NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS
OF PRESENTATION
Sinorama Corporation (the “Company”
or “Sinorama”) was incorporated on June 30, 2016, under the laws of the State of Florida. On the same date, Sinorama
issued 11,000,000 shares of its common stock in exchange for all of the outstanding shares of Sinorama Tours Co., Ltd., a Samoan
corporation organized in June 2015 ("Sinorama Tours"). Sinorama Tours is a holding company with two operating subsidiaries:
|
¨
|
Vacances
Sinorama Inc. (“Vacances Sinorama”), an integrated tour company incorporated in Quebec, Canada in December 2004. Vacances
Sinorama provides Bus Tours, Asian Tours, Airline Tickets, Hotel Reservations, Cruises and other travel services to its customers
worldwide. Vacances Sinorama facilitates travel commerce with online and offline travel businesses. Vacances Sinorama is servicing
both business to customer (B2C) and business to business (“B2B”) in the travel marketplace.
|
|
¨
|
Sinorama
Voyages (“Sinorama Voyages”), an integrated tour company incorporated in France in February 2012. Sinorama Voyages
also provides Bus Tours, Asian Tours, Airline Tickets and other travel services to its customers worldwide. Sinorama Voyages facilitates
travel commerce with online and offline travel businesses. Sinorama Voyages services both business to customer (B2C) and business
to business (“B2B”) in the travel marketplace.
|
Sinorama Tours owns 66⅔% of Vacances
Sinorama through Simon Qian Voyages, Inc., a wholly-owned subsidiary, and owns 51% of Sinorama Voyages directly. The other 33⅓%
of Vacances Sinorama is owned by Qian Hong, the Chairman of Sinorama. The other 49% of Sinorama Voyages is owned by Yang Ming (39%)
and Zhao Hongxi (10%). Zhao Hongxi is the Chief Financial Officer of Sinorama.
The control of the entities was not changed
by the acquisition on June 30, 2016, as all of the entities remained under the control of Qian Hong and his wife, Jing Wenjia.
Accordingly, we have treated the combination, for accounting purposes, as a corporate restructuring (reorganization) of entities
under common control, and thus the current capital structure has been retroactively presented in prior periods as if such structure
existed at that time and in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis
for all periods to which such entities were under common control. Since all of the subsidiaries were under common control for the
entirety of the nine months ended September 30, 2017 and 2016, the results of these subsidiaries are included in the financial
statements for both periods. Non-controlling interests in the subsidiaries are related parties and thus were not adjusted to fair
value as a result of the reorganization.
Basis of presentation
The Company’s consolidated financial
statements are expressed in U.S. dollars and are presented in accordance with the United States generally accepted accounting principles
("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission (“SEC”).
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to
Form 10-Q and Item Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information
and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature. Operating results for the nine months ended September 30,
2017 are not necessarily indicative of the results that can be expected for the year ended December 31, 2017.
Principles of consolidation
The consolidated financial statements include
the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.
Non-controlling interests represent the equity interest in Vacances Sinorama and Sinorama Voyages that are not attributable to
the Company. Non-controlling interest is reported in the consolidated financial position within equity, separate from the Company’s
equity, and net income or loss and comprehensive income or loss that are attributable to the Company and to the non-controlling
interest are separately reported on the Statement of Operations.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Use of estimates
The preparation of unaudited consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best
information available at the time the estimates are made; however actual results could differ from those estimates. Significant
items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount
and the estimated useful lives of long-lived assets. These estimates are often based on complex judgments and assumptions that
management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these
estimates.
Reclassification
The comparative figures have been reclassified
to conform to current presentation.
Revenue recognition
The Company's revenues are primarily derived
from sale of our self-developed products, including Bus Tour Products and Asian Tour Products. The Company also sells Third Party
Products (airline tickets, hotels, etc.). Revenue is recognized only when persuasive evidence of an arrangement exists, the service
has been performed, the price is fixed or determinable, and the collectability of the related fee is reasonably assured, in accordance
with ASC 605,
Revenue Recognition
, ("ASC 605"). Specifically, contracts are signed to establish significant
terms such as the price and specific services to be provided. The Company assesses the creditworthiness of our customers prior
to signing the contracts to ensure collectability is reasonably assured. Non-refundable payments received before all of the relevant
criteria for revenue recognition are satisfied are recorded as customer advances and deposits.
