$
|
884,725
|
|
|
$
|
952,064
|
|
|
$
|
285,801
|
|
|
$
|
306,382
|
|
A
reconciliation of the income tax benefit determined at the PRC EIT income tax rate to the Company’s effective income tax
benefit is as follows:
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
EIT at the PRC statutory rate of 25%
|
|
$
|
2,757,777
|
|
|
$
|
952,064
|
|
Valuation allowance
|
|
|
(1,873,052
|
)
|
|
|
-
|
|
|
|
$
|
884,725
|
|
|
$
|
952,064
|
|
The
Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and
penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the nine
months ended September 30, 2016 and 2015, the Company had no unrecognized tax benefits.
The
Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months.
The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.
Deferred
income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities
and their reported amounts in the condensed consolidated financial statements at each year-end and tax loss carry forwards. The
tax effects of temporary differences that give rise to the following approximate deferred tax assets and liabilities as of September
30, 2016 and December 31, 2015 are presented below.
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
Operating loss carry forward
|
|
$
|
357,376
|
|
|
$
|
303,237
|
|
Excess of interest expenses
|
|
|
1,848,095
|
|
|
|
1,398,582
|
|
Accrued expenses
|
|
|
2,184,958
|
|
|
|
1,912,600
|
|
|
|
$
|
4,390,429
|
|
|
$
|
3,614,419
|
|
The
Company had net operating losses carry forward of $1,410,129 as of September 30, 2016 which will expire on various dates between
December 31, 2018 and 2019.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
14.
loss per share
|
|
For
the nine months ended September 30,
|
|
|
For
the three months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
for basic and diluted loss per share
|
|
$
|
(10,146,382
|
)
|
|
$
|
(2,856,194
|
)
|
|
$
|
(2,634,076
|
)
|
|
$
|
(919,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic and diluted
|
|
|
172,268,077
|
|
|
|
151,000,000
|
|
|
|
172,268,077
|
|
|
|
151,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss
per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
7,950,411
common shares resulting from the assumed conversion of 8% Convertible Note (note 11) were excluded from the calculation of diluted
loss per share for the nine months and three months ended September 30, 2016 as their effect is anti-dilutive.
15.
Related Party Transactions
15.1
Nature of relationships with related parties
|
Name
|
|
Relationships
with the Company
|
|
Wuhan
Renhe Group Co., Ltd (“Wuhan Renhe”)
|
|
Former
shareholder (Mr Wang Geng) of Wuhan Newport
|
|
Wuhan
Renhe Real Estate Co., Ltd. (“Renhe RE”)
|
|
Mr.
Wang Geng, the director of the Company, holds 100% of Renhe RE
|
|
Best
Future Investment LLC.
|
|
Mr.
James Coleman, the executive director of the company
|
|
Mr
Zhao Weibin
|
|
Officer
|
|
Mr
Liu Xiangyao
|
|
Director
|
15.2
Related party balances and transactions
Amount
due to Wuhan Renhe were $28,050,884 and $28,822,089 as at September 30, 2016 and December 31, 2015, respectively. The amount is
unsecured, interest free and does not have a fixed repayment date.
On
June 30, 2015, Wuhan Renhe forgave a total amount of $285,413,074 with the Company. The Company has credited the amount of $285,413,074
to additional paid-in capital in equity.
A
summary of changes in the amount due to Wuhan Renhe is as follows:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
At beginning of period
|
|
$
|
28,822,089
|
|
|
$
|
322,388,060
|
|
Advances from the related party
|
|
|
-
|
|
|
|
28,463,394
|
|
Forgiveness of loan
|
|
|
-
|
|
|
|
(285,413,074
|
)
|
Exchange difference adjustment
|
|
|
(771,205
|
)
|
|
|
(36,616,291
|
)
|
At end of period
|
|
$
|
28,050,884
|
|
|
$
|
28,822,089
|
|
Amount
due to Renhe RE were $649,905 and $667,776 as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured,
interest free and does not have a fixed repayment date.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
A
summary of changes in the amount due to Renhe RE is as follows:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
At beginning of period
|
|
$
|
667,776
|
|
|
$
|
-
|
|
Advances from the related party
|
|
|
-
|
|
|
|
667,776
|
|
Exchange difference adjustment
|
|
|
(17,871
|
)
|
|
|
-
|
|
At end of period
|
|
$
|
649,905
|
|
|
$
|
667,776
|
|
Amount
due to Best Future Investment were $46 and $nil as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured,
interest free and does not have a fixed repayment date.
A
summary of changes in the amount due to Best Future Investment is as follows:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
At beginning of period
|
|
$
|
-
|
|
|
$
|
-
|
|
Repayment to the related party
|
|
|
(4,394
|
)
|
|
|
-
|
|
Advances from the related party
|
|
|
4,440
|
|
|
|
-
|
|
At end of period
|
|
$
|
46
|
|
|
$
|
-
|
|
Amount
due to Mr Zhao Weibin were $123,130 and $126,516 as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured,
interest free and does not have a fixed repayment date.
