ITEM 1. FINANCIAL STATEMENTS
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
FINANCIAL STATEMENTS
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PAGE
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Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015
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F-1 - F-2
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Consolidated Statements of Income and Comprehensive Income (Loss) For the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)
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F-3 - F-4
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Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2016 and 2015 (Unaudited)
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F-5 - F6
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Notes to Consolidated Financial Statements (Unaudited)
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F-7 - F-12
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CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE
30
, 2016
AND DECEMBER 31, 2015
(Stated in US Dollars)
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June 30,
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December 31,
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2016
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2015
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ASSETS
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(Unaudited)
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Current assets
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Cash and cash equivalents
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$
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10,226
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$
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13,550
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Other current assets and prepayments
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1,221
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1,875
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Total Current Assets
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11,447
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15,425
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Property, plant and equipment, net
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224,969
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246,480
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Land use rights, net
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14,523,564
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15,062,438
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Due from related parties
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1,144,977
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1,176,265
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TOTAL ASSETS
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$
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15,904,957
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$
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16,500,608
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See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE
30
, 2016
AND DECEMBER 31, 2015
(Continued)
(Stated in US Dollars)
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June 30,
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December 31,
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2016
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2015
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LIABILITIES & SHAREHOLDERS' EQUITY
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(Unaudited)
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Current Liabilities
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Other payables and accrued liabilities
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1,255,210
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1,283,682
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Total Current Liabilities
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1,255,210
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1,283,682
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Non-current liabilities
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Due to related parties
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498,254
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510,356
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Due to shareholders
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3,148,309
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3,219,177
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Total Long-term Liabilities
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3,646,563
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3,729,533
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TOTAL LIABILITIES
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$
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4,901,773
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$
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5,013,215
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SHAREHOLDERS' EQUITY
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Series C convertible preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares outstanding as of June 30, 2016 and December 31 ,2015)
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-
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-
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Common stock ($0.01 par value, 250,000,000 shares authorized, 64,629,559 shares issued and outstanding as of June 30, 2016 and December 31, 2015)
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646,295
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646,295
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Treasury stock
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(489,258
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)
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(489,258
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)
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Additional paid-in capital
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15,961,463
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15,906,150
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Accumulated deficit
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(7,667,238
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)
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(7,403,166
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Non-controlling interest
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935,376
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947,275
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Accumulated other comprehensive income
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1,616,546
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1,880,097
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Total Shareholders' Equity
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11,003,184
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11,487,393
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
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$
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15,904,957
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$
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16,500,608
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See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS
ENDED JUNE
30
, 2016
AND 2015
(Stated in US Dollars)
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For the Three Months Ended
June 30,
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For the Six Months Ended
June 30,
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2016
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2015
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2016
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2015
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Unaudited
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Unaudited
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Unaudited
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Unaudited
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Sales revenue - related party
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$
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7,506
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312,355
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$
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7,506
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621,538
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Cost of revenue
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1,882
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17,241
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1,882
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34,354
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Gross Profit
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5,624
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295,114
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5,624
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587,184
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Operating expenses
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Administrative expenses
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37,038
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38,057
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69,199
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75,002
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Depreciation
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7,601
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13,572
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16,108
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27,042
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Amortization
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97,984
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105,084
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195,845
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209,384
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Total operating expenses
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142,623
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156,713
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281,152
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311,428
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Income (Loss) from operations
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(136,999
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138,401
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(275,528
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)
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275,756
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Other Income (Expenses)
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Interest income
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9
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31
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9
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122
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Interest expenses
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(332
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)
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(119
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(452
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)
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(433
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)
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Other expenses
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-
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(492
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)
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(492
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Total Other Expense
