ITEM 1. FINANCIAL STATEMENTS
CHINA CHANGJIANG MINING & NEW ENERGY CO
MPANY
, LTD.
FINANCIAL STATEMENTS
CHINA CHANGJIANG MINING & NEW ENERGY CO
MPANY
, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF
MARCH
3
1
, 201
7
AND DECEMBER 31, 201
6
(Stated in US Dollars)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,961
|
|
|
$
|
12,512
|
|
Other current assets and prepayments
|
|
|
1,228
|
|
|
|
1,210
|
|
Total Current Assets
|
|
|
10,189
|
|
|
|
13,722
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
195,433
|
|
|
|
201,006
|
|
Land use rights, net
|
|
|
13,724,107
|
|
|
|
13,711,122
|
|
TOTAL ASSETS
|
|
$
|
13,929,729
|
|
|
$
|
13,925,850
|
|
See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO
MPANY
, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF
MARCH
3
1
, 201
7
AND DECEMBER 31, 201
6
(Continued)
(Stated in US Dollars)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
LIABILITIES & EQUITY
|
|
(Unaudited)
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
|
1,219,202
|
|
|
|
1,205,719
|
|
Total Current Liabilities
|
|
|
1,219,202
|
|
|
|
1,205,719
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
623,092
|
|
|
|
592,410
|
|
Due to shareholders
|
|
|
1,893,779
|
|
|
|
1,880,311
|
|
Total Long-term Liabilities
|
|
|
2,516,871
|
|
|
|
2,472,721
|
|
TOTAL LIABILITIES
|
|
$
|
3,736,073
|
|
|
$
|
3,678,440
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Series C convertible preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares outstanding as of March 31, 2017 and December 31, 2016)
|
|
|
-
|
|
|
|
-
|
|
Common stock ($0.01 par value, 250,000,000 shares authorized, 64,629,559 shares issued and outstanding as of March 31, 2017 and December 31, 2016)
|
|
|
646,295
|
|
|
|
646,295
|
|
Treasury stock
|
|
|
(489,258
|
)
|
|
|
(489,258
|
)
|
Additional paid-in capital
|
|
|
15,968,106
|
|
|
|
15,968,106
|
|
Accumulated deficit
|
|
|
(8,054,012
|
)
|
|
|
(7,926,794
|
)
|
Accumulated other comprehensive income
|
|
|
1,221,405
|
|
|
|
1,140,899
|
|
Total Shareholders’ Equity
|
|
|
9,292,536
|
|
|
|
9,339,248
|
|
Non-controlling interest
|
|
|
901,120
|
|
|
|
908,162
|
|
TOTAL EQUITY
|
|
|
10,193,656
|
|
|
|
10,247,410
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
13,929,729
|
|
|
$
|
13,925,850
|
|
See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO
MPANY
, LTD.
CONSOLIDATED STATEMENTS OF
LOSS
AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED
MARCH
3
1
, 201
7
AND 201
6
(Stated in US Dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
33,956
|
|
|
$
|
32,161
|
|
Depreciation
|
|
|
7,127
|
|
|
|
8,507
|
|
Amortization
|
|
|
92,907
|
|
|
|
97,861
|
|
Total operating expenses
|
|
|
133,990
|
|
|
|
138,529
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(133,990
|
)
|
|
|
(138,529
|
)
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4
|
|
|
|
-
|
|
Interest expenses
|
|
|
(274
|
)
|
|
|
(120
|
)
|
Total Other Expenses
|
|
|
(270
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
Loss before tax
|
|
|
(134,260
|
)
|
|
|
(138,649
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(134,260
|
)
|
|
$
|
(138,649
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to:
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
(7,042
|
)
|
|
|
(7,288
|
)
|
Common shareholders
|
|
|
(127,218
|
)
|
|
|
(131,361
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
80,506
|
|
|
|
75,436
|
|
Total Comprehensive Loss
|
|
$
|
(53,754
|
)
|
|
$
|
(63,213
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares-Basic
|
|
|
64,629,559
|
|
|
|
64,629,559
|
|
Weighted average shares-Diluted
|
|
|
64,629,559
|
|
|
|
64,629,559
|
|
Earnings per share,
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO
MPANY
, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
THREE
MONTHS ENDED
MARCH
3
1
, 201
7
AND 201
6
(Stated in US Dollars)
|
|
For the Three Months Ended March 31,
|
|
|
|
(Unaudited)
2017
|
|
|
(Unaudited)
2016
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(134,260
|
)
|
|
$
|
(138,649
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
100,034
|
|
|
|
106,368
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other current assets and prepayments
|
|
|
(9
|
)
|
|
|
(1,356
|
)
|
Other payables and accrued liabilities
|
|
|
4,175
|
|
|
|
2,391
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(30,060
|
)
|
|
|
(31,246
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from related parties
|
|
|
26,117
|
|
|
|
29,054
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
26,117
|
|
|
|
29,054
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
392
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(3,551
|
)
|
|
|
(1,883
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
$
|
12,512
|
|
|
$
|
13,550
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
8,961
|
|
|
$
|
11,667
|
|
|
|
|
|
|
|
|
|
|
Supplementary Disclosures for Cash Flow Information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO
MPANY
, 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 Company, 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, 2016. The unaudited consolidated financial statements for the three-month period ended March 31, 2017 and 2016 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 three-month period ended March 31, 2017 are not indicative of the results that may be expected for the full year ending December 31, 2017.