Bus Tour Products Sales
Revenues from Bus Tours are recognized
when customers depart from the trips. Revenues from Bus Tour services are recognized on a gross basis, which represent amounts
charged to and received from customers. The Company is the primary obligor in the arrangement and bear the risks and rewards, including
the customers’ acceptance of products and services delivered.
Asian Tour Products Sales
The Company recognize Asian Tour services
revenues and other travel-related services such as visa processing services on the date that the tours or the flights depart, provided
that evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain at the end of the
period, and collection of the resulting receivable is reasonably assured. We require that full payment be made before flights depart.
Revenues from Asian Tour services are recognized
on a gross basis, which represent amounts charged to and received from customers. The Company is the primary obligor in the arrangement
and bear the risks and rewards, including the customers’ acceptance of products and services delivered.
Third Party Products Sales
Revenue from sales of the Third-Party Products
reservations is recognized at the time of the booking of the reservation. Third-Party Products sales are non-refundable. Third-Party
Products revenue is normally derived from airline tickets, hotel reservations, cruises, insurance, etc. The revenue from Third
Party Products is recognized on a gross basis. The Company conducts a rigorous process in selecting travel products and services
before selling these products to customers and independently determines the prices charged to customers for Third Party Products.
The Company is the primary obligor in the arrangement and is responsible for the ultimate customer acceptance for all products
and services rendered. Such commitment is also made in the contracts entered into with customers. The Company is the party retained
and paid by customers. In situations of customer disputes, where the customer files a complaint or demands a refund, the Company
assumes risks and responsibilities for the delivery of products and is responsible for refunding the customers their payments.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Cash and cash equivalents
Cash and cash equivalents consist of cash
on hand and bank deposits and other liquid investments, which are unrestricted as to withdrawal and use. All highly liquid investments
with original stated maturity of three months or less are classified as cash equivalents. Cash and cash equivalents approximates
or equals fair value due to their short-term nature. The Company’s cash and cash equivalents consist of cash on hand and
cash in bank, including bank term deposits. As of September 30, 2017, and December 31, 2016, the cash on hand and cash in bank
were $2,774,290 and $5,126,409, respectively. As of September 30, 2017, and December 31, 2016, the other cash & cash equivalents
were $590,727 and $1,055,376, respectively, the interest rate was 0.2%, maturity was three months or less. Therefore, the total
cash and cash equivalents, as of September 30, 2017 and December 31, 2016, were $3,365,017 and $6,181,785, respectively.
Restricted cash
In accordance with the Quebec Consumer
Protection Act and the Travel Agents Act, the Company is required to deposit into trust certain customer deposits until suppliers
are paid for their services. The Company can access the trust account only to administer it as trustee, and cannot use funds from
this account for personal or corporate purposes until the supplier is paid. As of September 30, 2017, and December 31, 2016, the
restricted cash in the trust account was $1,321,286 and $2,371,212, respectively.
Short term investments
Short-term investments are comprised of
investments in financial products issued by banks or other financial institutions, which contain a fixed or variable interest rate
and a term to maturity of greater than 3 months but less than 12 months. Such investments are generally not permitted to be redeemed
early or are subject to non-interest for redemption prior to maturity. The Company classifies these investments as held-to-maturity
as it has both the positive intent and ability to hold them until maturity. These investments are classified as short-term investments
based on the maturity date. The short-term investments maturities are exceeding three months. As of September 30, 2017, and December
31, 2016, the short-term investments were $1,176,117 and $210,148, respectively, the interest rate was 0.95%, the maturity was
exceeding three months but less than twelve months.
Fair Value Measurement
The Company applies the provisions of ASC
Subtopic 820-10,
Fair Value Measurements
, for fair value measurements of financial assets and financial liabilities
and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements.
ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that
would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company
considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are as follows:
Level 1: Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Level 2: Quoted prices
in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of
the asset or liability;
Level 3: Prices or valuation
techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or
no market activity).