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(323
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(580
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(443
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(803
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)
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Income (Loss) before tax
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(137,322
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137,821
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(275,971
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274,953
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Income tax expense (benefit)
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-
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-
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-
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-
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Net income (loss)
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(137,322
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)
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137,821
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(275,971
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)
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274,953
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Net income (loss) attributable to:
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Non-controlling interests
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(4,611
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)
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2,102
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(11,899
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)
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3,717
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Common stockholders
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(132,711
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)
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135,719
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(264,072
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)
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271,236
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Other comprehensive income (loss)
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Foreign currency translation adjustments
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(338,987
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)
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55,786
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(263,551
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)
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155,867
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Total Comprehensive Income (Loss)
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$
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(476,309
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)
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193,607
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(539,522
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)
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430,820
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Weighted average shares-Basic
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64,629,559
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64,629,559
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64,629,559
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64,629,559
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Weighted average shares-Diluted
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64,629,559
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64,629,559
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64,629,559
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64,629,559
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Earnings per share,
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Basic
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(0.00
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)
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0.00
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(0.00
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)
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0.00
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Diluted
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(0.00
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)
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0.00
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(0.00
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)
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0.00
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See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX
MONTHS ENDED JUNE
30
, 2016
AND 2015
(Stated in US Dollars)
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For the Six Months Ended June 30,
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2016
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2015
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(Unaudited)
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(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income (loss)
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$
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(275,971
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)
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$
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274,953
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Adjustments to reconcile net income (loss) to net cash used in operating activities:
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Depreciation and amortization
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211,953
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236,426
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Changes in operating assets and liabilities:
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Due from related party
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(5,624
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)
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(621,538
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)
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Other current assets and prepayments
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621
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269
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Other payables and accrued liabilities
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1,051
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33,911
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CASH USED IN OPERARATING ACTIVITIES
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(67,970
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)
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(75,979
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)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from related parties
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65,796
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24,120
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CASH PROVIDED BY FINANCING ACTIVITIES
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65,796
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24,120
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Effect of exchange rate changes on cash and cash equivalents
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(1,150
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)
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1,216
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NET DECREASE IN CASH
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(3,324
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)
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(50,643
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)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
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$
|
13,550
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$
|
72,156
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CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
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$
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10,226
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$
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21,513
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Supplementary Disclosures for Cash Flow Information
:
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Income taxes paid
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$
|
-
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|
|
$
|
-
|
|
Interest expense
|
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$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
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Non-Cash Transactions
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|
|
|
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Extinguishment of related party loan
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$
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55,313
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$
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-
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|
See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies and methods followed in preparing these unaudited consolidated financial statements are those used by China Changjiang Mining & New Energy Co., Ltd. and its consolidated subsidiaries (the 'Company') as described in the notes to consolidated financial statements included in Annual Report on Form 10-K for the year ended December 31, 2015. The unaudited consolidated financial statements for the six-month period ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and do not conform in all respects to the disclosure and information that is required for annual consolidated financial statements. The year-end consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosure required by accounting principles generally accepted in the United States of America. These interim consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements of the Company.
In the opinion of management, all adjustments, all of which are of a normal recurring nature, considered necessary for fair statement have been included in these interim consolidated financial statements. Operating results for the six-month period ended June 30, 2016 are not indicative of the results that may be expected for the full year ending December 31, 2016.
(a) Going Concern
The Company had a working capital deficit of $1,243,763 as of June 30, 2016 and had a negative cash flow from operating activities amounted to $67,970 for the six months period ended June 30, 2016. If the Company cannot generate enough cash flow from its operating activities, it will need to consider other financing methods such as borrowing from banking institutions or raising additional capital through new equity issuance. There are no assurances that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company plans to continue to control its administrative expenses in the coming periods as well as further develop its sales from its main business.
(b) Foreign Currency Translation
Exchange rates applied for the foreign currency translation during the period are as follows:
USD to RMB
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June 30,
2016
|
|
|
December 31,
2015
|
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Period end USD : RMB exchange rate
|
|
|
6.6434
|
|
|
|
6.4907
|
|
Average periodic USD : RMB exchange rate
|
|
|
6.5354
|
|
|
|
6.2175
|
|
USD to HKD
|
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June 30,
2016
|
|
|
December 31,
2015
|
|
Period end USD : HKD exchange rate
|
|
|
7.7586
|
|
|
|
7.7504
|
|
Average periodic USD : HKD exchange rate
|
|
|
7.7670
|
|
|
|
7.7521
|
|
HKD is pegged to USD and hence there is no significant translation adjustment impact on these consolidated financial statements.