A
summary of changes in the amount due to Mr Zhao Weibin is as follows:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
At beginning of period
|
|
$
|
126,516
|
|
|
$
|
126,516
|
|
Exchange difference adjustment
|
|
|
(3,386
|
)
|
|
|
-
|
|
At end of period
|
|
$
|
123,130
|
|
|
$
|
126,516
|
|
Amount
due to Mr Liu Xiangyao were $3,607,224 and $2,428,731 as at September 30, 2016 and December 31, 2015, respectively. The amount
is unsecured, interest free and does not have a fixed repayment date.
A
summary of changes in the amount due to Mr Liu Xiangyao is as follows:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
At beginning of period
|
|
$
|
2,428,731
|
|
|
$
|
-
|
|
Advances from the director
|
|
|
1,193,956
|
|
|
|
2,428,731
|
|
Exchange difference adjustment
|
|
|
(15,463
|
)
|
|
|
-
|
|
At end of period
|
|
$
|
3,607,224
|
|
|
$
|
2,428,731
|
|
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
16.
SHARE-BASED COMPENSATION EXPENSES
On
December 27, 2015, the Company granted 317,345 and 340,555 shares of the Company’s restricted common stock to a number of
consultants, in exchange for its legal and professional services to the Company for the years ended December 31, 2015 and 2016,
respectively. These shares were valued at $5.7 per share, the closing bid price of the Company’s common stock on the date
of grant. Total compensation expense recognized in the general and administrative expenses of the consolidated statement of operations
for the year ended December 31, 2015 was $1,808,867. Total compensation expense of approximately $1,941,163 will be recognized
in 2016 when all the services been rendered. The shares attributable to fiscal 2015 and 2016 were issued on December 30, 2015.
On
January 25, 2016, the Company granted 15,000 shares of the Company’s restricted common stock to a consultant, in exchange
for its legal and professional services to the Company for the year 2016. These shares were valued at $4.9 per share, the closing
bid price of the Company’s common stock on the date of grant. This compensation expense of approximately $73,500 was recognized
in 2016.
Total
compensation expenses recognized in the general and administrative expenses of the condensed consolidated statements of operations
for the nine months ended September 30, 2016 and 2015 was $2,014,663 and $nil respectively. For the three months ended September
30, 2016 and 2015, the company recorded compensation expenses of $nil and $nil, respectively.
17.
Concentration of Credit Risks
As
of September 30, 2016 and December 31, 2015, substantially all of the Company’s cash and cash equivalents were held by major
financial institutions located in China and the US, which management believes are of high credit quality.
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results
of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of
the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
No
customer accounted for more than 10% of total accounts receivable as of September 30, 2016 and December 31, 2015.
18.
Commitments and Contingencies
Operating
lease commitments
For
the nine months ended September 30, 2016 and 2015, rental expenses under operating leases were $54,000 and $nil, respectively.
The
future obligations for operating leases of each of years subsequent to September 30, 2016 are as follows:
|
|
(Unaudited)
|
|
2017
|
|
$
|
39,000
|
|
2018
|
|
|
-
|
|
Total minimum payment required
|
|
$
|
39,000
|
|
Legal
proceeding
The
Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely
to have a material adverse effect on the business, financial condition or results of operations.
The
Company did not identify any contingency as of September 30, 2016.
Yangtze
River Development Limited
(FORMERLY
Kirin International Holding, Inc.)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
19.
RESTRICTED NET ASSETS
PRC
laws and regulations permit payments of dividends by the Company’s subsidiary incorporated in the PRC only out of their
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s
subsidiary incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior
to payment of any dividends, unless such reserve have reached 50% of their respective registered capital. In addition, registered
share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held
in each subsidiary. As a result of the restrictions described above and elsewhere under PRC laws and regulations, the Company’s
subsidiary incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company in
the form of dividends or advances from PRC subsidiary. Such restriction amounted to $287,214,468 as of September 30, 2016. Except
for the above, there is no other restriction on the use of proceeds generated by the Company’s subsidiary to satisfy any
obligations of the Company.
20.
SUBSEQUENT EVENT
The
management evaluated all events subsequent to the balance sheet date through the date the condensed consolidated financial statements
were available to be issued. Except for the followings, there are no significant matters to make material adjustments or disclosure
in the condensed consolidated financial statements.
Armada Transaction
On October 3, 2016,
Company entered into a Contribution, Conveyance and Assumption Agreement (the “Agreement”) and an Addendum to the Agreement
(collectively with the Agreement, the “Armada Agreement”) with Armada Enterprises GP, LLC, a Delaware limited liability
company (“Armada GP”) to (i) complete certain share exchange and (ii) procure $1,000,000,000 in financing for the construction
of the Logistics Center.