There were no transfers between level 1,
level 2 or level 3 measurements during the nine months ended September 30, 2017 and 2016.
Financial assets and liabilities of the
Company are primarily comprised of cash and cash equivalents, restricted cash, short term investments, accounts receivable, amount
due from related parties, other receivable, accounts payable, payroll payable, amount due to related party and other payable. As
at September 30, 2017 and December 31, 2016, the carrying values of these financial instruments approximated to their fair values
due to the short-term maturity of these instruments.
Accounts receivable
Accounts receivable are recognized and
carried at original invoiced amount less an allowance for any potential uncollectible amounts. An estimate for doubtful debts is
made when the collection of the full amount is no longer probable. Bad debts are written off as incurred.
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the failure of customers to make payments on time. The Company reviews the accounts
receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. In evaluating
the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the
customer’s historical payment history, its current credit-worthiness and current economic trends.
The Company had nil bad debts for both
the nine months ended September 30, 2017 and for the year ended December 31, 2016. The balance of the allowance for doubtful account
were nil as of September 30, 2017 and December 31, 2016.
Property and equipment
Property and equipment are stated at cost.
Computer Equipment, Furniture & Fixtures and Office Equipment are depreciated using the declining balance depreciation method
basis reflective of the useful lives of the assets. Leasehold Improvement are stated at cost and are depreciated using the straight-line
method over the shorter of the estimated useful lives of the asset or the term of the related lease, as follows:
Computer Equipment
|
Declining Balance Method at rate 30% per year
|
Furniture & Fixtures
|
Declining Balance Method at rate 20% per year
|
Office Equipment
|
Declining Balance Method at rate 20% per year
|
Leasehold Improvement
|
10 years
|
Repair and maintenance costs are charged
to expenses as incurred, whereas the cost of renewals and betterment that extends the useful lives of property and equipment is
capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and
accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the
consolidated statements of comprehensive income (loss).
Functional currency and foreign currency
translation
As of September 30, 2017, and December
31, 2016, and for nine months ended September 30, 2017 and 2016, all foreign subsidiaries use the local currency of their respective
countries as their functional currency, which is the U.S. dollars for Sinorama and Sinorama Tours, and the Canadian dollar (“Canada
dollar”) for Simon Qian Voyages and Vacances Sinorama, and the Euro (“€”) for Sinorama Voyages.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Company’s reporting currency
is U.S. dollars. Assets and liabilities of Simon Qian Voyages, Vacances Sinorama and Sinorama Voyages are translated into U.S.
dollars at the exchange rates set forth in the Bank of Canada at the balance sheet dates, revenues and expenses are translated
into U.S. dollars at average exchange rates set forth in the Bank of Canada for the reporting periods, and shareholders' equity
is translated at historical exchange rates. Gains and losses resulting from translation are recorded as a component of accumulated
other comprehensive income (loss).
Realized gains and losses from foreign
currency transactions are recognized in cost of sales on the consolidated statements of operations, unrealized gains and losses
from foreign currency transactions are recognized as other income (expense) in the consolidated statements of operations.
The exchange rates used for foreign currency
translation are as follows:
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
|
|
(CAD to USD/EUR to USD)
|
|
|
(CAD to USD/EUR to USD)
|
|
Assets and liabilities
|
|
period end exchange rate
|
|
|
0.8013/1.1813
|
|
|
|
0.7642/1.1239
|
|
Revenue and expenses
|
|
period average exchange rate
|
|
|
0.7657/1.1137
|
|
|
|
0.7568/1.1163
|
|
Income taxes
The Company has adopted ASC Topic 740,
“
Income Taxes
,” which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
In July 2006, the FASB issued FIN 48
(ASC 740-10), Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (ASC 740), which
requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial
statements. Under FIN 48(ASC 740-10), tax positions that previously failed to meet the more-likely-than-not threshold should
be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial
reporting period in which that threshold is no longer met.
The application of tax laws and regulations
is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change
as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the
actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities
or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
The Company income tax expense was $Nil and
$131,485 for the nine months ended September 30, 2017 and 2016, respectively.