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
(c) Earnings/Loss per share
Basic earnings/loss per share is computed by dividing earnings/loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings/loss per share is computed in a manner similar to basic earnings/loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
(d) Recent Accounting Pronouncements
In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing". The amendments in this ASU add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients". The amendments in this ASU, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
2
. LAND USE RIGHTS, NET
The following is a summary of land use rights, net:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Cost of Land Use Rights
|
|
$
|
19,266,099
|
|
|
$
|
19,719,353
|
|
Accumulated Amortization of Land Use Rights
|
|
|
(4,742,535
|
)
|
|
|
(4,656,915
|
)
|
Land Use Rights, Net
|
|
$
|
14,523,564
|
|
|
$
|
15,062,438
|
|
The difference for the balance of cost was mainly due to the fluctuation of exchange rate of USD to RMB.
Amortization expenses were $195,845 and $209,384 for the six months ended June 30, 2016 and 2015, respectively.
3
. DUE FROM RELATED PARTIES
The balance of $1,144,977 due from related parties included loans of $1,132,458 from related parties and accounts receivable of $12,519 generated from related parties revenues.
(1) Loans from related parties
The loans owed by related parties are unsecured, interest free and not expected to be paid within twelve months from June 30, 2016.
Loan from related parties consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Interest
|
|
Shaanxi Du Kang Liquor Group Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
1,127,566
|
|
|
$
|
1,164,107
|
|
|
Interest free
|
|
Shaanxi Tangrenjie Advertising Media Co., Ltd. (Previously Shaanxi Changjiang Zhongxiayou Investment Co., Ltd.), manager of which is Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
4,892
|
|
|
$
|
5,007
|
|
|
Interest free
|
|
Total
|
|
$
|
1,132,458
|
|
|
$
|
1,169,114
|
|
|
|
|
In April 2015, Shaanxi Changjiang moved to a new office that is owned by Shaanxi Baishui Dukang Liquor Co., Ltd., a related company. Shaanxi Changjiang is allowed to occupy the space for free.
(2) Sales revenue from related parties
The Company entered into a lease and a complementary agreement with Shaanxi Huanghe Bay Ecological Agriculture Co., Ltd, a company owned by Zhang Hongjun (82% ownership), dated July 26, 2010 and March 25, 2011, respectively. According to the agreements, the use right of a piece of land with the area of 5,706,666.67 square meters was leased to Shaanxi Huanghe Bay Ecological Agriculture Co., Ltd. for traveling and amusement from January 1, 2011 to December 31, 2029. The annual rent in US dollars is approximately $1.2 million (equivalent to RMB 7,500,000). As of June 30, 2016, the Company only received rent payment for year 2011 and no any collection afterward. Due to the uncertain collectability, the Company decided to write off all the uncollected receivables related to land lease in the amount of $3,618,818 (equivalent to RMB 22,500,000) and decided not to recognize any revenue for the year ended December 31, 2015 and thereafter.
The Company provided solar power to one of its related parties, Heyang County Huanghe Bay Resort Hotel Co., Ltd. since 2014. As of June 30, 2016, no collection has been received. The Company wrote off the receivable balance of $26,597 (equivalent to RMB 165,366) for 2014 and the remaining receivable balance was $12,519 at June 30, 2016.
Accounts receivable from related parties consists of the following:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
Interest
|
|
Heyang County Huanghe Bay Resort Hotel Co.,Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
12,519
|
|
|
$
|
7,151
|
|
|
Interest free
|
|
Total
|
|
$
|
12,519
|
|
|
$
|
7,151
|
|
|
|
|
4
. DUE TO RELATED PARTIES
The balance of $498,254 due to related parties represents the loans owed to related parties, which are interest free, unsecured and the Company does not intend to be repay within twelve months from June 30, 2016.
Due to related parties consists of the following.
