Notes
to the Condensed Consolidated Financial Statements
March
31, 2018
(Expressed
in U.S. dollars)
(Unaudited)
NOTE
1- Organization and Description of Business
Image
International Group, Inc. (“IMGL”) was initially incorporated in the state of Nevada on July 25, 2005 under the name
of Eardley Ventures. On April 21, 2008, the Company’s name, Eardley Ventures, was changed to Owlhead Minerals Corp in order
to more appropriately reflect the Company’s business plan. On December 23, 2014, Owlhead Minerals Corp. filed an Amendment
to it Articles of Incorporation with the Nevada Secretary of State, changing its name from Owlhead Minerals Corp. to Image International
Group, Inc. and increasing its authorized capital from 100,000,000 common shares with a par value of $0.001 to 1,000,000,000 shares
common shares with a par value of $0.001.
Tang
Dynasty Investment Group Limited (“Tang Dynasty”) was incorporated under the laws of Hong Kong on March 22, 2017 and
its principal office is located at suites 502 and 503 on the 5th floor of Fourseas Building in Jordan, Hong Kong. It assumed a
full ownership and control of Shenzhen Gu Yue Environmental Protection Technology Co. Ltd (“Gu Yue”) on November 29,
2017.
Shenzhen
Gu Yue Environmental Protection Technology Co. Ltd (“Gu Yue”) was incorporated on November 8, 2010 as a domestic company
in the People’s Republic of China. It was converted to a Wholly Foreign-Owned Enterprise (“WFOE”) on November
29, 2017.
Yangshuo
County Xing Yuan Lead-Zinc Mine Co., Ltd. (“Yangshuo”) was incorporated on January 22, 1996 under the laws of the
People’s Republic of China. Yangshuo primarily engages in lead, zinc and copper mining ore and generates revenue through
the sales of processed lead, zinc and copper to customers primarily in Guangxi province. Due to the Chinese government policy
on environmental protection, its traditional business of mining of lead, zinc and copper has been idled in recent years. Yangshuo
has been exploring business opportunities in the processing of lead-zinc tailings. During this transition period, Yangshuo made
its building and land available for lease and entered into operating leases with individual and business lessees. The leases with
individual lessees expire over the next 1 to 2 year(s) and the leases with commercial lessees expire over the next 3 years.
On
December 5, 2017, Gu Yue obtained a controlling interest of Yangshuo through a series of contractual agreements including Exclusive
Business Cooperation Agreement, Exclusive Option Agreement, Power of Attorney and Equity Pledge Agreement. As a result, Gu Yue
contractually controlled and managed an operating company, Yangshuo and conducted its business solely through Yangshuo, its variable
interest entity.
On
January 15, 2018, Image International Group, Inc. (“IMGL”) entered into a share exchange agreement (“Share Exchange
Agreement”) with (i) Tang Dynasty Investment Group Limited, a limited liability company formed under the laws of Hong Kong,
Special Administrative Region, China (“Tang Dynasty”). Pursuant to the terms of the Share Exchange Agreement, we issued
400,000,000 new shares of our common stock, par value at $0.001 per share for all of the outstanding common stock of Tang Dynasty.
As a result, Tang Dynasty became our wholly owned subsidiary.
Accordingly,
we refer to IMGL, its consolidated subsidiaries and variable interest entity collectively as the “Company”, “we”,
“us” and “our”.
NOTE
2 - Basis of Presentation and Significant Accounting Policies
Basis
of Presentation
The
accompanying Unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted
accounting principles in the United States of America (“U.S. GAAP”) for interim financial information pursuant to
the rules and regulations of the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily
indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction
with information included in the Company’s annual report on Form 8-K/A for the year ended December 31, 2017, that was filed
with the SEC on May 21, 2018.
Principles
of Consolidation
These
condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally
accepted in the United States and are expressed in U.S. dollars.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimate
and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may
differ from those estimates. Significant estimates reflected in the condensed consolidated financial statements include the collectability
of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived
assets, valuation of accruals for expenses and tax due.