Earnings per share
The Company computes earnings per share
(“EPS”) in accordance with ASC 260,
Earnings Per Share
. ASC 260 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares
outstanding during the period.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation
of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stocks using the treasury stock method
and the potential shares of converted common stock associated with the convertible debt using the if-converted method. Potential
common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded
from the calculation of diluted EPS.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised
of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains or losses
resulting from translating Simon Qian Voyages, Vacances Sinorama and Sinorama Voyages’ functional currency, the Canadian
dollar and the Euro dollar to its reporting currency, the U.S. dollar.
Segment Information and Geographic Data
The Company reports segment information
based on the “management” approach. The management approach designates the internal reporting used by management for
making decisions and assessing performance as the source of the Company’s reportable operating segments.
The Company manages its business primarily
on a geographic basis. The Company’s reportable operating segments consist of Vacances Sinorama (Canada), Sinorama Voyages
(France) and Sinorama Corporation (USA). Although each reportable operating segment provides similar travel products and similar
services, they are managed separately to better align with the location of the Company’s customers and distribution partners
and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those
described in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements
in this report.
The Company evaluates the performance of
its reportable operating segments based on net sales and operating income. Net sales for geographic segments are generally based
on the location of customers and sales through the Company’s office located in those geographic locations. Operating income
for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the
segment. Advertising expenses and salaries and employee benefits are generally included in the geographic segment in which the
expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside
the reportable operating segments. Costs excluded from segment operating income include income taxes and foreign currency translation
adjustment. The Company does not include intercompany transfers between segments for management reporting purposes.
Summarized financial information by segment
is as follows:
|
|
Vacances
Sinorama
(Canada)
|
|
|
Sinorama
Voyages
(France)
|
|
|
Sinorama
Corporation
(USA)
|
|
|
Total
|
|
September 30, 2017 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
61,947,585
|
|
|
|
6,674,546
|
|
|
|
-
|
|
|
|
68,622,131
|
|
Operating income
|
|
|
450,745
|
|
|
|
140,920
|
|
|
|
120,151
|
|
|
|
711,816
|
|
Total assets
|
|
|
31,712,000
|
|
|
|
5,360,865
|
|
|
|
231,296
|
|
|
|
37,304,161
|
|
September 30, 2016 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
43,335,919
|
|
|
|
11,602,204
|
|
|
|
-
|
|
|
|
54,938,123
|
|
Operating loss (income)
|
|
|
(1,885,221
|
)
|
|
|
224,611
|
|
|
|
-
|
|
|
|
(1,660,610
|
)
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
17,716,759
|
|
|
|
3,646,925
|
|
|
|
3,460,169
|
|
|
|
24,823,853
|
|
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
A reconciliation of the Company’s
segment operating loss to the Consolidated Statements of Operations for the nine months ended September 30, 2017 and 2016:
|
|
Nine Months Ended September 30,
|
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
Segment operating income (loss)
|
|
$
|
711,816
|
|
|
$
|
(1,529,125
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
131,485
|
|
Net income (loss)
|
|
|
711,816
|
|
|
|
(1,660,610
|
)
|
Foreign currency translation adjustment
|
|
|
(615,762
|
)
|
|
|
546,171
|
|
Total comprehensive income (loss)
|
|
$
|
96,054
|
|
|
$
|
(1,114,439
|
)
|
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk are cash and cash equivalents, restricted cash, short term investments,
accounts receivable, prepayments and other receivables arising from its normal business activities. The carrying amounts of these
financial instruments represent the maximum amount of loss due to credit risk. The deposits placed with financial institutions
are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, the
Company may be unlikely to claim its deposits back in full. Management believes that these financial institutions are of high credit
quality and continually monitors the credit worthiness of these financial institutions. The Company places its cash in what it
believes to be credit-worthy financial institutions. The Company has a diversified customer base. The majority of sales are cash
receipt in advance. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon
factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes
that its accounts receivable credit risk exposure beyond such allowance is limited.
