UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No.3
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 000-55576
YANGTZE RIVER PORT AND LOGISTICS LIMITED
(Exact name of registrant as specified in its charter)
| Nevada | 27-1636887 | |
| State or other jurisdiction
of incorporation or organization |
(I.R.S. Employer Identification No.) | |
| 41 John Street, Suite 2A, New York, NY | 100038 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (646) 861-3315
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Name of each exchange on which registered: | |
| Common Stock, par value $0.001 per share | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0001 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer | ☒ | Accelerated Filer | ☐ | |||
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||
| Emerging Growth Company | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter:
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2017, the last business day of the registrant’s last completed second quarter, based upon the closing price of the common stock of $13.4540 on such date , is $1,034,739,686.
Number of the issuer’s common stock outstanding as of March 8, 2018: 172,344,446.
Documents incorporate by reference: None.
Explanatory Note
This Amendment No. 3 on Form 10-K/A (this “Amendment No. 3”) amends Yangtze River Port And Logistics Limited Annual Report on Form 10-K for the year ended December 31, 2017, originally filed with the Securities and Exchange Commission on March 9, 2018 and amended on Form 10-K/A on April 24, 2018 and May 15, 2018, respectively, (collectively, the “10-K”) for the purpose of furnishing the revised audit report to the financial statements.
Except as expressly set forth above, this Amendment No. 3 does not, and does not purport to, amend, update, change or restate the information in any other item of the 10-K or reflect any events that have occurred after the date of the 10-K.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
| (1) | Financial Statements: |
The audited balance sheet of the Company as of December 31, 2017 and December 31, 2016, the related condensed statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended, the footnotes thereto, and the report of Dominic KF Chan & Co., independent auditors, are filed herewith.
| (2) | Financial Schedules: |
None
Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes hereto.
| (3) | Exhibits: |
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.
(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.
Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
| ● | may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; | |
| ● | may apply standards of materiality that differ from those of a reasonable investor; and | |
| ● | were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.
| 1 |
| 2 |
* Filed herewith.
+
In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
| 3 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| YANGTZE RIVER PORT AND LOGISTICS LIMITED | ||
| By: | /s/ Xiangyao Liu | |
| Xiangyao Liu | ||
President and Chief Executive Officer (Principal Executive Officer) | ||
| Date: | May 23, 2018 | |
| By: | /s/ Tsz-Kit Chan | |
| Tsz-Kit Chan | ||
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| Date: | May 23, 2018 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ Xiangyao Liu | President, Chief Executive Officer and Director | May 23, 2018 | ||
| Xiangyao Liu | (Principal Executive Officer) | |||
| Chief Financial Officer | ||||
| /s/ Tsz-Kit Chan | (Principal Financial and Accounting Officer) | May 23, 2018 | ||
| Tsz-Kit Chan | ||||
| /s/ James Stuart Coleman | Director | May 23, 2018 | ||
| James Stuart Coleman | ||||
| /s/ Zhanhuai Cheng | Director | May 23, 2018 | ||
| Zhanhuai Cheng | ||||
| /s/ Yanliang Wu | Director | May 23, 2018 | ||
| Yanliang Wu | ||||
| /s/ Yu Zong | Director | May 23, 2018 | ||
| Yu Zong | ||||
| /s/ Harvey Leibowitz | Independent Director | May 23, 2018 | ||
| Harvey Leibowitz | ||||
| /s/ Zhixue Liu | Independent Director | May 23, 2018 | ||
| Zhixue Liu | ||||
| /s/ Tongming Wang | Independent Director | May 23, 2018 | ||
| Tongming Wang | ||||
| /s/ Adam S. Goldberg | Independent Director | May 23, 2018 | ||
| Adam S. Goldberg | ||||
| /s/ Daniel W. Heffernan | Independent Director | May 23, 2018 | ||
| Daniel W. Heffernan | ||||
| /s/ Zhihong Su | Independent Director | May 23, 2018 | ||
| Zhihong Su |
| 4 |
TABLE OF CONTENTS
| F-1 |
 |
中正達會計師事務所有限公司 Centurion ZD CPA Limited Certified Public Accountants (Practising) |
Unit 1304, 13/F, Two Harbourfront, 22 Tak Fung Street, Hunghom, Hong Kong.
香港 紅磡 德豐街22號 海濱廣場二期 13樓1304室
Tel 電話: (852) 2126 2388 Fax 傳真: (852) 2122 9078
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Yangtze River Port and Logistics Limited (fka Yangtze River Development Limited)
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Yangtze River Port and Logistics Limited (the “Company”) as of December 31, 2017, 2016 and 2015, and the related consolidated statements of operations and comprehensive loss, changes in owners’ equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
| F-2 |
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Certain control deficiencies existed in the internal control over financial reporting as of December 31, 2017, including (1) lack of adequate policies and procedures in internal audit function, which resulted in lack of communication between internal audit department and the Audit Committee and the Board of Directors; (2) insufficient internal audit work to ensure that the Company’s policies and procedures have been carried out as planned; (3) lack of sufficient full-time accounting staff that have experience and knowledge in identifying and resolving complex accounting issues under U.S. Generally Accepted Accounting Principles (“GAAP”); and (4) lack of sufficient accounting personnel which would provide segregation of duties within the internal control procedures to support the accurate reporting of the Company’s financial results. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 financial statements.
/s/ Centurion ZD CPA Ltd.
Centurion ZD CPA Ltd. (fka DCAW (CPA) Ltd. as successor to Dominic K.F. Chan & Co.)