Entity Conversion.
Pursuant to the Armada Agreement, Armada GP will become the general partner of its current controlling entity, Bim Homes, Inc.
(“Bim Homes”), upon Bim Homes’ conversion into Armada Enterprises LP (the “Armada LP”) via a statutory
conversion under Delaware law. Meanwhile Armada GP will contribute its ownership in Wight International Construction LLC, an entity
affiliated with Armada GP (“Wight”) in exchange for interests in Armada LP.
Share Exchange. Pursuant
to the Armada Agreement, the Company agreed to issue to Wight a convertible promissory note in the amount of $500 million USD (the
“Note”) that may be convertible into 50,000,000 shares of Company’s Common Stock. The Company also agreed to
contribute 60 million shares of the Common Stock at $8.33 per share, 50 million of which will be issued to Wight upon closing (the
“Contribution Shares”) and the remaining 10,000,000 will be reserved with Company’s transfer agent (the “Reserve
Shares”) and may be issued subject to Armada GP’s fulfillment of its obligation of procuring $1,000,000,000 in construction
financing for the Logistics Center to be provided over a 3-year period. The 10 million shares shall be otherwise become Company’s
treasury shares upon Armada GP’s default on such obligation.
Consideration. In
consideration of Company’s Note, Contribution Shares and Reserve Shares, Wight agreed to issue the Company 100 million membership
units in Wight valued at a minimum of $10 per unit for an aggregate value of $1 billion, which would be converted to limited partnership
units in Armada LP, upon Armada GP’s contribution of its interest in Wight to Armada LP. Armada shall also pay the Company
a non-refundable $2 million USD (the “Cash Investment”) by selling at least $12 million USD worth of the warrants issued
by Bim Homes. The Cash Investment will be held by the Company in escrow as a break-up fee in the event that Armada GP does not
obtain financing in the amount of at least $50 million USD for the Company (the “Break-up Fee”). The Break-up Fee shall
become a working capital fund for the Company if Armada GP obtains such financing.
Financing. Pursuant
to the Armada Agreement, the Company also agreed to engage Wight as its construction firm for construction of the Logistics Center,
subject to compliance with the applicable PRC laws. Wight will procure up to $1,000,000,000 in construction financing for the completion
of our Wuhan Project at approximately $200 million USD of new financing per year for five years. Upon closing, Wight will provide
us with proof of credit facilities of at least $500,000,000, which includes an allocation of $50 million USD in the form of debt
security to help the Company to meet NASDAQ listing qualifications.
Closing Conditions.
Closing shall occur upon (i) all parties’ representations and warranties are true and correct and (ii) the parties’
execution of a Memorandum Of Understanding outlining the material terms of the construction agreement by and between the Company
and Armada GP or its affiliates.
Termination. Termination of the Armada Agreement may occur by (i) mutual written consent; (ii) by either party
if the closing has not occurred within 60 days provided the terminating party is not in breach; and/or (iii) by either party if
the other party materially breached any of its covenants or representations provided however that the breaching party will first
have 30 days to cure.
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
|
The
following discussion and analysis of the results of operations and financial condition should be read in conjunction with our
financial statements and the notes to those financial statements that are included elsewhere in this Report. Our discussion includes
forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. See “Forward-Looking Statements.”
Overview
Yangtze
River Development Limited is a Nevada corporation that operates through its wholly-owned subsidiary Energetic Mind Limited, a
British Virgin Islands company, which holds 100% capital stock of Ricofeliz Capital (HK) Ltd., a Hong Kong company that holds
100% capital stock of Wuhan Yangtze River Newport Logistics Co., Ltd., a wholly foreign-owned enterprise formed under the laws
of the People’s Republic of China that primarily engages in the business of real estate and infrastructural development
with a port logistics center located in Wuhan, Hubei Province of China. Situated in the middle reaches of the Yangtze River, Wuhan
Newport is a large infrastructure development project implemented under China’s latest “One Belt One Road” initiative
and is believed to be strategically positioned in the anticipated “Pilot Free Trade Zone” of the Wuhan Port, a crucial
trading window among China, the Middle East and Europe. To be fully developed upon completion, within the logistics center, there
will be six operating zones: including port operation area, warehouse and distribution area, cold chain logistics area, rail cargo
loading area, exhibition area and business related area. The logistics center is also expected to provide a number of shipping
berths for cargo ships of various sizes. Wuhan Newport is expected to provide domestic and foreign businesses a direct access
to the anticipated Free Trade Zone in Wuhan. The project will include commercial buildings, professional logistic supply chain
centers, direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation, storage and processing centers,
IT supporting services, among others.
Our
Logistics Center is an extensive complex located in Wuhan, the capital of Hubei Province of China, a major transportation hub
city with access to numerous railways, roads and expressways passing through the city and connecting to major cities in China,
as well as other international centers of commerce and business.