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Baishui Dukang Marketing Management Co., Ltd. (Previously Huitong World Property Superintendent Co., Ltd.), controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
376,313
|
|
|
$
|
385,166
|
|
|
|
|
|
|
|
|
|
|
Shaanxi Dukang Liquor Trading Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
90,917
|
|
|
$
|
58,391
|
|
|
|
|
|
|
|
|
|
|
Shaanxi East Mining Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company (officially canceled on April 29, 2016)
|
|
$
|
-
|
|
|
$
|
56,614
|
|
|
|
|
|
|
|
|
|
|
Baishui Du Kang Brand Management Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
9,032
|
|
|
$
|
9,244
|
|
|
|
|
|
|
|
|
|
|
Shaanxi Xi Deng Hui Development Stock Co., Ltd., 29.74% equity interest of which is owned by Zhang Hong Jun, the Director and principal shareholder of the Company, and senior executives of which are Wang Sheng Li, Li Ping and Tian Hailong, the directors and shareholders of the Company
|
|
$
|
918
|
|
|
$
|
941
|
|
|
|
|
|
|
|
|
|
|
Shaanxi Huanghe Bay Ecological Agriculture Co.,Ltd. (Previously Shaanxi Huanghe Bay Spring Lake Park Co., Ltd.), controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
$
|
21,074
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
498,254
|
|
|
$
|
510,356
|
|
Shaanxi East Mining Co., Ltd., a company owned by Zhang Hongjun (70% ownership) and Wang Shengli (30% ownership), cancelled its registration on April 29, 2016 and agreed to forgive the loan borrowed by the Company. As both Shaanxi East Mining Co., Ltd. and the Company are under common control of Zhang Hongjun and Wang Shengli, the extinguishment of related party loan is accounted for as a transaction between entities under common control with $55,313 recorded as an adjustment to stockholders' equity (additional paid-in capital).
The office space occupied by Shaanxi Pacific is a property owned by Zhang Hongjun, the Company is allowed to use it for free.
The office space occupied by Changjiang PV is a property owned by Shaanxi Xi Deng Hui Development Stock Co., Ltd., a related party. The Company is allowed to use it for free.
5.
DUE TO SHAREHOLDERS
The balance of $3,148,309 due to shareholders represents the loans owed to the shareholders, which are interest free and unsecured. The management does not intend to repay the loans within twelve months from June 30, 2016.
Due to shareholders consists of the following:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Due to Wang Shengli
|
|
$
|
1,660,879
|
|
|
$
|
1,699,954
|
|
Due to Zhang Hongjun
|
|
|
913,238
|
|
|
|
934,722
|
|
Due to Chen Min
|
|
$
|
574,192
|
|
|
$
|
584,501
|
|
|
|
$
|
3,148,309
|
|
|
$
|
3,219,177
|
|
6
. INCOME TAXES
The Company did not have income tax expense or income tax payable due to the use of net loss carryover from prior years.
As of June 30, 2016, the Company had net taxable operating loss carry forwards of approximately $1,590,982. The PRC Income Tax allows the enterprises to offset their future taxable income with taxable operating losses carried forward in a 5-year period. The Management believes that the Company's cumulative losses arising from recurring business in recent years constituted significant negative evidence that most of the deferred tax assets would not be realizable and this evidence outweighed the expectations that the Company would generate future taxable income. The valuation allowance of $397,745 was recorded.
Components of the Company's net deferred tax assets are set forth below:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
397,745
|
|
|
$
|
376,415
|
|
Total of Deferred tax assets
|
|
$
|
397,745
|
|
|
$
|
376,415
|
|
Less: valuation allowance
|
|
$
|
(397,745
|
)
|
|
$
|
(376,415
|
)
|
Net deferred assets
|
|
$
|
-
|
|
|
$
|
-
|
|
7
. SEGMENT INFORMATION
The Company operated in two reportable segments, Land use right leasing, and Solar PV energy for the six months ended June 30, 2016. The Company did not recognize Land use right leasing revenue for the six months ended June 30, 2016 because of the uncertain collectability of the revenues. See Note 3.