Hong Kong
March 9, 2018
We have served as the Company's auditor since 2015.
| F-3 |
YANGTZE RIVER PORT AND LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
consolidated Balance Sheets
| December 31, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 58,414 | $ | 63,092 | ||||
| Other assets and receivables | 4,448,417 | 4,151,752 | ||||||
| Real estate property completed | 31,497,258 | 29,507,108 | ||||||
| Real estate properties and land lots under development | 364,774,643 | 341,427,234 | ||||||
| Property and equipment, net | 62,713 | 89,742 | ||||||
| Deferred tax assets | 5,855,625 | 4,472,581 | ||||||
| Total Assets | $ | 406,697,070 | $ | 379,711,509 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities | ||||||||
| Accounts payable | 5,499,177 | 5,159,212 | ||||||
| Due to related parties | 35,947,504 | 31,870,222 | ||||||
| Other taxes payable | 13,321 | 49,918 | ||||||
| Other payables and accrued liabilities | 18,632,545 | 8,985,719 | ||||||
| Real estate property refund and compensation payables | 28,146,601 | 24,997,563 | ||||||
| Convertible note | 75,000,000 | 75,000,000 | ||||||
| Loans payable | 44,221,399 | 41,456,074 | ||||||
| Total Liabilities | $ | 207,460,547 | $ | 187,518,708 | ||||
| Equity | ||||||||
| Preferred stock at $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding | $ | - | $ | - | ||||
| Common stock at $0.0001 par value; 500,000,000 shares authorized; 172,344,446 and 272,269,446 shares respectively issued and outstanding at December 31, 2017 and 2016 | 17,234 | 27,227 | ||||||
| Additional paid-in capital | 243,614,178 | 242,696,445 | ||||||
| Accumulated losses | (41,238,467 | ) | (28,989,090 | ) | ||||
| Accumulated other comprehensive loss | (3,156,422 | ) | (21,541,781 | ) | ||||
| Total Equity | $ | 199,236,523 | $ | 192,192,801 | ||||
| Total Liabilities and Equity | $ | 406,697,070 | $ | 379,711,509 | ||||
See notes to the consolidated financial statements
| F-4 |
YANGTZE RIVER PORT AND LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
consolidated Statements of OPERATIONS and Comprehensive LOSS
| For the Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Revenue | $ | - | $ | - | $ | - | ||||||
| Costs of revenue | - | - | - | |||||||||
| Gross profit | - | - | - | |||||||||
| Operating expenses | ||||||||||||
| Selling expenses | - | 2,348 | 11,577 | |||||||||
| General and administrative expenses | 5,076,347 | 5,446,175 | 4,547,646 | |||||||||
| Total operating expenses | 5,076,347 | 5,448,523 | 4,559,223 | |||||||||
| Loss from operations | (5,076,347 | ) | (5,448,523 | ) | (4,559,223 | ) | ||||||
| Other income (expenses) | ||||||||||||
| Other income | 8,145 | 3,587 | 868 | |||||||||
| Other expenses | (861 | ) | (174 | ) | (3,231 | ) | ||||||
| Interest income | 296 | 229 | 55 | |||||||||
| Interest expenses | (8,221,483 | ) | (8,424,794 | ) | (3,199,031 | ) | ||||||
| Total other expenses | (8,213,903 | ) | (8,421,152 | ) | (3,201,339 | ) | ||||||
| Loss before income taxes | (13,290,250 | ) | (13,869,675 | ) | (7,760,562 | ) | ||||||
| Income taxes benefits | 1,040,873 | 1,143,595 | 1,378,700 | |||||||||
| Net loss | $ | (12,249,377 | ) | $ | (12,726,080 | ) | $ | (6,381,862 | ) | |||
| Other comprehensive income | ||||||||||||
| Foreign currency translation adjustments | 18,385,359 | (19,227,596 | ) | (6,649,917 | ) | |||||||
| Comprehensive Income (loss) | $ | 6,135,982 | $ | (31,953,676 | ) | $ | (13,031,779 | ) | ||||
| Loss per share - basic and diluted | $ | (0.06 | ) | $ | (0.07 | ) | $ | (0.04 | ) | |||
| Weighted average shares outstanding | ||||||||||||
| Basic | 188,465,024 | 177,459,678 | 151,682,554 | |||||||||
| Diluted | 193,745,496 | 177,459,678 | 151,682,554 | |||||||||
See notes to the consolidated financial statements
| F-5 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
consolidated Statements of CHANGES IN Equity
| Common stock | Additional | Accumulated other | ||||||||||||||||||||||
| Number of shares | Amount | paid-in capital | Accumulated losses | comprehensive (loss) income | Total | |||||||||||||||||||
| Balance, January 1, 2015 | 151,000,000 | $ | 15,100 | $ | 27,955,331 | $ | (9,881,148 | ) | $ | 4,335,732 | $ | 22,425,015 | ||||||||||||
| Forgiveness of loan from Wuhan Renhe | - | - | 285,413,074 | - | - | 285,413,074 | ||||||||||||||||||
| Effect of share exchange | 20,596,546 | 2,060 | (86,182,521 | ) | - | - | (86,180,461 | ) | ||||||||||||||||
| Restricted shares issued for services | 657,900 | 65 | 3,749,965 | - | - | 3,750,030 | ||||||||||||||||||
| Extinguishment of debt with a former officer | - | - | 11,687,098 | - | - | 11,687,098 | ||||||||||||||||||
| Net loss | - | - | - | (6,381,862 | ) | - | (6,381,862 | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (6,649,917 | ) | (6,649,917 | ) | ||||||||||||||||
| Balance, December 31, 2015 | 172,254,446 | $ | 17,225 | $ | 242,622,947 | $ | (16,263,010 | ) | $ | (2,314,185 | ) | $ | 224,062,977 | |||||||||||
| Restricted shares issued for services | 15,000 | 2 | 73,498 | - | - | 73,500 | ||||||||||||||||||
| Issuance of shares | 100,000,000 | 10,000 | - | - | - | 10,000 | ||||||||||||||||||
| Net loss | - | - | - | (12,726,080 | ) | - | (12,726,080 | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (19,227,596 | ) | (19,227,596 | ) | ||||||||||||||||
| Balance, December 31, 2016 | 272,269,446 | 27,227 | 242,696,445 | (28,989,090 | ) | (21,541,781 | ) | 192,192,801 | ||||||||||||||||
| Cancellation of shares issued | (100,000,000 | ) | (10,000 | ) | - | - | - | (10,000 | ) | |||||||||||||||
| Issuance of shares | 75,000 | 7 | 917,733 | - | - | 917,740 | ||||||||||||||||||
| Net loss | - | - | - | (12,249,377 | ) | - | (12,249,377 | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 18,385,359 | 18,385,359 | ||||||||||||||||||
| Balance, December 31, 2017 | 172,344,446 | 17,234 | 243,614,178 | (41,238,467 | ) | (3,156,422 | ) | 199,236,523 | ||||||||||||||||
See notes to the consolidated financial statements
| F-6 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
consolidated Statements of Cash Flows
| For the Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net loss | $ | (12,249,377 | ) | $ | (12,726,080 | ) | $ | (6,381,862 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation of property, and equipment | 31,357 | 62,536 | 79,064 | |||||||||
| Loss on disposal of property, and equipment | - | - | 3,082 | |||||||||