Going
Concern Consideration
These
condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant
revenues since inception and is unlikely to generate earnings in the immediate future. The continuation of the Company as a going
concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary
equity financing to continue operations, and the attainment of profitable operations. As at March 31, 2018, the Company has a
working capital deficiency of $3,562,862 and has an accumulated deficit of $220,775 since inception. These factors raise
substantial doubt regarding the Company’s ability to continue as a going concern. These condensed financial statements do
not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. dollar. Tang Dynasty uses the local currency, Hong Kong Dollar, while Gu Yue and
Yangshuo use the local currency, Renminbi (RMB), as their functional currencies as determined based on the criteria of ASC 830,
“Foreign Currency Translation”. Assets and liabilities are translated at the unified exchange rate as quoted by the
U.S. Federal Reserve at the end of the period. Income and expense accounts are translated at the average translation rates and
the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated
other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated other comprehensive gain/(loss) amounted to $(22,050) and $7,668 for the period
ended March 31, 2018 and 2017, respectively.
Below
is a table with foreign exchange rates used for translation:
(Average
Rate)
|
|
March
31, 2018
|
|
March
31, 2017
|
Chinese
Renminbi (RMB)
|
|
RMB
|
|
|
6.3535
|
|
|
RMB
|
|
|
6.8853
|
|
Hong
Kong dollar (HKD)
|
|
HKD
|
|
|
7.8279
|
|
|
HKD
|
|
|
7.7608
|
|
United
States dollar ($)
|
|
|
|
$
|
1.0000
|
|
|
|
|
$
|
1.0000
|
|
(Closing
Rate)
|
|
March
31, 2018
|
|
December
31, 2017
|
Chinese
Renminbi (RMB)
|
|
RMB
|
|
|
6.2726
|
|
|
RMB
|
|
|
6.5063
|
|
Hong
Kong dollar (HKD)
|
|
HKD
|
|
|
7.8484
|
|
|
HKD
|
|
|
7.8128
|
|
United
States dollar ($)
|
|
|
|
$
|
1.0000
|
|
|
|
|
$
|
1.0000
|
|
Cash
and Cash Equivalent
We
consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
We maintain with various financial institutions in Hong Kong and PRC. As of March 31, 2018, cash balances held in Hong Kong and
PRC banks are uninsured. We have not experienced any losses in bank accounts and believes we are not exposed to any risks on our
cash in bank accounts.
Financial
Instruments
The
carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate
fair value because of the immediate or short-term maturity of these financial instruments.
Plant,
Property, and Equipment
Plant,
property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions
of property and equipment are included in operating income (loss). Major additions, renewals and improvements are capitalized,
while maintenance and repairs are recognized as expense as incurred.
Depreciation
is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method
over the useful lives of the assets are as follows:
Classification
|
|
Estimated
useful life
|
Buildings
|
|
Over
the lease term
|
Intangibles
Intangible
assets are carried at cost less accumulated amortization.
We
account for its significant leases of land use rights for purposes of classification of operating or capital. At the inception
of the lease agreements, we will classify the leases as capital leases under ASC 840-30 if (a) transfer of ownership to lessee
at the end of the lease term, (b) bargain purchase option, (c) the lease term equals to or exceeds 75% of economic life of the
leased property, and/or (d) present value of minimum lease payments exceeds 90% of fair value of the lease property. Otherwise,
the leases will be classified as operating leases.
Intangible
assets with finite useful lives are amortized on a straight-line basis that align with it economic benefits of the intangible
assets to be consumed. The original estimated useful life for the land use rights ranged from 38 to 70 years stipulated on the
lease term.
Intangible
assets are reviewed at least annually to determine whether there are any circumstances arisen that may trigger the impairment
of their carrying values. Management considers intangible assets to be impaired if their carrying value exceeds the future projected
cash flows from the perspective operations. Management also evaluates the periods of amortization to identify if any subsequent
events or conditions that warrant revised estimates of useful lives.
Impairment
of Long-lived Assets
Long-lived
assets, including buildings and intangible assets with finite lives are reviewed for impairment whenever events or changes in
circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate
that the carrying value of an asset may not be recoverable. We assess the recoverability of the assets based on the undiscounted
future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows
expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the
carrying value of the asset. When we identify an impairment, we reduce the carrying amount of the asset to its estimated fair
value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of the period
ended March 31, 2018 and fiscal years ended December 31, 2017, management determined that there was no impairment.