Summarized information by business segment for the three and six months ended June 30, 2016 and 2015 is as follows.
|
|
For the Three months ended
June 30,
|
|
|
For the Six months ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Land use right leasing
|
|
|
-
|
|
|
|
307,882
|
|
|
|
-
|
|
|
|
613,466
|
|
Solar PV energy
|
|
|
7,506
|
|
|
|
4,473
|
|
|
|
7,506
|
|
|
|
8,072
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land use right leasing
|
|
|
-
|
|
|
|
17,241
|
|
|
|
-
|
|
|
|
34,354
|
|
Solar PV energy
|
|
|
1,882
|
|
|
|
-
|
|
|
|
1,882
|
|
|
|
-
|
|
Gross Profits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land use right leasing
|
|
|
-
|
|
|
|
290,641
|
|
|
|
-
|
|
|
|
579,112
|
|
Solar PV energy
|
|
|
5,624
|
|
|
|
4,473
|
|
|
|
5,624
|
|
|
|
8,072
|
|
The Company evaluates segment performance based on income from operations. As a result, the components of operating income for one segment may not be comparable to another segment.
8. SUBSEQUENT EVENTS
On July 22, 2016, the Company borrowed a one-year loan of $2,258 (RMB 15,000) from Shaanxi Dukang Liquor Trading Co., Ltd, a related party of the Company, for daily operating purpose. The loan is interest free, unsecured, and matures on July 21, 2017.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS
In addition to the historical information contained herein, we make statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, assumptions about our future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and our ability to obtain additional debt and/or equity capital on commercially reasonable terms, none of which is certain. These statements are only predictions and involve known and unknown risks, uncertainties and other factors included in our periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The following discussion and analysis should be read in conjunction with our June 30, 2016 unaudited consolidated financial statements and related notes thereto included in this quarterly report and with our consolidated financial statements and notes thereto for the year ended December 31, 2015.
Overview
We have transitioned our business from mining to clean new energy, and mainly focus on the solar photovoltaic, or "PV", downstream market at present stage. We are currently in the development stage with the goal of becoming a turnkey developer and Engineering, Procurement and Construction contractor of solar PV energy facilities. We intend to design, engineer, construct, market and sell high-quality PV energy facilities for commercial and utility applications to local markets.
Before June 1, 2012, we were engaged in exploration for commercially recoverable metal-bearing mineral deposits. On June 1, 2012, we entered into an agreement with Xunyang Yongjin Mining Co., Ltd to transfer our mining exploration rights for a cash payment of $2,380,612 (RMB 15,000,000). Further, on December 30, 2013, our subsidiary, Shaanxi Changjiang Mining & New Energy Co., Ltd. ("Shaanxi Changjiang"), entered into Equity Transfer Agreements with each of Zhang Hong Jun, a director of the Company and owner of a controlling interest in the Company (holding 54.42% as of June 30, 2016), and Wang Sheng Li, a director and shareholder of the Company (holding 2.36% as of June 30, 2016), to sell Shaanxi Changjiang's entire 60% interest in Shaanxi East Mining Co., Ltd., ("East Mining" and formerly referred to as "Dongfang Mining") for a total consideration of $885,696 (RMB 5,400,000). The consideration payable to the Company was used to offset amounts owed to each of the acquirers. Each of the acquirers obtained 30% equity in this transaction.
We also hold land use rights in a land parcel and we lease a portion of the land use rights on the 5.7 square kilometer parcel to Shaanxi Huanghe Bay Ecological Agriculture Co., Ltd (previously Shaanxi Huanghe Bay Spring Lake Park Co., Ltd.), a company with a common control person. The term of the lease agreement is from January 1, 2011 to December 31, 2029. Our land use rights are amortized over their 50 year term. The Land use right was our largest asset, with an annual rent of approximately $1.2 million (RMB 7, 500,000).
As of June 30, 2016, we only received rent payment of 2011 and no any collection afterwards. Due to the uncertain collectability, we decided to write off all the receivable related to land lease of $3,618,818 (equivalent to RMB 22,500,000) and decided not to recognize any revenue for the year ended December 31, 2015 and for the six months ended June 30, 2016.
The following is a summary of the book value of our land use rights as of June 30, 2016:
Cost
|
|
$
|
19,266,099
|
|
Less: Accumulated amortization
|
|
|
(4,742,535
|
)
|
Land use rights, net
|
|
$
|
14,523,564
|
|
Amortization expenses were $195,845 and $209,384 for the six months ended June 30, 2016 and 2015, respectively.