| Deferred tax benefit | (1,040,874 | ) | (1,143,595 | ) | (1,378,700 | ) | ||||||
| Share-based compensation expense | 1,785,480 | 2,014,664 | 1,808,867 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Other assets and receivables | (25,580 | ) | - | (1,534,700 | ) | |||||||
| Real estate property completed | - | - | (312,163 | ) | ||||||||
| Real estate properties and land lots under development | (307,384 | ) | (367,826 | ) | (778,977 | ) | ||||||
| Accounts payable | (7,500 | ) | (7,553 | ) | - | |||||||
| Other taxes payable | (38,467 | ) | 39,139 | (13,914 | ) | |||||||
| Other payables and accrued liabilities | 8,388,760 | 8,559,773 | 2,257,051 | |||||||||
| Real estate property refund and compensation payables | 1,408,234 | 1,433,737 | 1,517,110 | |||||||||
| Net Cash Used In Operating Activities | (2,055,351 | ) | (2,135,205 | ) | (4,735,142 | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Purchase of property and equipment | - | (1,851 | ) | (11,733 | ) | |||||||
| Proceeds from disposal of property and equipment | - | - | 130 | |||||||||
| Effect of share exchange | - | - | 505,782 | |||||||||
| Net Cash (Used In) Provided By Investing Activities | - | (1,851 | ) | 494,179 | ||||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Repayment of financial institution loans | (29,590 | ) | (150,532 | ) | (176,599 | ) | ||||||
| Advances from related parties | 2,099,650 | 2,201,144 | 4,874,761 | |||||||||
| Repayment to related parties | (21,553 | ) | (361,843 | ) | - | |||||||
| Net Cash Provided By Financing Activities | 2,048,507 | 1,688,769 | 4,698,162 | |||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 2,166 | (1,190 | ) | (996 | ) | |||||||
| Net Decrease (Increase) In Cash and Cash Equivalents | (4,678 | ) | (449,477 | ) | 456,203 | |||||||
| Cash and Cash Equivalents at Beginning of Year | 63,092 | 512,569 | 56,366 | |||||||||
| Cash and Cash Equivalents at End of Year | $ | 58,414 | $ | 63,092 | $ | 512,569 | ||||||
| Supplemental Cash Flow Information: | ||||||||||||
| Cash paid for interest expense | $ | - | $ | - | $ | 3,001,771 | ||||||
| Cash paid for income tax | $ | - | $ | - | $ | - | ||||||
| Supplemental Disclosure of Non-Cash Transactions: | ||||||||||||
| Restricted shares issued for services | $ | 917,740 | $ | 73,500 | $ | 3,750,030 | ||||||
| Cancellation of shares for the Armada transaction | $ | 10,000 | $ | - | $ | - | ||||||
| Forgiveness of loans from an owner | $ | - | $ | - | $ | 285,413,074 | ||||||
| Issuance of convertible note | $ | - | $ | - | $ | 150,000,000 | ||||||
| Reduction of convertible note | $ | - | $ | - | $ | 75,000,000 | ||||||
See notes to the consolidated financial statements
| F-7 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
December 31, 2017 and December, 31 2016
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
The consolidated financial statements include the financial statements of Yangtze River Port and Logistics Limited (the “Company” or “Yangtze River”) and its subsidiaries, Energetic Mind Limited (“Energetic Mind”), Ricofeliz Capital (HK) Limited (“Ricofeliz Capital”), and Wuhan Yangtze River Newport Logistics Co., Ltd. (“Wuhan Newport”).
The Company, formerly named as Yangtze River Development Limited, Kirin International Holding, Inc., and Ciglarette, Inc., was incorporated in the State of Nevada on December 23, 2009. The Company was a development stage company and has not generated significant revenue since inception to March 1, 2011.
On March 1, 2011, the Company entered into a share exchange agreement that Kirin China Holding Limited (“Kirin China”) became the Company’s wholly-owned subsidiary. Kirin China engaged in the development and sales of residential and commercial real estate properties, and development of land lots in People’s Republic of China (“China”, or the “PRC”).
On December 19, 2015, the Company completed a share exchange (the “Share Exchange”) with Energetic Mind and all the shareholders of Energetic Mind, whereby Yangtze River acquired 100% of the issued and outstanding capital stock of Energetic Mind, in exchange for 151,000,000 shares of Yangtze River’s common stock, which constituted approximately 88% of its issued and outstanding shares on a fully-diluted basis of Yangtze River immediately after the consummation of the Share Exchange, and an 8% convertible note (the “Note”) in the principal amount of $150,000,000. As a result of the Share Exchange, Energetic Mind became Yangtze River’s wholly-owned subsidiary and Jasper Lake Holdings Limited (“Jasper”), the former shareholder of Energetic Mind, became Yangtze River’s controlling stockholder. The Share Exchange transaction with Energetic Mind was treated as an acquisition, with Energetic Mind as the accounting acquirer and Yangtze River as the acquired party. The financial statements before the date of the Share Exchange are those of Energetic Mind with the results of the Company being condensed consolidated from the date of the Share Exchange.
Energetic Mind owns 100% of Ricofeliz Capital and operates its business through its subsidiary Wuhan Newport.
Wuhan Newport was a wholly owned subsidiary of Wuhan Renhe Group Co., Ltd. (the “Wuhan Renhe”), a company incorporated in the PRC as at September 23, 2002. On July 13, 2015, Wuhan Renhe transferred all of the equity interests of the Company to Ricofeliz Capital, a company incorporated in Hong Kong on March 25, 2015. Ricofeliz Capital was incorporated by Energetic Mind, a company incorporated in British Virgin Islands (“BVI”). Energetic Mind was incorporated by Mr. Liu Xiangyao on January 2, 2015, and was subsequently purchased by various companies incorporated in BVI or the United States of America (“USA”), among whom Jasper became its 64% owner. Jasper was 100% owned by Mr. Liu Xiangyao, a Hong Kong citizen.
The major assets of Wuhan Newport include land lots for developing commercial buildings that are in line with the principal activities of Kirin China.
On December 31, 2015, the Company entered into certain stock purchase and business sale agreements (the “Agreements”) with Kirin Global Enterprises, Inc. (the “Purchaser”), a California corporation and an entity controlled by a former officer and director of the Company whereby the Company sold its interest in certain subsidiaries (see Note 11) for an aggregate of $75,000,002. (the “Sale”).