The Logistics Center is expected to occupy
approximately 1,918,000 square meters, for which the construction and development are expected to be completed in three phases
in three years and reach its target maximum annual profit by the end of 2021 The following table illustrates the timeframe of
our investment and construction progress.
Time
|
|
Phase of Investment/Construction
|
|
Percentage of Total
Anticipated Investment/Construction*
|
|
Production Capacity**
|
1
st
Year (2017)
|
|
1
st
Phase
|
|
40%
|
|
30%
|
2
nd
Year (2018)
|
|
2
nd
Phase
|
|
70%
|
|
40%
|
3
rd
Year (2019)
|
|
3
rd
Phase
|
|
100%
|
|
60%
|
4
th
Year (2020)
|
|
Completed
|
|
100%
|
|
75%
|
5
th
Year (2021)
|
|
Completed
|
|
100%
|
|
100%
|
*
|
The percentage of construction in a certain phase reflects
exactly the contribution of the investment in that certain phase. For example, contribution of 40% of the total investment in
phase 1 will lead to construction of 40% of total value of the Wuhan Project.
|
**
|
The percentage of Production Capacity shows the fraction of the target maximum annual profit to be earned under the full operation
of the Wuhan Project. The Company plan to reach its target maximum annual profit by the end of 2021.
|
The
Logistics Center is located within the Wuhan Newport Yangluo Port, on the upper stream of the Yangtze River, and close to the
northern base of Wu Iron and Steel, China’s first mega-sized iron and steel production complex. The Logistics Center is
expected to include a port terminal that will be located approximately 26.5km from the Wuhan Guan and 5.5km from the Yangluo Yangtze
River Bridge. The operation area of the port is expected to consist of a riverbank of 1,039 meters with eight 5,000-to-10,000-ton
berths, two of which are multi-purpose berths and the other six are general cargo berths. It is designed to be able to handle
up to 5,000,000 tons of cargo annually, including up to 100,000 TEU for annual container throughput (including 20,000 TEU in freezers
areas), 1,000,000 tons of iron and steel and 3,000,000 tons of general cargo.
Within
the Logistics Center, functional areas will be divided into six operating zones: a port operation area, a warehouse and distribution
area, a cold chain supply logistics area, a rail cargo loading area, an exhibition area and a business related area. The Logistics
Center will also be complemented with container storage areas, multi-functional areas, general storage areas, multi-functional
warehouse and infrastructural development, including new roads, gas stations, parking areas, gas and water pipes, electricity
lines and all other facilities and equipment to operate the Logistics Center.
Aside from being situated in the Wuhan Yangluo
Comprehensive Bonded Zone, Yangluo development area is amongst the third group of China’s Pilot Free Trade Zone (FTZ) applicants
to submit FTZ applications to the State Council. As of the date of this Report, approvals have been granted to Shanghai, Tianjin,
Guangdong and Fujian. Enterprises within the approved free-trade zones are typically entitled to a series of favorable regulations
and policies that could help the businesses grow and succeed. However, we can provide no assurance at this point that the FTZ
application will in fact be approved.
Wuhan
Newport has signed a twenty-year lease agreement, maximum number of years permitted by the applicable PRC laws, and with rights
to renew at its sole discretion effective April 27, 2015 to lease approximately 1,200,000 square meters of land for building logistics
warehouses in support of the Logistics Center. The warehouses are expected to comprise of port terminal zones, warehouse logistics
zones, cold chain supply zones and railroad loading and unloading zones. The warehouses will connect the port terminal along the
Yangtze River and the railway leading to Europe, satisfying the requirement of China’s latest “One Belt, One Road”
initiative. It will also be able to support large logistics companies in Wuhan and other nearby provinces which will rent the
warehouses, terminals and offices within the Logistics Center.
Recent
Development
Armada Financing
On October
3, 2016, Company entered into a Contribution, Conveyance and Assumption Agreement (the “Agreement”) and an Addendum
to the Agreement (collectively with the Agreement, the “Armada Agreement”) with Armada Enterprises GP, LLC, a Delaware
limited liability company (“Armada GP”) to (i) complete certain share exchange and (ii) procure $1,000,000,000 in financing
for the construction of the Logistics Center.
Entity
Conversion.
Pursuant to the Armada Agreement, Armada GP will become the general partner of its current controlling entity,
Bim Homes, Inc. (“Bim Homes”), upon Bim Homes’ conversion into Armada Enterprises LP (the “Armada LP”)
via a statutory conversion under Delaware law. Meanwhile Armada GP will contribute its ownership in Wight International Construction
LLC, an entity affiliated with Armada GP (“Wight”) in exchange for interests in Armada LP.
