Quarterly Report (10-q)

Date : 05/15/2019 @ 5:59PM
Source : Edgar (US Regulatory)
Stock : Dd's Deluxe Rod Holder, Inc. (PC) (DDLX)
Quote : 2.23  0.0 (0.00%) @ 9:12PM
DD's Deluxe Rod Holder, Inc. share price Chart

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10−Q

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2019

 

[  ] 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: 333-204518

 

DD’s Deluxe Rod Holder Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   61-1748028
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

3 rd Floor, Golden Sunset Community, Wencang Village, Yueping Township, Yan Feng District,

Hengyang City, Hunan Province, China 421000

(Address of principal executive offices, Zip Code)

 

+86 734-847-6607

(Registrant’s telephone number, including area code)

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).. Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “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 [X] Smaller reporting company [X]
  Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   Not applicable   Not applicable

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of May 10, 2019 is as follows:

 

Class of Securities   Shares Outstanding
Common Stock, $0.001 par value   234,000,000

 

 

 

 

 

 

DD’S DELUXE ROD HOLDER INC.

 

 

 

TABLE OF CONTENTS

 

  PART I    
  FINANCIAL INFORMATION    
       
Item 1. Financial Statements.   1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   35
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   4 2
Item 4. Controls and Procedures.   42
       
  PART II    
  OTHER INFORMATION    
       
Item 1. Legal Proceedings.   43
Item 1A. Risk Factors.   43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   43
Item 3. Defaults Upon Senior Securities.   43
Item 4. Mine Safety Disclosures.   43
Item 5. Other Information.   43
Item 6. Exhibits.   43

 

i

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

DD’S DELUXE ROD HOLDER INC.

CONDENSED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

(Stated in US Dollars)

 

CONTENTS   Page Number
     
Interim Condensed Consolidated Balance Sheets   2
     
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss   3
     
Interim Condensed Consolidated Statements of Stockholders’ Equity   4
     
Interim Condensed Consolidated Statements of Cash Flows   5
     
Notes to Unaudited Interim Condensed Consolidated Financial Statements   6

 

1

 

 

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Balance Sheets

 

    Note     March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
ASSETS                        
Current assets                        
Cash and cash equivalents           $ 117,319     $ 327,640  
Accounts receivable, net             -       17,308  
Amount due from related parties     12       491,012       1,136,182  
Prepayments and other current assets     6       1,181,005       436,977  
                         
Total current assets             1,789,336       1,918,107  
                         
Non-current assets                        
Property, plant and equipment, net     8       894,655       805,340  
Intangible assets, net     10       13,069       13,097  
Prepayments, net of current portion and other assets     7       153,914       214,374  
Operating lease right-of-use assets     15       2,416,493       2,493,044  
Total non-current assets             3,478,131       3,525,855  
                         
Total assets             5,267,467     $ 5,443,962  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
                         
LIABILITIES                        
Current liabilities                        
Accounts payable, net             346,169       255,718  
Operating lease obligations, current portion     15       559,218       441,781  
Amount due to related parties     12       942,350       891,779  
Accrued expenses and other payables     11       288,839       253,363  
Total current liabilities             2,136,576       1,842,641  
                         
Non-current liabilities                        
Customer deposits and receipt in advance             509,208       107,629  
Operating lease obligations, net of current portion     15       1,888,806       2,049,485  
Total non-current liabilities             2,398,014       2,157,114  
                         
Total liabilities             4,534,590       3,999,755  
                         
STOCKHOLDERS’ EQUITY                        
                         
DD’s Deluxe Rod Holder Inc.’s stockholders’ equity                        

Common stock, $0.001 par value, 2,000,000,000 shares authorized; 234,000,000 shares and 234,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

          234,000       234,000  
Additional paid-in capital             5,880,723       5,880,723  
Accumulated deficits             (5,455,272 )     (4,627,022 )
Accumulated other comprehensive income             56,146       (42,043 )
Total DD’s Deluxe Rod Holder Inc.’s stockholders’ equity             715,597       1,445,658  
                         
Noncontrolling interests             17,280       (1,451 )
Total shareholders’ equity             732,877       1,444,207  
                         
Total liabilities and stockholders’ equity           $ 5,267,467     $ 5,443,962  

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 

2

 

 

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

 