Fair
Values of Financial Instruments
ASC
Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments,
whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all non-financial assets
and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.
The
accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement
and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value.
We
consider the carrying amount of cash, other receivables and other short-term payables, to approximate their fair values because
of the short period of time between the origination of such instruments and their expected realization.
Comprehensive
Income (Loss)
Other
comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as
an adjustment to stockholders’ equity. Our other comprehensive income (loss) is comprised of foreign currency translation
adjustments.
Concentration
of Risk
Credit
Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash
equivalents and other accounts receivable. As of March 31, 2018 and December 31, 2017 $540,874 and $986,821 were deposited with
various major financial institutions located in Hong Kong and the PRC, respectively. While management believes that these financial
institutions are of high credit quality, it also continually monitors their credit worthiness. Under the Deposit Scheme Protection
Rules of Hong Kong Special Administrative Region, China, eligible bank deposits with banks in Hong Kong are insured up to $63,707
(HKD500,000). Eligible bank deposits include all types of ordinary deposits in any currency such as current accounts, savings
accounts, secured deposits and time deposits with a maturity term no more than 5 years.
Historically,
deposits in Chinese banks are secure due to state policy to protect depositor interests. However, China promulgated a Bankruptcy
Law in August 2006 that came into effect on June 1, 2007, which contains a separate article expressly stating that the State Council
may promulgate implementation measures to provide for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the current
Bankruptcy Law, a Chinese bank may file bankruptcy if it deems itself to be insolvent. In addition, since China’s concession
to the World Trade Organization, foreign banks have been gradually permitted to operate in China and have intensified competition
in many aspects, especially since the opening of the Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy
at the institutions that the Company maintains deposits has increased. In the event of bankruptcy, the Company is unlikely to
reclaim its deposits in full since it is unlikely to be classified as a secured creditor under PRC laws.
Other
accounts receivable consists of rental receivable and deposit paid. They are typically unsecured and rental receivable are derived
from revenue earned from leasee, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its
leasees’ creditworthiness and its ongoing monitoring of outstanding balances. The Company maintains reserves for estimated
credit losses, and such losses have generally been within expectations.
Income
Taxes
We
account for income taxes using an asset and liability method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against
deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the
deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
We
apply ASC 740,
Accounting for Income Taxes
, to account for uncertainty in income taxes and the evaluation of a tax position
is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained
upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.
The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than
50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial
reporting period in which the threshold is no longer met.
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide
range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction
with majority of the tax provision effective after December 31, 2017.
Certain
activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on IMGL when its subsidiaries,
controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal
Revenue Code beginning after December 31, 2017.
The
Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes
line of our consolidated statements of operations for the three months ended March 31, 2018 and year ended December 31, 2017.
We do not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.
Recent
Accounting Pronouncements
Recently
Adopted Accounting Standards
Revenue
Recognition
: Effective January 1, 2018, the Company adopted Topic 606, Revenue from Contracts with Customers, using modified
retrospective approach applied its contracts which were not completed as of January 1, 2018. Results for reporting periods beginning
after January 1, 2018 are accounted for and presented under Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with Topic 605. For the three months ended March 31, 2018 and 2017, the Company is still in the development
stage of its sand tailing business and has not generated revenue related to this business. The Company assessed that the adoption
of ASC 606 does not have significant impact on its condensed consolidated financial statements. During this transition period,
the Company has generated rental income from its buildings located in Yangshuo county, PRC and accounted for its rental income
in accordance with ASC 840-20, Leases, Operating Leases.
Financial
instrument
: In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted.
Accordingly, the standard is effective for us on January 1, 2018. Since the Company do not have any financial instruments, management
does not expect there will be any material impact on the financial statements.
Statement
of Cash Flows:
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this
Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement
of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues.
The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current
and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. The Company adopted this guidance on January 1,
2018 and evaluated that the Company does not have any specific type of cash flow issues identified in the guidance. Therefore,
the Company does not believe that this standard has a significant impact on the presentation of its consolidated statement of
cash flows.
Statement
of Cash Flows:
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted
Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period
in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This
update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted.