Recently accounting pronouncements
In January 2016, the FASB issued ASU 2016-01
Financial Instruments Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Liabilities. ASU 2016-01 amends
the guidance in US GAAP on classification, measurement and disclosure of financial instruments. It revises an entity’s accounting
related to: 1) classification and measurement of investments in equity securities; 2) presentation of certain fair value changes
for financial liabilities measured at fair value; and, 3) amends disclosure requirements associated with the fair value of financial
instruments. ASU 2016-01 is effective for years beginning after December 15, 2017 and early adoption is permitted. The adoption
of ASU 2016-01 is not expected to have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02
Leases (Topic 842). ASU 2016-02 establishes new guidance for the recording and disclosure of assets and liabilities that arise
from leasing activity. ASU 2016-02 will require most lessees to record lease assets and lease liabilities that arise from leases
on the statement of financial condition and disclose qualitative and quantitative information related to lease transactions such
as variable lease payments and options to renew and terminate leases. ASU 2016-02 is effective for years beginning after December
18, 2018 and early adoption is permitted. The Company is evaluating ASU 2016-02 to determine its impact, if any, on the consolidated
financial statements.
In March 2016, the FASB issued ASU No.
2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus
Net). The amendment in this update affect entities with transactions included within the scope of Topic 606, The scope of that
Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s
ordinary activities) in exchange for consideration. The amendments are intended to improve the operability and understandability
of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, the amendments
in ASU 2016-10 provide more detailed guidance, including additional implementation guidance and examples in the following key areas:
1) identifying performance obligations and 2) licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12 a
proposed Update, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, on September
30, 2015. The amendments do not change the core principles of the standard, but clarify the guidance on assessing collectability,
presenting sales taxes, measuring noncash consideration and certain transition matters. This update becomes effective concurrently
with ASU No. 2014-09. The Company is currently evaluating the effect of this new standard, including the transition method, to
determine the impact on the Company's consolidated financial position, results of operations, cash flows, or related disclosures.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
In October 2016, the FASB issued Accounting
Standards Update No. 2016-16, Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). The standard
is intended to address diversity in practice and complexity in financial reporting, particularly for intra-entity transfers of
intellectual property. ASU 2016-16 will be effective for the Company beginning with the interim periods of fiscal 2018 and requires
the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining timing
of adoption and assessing the impact of ASU 2016-16 on its consolidated financial statements.
In November 2016, the FASB issued ASU No.
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted
cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when
reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective
for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected
to early adopt ASU No. 2016-18 for the reporting period ending December 31, 2016 and was applied retrospectively. As a result of
adoption of ASU No. 2016-18, the Company no longer presents the changes within restricted cash in the consolidated statements of
cash flows.
In January 2017, the FASB issued Accounting
Standards Board Update No. 2017-01: Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU
2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective
for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with prospective application with
impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition. Early adoption
is conditionally permitted.
In March 2017, the FASB issued ASU No.
2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt
Securities. Under current GAAP, entities normally amortize the premium as an adjustment of yield over the contractual life of the
instrument. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest
call date. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.
As of the date of filing of this report,
except for the above, there are no recently issued accounting standards not yet adopted that would have a material effect on the
Company’s financial statements.
NOTE 3. PREPAYMENTS & DEFERRED EXPENSES
Our travel suppliers require prepayments
for reserving tour availabilities. The prepayment is recorded in prepayments and deferred expenses on the consolidated balance sheets.
Deferred expenses include prepaid insurance, advertising fee. The Company prepayments and deferred expenses were $21,144,546 and
$9,234,410 as of September 30, 2017 and December 31, 2016, respectively.
|
|
September 30
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Prepayments for tour products
|
|
$
|
20,572,292
|
|
|
$
|
9,183,114
|
|
Prepaid expense
|
|
|
572,254
|
|
|
|
51,296
|
|
Total Prepayments and deferred expenses
|
|
$
|
21,144,546
|
|
|
$
|
9,234,410
|
|
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 4. OTHER RECEIVABLE
At September 30, 2017 and December 31, 2016,
other receivable consists of the following:
|
|
September 30
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Tax on Value Added (TVA)
|
|
$
|
205,227
|
|
|
$
|
245,621
|
|
GST/QST
|
|
|
22,525
|
|
|
|
-
|
|
Income tax receivable
|
|
|
177,245
|
|
|
|
376,611
|
|
Air Canada
|
|
|
47,059
|
|
|
|
43,740
|
|
Eva Airway Cor.