Share
Exchange
. Pursuant to the Armada Agreement, the Company agreed to issue to Wight a convertible promissory note in the amount
of $500 million USD (the “Note”) that may be convertible into 50,000,000 shares of Company’s Common Stock. The
Company also agreed to contribute 60 million shares of the Common Stock at $8.33 per share, 50 million of which will be issued
to Wight upon closing (the “Contribution Shares”) and the remaining 10,000,000 will be reserved with Company’s
transfer agent (the “Reserve Shares”) and may be issued subject to Armada GP’s fulfillment of its obligation
of procuring $1,000,000,000 in construction financing for the Logistics Center to be provided over a 3-year period. The 10 million
shares shall be otherwise become Company’s treasury shares upon Armada GP’s default on such obligation.
Consideration.
In consideration of Company’s Note, Contribution Shares and Reserve Shares, Wight agreed to issue the Company 100 million
membership units in Wight valued at a minimum of $10 per unit for an aggregate value of $1 billion, which would be converted to
limited partnership units in Armada LP, upon Armada GP’s contribution of its interest in Wight to Armada LP. Armada shall
also pay the Company a non-refundable $2 million USD (the “Cash Investment”) by selling at least $12 million USD worth
of the warrants issued by Bim Homes. The Cash Investment will be held by the Company in escrow as a break-up fee in the event that
Armada GP does not obtain financing in the amount of at least $50 million USD for the Company (the “Break-up Fee”).
The Break-up Fee shall become a working capital fund for the Company if Armada GP obtains such financing.
Financing.
Pursuant to the Armada Agreement, the Company also agreed to engage Wight as its construction firm for construction of the Logistics
Center, subject to compliance with the applicable PRC laws. Wight will procure up to $1,000,000,000 in construction financing for
the completion of our Wuhan Project at approximately $200 million USD of new financing per year for five years. Upon closing, Wight
will provide us with proof of credit facilities of at least $500,000,000, which includes an allocation of $50 million USD in the
form of debt security to help the Company to meet NASDAQ listing qualifications.
Closing
Conditions.
Closing shall occur upon (i) all parties’ representations and warranties are true and correct and (ii) the
parties’ execution of a Memorandum Of Understanding outlining the material terms of the construction agreement by and between
the Company, Wight and Armada GP or its affiliates.
Termination.
Termination of the Armada Agreement may occur by (i) mutual written consent; (ii) by either party if the closing has not occurred
within 60 days provided the terminating party is not in breach; and/or (iii) by either party if the other party materially breached
any of its covenants or representations provided however that the breaching party will first have 30 days to cure.
Factors
Affecting our Operating Results
Growth
of China’s Economy
.
We operate and derive all of our revenue from operations in China. Economic conditions in China,
therefore, affect our operations, including the demand for our properties and services and the availability and prices of land
maintenance among other expenses. China has experienced significant economic growth with recorded Gross Domestic Product growth
rates at 7.7% in 2013, 7.4% in 2014 and 6.9% in 2015. China is expected to experience continued growth in all areas of investment
and consumption. However, if the Chinese economy were to become significantly affected by a negative stimulus, China’s growth
rate would likely to fall and our revenue could correspondingly decline.
Government
Regulations.
Our business and results of operations are subject to PRC government policies and regulations regarding the
following:
|
●
|
Land
Use Right
— According to the Land Administration Law of the PRC and Interim Regulations of the People’s Republic
of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas, individuals
and companies are permitted to acquire rights to use urban land or land use rights for specific purposes, including residential,
industrial and commercial purposes. We acquire land use rights from local governments and/or other entities for development
of residential and commercial real estate projects. We do not have ownership over these lands.
|
|
|
|
|
●
|
Land
Development
— According to the Urban Real Estate Development and Operation Administration Regulation, the Urban
Real Estate Development and Operation Administration Rules of Hebei Province promulgated by the government of the Hebei Province,
and the Real Estate Development Enterprise Qualification Administration Regulation, a real estate development enterprise shall
obtain a Real Estate Development Enterprise Qualification Certificate. We obtained the related certificates and seek to ensure
that each phase of our projects complies with our certificates.
|
|
|
|
|
●
|
Project
Financing
— According to the Land Administration Law and the Property Law of the PRC, the land use rights, residential
housing and other buildings still in process of construction may be pledged and mortgaged. From time to time, we pledge and
mortgage our land use rights and real properties to lenders in order to obtain project financing.
|
Interest
Rate and Inflation Challenges.
We are subject to market risks due to fluctuations in interest rates and refinancing of
mid-term debt. Higher interest rates may also affect our revenues, gross profits and our ability to raise and service debt and
to finance our developments. Inflation could result in increases in the price of raw materials and labor costs. We do not believe
that inflation or deflation has affected our business materially.
Acquisitions
of Land Use Rights and Associated Costs
.