The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and
removal of the changes in restricted cash activity, which are currently recognized in other financing activities, on the Interim
Condensed Consolidated Statement of Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and
cash equivalents and restricted cash reported within the Interim Condensed Consolidated Balance Sheets to sum to the total shown
in the Interim Condensed Consolidated Statement of Cash Flows. The Company has already disclosed the restricted cash separately
on its Interim Condensed Consolidated Statements of Financial Position. Beginning the first quarter of 2018, the Company has adopted
and also included the restricted cash balances on the Interim Condensed Consolidated Statement of Cash Flows and reconciliation
of Cash, cash equivalent and restricted cash within its Interim Condensed Consolidated Statements of Financial Positions that
sum to the total of the same such amounts shown in Interim Condensed Consolidated Statement of Cash Flows and the Cash Flows of
three months ended March 31, 2017 has been applied retrospectively.
Business
Combination
: In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic
805): Clarifying the Definition of a Business
(ASU 2017-01), which revises the definition of a business and provides new guidance
in evaluating when a set of transferred assets and activities is a business. The Company has adopted this guidance effective for
us in the first quarter of 2018 on a prospective basis. This standard does not have a material impact on our consolidated financial
statements unless and until the Company plans an acquisition or deconsolidation in the future.
Stock-based
Compensation
: In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718):
Scope of modification accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes
to the terms or condition of a share-based payment award require an entity to apply modification accounting. For all entities
that offer share based payment awards, ASU 2017-09 are effective for interim and annual reporting periods beginning after December
15, 2017. The Company will apply this standard beginning in the first quarter of 2018. The Company has not yet granted, delivered
or provided any stock-based compensation to its employees or third party service providers. This standard does not have a significant
impact on its consolidated financial statements.
On
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of
U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (“the
Tax Act”). As of March 31, 2018, the Company has not completed our accounting for the effects of the Tax Act based on the
currently available information and has made a reasonable estimates in the first quarter of 2018. The Company will monitor future
guidance set forth by the Department of Treasury with regard to the tax provisions under the Act, and true up this estimate as
appropriate within the one year measurement period. If revisions are needed as new information becomes available, the final determination
of the deemed incremental income tax expense, deemed re-measurement of the deferred assets and liabilities or other applicable
provisions of the Tax Act will be completed as additional information becomes available within the 12 months re-measurement period.
In
January 2018, the FASB staff released Staff Q&A Topic 740 No. 5 which provides a guidance on accounting for tax provision
of Global Intangible Low-Taxed Income (“GILTI”) as provided under the Tax Cuts and Jobs Act (“the Act”).
The GILTI refers to the tax on the excess of a United States shareholder’s total net foreign income over a deemed return
on tangible assets. Based on the information available to us for the first quarter of 2018, the Company provisionally made a policy
election and accounted for its potential GILTI tax as a period cost when incurred.
Accounting
Pronouncements Issued But Not Yet Adopted
Leases
:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease
amendments to the FASB Accounting Standard Codification. This ASU will be effective for us on January 1, 2019. We are currently
in the process of evaluating the impact of the adoption of ASU 2016-2 on our consolidated financial statements.
Financial
Instruments - Credit Losses:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be
presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing
its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates
more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial
statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is still evaluating the effect that this guidance will have on the Company’s
consolidated financial statements and related disclosures.
Financial
Instruments - Credit Losses
: In June 2017, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be
presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing
its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates
more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial
statements. ASU 2017-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is still evaluating the impact of this standard on the Company’s consolidated
financial statements and related disclosures.
Leases:
In September 2017, the FASB issued ASU 2017-13, Leases (Topic 842). The main objective of this pronouncement is to clarify
the effective date of the adoption ASC Topic 842. ASU 2016-12 requires that “a public business entity and certain other
specified entities adopt ASC Topic 842 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. All other entities are required to adopt ASC Topic 842 for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020”. ASU 2017-13 clarifies that the SEC would not object certain
public business entities to elect to use the non-public business entities effective dates for applying ASC 606 and ASC 842. ASU
2017-13, however, limits such election to certain public business entities that “otherwise would not meet the definition
of a public business entity except for a requirement to include or inclusion of its financial statements or financial information
in another entity’s filings with the SEC”. The Company elected to adopt and ASC Topic 842 beginning January 1, 2019,
respectively.