|
|
|
16,026
|
|
|
|
-
|
|
China Eastern Airlines
|
|
|
54,407
|
|
|
|
4,000
|
|
United
|
|
|
7,305
|
|
|
|
4,438
|
|
Air China Ltd
|
|
|
24,039
|
|
|
|
22,265
|
|
JL Travel Marketing
|
|
|
12,340
|
|
|
|
11,470
|
|
Others
|
|
|
7,732
|
|
|
|
20,742
|
|
Total other receivable
|
|
$
|
573,905
|
|
|
$
|
728,887
|
|
The amount from Air Canada, Eva Airway Cor,
China Eastern Airlines, United, Air China Ltd, JL Travel Marketing and others is pre-authorization holds for air tickets.
NOTE 5. LONG TERM DEPOSITS
Long term deposits are the deposits made
by the Company held at third institutions for operation purposes. As of September 30, 2017 and December 31, 2016, the Company had
$1,181,300 and $1,055,307, respectively, in air ticket security deposits with CAGEP SARL, which is a member of the International
Air Transport Association (IATA) and has the license to sell air tickets to Sinorama Voyages. The deposits with CAGEP SARL do not
bear interest. As of September 30, 2017 and December 31, 2016, the Company had $794,365 and $738,555 in security deposits with
JP Morgan Chase, which is the security deposit for credit card usage and does not bear interest. As of September 30, 2017 and December
31, 2016, the Company had $180,293 and $167,580 on deposit with OPC (Office of Consumer Protection) as a travel company bankruptcy
guarantee. The deposit does not bear interest.
NOTE 6. PROPERTY AND EQUIPMENT
At September 30, 2017 and December 31, 2016,
property and equipment, at cost, consist of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Computer equipment
|
|
$
|
71,624
|
|
|
$
|
19,419
|
|
Furniture & Fixture
|
|
|
20,712
|
|
|
|
5,688
|
|
Office equipment
|
|
|
91,004
|
|
|
|
80,059
|
|
Leasehold Improvement
|
|
|
397,860
|
|
|
|
362,880
|
|
Total property and equipment at cost
|
|
|
581,200
|
|
|
|
468,046
|
|
Accumulated depreciation
|
|
|
284,819
|
|
|
|
232,873
|
|
Total property and equipment, net
|
|
$
|
296,381
|
|
|
$
|
235,173
|
|
Depreciation expense were $32,567 and $28,494
for the nine months ended September 30, 2017 and 2016, respectively.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 7. CUSTOMER DEPOSITS
Customer deposits are the deposits made
by all customers for reservations. The deposit must be paid in full by either check, debit card, credit card or cash before the
reservation can be confirmed. Customers must pay the full purchase price three months before departure. Otherwise, the Company
reserves the right to cancel the reservation and retain the full amount of the initial deposit. Cancellation of a reservation can
only be made through the Company as the following conditions will apply: more than 90 days prior to the departure date: 50% refund
of the balance per-person, including taxes and service charge. If it's marked “Final Sale”, the sale is non-refundable,
nor changeable, nor transferable, whenever the purchase is made. Customer deposits are recognized as revenue on departure date,
when services are provided to the customers. Customer deposits from all customers were $33,893,902 and $22,772,259 as of September
30, 2017 and December 31, 2016, respectively, and were recorded as a current liability in the consolidated balance sheets.
NOTE 8. NON-CONTROLLING INTERESTS
Vacances Sinorama Inc. and Sinorama Voyages
are the Company’s majority-owned subsidiaries, which are consolidated in the Company’s financial statements with a
non-controlling interest recognized.
The 33.33% of Vacances Sinorama equity
held by QIAN Hong is a non-controlling interest. ASC 810-10-45 provides that the ownership interest in a subsidiary that is held
by owners other than the parent is a non-controlling interest. 66.67% of Vacances Sinorama is owned by Simon Qian Voyages Inc.,
a wholly-owned subsidiary of Sinorama Tours.