Pursuant to the terms of the Agreements, Jasper agreed to finance the Sale by reducing Company’s financial obligations of the Note by an aggregate of $75,000,000. In addition, the Purchaser agreed to pay the remaining two dollars in cash.
Upon completion of the Sale, the Company operates its business solely through its subsidiary Wuhan Newport, primarily engaging in the business as a port logistic center located in the middle reaches of the Yangtze River in the PRC.
| F-8 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
1.1 Armada transaction
On October 6, 2016 and November 23, 2016 the Company, by and among Armada Enterprises GP (“Armada”) and Wight International Construction, LLC (“Wight”), entered into (i) a Contribution, Conveyance and Assumption Agreement (“Contribution Agreement”) dated October 3, 2016 and its first and second addendums and (ii) an Amended and Restated Limited Liability Company Agreement dated November 16, 2016 (collectively with the Contribution Agreement, the “Agreements” or “Transaction”), whereby the Company acquired 100 million preferred B membership units, which will be ultimately converted into 100 million LP units in Armada Enterprises LP and in exchange, the Company issued a $500 million convertible promissory note (“Note”) and 50,000,000 shares of the Company’s common stock to Wight. As result of the Transaction and the conversion of the Note on November 17, 2016, Wight owns 100,000,000 shares of the Company’s common stock representing 36.73% of the Company’s voting power; the Company owns 100 million preferred B membership units in Wight representing 62.5% non-voting equity interest in Wight.
Under the terms of the Transaction, at the first closing, Wight was required to provide an aggregate total of $200 million, consisting $50 million in Working Capital and $150 million in Construction Funding, to the Company by January 18, 2017. Wight did not provide the funding on January 18, 2017 and the Company gave Notice of Default and Request for Cure. Wight proposed to provide $50 million in Working Capital on or before February 15, 2017 and secure $150 million in Construction Funding on or before March 15, 2017. Wight failed to provide the $50 million in Working Capital as proposed by February 15, 2017. Therefore, the Company, on February 24, 2017 determined to terminate the Transaction for non-performance by Wight pursuant to the Agreements executed among the Company, Armada and Wight. Pursuant to the Agreements, the termination of the Transaction calls for the immediate return of the 100,000,000 shares of common stock issued by the Company to Wight. On February 27, 2017, the Company issued a Notice of Termination to Wight and demanded the return of the 100,000,000 shares of common stock according to the Agreements. The Company reserves the right to pursue any further legal action with respect to Armada and Wight’s default.
Under the terms of the Armada Agreement, at the first closing, Wight was required to provide an aggregate total of $200 million, $50 million in Working Capital and $150 million in Construction Funding, to us by January 18, 2017. Wight did not provide the funding on January 18, 2017 and we gave Notice of Default and Request for Cure. Wight proposed to provide $50 million in Working Capital on or before February 15, 2017 and secure $150 million in Construction Funding on or before March 15, 2017. Wight failed to provide the $50 million in Working Capital as proposed by February 15, 2017.
On February 24, 2017, due to Wight’s nonperformance and nonpayment of $50 million for the First Financing, the Company decided to unwind Armada Financing. Pursuant to Armada Agreement, the termination of the Armada Agreement calls for the immediate return of the 100,000,000 shares of common stock issued by the Company to Wight. On February 27, 2017, the Company issued a notice of termination of contract to Wight. As at March 1, 2017, the Company cancelled the 100,000,000 shares of common stocks issued to Wight.
1.2 Wuhan EDP transaction
On December 26, 2017, the Company entered into an agreement with shareholders holding 100% of the equity interest of Wuhan Economic Development Port Limited (the “Acquiree” or “Wuhan EDP”) to acquire all the interests of Acquiree; and the Acquiree Shareholders will acquire all the equity interest held by the Company in Energetic Mind Limited, a BVI company and a wholly-owned subsidiary of the Company. Energetic Mind Limited holds 100% interest in Ricofeliz Capital (HK) Ltd., a Hong Kong company that holds 100% capital stock of Wuhan Yangtze River Newport Logistics Co., Ltd., a wholly foreign-owned enterprise formed under the laws of the People’s Republic of China that primarily engages in the business of real estate and infrastructural development with a port logistics center located in Wuhan, Hubei Province of China.
Upon execution of the Purchase Agreement, the Acquiree will undergo reorganization. As a result of the reorganization, the Acquiree has become a limited liability company. It will be held by a Hong Kong company, which will be 100% owned by a BVI entity.
The closing of the transaction, which shall be no later than March 31, 2018, is conditioned upon satisfaction of due diligence by both parties, the completion of auditing of the financial statements of the Acquiree, and the approval of relevant regulatory agencies. By December 31, 2017, the deal between the Company and the acquiree was not closed and effective.
The consideration of the acquisition transaction will be first offset against both parties of the target companies leaving the balance of RMB 600 million (or approximately $91 million) to be paid by the Company to the Acquiree Shareholders. Refundable deposit of RMB 30 million shall be paid to the Acquiree Shareholders upon initial due diligence and auditing. The remaining RMB 570 million shall be paid at closing in cash or in the form of a 7% convertible note.
| F-9 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
2.1 Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The consolidated financial statements include the financial statements of all the subsidiaries. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
The consolidated balance sheets are presented unclassified because the time required to complete real estate projects and the Company’s working capital considerations usually stretch for more than one-year period.
2.2 Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the consolidated financial statements include: (i) the allowance for doubtful debts; (ii) accrual of estimated liabilities; (iii) contingencies; (iv) deferred tax assets; (v) impairment of long-lived assets; (vi) useful lives of property plant and equipment; and (vii) real estate property refunds and compensation payables.
2.3 Cash and cash equivalents
Cash and cash equivalents consist of cash and bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use the Company maintains accounts at banks and has not experienced any losses from such concentrations.
2.4 Property and equipment
The property and equipment are stated at cost less accumulated depreciation. The depreciation is computed on a straight-line method over the estimated useful lives of the assets with 5% salvage value. Estimated useful lives of property and equipment are stated in Note 7.
The Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of income. The Company charges maintenance, repairs and minor renewals directly to expenses as incurred; major additions and betterment to equipment are capitalized.
| F-10 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
2.5 Impairment of long-lived assets
The Company applies the provisions of ASC No. 360 Sub topic 10, “Impairment or Disposal of Long-Lived Assets” (ASC 360- 10) issued by the Financial Accounting Standards Board (“FASB”). ASC 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
The Company tests long-lived assets, including property and equipment and finite lived intangible assets, for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There were no impairment losses in the year ended December 31, 2017, 2016 and 2015.