We acquire land use rights for development through the governmental auction process
and by obtaining land use rights permits from third parties through negotiation, acquisition of entities, co-development or other
joint venture arrangements. Our ability to secure sufficient financing for land use rights acquisitions and property development
depends on internal cash flows in addition to lenders’ perceptions of our credit reliability, market conditions in the capital
markets, investors’ perception of our securities, the PRC economy and the PRC government regulations that affect the availability
and cost of financing real estate companies or property purchasers.
Critical
Accounting Estimates
As
discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, we consider our estimates on revenue recognition,
impairment of long-lived assets, and real estate property refunds and compensation payables to be the most critical in understanding
the judgments that are involved in preparing our consolidated financial statements. There have been no significant changes to
these estimates in the nine months and three months ended September 30, 2016.
Results
of Operations
Comparison
of Three Months Ended September 30, 2016 and 2015
The
following table sets forth the results of our operations for the periods indicated in U.S. dollars
|
|
For the three months
ended September 30
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(
Unaudited
)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Costs of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
$
|
-
|
|
|
$
|
3,720
|
|
General and administrative expenses
|
|
|
763,361
|
|
|
|
488,076
|
|
Total operating expenses
|
|
|
763,361
|
|
|
|
491,796
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(763,361
|
)
|
|
|
(491,796
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
Other expenses
|
|
|
-
|
|
|
|
(3,110
|
)
|
Interest income
|
|
|
42
|
|
|
|
7
|
|
Interest expenses
|
|
|
(2,156,558
|
)
|
|
|
(730,629
|
)
|
Total other expenses
|
|
|
(2,156,516
|
)
|
|
|
(733,732
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,919,877
|
)
|
|
|
(1,225,528
|
)
|
Income taxes expense
|
|
|
285,801
|
|
|
|
306,382
|
|
Net loss
|
|
$
|
(2,634,076
|
)
|
|
$
|
(919,146
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(1,120,502
|
)
|
|
|
(817,493
|
)
|
Comprehensive loss
|
|
$
|
(3,754,578
|
)
|
|
$
|
(1,736,639
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
172,268,077
|
|
|
|
151,000,000
|
|
Revenue.
We
did not generate any revenue from the sales of real estate property for the three months ended September 30, 2016 and 2015. In
addition, since our Logistics Center is still in its development stage and therefore is not yet in operation, we have not started
providing any logistics service within our port terminal and have not generated any sales from providing such services.
Cost
of Revenue.
For
the three months ended September 30, 2016 and 2015, our cost of goods sold was $0, respectively.
Gross
Profit.
Our
gross margin was $0 for the three months ended September 30, 2016 and 2015, respectively.
Selling
expenses.
No
selling expenses occurred for the three months ended September 30, 2016, compared to $3,720 for the three months ended September
30, 2015, a decrease of $3,720. The decrease is primarily due to the decrease of marketing expenses.
General
and administrative expenses
.
Our general and administrative expenses
consist of salaries, office expenses, utilities, business travel, amortization expenses (including legal expenses, accounting expenses
and other professional service expenses) and stock compensation. General and administrative expenses were $763,361 for the three
months ended September 30, 2016, compared to $488,076 for the three months ended September 30, 2015, an increase of $275,285 or
56 %. The significant increase is mainly because of the increase of expenses relating to professional services.
Loss
from operations.
As
a result of the factors described above, operating loss was $763,361 for the three months ended September 30, 2016, compared to
operating loss of $491,796 for the three months ended September 30, 2015, an increase of operating loss of $271,565, or approximately
55%. The significant increase is mainly because of the increase of expenses relating to general and administrative expenses.
Other
expenses.
We
had other expenses totaling $2,156,516 for the three months ended September 30, 2016, compared to other expense totaling $733,732
for the three months ended September 30, 2015. The significant increase in expenses is mainly attributable to the interest of
convertible bond issued on December 19, 2015, which was described elsewhere in the Quarterly Report. Our interest income and expenses
were $42 and $2,156,558, respectively, for the three months ended September 30, 2016, compared to interest income and expenses
of $7 and $730,629, respectively, for the three months ended September 30, 2015. No other income and expenses occurred for the
three months ended September 30, 2016, compared to other income and expenses of $0 and $3,110, respectively, for the three months
ended September 30, 2015.
Income
tax.
We
received an income tax benefit of $285,801 for the three months ended September 30, 2016, compared to $306,382 for the three months
ended September 30, 2015. The slight decrease is mainly due to the decrease of net loss incurred from Wuhan Newport.
Net
loss.
As
a result of the factors described above, our net loss from operations for the three months ended September 30, 2016 was $2,634,076,
compared to net loss of $919,146 for the three months ended September 30, 2015, an increase in loss of $1,714,930.
Foreign
currency translation.