The 39% of Sinorama Voyages equity held
by YANG Ming and the 10% of Sinorama Voyages equity held by ZHAO Hongxi are also non-controlling interests. 51% of Sinorama Voyages
equity is held by Sinorama Tours.
ASC 810-10-50 requires that the Company
separately disclose amounts attributable to shareholders’ equity and non-controlling interests in its financial statements.
NOTE 9. RELATED PARTY TRANSACTIONS
Amount due from related parties
Amount due from related parties consisted
of the following as of the periods indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Name of related parties
|
|
(Unaudited)
|
|
|
|
|
Sinorama Reisen GmbH
|
|
$
|
3,655,516
|
|
|
$
|
1,469,472
|
|
Sinorama Holiday Inc.
|
|
|
1,231,831
|
|
|
|
1,154,894
|
|
Sinorama Group LLC
|
|
|
1,563
|
|
|
|
1,453
|
|
Sinorama Holiday Limited
|
|
|
1,696,718
|
|
|
|
935,418
|
|
Sinorama Travel Inc.
|
|
|
506,493
|
|
|
|
-
|
|
Others
|
|
|
501
|
|
|
|
2,621
|
|
Total
|
|
$
|
7,092,622
|
|
|
$
|
3,563,858
|
|
As of September 30, 2017 and December 31,
2016, the Company has a balance due from Sinorama Reisen GmbH, which is 65% owned by the Company's Chief Executive Officer (JING
Wenjia), of $3,655,516 and $1,469,472, respectively. The amount is the prepayment for the supplier in China, in order to reserve
tour availabilities. The prepayment is non-interest bearing, payable on demand.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 9. RELATED PARTY TRANSACTIONS (CONTINUED)
As of September 30, 2017 and December 31,
2016, the Company has a balance due from Sinorama Holiday Inc., which is 40% owned by the Company's Chairman (QIAN Hong) and 20%
owned by the Company's Chief Executive Officer (JING Wenjia), of $1,231,831 and 1,154,894, respectively. It was for purchasing
travel products from Vacances Sinorama. It is non-interest bearing and due on demand.
As of September 30, 2017 and December 31,
2016, the Company had a balance due from Sinorama Group LLC., which is 100% owned by the Company's Chairman (QIAN Hong), of $1,563
and $1,453, respectively.
As of September 30, 2017 and December 31,
2016, the Company had a balance due from Sinorama Holiday Limited, which is 51% owned by the Company's Chairman (QIAN Hong), of
$1,696,718 and $935,418, respectively. It was for purchasing travel products from Sinorama Vacances. It is non-interest bearing
and due on demand.
Amount due to related parties
Amount due to related parties consisted of
the following as of the periods indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Name of related parties
|
|
(Unaudited)
|
|
|
|
|
Sinorama Travel Vancouver Inc.
|
|
$
|
-
|
|
|
$
|
1,423,231
|
|
Simon Qian & Jing Wenjia
|
|
|
10,230
|
|
|
|
9,650
|
|
Sinorama Tours Co., Ltd.
|
|
|
-
|
|
|
|
2,552
|
|
|
|
$
|
10,230
|
|
|
$
|
1,435,433
|
|
As of September 30, 2017 and December 31,
2016, the Company had a balance due to Sinorama Travel Vancouver Inc., which is 51% owned by the Company's Chairman (QIAN Hong),
of $nil and $1,423,231, respectively. Such payments were required by suppliers in China to be made in advance, in order to book
tour availabilities. The amount is non-interest bearing and due on demand.
As of September 30, 2017 and December 31,
2016, the Company had a balance due to Simon Qian, who is the Chairman of the Company, and JING Wenjia, who is the Chief Executive
Officer of the Company. The Company had a balance due to Simon Qian & Jing Wenjia of $10,230 and $9,650, respectively. It was
temporary borrowings between the Company and management. It is non-interest bearing and due on demand.