Except
for the ASU above, in the period from February 2018 through May 2018, the FASB has issued ASU No. 2018-02 through ASU 2018-05,
which are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE
3 - Deposits and Other Receivables
Deposits
and other receivables consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Rental
receivable
|
|
$
|
22,070
|
|
|
$
|
13,193
|
|
Deposit
paid
|
|
|
26,127
|
|
|
|
26,246
|
|
Other
receivables
|
|
|
21,323
|
|
|
|
-
|
|
Less:
allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Total
deposits and other receivables, net
|
|
$
|
69,520
|
|
|
$
|
39,439
|
|
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT,
NET
Property,
plant and equipment consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Buildings
|
|
$
|
223,193
|
|
|
$
|
215,176
|
|
Less:
accumulated depreciation and impairment charges
|
|
|
(18,664
|
)
|
|
|
(16,628
|
)
|
Total
property, plant and equipment, net
|
|
$
|
204,529
|
|
|
$
|
198,548
|
|
The
depreciation expenses for three months ended March 31, 2018 and 2017 were $1,398 and $1,290.
NOTE
5 – INTANGIBLES, NET
Intangible
assets consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Land
use rights
|
|
$
|
1,960,909
|
|
|
$
|
1,890,475
|
|
Less:
accumulated amortization
|
|
|
(153,289
|
)
|
|
|
(136,568
|
)
|
Total
intangibles, net
|
|
$
|
1,807,620
|
|
|
$
|
1,753,907
|
|
The
amortization expenses of land use rights for the three months ended March 31, 2018 and 2017 were $11,484 and $10,597.
The
estimated amortization expenses for each of the five succeeding years is as follows:
Year
ending December 31,
|
|
Estimated
amortization expense
|
|
|
|
|
|
2018
|
|
$
|
34,452
|
|
2019
|
|
|
45,936
|
|
2020
|
|
|
45,936
|
|
2021
|
|
|
45,936
|
|
2022
|
|
|
45,936
|
|
Thereafter
|
|
|
1,589,424
|
|
Total
|
|
$
|
1,807,620
|
|
NOTE 6 – SHORT TERM LOANS AND
LOAN PAYABLE
Short-term
loans represented amounts due to bank and government agency, normally due within one year. The principal of the loans is due at
maturity but can be renewed at the bank’s option. Interest is due monthly.
Short
term loans due to bank and government consisted of the following as of the years indicated:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Loan
from Agricultural Bank of China with original principal amount at RMB 1,497,945 at a variable interest rate. Average interest
rate is 4.9% for the quarter ended March 31, 2018 and the fiscal year ended December 31, 2017. The loan is matured in October
1989. Yangshuo is negotiating an extension with the lender.
|
|
$
|
238,808
|
|
|
$
|
230,230
|
|
|
|
|
|
|
|
|
|
|
Loan
from the Yangshuo County Bureau of Finance with original principal amount RMB 652,794 at a fixed interest rate. Interest rate
is 7.92% per annum for the quarter ended March 31, 2018 and the fiscal year ended December 31, 2017. The loan is repayable
on demand.
|
|
|
104,071
|
|
|
|
100,333
|
|
|
|
|
|
|
|
|
|
|
Loan
from the Yangshuo County Bureau of finance with original loan amount RMB 1,000,000 at a zero interest rate. The loan is repayable
on demand.
|
|
|
159,423
|
|
|
|
153,697
|
|
|
|
|
|
|
|
|
|
|
Total
short-term loans
|
|
$
|
502,302
|
|
|
$
|
484,260
|
|
Interest
expense on short term loans for the three months ended March 31, 2018 and 2017 amounted to $4,855 and $4,480, respectively. No
interest expense has been capitalized into property, plant and equipment as all borrowings were for working capital purposes.