Our
condensed consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary
is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation
adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included
in determining comprehensive income. Our foreign currency translation loss for the three months ended September 30, 2016 was $1,120,502,
compared to a foreign currency translation loss of $817,493 for the three months ended September 30, 2015, an increase of $303,009.
The significant decrease is mainly attributable to the depreciation of RMB against U.S. dollars.
Net
loss available to common stockholders.
Net
loss available to our common stockholders was $0.02 per share, for the three months ended September 30, 2016, compared to net
loss of $0.01 per share for the three months ended September 30, 2015.
Comparison
of Nine Months Ended September 30, 2016 and 2015
The
following table sets forth the results of our operations for the periods indicated in U.S. dollars
|
|
For the nine months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Costs of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
$
|
1,459
|
|
|
$
|
8,006
|
|
General and administrative expenses
|
|
|
4,558,102
|
|
|
|
1,470,700
|
|
Total operating expenses
|
|
|
4,559,561
|
|
|
|
1,478,706
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,559,561
|
)
|
|
|
(1,478,706
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Other income
|
|
|
2,827
|
|
|
|
-
|
|
Other expenses
|
|
|
(28
|
)
|
|
|
3,110
|
|
Interest income
|
|
|
174
|
|
|
|
33
|
|
Interest expenses
|
|
|
(6,474,519
|
)
|
|
|
(2,326,475
|
)
|
Total other expenses
|
|
|
(6,471,546
|
)
|
|
|
(2,329,552
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(11,031,107
|
)
|
|
|
(3,808,258
|
)
|
Income taxes expense
|
|
|
884,725
|
|
|
|
952,064
|
|
Net loss
|
|
$
|
(10,146,382
|
)
|
|
$
|
(2,856,194
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(7,913,387
|
)
|
|
|
(682,081
|
)
|
Comprehensive loss
|
|
$
|
(18,059,769
|
)
|
|
$
|
(3,538,275
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
172,268,077
|
|
|
|
151,000,000
|
|
Revenue.
We
did not generate any revenue from the sales of real estate property for the nine months ended September 30, 2016 and 2015, respectively.
In addition, since our Logistics Center is still in its development stage and therefore is not yet in operation, we have not started
providing any logistics service within our port terminal and have not generated any sales from providing such services.
Cost of Revenue.
During the nine months ended September
30, 2016 and 2015, our cost of goods sold was $0.
Gross Profit.
Our gross margin was $0 for the nine
months ended September 30, 2016 and 2015, respectively.
Selling expenses.
Selling expenses was $1,459 for the
nine months ended September 30, 2016, compared to $8,006 for the nine months ended September 30, 2015, a decrease of $6,547. The
decrease is primary due to the decrease of marketing expenses.
General
and administrative expenses
.
Our general and administrative expenses
consist of salaries, office expenses, utilities, business travel, amortization expenses (including legal expenses, accounting expenses
and other professional service expenses) and stock compensation. General and administrative expenses were $4,558,102 for the nine
months ended September 30, 2016, compared to $1,470,700 for the nine months ended September 30, 2015, an increase of $3,087,402
or 209%. The significant increase is mainly because of the increase of expenses related to professional services.
Loss
from operations.
As
a result of the factors described above, operating loss was $4,559,561 for the nine months ended September 30, 2016, compared
to operating loss of $1,478,706 for the nine months ended September 30, 2015, an increase of operating loss of $3,080,855, or
approximately 208%. The significant increase is mainly because of the increase of expenses relating to general and administrative
expenses.
Other
expenses.
We
had other expenses totaling $6,471,546 for the nine months ended September 30, 2016, compared to other expense totaling $2,329,552
for the nine months ended September 30, 2015. The significant increase in expenses is mainly attributable to the interest of convertible
bond issued on December 19, 2015, which was described elsewhere in the Quarterly Report. Our interest income and expenses were
$174 and $6,474,519, respectively, for the nine months ended September 30, 2016, compared to interest income and expenses of $33
and $2,326,475, respectively, for the nine months ended September 30, 2015. Other income and expenses were $2,827 and $28, respectively,
for the nine months ended September 30, 2016, compared to other income and expenses of $0 and $3,110, respectively, for the nine
months ended September 30, 2015.
Income
tax.
We
received an income tax benefit of $884,725 for the nine months ended September 30, 2016, compared to $952,064 for the nine months
ended September 30, 2015. The decrease is primary attributable to the decrease of net loss incurred from Wuhan Newport.
Net
loss.
As
a result of the factors described above, our net loss from operations for the nine months ended September 30, 2016 was $10,146,382,
compared to net loss of $2,856,194 for the nine months ended September 30, 2015, an increase in loss of $7,290,188.
Foreign
currency translation.
Our
condensed consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary
is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation
adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included
in determining comprehensive income. Our foreign currency translation loss for the nine months ended September 30, 2016 was $7,913,387,
compared to a foreign currency translation loss of $682,081 for the nine months ended September 30, 2015, an increase of $7,231,306.