    Three-Month
Period Ended
March 31, 2019
(Unaudited)
    Three-Month
Period Ended
March 31, 2018
(Unaudited)
 
             
Revenue   $ 119,453     $ 46,124  
Costs of revenue     (200,981 )     (16,429 )
Gross (loss) / profit     (81,528 )     29,695  
                 
Operating expenses                
Selling expenses     278,151       3,531  
General and administrative expenses     572,817       663,594  
Total operating expenses     850,968       667,125  
                 
Loss from operations     (932,496 )     (637,430 )
                 
Other income (expense):                
Bank charges     (1,444 )     (386 )
Interest income     149       2,078  
Other finance expense     -       -  
Exchange gain     600       29,053  
Penalty     (593 )     -  
Other expenses, net     (106 )     -  
Total other income (expense)     1,394       30,745  
                 
Loss before income taxes     (933,890 )     (606,685 )
                 
Provision for income taxes     -       -  
                 
Net loss     (933,890 )     (606,685 )
Net loss attributable to noncontrolling interests from continuing operations     (105,640 )     -  
Net loss attributable to DD’s Deluxe Rod Holder Inc.     (828,250 )     (606,685 )
                 
Foreign currency translation adjustment     98,819       10,652  
                 
Comprehensive loss     (835,701 )     (596,033 )
Comprehensive loss attributable to noncontrolling interests     (83,446 )     -  
Comprehensive loss attributable to DD’s Deluxe Rod Holder Inc.   $ (752,255 )   $ (596,033 )

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 

3

 

 

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Statements of Stockholders’ Equity

 

    Number of Shares     Common stock     Additional paid-in capital     Accumulated deficits     Accumulated other comprehensive income/(loss)     Noncontrolling interests     Total
stockholders’ equity
 
Balance, December 31, 2016 (Audited)     -     $ -     $ -     $ -     $ -     $ -     $ -  
Restated – Outstanding shares of accounting acquirer     230,000,000       230,000       2,909,368       -       -       -       3,139,368  
Stock to be issued     -       -       -       -       -       -       -  
Net loss for the year      -       -       -       (888,882 )     -       -       (888,882 )
Foreign currency translation adjustment      -             -       -       5,568       -       5,568  
Balance, December 31, 2017 (Audited)     230,000,000     $ 230,000     $ 2,909,368     $ (888,882 )   $ 5,568     $ -     $ 2,256,054  
Cash contribution     -       -       1,385,435       -       -       -       1,385,435  
Net loss for the period     -       -       -       (606,685 )     -       -       (606,685 )
Foreign currency translation adjustment     -       -       -       -       10,652       -       10,652  
Balance, March 31, 2018 (Unaudited)     230,000,000     $ 230,000     $ 4,294,803       (1,495,567 )   $ 16,220     $ -     $ 3,045,456  

 

    Number of Shares     Common stock     Additional paid-in capital     Accumulated deficits     Accumulated other comprehensive income/(loss)     Noncontrolling interests     Total
stockholders’ equity
 
Balance, December 31, 2016 (Audited)     -       $ -     $ -     $ -     $ -     $ -     $ -  
Restated – Outstanding shares of accounting acquirer     230,000,000       230,000       2,909,368       -       -       -       3,139,368  
Stock to be issued     -       -       -       -       -       -       -  
Net loss for the year     -       -       -       (888,882 )     -       -       (888,882  
Foreign currency translation adjustment     -        -       -       -       5,568       -       5,568  
Balance, December 31, 2017 (Audited)     230,000,000     $ 230,000     $ 2,909,368     $ (888,882 )   $ 5,568     $ -     $ 2,256,054  
Reverse merger recapitalization     4,000,000       4,000       2,971,355       -       -       -       2,975,355  
Non-controlling interest     -       -       -       -       -       147,368       147,368  
Net loss for the year     -       -       -       (3,738,140 )     -       (130,647 )     (3,868,787 )
Foreign currency translation adjustment     -       -               -       (47,611 )     (18,172 )     (65,783 )
Balance, December 31, 2018 (Audited)     234,000,000     $ 234,000     $ 5,880,723     $ (4,627,022 )   $ (42,043 )   $ (1,451 )   $ 1,444,207  
Net loss     -       -       -       (828,250 )     -       (105,640 )     (933,890 )
Cash contribution     -       -       -       -       -       84,006       84,006  
Foreign currency translation adjustment     -       -       -       -       98,189       40,365       138,554  
Balance, March 31, 2019 (Unaudited)     234,000,000     $ 234,000     $ 5,880,723     $ (5,455,272 )   $ 56,146     $ 17,280     $ 732,877  