(a) Going Concern
The Company had a working capital deficit of $1,209,013 as of March 31, 2017 and had a negative cash flow from operating activities amounted to $30,060 for the three months ended March 31, 2017. 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.
These conditions and uncertainties raise substantial doubt as to the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
(b) Foreign Currency Translation
Exchange rates applied for the foreign currency translation during the period are as follows:
USD to RMB
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Period end USD: RMB exchange rate
|
|
|
6.8905
|
|
|
|
6.9437
|
|
Average periodic USD: RMB exchange rate
|
|
|
6.8882
|
|
|
|
6.6430
|
|
USD to HKD
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Period end USD: HKD exchange rate
|
|
|
7.7705
|
|
|
|
7.7543
|
|
Average periodic USD: HKD exchange rate
|
|
|
7.7602
|
|
|
|
7.7617
|
|
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 January 2017, the FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)”
. This pronouncement amends the SEC’s reporting requirements for public filers in regard to new accounting pronouncements or existing pronouncements that have not yet been adopted. Companies are to provide qualitative disclosures if they have not yet implemented an accounting standards update. Companies should disclose if they are unable to estimate the impact of a specific pronouncement, and provide disclosures including a description of the effect on accounting policies that the registrant expects to apply. These provisions apply to all pronouncements that have not yet been implemented by registrants. There are additional provisions that relate to corrections to several other prior FASB pronouncements. The Company has incorporated language into other recently issued accounting pronouncement notes, where relevant for the corrections in FASB ASU 2017-03. The Company is implementing the updated SEC requirements on not yet adopted accounting pronouncements with these consolidated financial statements.
2. LAND USE RIGHTS, NET
The following is a summary of land use rights, net:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Cost of Land Use Rights
|
|
$
|
18,575,198
|
|
|
$
|
18,432,882
|
|
Accumulated Amortization of Land Use Rights
|
|
|
(4,851,091
|
)
|
|
|
(4,721,760
|
)
|
Land Use Rights, Net
|
|
$
|
13,724,107
|
|
|
$
|
13,711,122
|
|
The difference for the balance of cost was mainly due to the fluctuation of exchange rate of USD to RMB.
Amortization expenses were $92,907 and $97,861 for the three months ended March 31, 2017 and 2016, respectively.
3. DUE FROM RELATED PARTIES
(1)
|
Office spaces provided by related parties
|
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.
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.
(2)
|
Sales revenue from related parties
|
The Company provided solar power to one of its related parties, Heyang County Huanghe Bay Resort Hotel Co., Ltd. since 2014. As of December 31, 2016, no collection has been received. The Company decided to write off all the uncollected receivables related to solar power in the amount of RMB 205,424 (approximately $30,809) and decided not to recognize such revenue going forward.
4. DUE TO RELATED PARTIES
The balance of $623,092 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 March 31, 2017.
Due to related parties consists of the following.
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
USD
|
|
|
USD
|
|
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
|
|
$
|
362,818
|
|
|
$
|
360,039
|
|
Heyang County Huanghe Bay Resort Hotel Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
|
12,529
|
|
|
|
12,433
|
|
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
|
|
|
37,733
|
|
|
|
37,444
|
|
Baishui Du Kang Brand Management Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
|
31,928
|
|
|
|
31,683
|
|
Shaanxi Du Kang Liquor Group Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
|
59,376
|
|
|
|
58,921
|
|
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
|
|
|
886
|
|
|
|
879
|
|
Shaanxi Dukang Liquor Trading Co., Ltd., controlled by Zhang Hongjun, the Director and principal shareholder of the Company
|
|
|
117,822
|
|
|
|
91,011
|
|
Total
|
|
$
|
623,092
|
|
|
$
|
592,410
|
|
As of December 31, 2016, the balance of due to Shaanxi Dukang Liquor Trading Co., Ltd. was RMB 626,950 (approximately $90,290). On January 16, 2017, the Company signed a Loan Extension Agreement with Shaanxi Dukang Liquor Trading Co., Ltd., pursuant to which the loan would be extended to December 31, 2018 and could be further extended with mutual consent after December 31, 2018 if needed. No interest was charged during the period of validity.
The Company borrowed total loans of $26,117 from related parties for the three months ended March 31, 2017.
Heyang County Huanghe Bay Resort Hotel Co., Ltd., paid salaries to the PV power station maintainers on behalf of the Company. The balance of $12,529 represents the salary expense owed to the Heyang County Huanghe Bay Resort Hotel Co., Ltd. as of March 31, 2017. The Company stopped providing solar power since 2017.
5. DUE TO SHAREHOLDERS
The balance of $1,893,779 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 March 31, 2017.