2.6 Fair values of financial instruments
ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.
| Level 1 | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| Level 3 | inputs to the valuation methodology are unobservable and significant to the fair value. |
As of December 31, 2017 and 2016, financial instruments of the Company primarily comprise of cash, accrued interest receivables, other receivables, short-term bank loans, deposits payables and accrued expenses, which were carried at cost on the balance sheets, and carrying amounts approximated their fair values because of their generally short maturities.
2.7 Convertible notes
In accordance with ASC subtopic 470-20, the convertible notes are initially carried at the principal amount of the convertible notes. Debt premium or discounts, which are the differences between the carrying value and the principal amount of convertible notes at the issuance date, together with related debts issuance cost, are subsequently amortized using effective interest method as adjustments to interest expense from the debt issuance date to its first redemption date. Convertible notes are classified as a current liability if they are or will be callable by the Company or puttable by the debt holders within one year from the balance sheet date, even though liquidation may not be expected within that period.
| F-11 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
2.8 Foreign currency translation and transactions
The Company’s consolidated financial statements are presented in the U.S. dollar (US$), which is the Company’s reporting currency. Yangtze River, Energetic Mind, and Ricofeliz Capital uses US$ as its functional currency. Wuhan Newport uses Renminbi Yuan(“RMB”) as its functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations.
In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US$ using the rate of exchange prevailing at the applicable balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in owners’ equity as part of accumulated other comprehensive income.
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Balance sheet items, except for equity accounts | 6.5059 | 6.9447 | ||||||
| For the Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Items in the statements of operations and comprehensive income, and statement of cash flows | 6.7591 | 6.6431 | 6.2288 | |||||||||
2.9 Revenue recognition
The Company recognizes revenue from steel trading when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured.
Real estate sales are reported in accordance with the provisions of ASC 360-20, Property, Plant and Equipment, Real Estate Sales.
Revenue from the sales of completed properties and properties where the construction period is twelve months or less is recognized by the full accrual method when (a) sale is consummated; (b) the buyer’s initial and continuing involvements are adequate to demonstrate a commitment to pay for the property; (c) the receivable is not subject to future subordination; (d) the Company has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property. A sale is not considered consummated until (a) the parties are bound by the terms of a contract or agreement, (b) all consideration has been exchanged, (c) any permanent financing for which the seller is responsible has been arranged, (d) all conditions precedent to closing have been performed. Fair value of buyer’s payments to be received in future periods pursuant to sales contract is classified under accounts receivable. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.
Revenue and profit from the sale of development properties where the construction period is more than twelve months is recognized by the percentage-of-completion method on the sale of individual units when the following conditions are met: (a)construction is beyond a preliminary stage; (b) the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit; (c) sufficient units have already been sold to assure that the entire property will not revert to rental property; (d) sales prices are collectible and (e) aggregate sales proceeds and costs can be reasonably estimated. If any of these criteria are not met, proceeds are accounted for as deposits until the criteria are met and/or the sale consummated.
The Company has not generated any revenue from the sales of real estate property for the years ended December 31, 2017, 2016 and 2015.
| F-12 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
2.10 Real estate capitalization and cost allocation
Real estate property completed and real estate properties and land lots under development consist of commercial units under construction and units completed. Properties under development or completed are stated at cost or estimated net realizable value, whichever is lower. Cost capitalization of development and redevelopment activities begins during the predevelopment period, which we define as the activities that are necessary to begin the development of the property. We cease capitalization upon substantial completion of the project, but no later than one year from cessation of major construction activity. We also cease capitalization when activities necessary to prepare the property for its intended use have been suspended. Costs include costs of land use rights, direct development costs, interest on indebtedness, construction overhead and indirect project costs. The Company acquires land use rights with lease terms of 40 years through government sale transaction. Land use rights are divided and transferred to customers after the Company delivers properties. The Company capitalizes payments for obtaining the land use rights, and allocates to specific units within a project based on units’ gross floor area. Costs of land use rights for the purpose of property development are not amortized. Other costs are allocated to units within a project based on the ratio of the sales value of units to the estimated total sales value.
2.11 Capitalization of interest
In accordance with ASC 360, Property, Plant and Equipment, interest incurred during construction is capitalized to properties under development. For the years ended December 31, 2017, 2016 and 2015, $nil, $nil and $nil were capitalized as properties under development, respectively.
2.12 Advertising expenses
Advertising costs are expensed as incurred, or the first time the advertising takes place, in accordance with ASC 720-35, Advertising Costs. For the years ended December 31, 2017, 2016 and 2015, the Company recorded advertising expenses of $nil, $2,348 and $7,724, respectively.
2.13 Share-based compensation
The Company grants restricted shares to its non-employee consultants. Awards granted to non-employees are measured at fair value at the earlier of the commitment date or the date the services are completed, and are recognized using graded vesting method over the period the service is provided.
2.14 Income taxes
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the liability method. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.
The Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of December 31, 2017, 2016 and 2015, the Company did not have any uncertain tax position.
2.15 Land Appreciation Tax (“LAT”)
In accordance with the relevant taxation laws in the PRC, the Company is subject to LAT based on progressive rates ranging from 30% to 60% on the appreciation of land value, which is calculated as the proceeds of sales of properties less deductible expenditures, including borrowing costs and all property development expenditures. LAT is prepaid at 1% to 2% of the pre-sales proceeds each year as required by the local tax authorities, and is settled generally after the construction of the real estate project is completed and majority of the units are sold. The Company provides LAT as expensed when the related revenue is recognized based on estimate of the full amount of applicable LAT for the real estate projects in accordance with the requirements set forth in the relevant PRC laws and regulations. LAT would be included in income tax expense in the statements of operations and comprehensive income (loss).
| F-13 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
2.16 Earnings (loss) per share
Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed using the weighted average number of common shares and potential common shares outstanding during the period for convertible notes under if-convertible method, if dilutive. Potential common shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
2.17 Comprehensive loss
Comprehensive loss includes net income (loss) and foreign currency adjustments. Comprehensive loss is reported in the consolidated statements of operations and comprehensive loss. Accumulated other comprehensive loss, as presented on the consolidated balance sheets are the cumulative foreign currency translation adjustments.
2.18 Contingencies
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450 Sub topic 20, “Loss Contingencies”, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
2.19 Recently issued accounting pronouncements
The Company does not believe other recently issued but not yet effective accounting standards from ASU 2018-23, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.