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

4

 

 

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Statements of Cash Flows

 

   

Three-Month
Period Ended
March 31, 2019

(Unaudited)

   

Three-Month
Period Ended
March 31, 2018

(Unaudited)

 
             
Cash flows from operating activities:                
Net loss   $ (933,890 )   $ (606,685 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                
Depreciation     51,347       2,486  
Amortization     429       42  
Amortization of right-of-use assets     136,901       13,261  
                 
Changes in operating assets and liabilities:                
Accounts receivable, net     17,643       16,978 )
Deposits and other receivables, net     43,786     (4,436 )
Amount due from related parties     (7,691 )     (10,458 )
Prepaid expenses     (9,461 )     382,674  
Other current assets     (5,883 )     -  
Right-of-use assets obtained     -       (58,063 )
Accounts payable     87,324       -  
Amount due to related parties     49,452       (31,174 )
Accrued expenses and other current liabilities     (34,962 )     (51,486 )
Customer deposits and deferred revenue     453,002       (43,103 )
Operating lease obligations     (95,613 )     75,450  
Net cash (used in) operating activities     (247,616 )     (314,514)  
                 
Cash flows from investing activities:                
Payment for equipment and intangible assets     (120,602 )     (75,725 )
Net cash (used in) investing activities     (120,602 )     (75,725 )
                 
Cash flows from financing activities:                
Proceeds from VIE share subscriptions     84,006       1,385,434  
Net cash provided by financing activities     84,006       1,385,434  
                 
Effect of exchange rate changes on cash     73,891       88,130  
                 
Net (decrease) increase in cash and cash equivalents     (210,321 )     1,083,325  
                 
Cash and cash equivalents, beginning balance     327,640       2,481,392  
                 
Cash and cash equivalents, ending balance   $ 117,319     $ 3,564,717  
                 
Supplementary cash flows information:                
Cash paid for interest   $ -     $ -  
Cash paid for income tax   $ -     $ -  

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

5

 

 

DD’s Deluxe Rod Holder Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

DD’s Deluxe Rod Holder Inc. (“Deluxe” or the “Company”) was incorporated on September 26, 2014 under the laws of the State of Nevada. On June 15, 2018, DD’s Deluxe Rod Holder Inc. (“DDLX”) entered into a definitive Share Exchange Agreement (the “Share Exchange Agreement”) with Golden Sunset Group Limited (“GS Group”), a Seychelles International Business Company, and the shareholders of GS Group (the “Shareholders”). The Share Exchange Agreement is effective on November 13, 2018. Golden Sunset has 460,000,000 shares (“ Ordinary Shares ”), $0.00025 par value per share outstanding (the “Golden Sunset Shares ”), all of which are held by the Shareholders. Each Shareholder has agreed to transfer all of his, her or its (hereinafter “its”) Golden Sunset Shares in exchange for an aggregate, collectively for all Shareholders, of 230,000,000 newly issued shares of the common stock, $0.001 par value per share, of DDLX (the “ Common Stock ”) that will, in the aggregate, constitute approximately 98.3% of the issued and outstanding capital stock of DDLX on a fully diluted basis as of and immediately after the closing of the share exchange transaction. .

 

The share exchange transaction was accounted for as a “reverse merger” because the original stockholders of GS Group own a majority of the outstanding shares of DDLX’s common stock immediately following the completion of the transaction. GS Group was the legal acquiree but deemed to be the accounting acquirer; DDLX was the legal acquirer but deemed to be the accounting acquiree in the reverse merger. The historical financial statements prior to the acquisition are those of the accounting acquirer (GS Group). Historical stockholder’s equity of the accounting acquirer prior to the merger are retroactively restated (a recapitalization) for the equivalent number of shares received in the merger. After the completion of the transaction, the Company’s consolidated financial statements include the assets and liabilities operations and cash flow of the Company and its subsidiaries.