The significant decrease is primarily due to the depreciation of RMB against the U.S. dollars.
Net
loss available to common stockholders.
Net
loss available to our common stockholders was $0.06 per share for the nine months ended September 30, 2016, compared to net loss
of $0.02 per share for the nine months ended September 30, 2015.
Liquidity
and Capital Resources
The
following table sets forth a summary of our cash flows for the nine months indicated:
|
|
Nine
Months Ended
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Net
Cash Used in Operating Activities
|
|
$
|
(1,584,395
|
)
|
|
$
|
(3,479,819
|
)
|
Net
Cash Used in Investing Activities
|
|
$
|
(1,851
|
)
|
|
$
|
-
|
|
Net
Cash Provided by Financing Activities
|
|
$
|
1,127,682
|
|
|
$
|
3,425,886
|
|
We
had a balance of cash and cash equivalents of $53,559 as of September 30, 2016. We have historically funded our working capital
needs through advance payments from customers, bank borrowings, and capital from stockholders. Our working capital requirements
are influenced by the state and level of our operations, and the timing of capital needed for projects.
Operating
Activities
.
Net cash used in operating activities was $1,584,395 for the nine months ended September 30, 2016, compared
to net cash used in operating activities of $3,479,819 for the nine months ended September 30, 2015, a decrease of $1,895,424.
The decrease in net cash used in operating activities was primarily contributed by the following factors:
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Share-based
compensation expense contributed $2,014,664 cash inflow for nine months ended September 30, 2016. In the same period of 2015,
share-based compensation expense contributed $0 cash inflow, which led to a decrease of $2,014,664 in net cash outflow.
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Changes
in real estate properties and land lots under development provided $206,640 cash outflow for the nine months ended September
30, 2016, compared to changes in real estate properties and land lots under development contributed $702,362 cash outflow
in the same period of 2015, which led to a decrease of $495,722 in net cash outflow.
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Changes
in accounts payable provided $7,376 cash outflow for the nine months ended September 30, 2016, compared to $nil cash outflow
for the nine months ended September 30, 2015, which lead to an increase of $7,376 in net cash outflow from operating activities.
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Changes
in other payables and accrued liabilities provided $6,486,134 cash inflow for the nine months ended September 30, 2016, compared
other payables and accrued liabilities contributed $94,571 cash inflow for the nine months ended September 30, 2015, which
led to a decrease of $6,391,563 in net cash outflow.
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We
have net loss of $10,146,382 for the nine months ended September 30, 2016, compared to net loss of $2,856,194 for the nine
months ended September 30, 2015, which led to an increase of $7,290,188 in net cash outflow.
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Investing
Activities.
Net cash used in investing activities was $1,851 for the nine months ended September 30, 2016, compared to
$0 for the nine months ended September 30, 2015, representing an increase of $1,851 in cash outflow. The increase was primarily
because of the increase of cash used for purpose of purchasing equipment.
Financing
Activities
.
Net cash provided by financing activities was $1,127,682 for the nine months ended September 30, 2016, compared
to net cash of $3,425,886 provided by financing activities for the nine months ended September 30, 2015, representing a decrease
of $2,298,204 in cash inflow. The decrease was primarily because we had advances of $1,203,672 from related parties in the nine
months ended September 30, 2016, compared to $3,587,869 for the nine months ended September 30, 2015.
As
shown in our financial statements, we have negative cash flows from operations, sustained recurring losses for a number of years
and currently we are not generating revenues. Over the past years, the Company has been funded through a combination of bank loans
and advances from shareholders. On January 29, 2016, we received an undertaking commitment letter provided by our majority shareholder
who is willing to provide sufficient funding on an as-needed basis. In addition, the Company plans to dispose of the existing
developed real estate properties with market value of approximately $42 million when the Company needs cash flows. The Company
believes that, as a result of these, it currently has sufficient cash and financing commitments to meet its funding requirements
for a reasonable period of time.
Contractual
Obligations
Jasper
Lake Holdings Limited (“Jasper”), a related party, holds an 8% convertible promissory note in the principal amount
of $75,000,000 with a maturity date of December 19, 2018. Upon maturity, Jasper may convert all or any portion of the then aggregate
outstanding principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00
per share.
Off-Balance
Sheet Arrangements
On
January 29, 2016, we received an undertaking commitment letter provided by our majority shareholder who is willing to provide
sufficient funding on an as-needed basis. We believe that the financial commitment provided by our majority shareholder could
provide our company with sufficient capital resources to meet our capital needs for a reasonable period of time.
Recently
Issued Accounting Guidance
As
described in Note 2 to the Condensed Consolidated Financial Statements, we not believe recently issued but not yet effective accounting
standards from ASU 2016-15, if currently adopted, would have a material effect of the condensed consolidated financial position,
results of operation and cash flows.