3. Risks
(a) Liquidity risk
The Company is exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures.
(b) Foreign currency risk
A majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.
| F-14 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
4. OTHER assets and receivables
Other assets and receivables as of December 31, 2017 and 2016 consisted of:
| December 31, 2017 | December 31, 2016 | |||||||
| Deposits | $ | 845 | $ | 792 | ||||
| Other receivables | 2,000 | - | ||||||
| Underwriting commission deposit | 1,600,000 | 1,606,000 | ||||||
| Prepaid rent and deposit | 29,580 | - | ||||||
| Temporary investment deposit | - | 10,000 | ||||||
| Prepaid share based compensation expenses | 110,057 | - | ||||||
| Excessive business tax and related urban construction and education surcharge | 1,722,639 | 1,578,178 | ||||||
| Excessive land appreciation tax | 983,296 | 956,782 | ||||||
| $ | 4,448,417 | $ | 4,151,752 | |||||
Business tax and LAT are payable each year at 5% and 1% - 2% respectively of customer deposits received. The Company recognizes sales related business tax and LAT in the income statement to the extent that they are proportionate to the revenue recognized each period. Any excessive amounts of business and LAT liabilities recognized at period-end pursuant to tax laws and regulations over the amounts recognized in the income statement are capitalized in prepayments and will be expensed in subsequent periods.
5. REAL ESTATE PROPERTY COMPLETED
The account balance and components of the real estate property completed were as follow:
| December 31, 2017 |
December 31, 2016 |
|||||||
| Properties completed | ||||||||
| Wuhan Centre China Grand Steel Market | ||||||||
| Costs of land use rights | $ | 7,700,150 | $ | 7,213,617 | ||||
| Other development costs | 23,797,108 | 22,293,491 | ||||||
| $ | 31,497,258 | $ | 29,507,108 | |||||
As of December 31, 2017, the sole and wholly owned developing project of the Company is called Wuhan Centre China Grand Steel Market (Phase 1) Commercial Building in the south of Hans Road, Wuhan Yangluo Economic Development Zone with approximately 222,496.6 square meters of total construction area. Since June 2009, the Company commenced the construction of the project that funded through a combination of bank loans and advances from shareholders. The Company has obtained certificates representing titles of the land use rights used for the development of the project. As of December 31, 2017, the Company has completed the construction of four buildings covering area of approximately 35,350.4 square meters of construction area. The Company values the real estate assets based on estimates using present value by quoted prices for comparable real estate projects.
| F-15 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
6. REAL ESTATE PROPERTIES AND LAND LOTS UNDER DEVELOPMENT
The components of real estate properties and land lots under development were as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| Properties under development | ||||||||
| Wuhan Centre China Grand Steel Market | ||||||||
| Costs of land use rights | $ | 9,286,634 | $ | 8,699,859 | ||||
| Other development costs | 39,592,579 | 36,791,759 | ||||||
| Land lots undeveloped | ||||||||
| Costs of land use rights | 315,895,430 | 295,935,616 | ||||||
| $ | 364,774,643 | $ | 341,427,234 | |||||
The investments in undeveloped land were acquired in September, 2007. The Company leases the land under land use right leases with various terms from the PRC government, and does not have ownership of the underlying land.
As of December 31, 2017, the Company has three buildings under development of the project described in Note 5 covering area of approximately 57,450.4 square meters of construction area.
Land use right with net book value of $180,891,395, including in real estate held for development and land lots undeveloped were pledged as collateral for the financial institution loan as at December 31, 2017. (See Note 10)
7. Property and Equipment
The Company’s property and equipment used to conduct day-to-day business are recorded at cost less accumulated depreciation. Depreciation expenses are calculated using straight-line method over the estimated useful life with 5% of estimated salvage value below:
| Useful life years | December 31, 2017 | December 31, 2016 | ||||||||
| Fixture, furniture and office equipment | 5 | $ | 65,205 | $ | 60,017 | |||||
| Vehicles | 5 | 527,270 | 493,955 | |||||||
| Less: accumulated depreciation | (529,762 | ) | (464,230 | ) | ||||||
| Property and equipment, net | $ | 62,713 | $ | 89,742 | ||||||
Depreciation expense totaled $31,357, $62,536 and $79,064 for the years ended December 31, 2017, 2016 and 2015, respectively.
8. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities as of December 31, 2017 and 2016 consisted of:
| December 31, 2017 | December 31, 2016 | |||||||
| Salaries payable | $ | 1,036,582 | $ | 301,590 | ||||
| Compensation payable to consultants | 427,321 | - | ||||||
| Business tax and related urban construction and education surcharge | 20,492 | 10,577 | ||||||
| Deposits from contractors | 167,540 | 156,954 | ||||||
| Interest payable on convertible bond | 12,197,260 | 6,197,260 | ||||||
| Interest payable on loans | 4,783,350 | 2,319,338 | ||||||
| $ | 18,632,545 | $ | 8,985,719 | |||||
| F-16 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
9. REAL ESTATE PROPERTY REFUND AND COMPENSATION PAYABLe
During the years 2012 and 2011, the Company signed 443 binding agreements of sales of commercial offices of the project with floor area of 22,790 square meters to unrelated purchasers (the transactions or the real estate sales transactions). The Company received deposits and considerations from the purchasers as required by the agreements. The construction commenced in the 2010, which was originally expected to be delivered to customers in late of 2012. No revenue was recognized from the sales of the commercial offices due to the reason stated below.
Owing to commercial reasons, the Company decided to terminate the agreements made for the sale of the real estate properties in relation to the project of Wuhan Centre China Grand Market. According to the agreements of sales, the Company is obliged to compensate the purchaser at a rate equal to 6% per annum or 0.05% per day on the deposits paid. In the years ended December 31, 2017, 2016 and 2015, the Company incurred $1,408,233, $1,433,737 and $1,528,126 compensation expenses which were included in general and administrative expenses.
As at December 31, 2017, 375 out of 443 agreements were cancelled, and no completed office (or real estate certificate) has been delivered to the purchaser. The Company is still in the progress of negotiating with the purchasers for the cancellation of the remaining agreements. The directors of the Company are of the opinion that almost all of the purchasers shall accept the cancellation. If, finally the purchaser insisted on the execution of the agreement, the Company will accept.
