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.
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.
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.
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.
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.
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).
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.
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.
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
|
|
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
|
|
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.
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.
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
|
|
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.
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.