 

Golden Sunset Group Limited (“GS Group”) is an international business company formed under the laws of Republic of Seychelles (“Seychelles”) on June 28, 2017 as a holding company for Golden Sunset International Management Limited (“GS International”), a Seychelles International Business company formed on the same day. GS International is a wholly-owned subsidiary of GS Group.

 

Golden Sunset (Hongkong) Lodging Limited (“GS Hong Kong”), a holding company incorporated under the laws of Hong Kong Special Administrative Region on July 18, 2017. It was wholly owned by Ms. Quan, Jun until March 9, 2018 on which the entire equity interests was transferred to GS International.

 

GS Hong Kong owns 100% of the issued and outstanding equity interest in Xiao De Tian Xia (Shenzhen) Senior Care Management Services Limited, a People’s Republic of China company (“Xiao De Shenzhen”) incorporated on November 3, 2017. On March 13, 2018, Xiao De Shenzhen acquired 100% ownership interest of Shenzhen Golden Sunset Technology Limited (“GS Technology”), a PRC company incorporated on January 20, 2016. On November 6, 2017, Xiao De Shenzhen also contractually controlled and managed an operating company, Hunan Xiao De Tian Xia Senior Care Industry Management Limited., a People’s Republic of China company (“Xiao De Hunan”), which provides senior care management services.

 

Xiao De Hunan was incorporated in the People’s Republic of China on March 22, 2017. Its principal office is located in Yueping Retirement Home (Red Sunset Apartments), Yueping Town, Yangfeng District, Hengyang City. Xiao De Hunan provides a variety of services which include, but not limited to, service management, lodging management, training management and property management. It provides senior community care services such as preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities through its branch, Hunan Xiao De Tian Xia Senior Care Industry Management Co. Ltd Community Senior Care Service Center (“the Branch”). The Branch was formed on December 20, 2017.

 

6

 

 

Hunan Guanzizai Senior Care Services Co. Ltd. (“Hunan Guanzizai”) was formed in the People’s Republic of China on September 27, 2017 and is a wholly-owned subsidiary of Xiao De Hunan. This entity provides senior care personal services and recreational activities for the elderly communities in Hengyang City in Hunan Province, China.

 

On July 30, 2018, Xiao De Tian Xia (Beijing) Senior Care Industry Management Co. Ltd (“Xiao De Beijing”) was incorporated in the People’s Republic of China on July 30, 2018. The ownership interest of Xiao De Hunan in this entity is 70%. The remaining ownership interest, 30%, is held by a non-related third party. This entity provides senior care personal services and recreational activities for an elderly community center in Beijing city in China.

 

Xiao De Tian Xia (Tangshan) Senior Care Management Services Co. Ltd. (“Xiao De Tangshan”) was incorporated in the PRC on September 3, 2018. The ownership interest of Xiao De Shenzhen in this entity is 60% while the remaining ownership interest, 40%, is held by a non-related third party. This entity provides senior care personal services and recreational activities for six elderly community centers in Tangshan city in Hebei Province, China.

 

Xiao De Tian Xia (Hubei) Senior Care Management Services Co. Ltd. (“Xiao De Hubei”) was incorporated in the PRC on September 30, 2018. The ownership interest of Xiao De Shenzhen in this entity is 67% while the remaining ownership interest, 33%, is held by a non-related third party. This entity provides senior care personal services and recreational activities for an elderly community center in Wuhan city in Hubei Province, China.

 

On December 10, 2018, Xiao De Hunan acquired Hengyang City Red Sunset Tourism Development Co. Ltd. (“Red Sunset Tourism”) for a cash consideration of approximately $74,257 (RMB 510,000). Red Sunset Tourism was incorporated in Hengyang City, Hunan Province of the People’s Republic of China under the law of the People’s Republic of China (“PRC”) on January 8, 2008 and its office is located in High-Technology Zone of Hengyang City, Henan Province. Red Sunset Tourism primarily engages in organizing and coordinating domestic travel tours within the territory of PRC for the senior elderly in Henan Province and elderly residents of Hengyang City Yueping Retirement Home (Red Sunset Apartment). Red Sunset Tourism generates revenue through the group tour fee earned from organizing and coordinating travel tours for its tour participants. After the completion of the acquisition, the Company’s controlled Red Sunset Tourism through the subsidiaries of GS Group. The consolidated financial statements include the assets and liabilities, operations and cash flow of the Company and its entire subsidiaries of GS Group and Red Sunset Tourism.