Due to shareholders consists of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Due to Wang Shengli
|
|
$
|
454,813
|
|
|
$
|
451,328
|
|
Due to Zhang Hongjun
|
|
|
880,488
|
|
|
|
873,742
|
|
Due to Chen Min
|
|
$
|
558,478
|
|
|
$
|
555,241
|
|
|
|
$
|
1,893,779
|
|
|
$
|
1,880,311
|
|
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 March 31, 2017, the Company had net taxable operating loss carry forwards of approximately $1,908,861. 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 $477,215 was recorded.
Components of the Company’s net deferred tax assets are set forth below:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
477,215
|
|
|
$
|
440,140
|
|
Total of deferred tax assets
|
|
$
|
477,215
|
|
|
$
|
440,140
|
|
Less: valuation allowance
|
|
$
|
(477,215
|
)
|
|
$
|
(440,140
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
7.
SUBSEQUENT EVENTS
On April 7, 2017, the Company borrowed $26,413 (RMB182,000) from Baishui Du Kang Brand Management Co., Ltd., a related party of the Company, for daily operation purpose. The loan is due on December 31, 2018 without interest.
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 March 31, 2017 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, 2016.
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 XunyangYongjin 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 March 31, 2017), and Wang Sheng Li, a director and shareholder of the Company (holding 2.36% as of March 31, 2017), 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 March 31, 2017, we only received rent payment of 2011 and no 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 years ended December 31, 2015 and 2016, and for the three months ended March 31, 2017.
The following is a summary of the book value of our land use rights as of March 31, 2017:
Cost
|
|
$
|
18,575,198
|
|
Less: Accumulated amortization
|
|
|
(4,851,091
|
)
|
Land use rights, net
|
|
$
|
13,724,107
|
|
Amortization expenses were $92,907 and $97,861 for the three months ended March 31, 2017 and 2016, respectively.
As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $8,054,012 as of March 31, 2017, which includes net loss for common stockholders of $127,218 for the three months ended March 31, 2017. The Company’s operations used cash of $30,060 for the three months ended March 31, 2017.
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
March
3
1
, 201
7
and
March
3
1
, 201
6
Sales revenue
We did not recognize land use right leasing revenue and solar PV energy revenue for the three months ended March 31, 2017 and March 31, 2016, due to uncertainty of collectability.
Operating Expenses
Total operating expense for the three months ended March 31, 2017 was $133,990 compared with operating expense of $138,529 for the three months ended March 31, 2016, representing a decrease of $4,539 or 3%. Administrative expense increased by $1,795 or 6% for the quarter ended March 31, 2017. The amortization expense decreased by $4,954 or 5%, for the three months ended March 31, 2017, due to depreciation of RMB against USD, in spite of the fact that no addition or disposal occurred for land use rights. The depreciation for the three months ended March 31, 2017 decreased by $1,380 or 16%, compared with the same period of 2016, which was mainly due to full depreciation provided for some fixed assets for the year ended December 31, 2016.
Loss from operation for the three months ended March 31, 2017 was $133,990, compared to loss from operation of $138,529 for the three months ended March 31, 2016.
Net Loss
We incurred net loss of $134,260 for the three months ended March 31, 2017, compared to net loss of $138,649 for the three months ended March 31, 2016.
Other Comprehensive Income (Loss)
Our other comprehensive loss (foreign currencies translation loss) was $80,506 for the three months ended March 31, 2017, compared to other comprehensive loss of $75,436 for the three months ended March 31, 2016. 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).
Total
Equity
Total equity decreased to $10,193,656 as of March 31, 2017, from $10,247,410 as of December 31, 2016, representing a decrease of $53,754. The decrease was mainly due to the net loss of $134,260, and other comprehensive loss (foreign currencies translation loss) of $80,506, for the three months ended March 31, 2017.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Net cash used in operating activities of $30,060 for the three months ended March 31, 2017, decreased by $1,186 or 4%, compared with net cash used of $31,246 for the three months ended March 31, 2016. The adjustments to reconcile our net loss to net cash flow mainly include depreciation expense of $7,127, amortization of $92,907 for land use rights and an increase in operating liability of $4,175.
Cash Flows From Investing Activities
There was no cash flow in investing activities for the three months ended March 31, 2017 and 2016.
Cash Flows From Financing Activities
The Company borrowed $26,117 and $29,054 from its related parties for the three months ended March 31, 2017 and 2016 respectively.
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 $26,117 from related parties for the three months ended March 31, 2017.
Our current assets decreased by $3,533 and total assets increased by $3,879 respectively.
We have cash of $8,961 and $12,512 as of March 31, 2017 and December 31, 2016 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 (12) months.
INFLATION
Our management believes that inflation did not have a material effect on our results of operations for the three months ended March 31, 2017.
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. The Company stopped providing such service since 2017.
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 Du Kang 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, Shaanxi Baishui Dukang Old Workshop Liquor Co., Ltd., Shaanxi Jiusheng Brand Operation Management Co., Ltd. Shaanxi Lantian Poverty Alleviation Investment Co., Ltd., Heyang County Huanghe Bay Resort Training Reception Center 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.