NOTE 7 – OTHER PAYABLES AND ACCRUED LIABILITIES
Other
payables and accrued liabilities as of March 31, 2018 and December 31, 2017 consisted of:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Security
deposits & other payable
|
|
$
|
90,667
|
|
|
$
|
96,847
|
|
Accrued
loan interest expenses
|
|
|
428,039
|
|
|
|
407,923
|
|
Payroll
payable
|
|
|
3,986
|
|
|
|
3,927
|
|
Accrued
expenses
|
|
|
65,289
|
|
|
|
50,881
|
|
Total
|
|
$
|
587,981
|
|
|
$
|
559,578
|
|
NOTE
8- RELATED PARTY TRANSACTIONS
On
July 15, 2017, Tang Dynasty entered into consulting agreements with two of its former shareholders, Cheuk Kau Herman Kwong and
Kwok Leung Lee (“the consultants”). The agreements provide that the monthly compensation for January and February
2018, $2,555 (HKD20,000), for March 2018, $1,277 (HKD10,000), is payable to each of the consultants for the financial and project
management services rendered to Tang Dynasty. Pursuant to these agreements, Tang Dynasty has incurred and paid $6,387 (HKD50,000)
to each of the consultants during the period ended March 31, 2018.
Other
receivables-related parties
Other
receivables - related parties are those non-trade receivables arising from transactions between the Company and certain related
parties, such as loans and employee advances to such related parties. The loans are unsecured, non-interest bearing and due in
the next 12 months.
Other
receivables - related parties consisted of the following
Name
of related parties
|
|
Relationship
|
|
Nature
of transactions
|
|
March
31, 2018 (Unaudited)
|
|
|
December
31, 2017 (Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Image
International Group Inc.
|
|
Mr.
Hoi Ming Chan is the Chief Executive Officer
|
|
Loan
for funding business development activities
|
|
$
|
-
|
|
|
$
|
57,955
|
|
Hui
Zhang
|
|
Director
of Yangshuo
|
|
Loan
for funding business development activities
|
|
|
188,400
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
188,400
|
|
|
$
|
57,955
|
|
Other
payables-related parties
Other
payables - related parties consisted of the following:
Name
of related parties
|
|
Relationship
|
|
Nature
of transactions
|
|
March
31, 2018 (Unaudited)
|
|
|
December
31, 2017 (Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Hui
Zhang
|
|
Director
of Yangshuo
|
|
Funds
to former shareholders
|
|
$
|
-
|
|
|
$
|
392,235
|
|
Ni
Qin
|
|
Director
of Shenzhen Guyue Environmental Technology Co. Ltd.
|
|
Loan
from director for operating cash flows
|
|
|
32,562
|
|
|
|
16,008
|
|
Hoi
Ming Chan
|
|
Chief
Executive Officer of IMGL and Director of Tang Dynasty
|
|
Advances
from director to support the operation of Tang Dynasty and compensation for consulting service to IMGL
|
|
|
3,551,110
|
|
|
|
2,575,428
|
|
Zhi
Yuan Chen
|
|
Supervisor
of Shenzhen Guyue Environmental Technology Co. Ltd.
|
|
Loan
from supervisor for Gu Yue’s operating cash flow
|
|
|
4,472
|
|
|
|
19,681
|
|
Shenzhen
Dongyuan Dongli Battery Co., Ltd
|
|
Zhi
Yuan CHEN is the corporate representative of the Company
|
|
Loan
for Gu Yue’s operating cash flows
|
|
|
829
|
|
|
|
799
|
|
Huizhou
Shiji Wufeng Agricultural Industry Co., Ltd
|
|
Owned
by Shenzhen Dongyuan Dongli Battery Co., Ltd and Zhi Yuan CHEN
|
|
Loan
for Gu Yue’s operating cash flows
|
|
|
1,247
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
3,590,220
|
|
|
|
3,005,353
|
|
Total
other payables - related parties - current
|
|
|
|
|
|
|
3,590,220
|
|
|
|
3,005,353
|
|
Total
other payables - related parties - non-current
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 9 – NON-OPERATING REVENUE
Non-operating
revenue mainly consists of rental revenue. For the three months ended March 31, 2018, Yangshuo has recognized its rental revenue
in an amount of $8,279 for the period ended March 31, 2018.
The
following is a schedule by years of minimum future rentals on non-cancelable operating leases as of March 31, 2018:
Year
ending December 31:
|
|
|
|
2018
|
|
$
|
17,762
|
|
2019
|
|
|
10,168
|
|
2020
|
|
|
6,853
|
|
Total
minimum future rentals receivable
|
|
$
|
34,783
|
|
NOTE 10 – INCOME TAXES
We
are subject to income taxes in both the United States and multiple foreign jurisdictions. Significant judgments and estimates
are required in determining the consolidated income tax expense.