Real estate property refund and compensation payable represent the amount of customer deposits received and the compensation calculated in accordance with the provisions in the sales agreements. The payable consists of the followings:
| December 31, 2017 | December 31, 2016 | |||||||
| Property sales deposits | $ | 20,108,667 | $ | 18,838,103 | ||||
| Compensation | 8,037,934 | 6,159,460 | ||||||
| $ | 28,146,601 | $ | 24,997,563 | |||||
10. Loans payable
| Bank name | Term | December 31, 2017 | December 31, 2016 | |||||||||
| China Construction Bank | From May 30, 2014 to May 29, 2020 | $ | 44,221,399 | $ | 41,456,074 | |||||||
Loans are floating rate loans whose rates (2017: 6% per annum and 2016: 6% per annum) are set at 5% above the over 5 years base borrowing rate stipulated by the People’s Bank of China. Interest expenses incurred on loans payable for the years ended December 31, 2017, 2016 and 2015 was $2,221,138, $2,424,794 and $3,001,771, respectively.
Land use right with net book value of $180,891,395, including in real estate held for development and land lots under development were pledged as collateral for the loan as at December 31, 2017.
The aggregate maturities of loans payable of each of years subsequent to December 31, 2017 are as follows:
| 2018 | $ | 3,074,132 | ||
| 2019 | 15,370,664 | |||
| 2020 | 25,776,603 | |||
| $ | 44,221,399 |
| F-17 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
11. CONVERTIBLE NOTE
On December 19, 2015, the Company issued an 8% convertible note in the principal amount of $150,000,000 to Jasper, a related party, in the Share Exchange (see Note 1). The holder of the Note may convert all or any portion of the then aggregate outstanding principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share. The maturity date of the Note is December 19, 2018.
On December 31, 2015, pursuant to the terms and conditions of the Agreements, Jasper, financed the Purchaser for the Sale by reducing Company’s financial obligations under the Note by an aggregate of $75,000,000 (see Note 1). As a result of the Sale, the outstanding balance due to Jasper under the Note was $75,000,000 plus any accrued interest.
There was no beneficial conversion feature attributable to the Note as the set conversion price of the Note was greater than the fair value of the common share price at the date of issuance. The Company has accounted for the Note in accordance with ASC 470-20, as a single instrument as a non-current liability. The Note is initially carried at the gross cash received at the issuance date.
The interest expense for the convertible note included in the consolidated statements of operations was $6,000,000, $6,000,000 and $197,260, respectively, for the years ended December 31, 2017, 2016 and 2015.
The interest payable for the convertible note included in the consolidated balance sheets was $12,197,260 and $6,197,260, respectively as at December 31, 2017 and 2016.
There was no redemption of convertible note for the years ended December 31, 2017, 2016 and 2015.
12. Employee Retirement Benefit
The Company has made employee benefit contribution in accordance with Chinese relevant regulations, including retirement insurance, unemployment insurance, medical insurance, work injury insurance and birth insurance. The Company recorded the contribution in the salary and employee charges when incurred. The contributions made by the Company were $96,963, $125,027 and $64,005 respectively, for the years ended December 31, 2017, 2016 and 2015.
| F-18 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
13. INCOME TAXES
The Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. No provision for federal corporate income tax has been made in the financial statements as there are no assessable profits.
Energetic Mind was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, Energetic Mind is not subject to tax on income.
Ricofeliz Capital was incorporated in Hong Kong. No provision for Hong Kong profits tax has been made in the financial statements as there are no assessable profits.
Wuhan Newport was incorporated in the PRC, was governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%.
Income tax expenses for the years ended December 31, 2017, 2016 and 2015 are summarized as follows:
| Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Current | $ | - | $ | - | $ | - | ||||||
| Deferred tax benefit | 1,040,873 | 1,143,595 | 1,378,700 | |||||||||
| $ | 1,040,873 | $ | 1,143,595 | $ | 1,378,700 | |||||||
A reconciliation of the income tax benefit determined at the PRC EIT income tax rate to the Company’s effective income tax benefit is as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| EIT at the PRC statutory rate of 25% | $ | 3,322,563 | $ | 3,467,419 | ||||
| Valuation allowance | (2,281,690 | ) | (2,323,824 | ) | ||||
| $ | 1,040,873 | $ | 1,143,595 | |||||
The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the years ended December 31, 2017, 2016 and 2015, the Company had no unrecognized tax benefits.
The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.
Deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements at each year-end and tax loss carry forwards. The tax effects of temporary differences that give rise to the following approximate deferred tax assets and liabilities as of December 31, 2017 and 2016 are presented below.
| December 31, 2017 | December 31, 2016 | |||||||
| Deferred tax assets | ||||||||
| Operating loss carry forward | $ | 430,939 | $ | 372,075 | ||||
| Excess of interest expenses | 2,533,387 | 1,887,225 | ||||||
| Accrued expenses | 2,891,299 | 2,213,281 | ||||||
| $ | 5,855,625 | $ | 4,472,581 | |||||
The Company had net operating losses carry forward of $1,723,757 as of December 31, 2017 which will expire on various dates between December 31, 2018 and 2020.
| F-19 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
14. loss per share
| For Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Numerator: | ||||||||||||
| Net loss for basic and diluted loss per share | $ | (12,249,377 | ) | $ | (12,726,080 | ) | $ | (6,381,862 | ) | |||
| Denominator: | ||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||
| Basic | 188,465,024 | 177,459,678 | 151,682,554 | |||||||||
| Dilutive shares: | ||||||||||||
| Conversion of convertible note | 5,280,472 | - | - | |||||||||
| Diluted | 193,745,496 | 177,459,678 | 151,682,554 | |||||||||
| Basic and diluted loss per share | $ | (0.06 | ) | $ | (0.07 | ) | $ | (0.04 | ) | |||
Common shares of 8,719,726 resulting from the assumed conversion of 8% Convertible Note (Note 11) were excluded from the calculation of diluted loss per share for the year ended December 31, 2017 as their effect is anti-dilutive.
15. Related Party Transactions
15.1 Nature of relationships with related parties
| Name | Relationships with the Company | ||
| Mr Zhao Weibin | Officer | ||
| Mr Liu Xiangyao | Director | ||
| Jasper Lake Holdings Limited | Controlling stockholder |
15.2 Related party balances and transactions
Amount due to Mr Zhao Weibin were $126,240 and $118,263 as at December 31, 2017 and 2016, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.