Related parties’ transactions
Sales of travel product to related parties
consisted of the following for the periods indicated:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Name of related parties
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Sinorama Holiday Limited
|
|
|
2,722,286
|
|
|
|
2,434,403
|
|
Sinorama Holiday Inc.
|
|
|
9,937,021
|
|
|
|
7,608,478
|
|
Sinorama Travel Vancouver Inc.
|
|
|
960,215
|
|
|
|
5,108
|
|
Total
|
|
$
|
13,619,522
|
|
|
$
|
10,047,989
|
|
NOTE 10. CONTINGENCIES AND COMMITMENT
Certain conditions may exist as of the
date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved
when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and
such assessment inherently involves an exercise of judgment. There was no contingency of this type as of September 30, 2017 or
December 31, 2016.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss
contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There was no
contingency of this type as of September 30, 2017 or December 31, 2016.
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 10. CONTINGENCIES AND COMMITMENT (CONTINUED)
Loss contingencies considered to be remote
by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
In June, 2016 Vacances Sinorama leased
office space under non-cancellable operating lease agreements. Under the terms of the lease, Vacances Sinorama paid approximately
$61,669 in lease deposits, and made lease payments of approximately $18,120 per month. Under terms of the lease agreement, from
June, 2017, Vacances Sinorama is committed to lease payments for 120 months as follows:
Period
|
|
Per month
|
|
Jun-16
|
May-17
|
|
rent-free
|
|
Jun-17
|
May-20
|
|
18,120
|
|
Jun-20
|
May-21
|
|
19,932
|
|
Jun-21
|
May-22
|
|
21,925
|
|
Jun-22
|
May-23
|
|
24,118
|
|
Jun-23
|
May-24
|
|
25,324
|
|
Jun-24
|
May-25
|
|
26,590
|
|
Jun-25
|
May-26
|
|
27,919
|
|
Jun-26
|
May-27
|
|
29,315
|
|
This office is used for the Information
Technology Department, Electronic Commerce Department and Market Department and other departments.
Vacances Sinorama leases office space under
non-cancellable operating lease agreements, to be used for the Airline Ticket Department, Asia Tour Department and others departments.
The initial leases expired on various dates through 2016. Under the terms of those leases, Vacances Sinorama paid approximately
$22,061 in lease deposits and committed to lease and management fee payments of approximately $12,080 per month for 60 months.
In March 2016, Vacances Sinorama entered into a renewed lease agreement, which replaced its expired operating lease agreements.
Under the current terms of the lease, Vacances Sinorama is committed to lease and management fee payments of approximately $15,515
per month for 60 months.
In July 2015, Vacances Sinorama entered
into a new lease agreement for the Bus Tour Department office. Under the terms of the lease, Vacances Sinorama paid approximately
$15,194 in lease deposits, and is committed to lease and management fee payments of approximately $5,134 per month for 60 months.
In February, 2015, Sinorama Voyages leased
office space under a non-cancellable operating lease agreement. Under the terms of the lease, Sinorama Voyages paid approximately
$13,894 in lease deposits, and lease expense payments of approximately $4,869 per month. Under the terms of the lease agreement,
from February, 2016, Sinorama Voyages was committed to lease expense payments of approximately $4,857 per month for 96 months.
Future annual minimum lease payments, for
non-cancellable operating leases are as follows:
Year ending December 31
|
|
Amount $
|
|
2017
|
|
|
101,471
|
|
2018
|
|
|
496,483
|
|
2019
|
|
|
496,483
|
|
2020
|
|
|
496,483
|
|
2021
|
|
|
505,543
|
|
SINORAMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(EXPRESSED IN US DOLLARS)
NOTE 11. BASIC AND DILUTED EARNINGS PER
SHARE
Basic net income per share is computed
using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using
the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential
common shares comprise shares issuable upon the exercise of share based awards, using the treasury stock method. The reconciliation
of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations
is shown as follows:
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
432,564
|
|
|
$
|
(1,154,692
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average number of shares outstanding
|
|
|
15,009,944
|
|
|
|
11,000,000
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.03
|
|
|
$
|
(0.10
|
)
|
NOTE 12. SUBSEQUENT EVENT
The Management of the Company determined
that there were no other reportable subsequent events to be disclosed.