As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $7,667,238 as of June 30, 2016, which includes net loss for common stockholders of $264,072 for the six months ended June 30, 2016. The Company's operations used cash of $67,970 for the six months ended June 30, 2016.
In the past, the Company relied on the loan received from the related parties, and cash generated from operations to meet its operating requirements. Although the Company was successful in the past in obtaining financing, there can be no assurance that it will be able to obtain adequate financing in the future or that the terms of such financings will still be favorable. However in the event that we have insufficient cash to meet our operating requirements, our related companies and shareholders will commit to provide loan to maintain liquidity.
We believe that we have adequate capital to assure that we will be able to meet our obligations or obtain sufficient capital to complete our plan of operations for the next twelve (12) months.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2016 and June 30, 2015
Sales revenue
We did not recognize land use right leasing revenue for the three months ended June 30, 2016 due to uncertainty of collectability, compared with land use right leasing revenue of $307,882 for the three months ended June 30, 2015.
We recognized solar PV energy revenue of $7,506 for the three months ended June 30, 2016, compared with revenue of $4,473 for the three months ended June 30, 2015. Our solar TV energy revenue increased by a large margin for the second quarter of 2016, because the revenue recorded in the second quarter of 2016 included the six months' revenue from January 2016 to June 2016.
Operating Expenses
Total operating expense for the three months ended June 30, 2016 was $142,623 compared with operating expense of $156,713 for the three months ended June 30, 2015, representing a decrease of $14,090 or 9%. Administrative expense decreased by $1,019 or 3% for the quarter ended June 30, 2016. The amortization expense for the three months ended June 30, 2016 remained stable, as no addition or disposal occurred for land use rights. The depreciation for the three months ended June 30, 2016 decreased by $5,971 or 44%, compared with the same period of 2015, which was mainly due to the disposal of property occurred in May 2015.
Loss from operation for the three months ended June 30, 2016 was $136,999, compared to income from operation of $138,401 for the three months ended June 30, 2015.
Net Loss
We incurred net loss of $137,322 for the three months ended June 30, 2016, compared to net income of $137,821 for the three months ended June 30, 2015. Because we did not recognize revenue for Land use right leasing segment due to uncertainty of collectability.
Comparison of the Six Months Ended June 30, 2016 and June 30, 2015
Sales revenue
We did not recognize land use right leasing revenue for the six months ended June 30, 2016 due to uncertainty of collectability, compared with land use right leasing revenue of $613,466 for the six months ended June 30, 2015. We recognized solar PV energy revenue of $7,506 for the six months ended June 30, 2016, compared with revenue of $8,072 for the six months ended June 30, 2015.
Operating Expenses
Total operating expense for the six months ended June 30, 2016 was $281,152 compared with operating expense of $311,428 for the six months ended June 30, 2015, representing a decrease of $30,276 or 10%. Administrative expense decreased by $5,803 or 8% for the six months ended June 30, 2016. The amortization expense for the six months ended June 30, 2016 remained stable, as no addition or disposal occurred for land use rights. The depreciation for the six months ended June 30, 2016 decreased by $10,934 or 40%, compared with the same period of 2015, which was mainly due to the disposal of property occurred in May 2015.
Loss from operation for the six months ended June 30, 2016 was $275,528, compared to income from operation of $275,756 for the six months ended June 30, 2015.
Net Loss
We incurred net loss of $275,971 for the six months ended June 30, 2016, compared to net income of $274,953 for the six months ended June 30, 2015. Because we did not recognize revenue for Land use right leasing segment due to uncertainty of collectability.
Other
Comprehensive Income (Loss)
Our other comprehensive loss (foreign currencies translation loss) was $263, 551 for the six months ended June 30, 2016, compared to other comprehensive income of $155,867 for the six months ended June 30, 2015. The comprehensive income (loss) for each period referred to net income (loss) plus the foreign currencies translation gain (loss), between the U.S. Dollar and the Chinese Yuan RMB (or Hong Kong Dollar for Wah Bon).