A summary of changes in the amount due to Mr Zhao Weibin is as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| At beginning of year | $ | 118,263 | $ | 126,516 | ||||
| Exchange difference adjustment | 7,977 | (8,253 | ) | |||||
| At end of year | $ | 126,240 | $ | 118,263 | ||||
Amount due to Mr Liu Xiangyao were $35,821,264 and $31,751,959 as at December 31, 2017 and 2016, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.
A summary of changes in the amount due to Mr Liu Xiangyao is as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| At beginning of year | $ | 31,751,959 | $ | 2,428,731 | ||||
| Advances from the director | 2,129,589 | 29,720,658 | ||||||
| Repayment to the director | (22,402 | ) | (359,881 | ) | ||||
| Exchange difference adjustment | 1,962,118 | (37,549 | ) | |||||
| At end of year | $ | 35,821,264 | $ | 31,751,959 | ||||
| F-20 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
As at December 31, 2017 and 2016, the outstanding balance due to Jasper under the convertible note was $75,000,000 plus any accrued interest. The interest payable to Jasper were $12,197,260 and $6,197,260 as at December 31, 2017 and 2016, respectively. Details of the convertible note are stated in Note 11.
A summary of changes in the interest payable to Jasper is as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| At beginning of year | $ | 6,197,260 | $ | 197,260 | ||||
| Interest expense | 6,000,000 | 6,000,000 | ||||||
| At end of year | $ | 12,197,260 | $ | 6,197,260 | ||||
16. SHARE-BASED COMPENSATION EXPENSES
On December 27, 2015, the Company granted 317,345 and 340,555 shares of the Company’s restricted common stock to a number of consultants, in exchange for its legal and professional services to the Company for the years ended December 31, 2015 and 2016, respectively. These shares were valued at $5.7 per share, the closing bid price of the Company’s common stock on the date of grant. Total compensation expense recognized in the general and administrative expenses of the consolidated statement of operations for the year ended December 31, 2015 was $1,808,867. Total compensation expense of approximately $1,941,163 was recognized in 2016. The shares attributable to fiscal 2015 and 2016 were issued on December 30, 2015.
On January 25, 2016, the Company granted 15,000 shares of the Company’s restricted common stock to a consultant, in exchange for its legal and professional services to the Company for the year 2016. These shares were valued at $4.9 per share, the closing bid price of the Company’s common stock on the date of grant. This compensation expense of approximately $73,500 was recognized in 2016.
On May 5, 2017, the Company entered into an employment agreement with Mr. Tsz-Kit Chan (“Mr Chan”) to serve as the Company’s Chief Financial Officer that the Company granted 100,000 shares of the Company’s common stock for his first year of employment. As at December 31, 2017, the Company has not issued the shares and theses shares were valued at $8.82 per share. The Company recognized $570,279 for the year ended December 31, 2017.
During the period from July to September 2017, on several different dates, the Company granted 75,000 shares totally of the Company’s restricted common stock to several consultants, in exchange for its legal and professional services to the Company for the period between July 2017 and June 2018. These shares were valued at the closing bid price of the Company’s common stock on the date of grant. The compensation expense recognized in the general and administrative expenses of the consolidated statement of operations for the year ended December 31, 2017 was $807,683. On May 12, 2017, the Company had an agreement with Buckman, Buckman & Reid, Inc., that the Company granted 70,000 shares of the Company’s shares of the Company’s common stock for services rendered by Buckman, Buckman & Reid, Inc. As at December 31, 2017, the Company has not issued the shares and theses shares were valued at $8.82 per share. The Company recognized share based compensation of $407,519 for the year ended December 31, 2017.
Total share compensation expenses recognized in the general and administrative expenses of the consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 was $1,785,481, $2,014,663 and $1,808,867 respectively.
17. Concentration of Credit Risks
As of December 31, 2017 and 2016, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in China and the US, which management believes are of high credit quality.
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
No customer accounted for more than 10% of total accounts receivable as of December 31, 2017 and 2016.
| F-21 |
YANGTZE RIVER PORT and LOGISTICS LIMITED
(FOrmerly Yangtze River Development limited)
NOTES TO the FINANCIAL STATEMENTS
18. Commitments and Contingencies
Operating lease commitments
For the years ended December 31, 2017, 2016 and 2015, rental expenses under operating leases were $90,555, $72,000 and $6,000 respectively.
On April 1, 2017, the Company made a lease agreement with 41 John Street Equities LLC. The term of the lease is one year, beginning on April 1, 2017 and ending on March 31, 2018. The Company made a one-time full payment of $96,135 including security deposit for the entire leasing period.
Legal proceeding
The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition or results of operations.
The Company did not identify any commitment and contingency as of December 31, 2017.
19. RESTRICTED NET ASSETS
PRC laws and regulations permit payments of dividends by the Company’s subsidiary incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiary incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior to payment of any dividends, unless such reserve have reached 50% of their respective registered capital. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each subsidiary. As a result of the restrictions described above and elsewhere under PRC laws and regulations, the Company’s subsidiary incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company in the form of dividends or advances from PRC subsidiary. Such restriction amounted to $289,656,431 and $287,214,468 as of December 31, 2017 and 2016. Except for the above, there is no other restriction on the use of proceeds generated by the Company’s subsidiary to satisfy any obligations of the Company.
20. GOING CONCERN
As shown in the accompanying financial statements, the Company has sustained recurring losses and negative cash flows from operations. Over the past years, the Company has been funded through a combination of bank loans and advances from shareholders. On January 29, 2016, the Company received an undertaking commitment letter provided by the Company’s majority shareholder who is willing to provide sufficient funding on an as-needed basis. In addition, the Company plans to dispose of the existing developed real estate properties with market value of approximately $42 million when the Company needs cash flows. The Company believes that, as a result of these, it currently has sufficient cash and financing commitments to meet its funding requirements for a reasonable period of time.
21. SUBSEQUENT EVENTS
On February 13, 2018, the Company passed a shareholder resolution of more than 50% of the shareholders and a Board of Directors resolution that the existing shareholders of the Company will receive shares of Yangtze River Blockchain Logistics Limited (“YRBL”)(Formerly known as Avenal River Limited), a newly formed subsidiary of the Company. YRBL was incorporated in the British Virgin Islands on January 30, 2018. YRBL currently holds 100% of the shares of Ricofeliz investment (China) Limited, which in turn wholly owns 100% of Wuhan Yangtze River Newport Trading Limited. YRBL and its subsidiaries has not commenced business and has no material assets.
| F-22 |