U.S.
Prior
to January 31, 2018, IMGL, incorporated in Nevada, is subject to federal income tax rate at 34%. On December 22, 2017, the U.S
government enacted the Tax Cuts and Jobs Act which covers a wide range of changes to the U.S. tax code, including, but not limited
to (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time
transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income
taxes on dividends from foreign subsidiaries (4) providing modification to subpart F provisions and new taxes on certain foreign
earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions
go into effect starting January 1, 2018.
The
share exchange between IMGL and Tang Dynasty was closed on January 18, 2018 and thus the business combination was effective on
the same day. Accordingly, the Company was not subject to the one-time transition tax which was in effect in the calendar year
2017. Beginning the first quarter 2018, we are subject to GILTI and applying the guidance in SAB 118 when accounting for the enactment
date effects of the Act.
On
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of
U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As of March 31, 2018,
we have not completed our accounting for all the tax effects of the Tax Act. Since our foreign subsidiaries incurred losses for
the three months ended March 31, 2018, we anticipated that the tax effects of the Tax Act is nominal. We will continue to evaluate
the tax effects of the Tax Act and refine our estimate when additional information is available. Our estimate could be changed
as we obtain a more thorough understanding of the Tax Act. Changes to the provisional estimate of the tax effect of the Tax Act
will be recorded as a discrete item during the interim period.
Hong
Kong
Tang
Dynasty Investment Group Limited, incorporated in Hong Kong, SAR, is subject to Hong Kong Profits tax at 16.5%.
PRC
Our
subsidiary, Gu Yue and VIE, Yangshuo are incorporated in the People’s Republic of China and governed by the income tax laws
of the PRC. The income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable
income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income
Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate
tax adjustments.
Under
the EIT Laws, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject
to PRC withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain countries.
Effective
tax rates for the three months ended March 31, 2018 and 2017 were nil. The Company and its subsidiaries have incurred operating
losses historically. The Company believes that it is more likely than not that its accumulated operating losses from IMGL, Tang
Dynasty, Gu Yue and Yangshuo will not be utilized before they are expired. Therefore, the Company has provided full valuation
allowance for the deferred tax assets and accumulated net operating losses. Accordingly, the Company has no net deferred tax assets.
The
Company did not recognize any interest and penalties related to uncertain tax positions in its provision for income taxes for
the three months ended March 31, 2018 and year ended December 31, 2017. The Company does not expect that its assessment regarding
unrecognized tax positions will materially change over the next 12 months.
NOTE 11 - STATUTORY RESERVE
Pursuant
to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory
surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual
appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined
under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). Gu Yue and Yangshuo did
not make appropriations to statutory reserve for the three months ended March 31, 2018 as the entities have incurred book loss
and tax loss in that period.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
As
of the reporting date, the Company has not incurred any unrecognized or recognized commitments or loss contingencies that are
subject to disclosure requirements.
NOTE 13 – CONTINGENT LIABILITY
In
an administrative litigation in 2017, the plaintiff Yunsheng YANG, an independent third party to Yangshuo, filed a claim against
the Yangshuo County People’s Government (the “Government”) naming Yangshuo as the third party in revoking the
State-owned Land Use Certificate (Shuo Guo Yong (2015) No.500), which states that Yangshuo has the right to use the land involved
of area of approximately 734.4 ㎡ (the “Land”). On August 10, 2017, the Guilin Intermediate People’s Court
held that there was no evidence could prove the plaintiff has any right regarding the Land and dismiss all the plaintiff’s
claims.
The
plaintiff was unsatisfied with the judgment and appealed to the Guangxi Zhuang Autonomous Region Higher People’s Court.
The second trial is pending at the date of this report.
According
to the PRC legal opinion of the counsel of Yangshuo , the possible impact is that if the judge held in favor of the plaintiff’s
claims, Yangshuo might lose the right to use the Land which carrying amount as of March 31, 2018 was US$273,651. However, the
director of Yangshuo opined that the probability of losing the case is less than probable based on the judgement of the court
of first instance. As such, no impairment loss is provided on the involved land as of the report date.