Stockholders' Equity
Stockholders' equity decreased to $11,003,184 as of June 30, 2016, from $11,487,393 as of December 31, 2015, representing a decrease of $484,209. The decrease was mainly due to the net loss of $275,971, and other comprehensive loss (foreign currencies translation loss) of $263, 551, for the six months ended June 30, 2016.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Net cash used in operating activities of $67,970 for the six months ended June 30, 2016, decreased by $8,009 or 11%, compared with net cash used of $75,979 for the six months ended June 30, 2015. The adjustments to reconcile our net loss to net cash flow include depreciation expense of $16,108, amortization of $195,845 for land use rights, receivables from related parties of $5,624, a decrease in operating assets of $621 and an increase in operating liability of $1,051.
Cash Flows From Investing Activities
There was no cash flow in investing activities for the six months ended June 30, 2016 and 2015.
Cash Flows From Financing Activities
The Company borrowed $65,796 and $24,120 from its related parties for the six months ended June 30, 2016 and 2015 respectively.
Non-Cash Transaction
The non-cash transaction in six months end June 30, 2016 represented forgiveness debt due to Shaanxi East Mining Co., Ltd. which was mentioned in FS Note 4.
General
As in previous year, we have access to short and long term loans of cash from our directors or other related parties.
The Company borrowed $65,796 from related parties for the six months ended June 30, 2016.
Our current assets decreased by $3,978 and total assets decreased by $595,651 respectively.
We have cash of $10,226 and $13,550 as of June 30, 2016 and December 31, 2015 respectively.
We believe that we have sufficient cash to fund operations for the next twelve (12) months.
FINANCING
We anticipated the cash generated from operating activities and from our related parties will be sufficient to sustain our daily operations for the next twelve months.
INFLATION
Our management believes that inflation did not have a material effect on our results of operations for the six months ended June 30, 2016.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
None
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities to comply with generally accepted accounting principles. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from our estimates, which would affect the related amounts reported in our financial statements.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial statements and affect our financial condition and results of operations.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete, both significant risks and rewards of ownership are transferred or services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured.
We are currently leasing the land use right to Huanghe for the development and operation of a theme park. We generally collect the annual rent every year, and then recognize land use right leasing revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned.
The Company supplied electricity power by its solar PV energy segment. The electricity revenue is earned and recognized upon transmission of electricity to Heyang County Huanghe Bay Resort Hotel Co., Ltd., a related company or the power grid controlled and owned by the respective regional or provincial grid companies.
Related Party
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, member of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting party might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Our related parties are the following individuals and entities: (i) Mr. Wang Sheng Li (a director of the Company), Mr. Chen Weidong (our President, Chief Executive Officer and Chairman of the Board), Ms Li Ping (a director of the Company), and Ms. Chen Min (a director of the Company), all of whom are shareholders of the Company; (ii) Mr. Zhang Hong Jun, who is currently a director and controlling shareholder of the Company; (iii) Ms. Li Ping (our Chief Financial Officer and who has the same name with our Director Ms. Li Ping); and (iv) the following companies: Shaanxi Jiuzu Shaokang Liquor Co., Ltd.(Previously Shaanxi Baishui Dukang Liquor Development Co., Ltd.), Shaanxi Baishui Dukang Marketing Management Co., Ltd.(Previously Huitong World Property Superintendent Co.,Ltd.), Shaanxi Xi Deng Hui Development Stock Co., Ltd., Shaanxi Baishui Dukang Brand Management Co., Ltd., Zhongke Aerospace & Agriculture Development Stock Co., Ltd., Shaanxi Huanghe Bay Ecological Agriculture Co., Ltd (Previously Shaanxi Huanghe Bay Spring Lake Park Co., Ltd.), Shaanxi Changfa Industrial Co., Ltd., Shaanxi Tangrenjie Advertising Media Co., Ltd. (Previously "Shaanxi Changjiang Zhongxiayou Investment Co., Ltd.), Shaanxi Dukang Liquor Trading Co., Ltd., Shaanxi East Mining Co., Ltd (officially canceled on April 29, 2016)., Heyang County Huanghe Bay Resort Hotel Co., Ltd., Shaanxi Baishui Dukang Liquor Co., Ltd, and Shaanxi Du Kang Liquor Group Co., Ltd.
Cash flows from due from related parties are classified as cash flows from investing activities. Cash flows from due to related parties are classified as cash flows from financing activities.