Note 8 - Intangible Assets

6 Months Ended

Jun. 30, 2016

Intangible Assets Disclosure [Text Block]

Note 8 - Intangible Assets

Intangible assets consist of land use rights, trademarks, customer relationships and the Company’s eCommerce platform. All land in the PRC is government-owned and the ownership cannot be sold to any individual or company. However, the government grants the user a right to use the land (“land use right”). The Company acquired the right to use land in Dongguan, Guangdong Province, China, in 2004 for $543,701 (RMB 3.6 million) for 50 years and is amortizing such rights on a straight-line basis for 50 years.

On February 28, 2012, the Company acquired another land use right for $512,728 (RMB 3.4 million) for 50 years and is amortizing such right on a straight-line basis for 50 years.

In 2015, the Company paid $893,236 (RMB 5.92 million) in levies to the Chinese government in relation to the land use right that was acquired on February 28, 2012.

On April 12, 2016, the Company paid $35,965 (RMB 0.23 million) to an asset management company for cultivated land reclamation fee for the land use right that was acquired on February 28, 2012.

The Company acquired a customer relationship with a fair value of $50,000 on August 31, 2011, as part of its acquisition of Diamond Bar. Concurrently with its acquisition of Diamond Bar, the Company entered into a trademark purchase and assignment agreement for all rights, title and interest in two trademarks (Diamond Sofa and Diamond Furniture) for $200,000 paid in full at the closing. Amortization of said customer relationship and the trademarks is provided using the straight-line method and estimated lives were 5 years for each.

The Company acquired a customer relationship with a fair value of $6,100,559 on April 24, 2013, as part of its acquisition of Bright Swallow. Amortization of said customer relationship is provided using the straight-line method and estimated life was 15 years.

The Company’s eCommerce platform is a website through which customers are able to browse and place orders online for the Company’s products. For the downloadable mobile application, customers are able to download onto their own mobile devices to browse the Company’s product offerings. The Nova sales kit application is used internally on mobile devices at the Company’s franchise stores to enable the Company’s sales representatives to display the Company’s products and inventory to customers visiting the stores. The total cost associated with the development, programming, design and roll-out of the Company’s eCommerce platform, downloadable mobile application, and Nova sales kit application is approximately $1.20 million. The Company’s eCommerce platform, downloadable mobile application, and Nova sales-kit application were completed and put into operation in 2015. These intangible assets are amortized using the straight-line method with estimated lives of 10 years for each.

Intangible assets consisted of the following as of June 30, 2016 and December 31, 2015:

	June 30, 2016			December 31, 2015

Land use rights	$	1,985,083		$	1,990,979
eCommerce platform		1,208,200			1,208,200
Customer relationship		6,150,559			6,150,559
Trademarks		200,000			200,000
Less: accumulated amortization		(1,790,775	)		(1,487,089	)
	$	7,753,067		$	8,062,649

Amortization of intangible assets was $307,622 and $241,717 for the six months ended June 30, 2016 and 2015, respectively, and $153,886 and $120,868 for the three months ended June 30, 2016 and 2015, respectively. Annual amortization expense is expected to be approximately $569,866 over each of the next five years.