 

Contractual Arrangements

 

Although current PRC regulations do not restrict or prohibit foreign investment in domestic Chinese companies that engage in businesses such as those of Xiao De Hunan and its subsidiaries, there is substantial uncertainty regarding the interpretation and application of such regulations. As such, Xiao De Hunan and its subsidiaries are controlled through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements are comprised of a series of four agreements (collectively the “Contractual Arrangements”) which significant terms are shown as follows:

 

7

 

 

Exclusive Service Agreement

 

Pursuant to the exclusive service agreement among Xiao De Shenzhen, Xiao De Hunan and its subsidiaries and its shareholders, Xiao De Shenzhen is engaged as exclusive provider of management consulting services to Xiao De Hunan and its subsidiaries. For such services, Xiao De Hunan and its subsidiaries agree to pay service fees determined based on their actual monthly incomes from major business to Xiao De Shenzhen. The amount of service fee from the year 2019 onward will be negotiated on January 1 each year. Xiao De Shenzhen is entitled to the rights and responsibilities of Xiao De Hunan and its subsidiaries as set forth under the articles of association of Xiao De Hunan. The agreement provides that Xiao De Shenzhen is authorized to, but not limited to, manage and control the daily operation and internal management structure, manage financial management, enter and execute external contracts, handle tax filings and payments, direct and supervise human resources including board of directors nomination, appointment of directors and officers, approve budgets and compensation plans, resolve capital structure, acquisitions and dissolutions

 

The agreement remains in effect for 20 years until November 6, 2037 unless terminated by either party in writing. Until such termination, Xiao De Hunan and its subsidiaries may not enter into another agreement for the provision of management consulting services without the prior consent of Xiao De Shenzhen.

 

Call Option Agreements

 

Pursuant to the call option agreement between the shareholders of Xiao De Hunan and its subsidiaries and Xiao De Shenzhen, such shareholders jointly and severally grant Xiao De Shenzhen an option to purchase their equity interests in Xiao De Hunan and its subsidiaries. Xiao De Shenzhen has the right to determine the purchase price within the extent not exceeding the upper limit of shareholding ratio set forth under the PRC Law. Xiao De Shenzhen may exercise such option at any time until it has acquired all equity interests of such Xiao De Hunan and its subsidiaries, and freely transfer the option to any third party. The agreement will terminate on the date on which all of the equity interests of such Xiao De Hunan and its subsidiaries has been transferred to Xiao De Shenzhen or its designee.

 

Equity Pledge Agreements

 

Pursuant to the equity interest pledge agreement between the shareholders of each Xiao De Hunan and its subsidiaries and Xiao De Shenzhen, such shareholders pledge all of their equity interests in such Xiao De Hunan and its subsidiaries to Xiao De Shenzhen as collateral to secure the obligations of such Xiao De Hunan and its subsidiaries under the exclusive service agreement. The shareholders may not transfer or assign transfer or assign the pledged equity interests, or incur or allow any encumbrance that would jeopardize Xiao De Shenzhen’s interests, without Xiao De Shenzhen’s prior approval. In the event of default, Xiao De Shenzhen as the pledgee will be entitled to certain rights and entitlements, including the priority in receiving payments by the evaluation or proceeds from the auction or sale of whole or part of the pledged equity interests of such Xiao De Hunan and its subsidiaries. The agreement will terminate on the date the shareholders have transferred all of their pledged equity interests pursuant to the option agreement

 

Shareholders’ Voting Rights Proxy Agreements

 

Pursuant to the shareholders’ voting rights proxy agreement between the shareholders of each Xiao De Hunan and its subsidiaries and Xiao De Shenzhen, such shareholders have given Xiao De Shenzhen an irrevocable proxy to act on their behalf on all matters pertaining to such Xiao De Hunan and its subsidiaries and to exercise all of their rights as shareholders of such Xiao De Hunan and its subsidiaries, including the right to attend shareholders meeting, to exercise voting rights and to appoint and elect officers in such Xiao De Hunan and its subsidiaries. The agreement will be valid for 20 years from the date of execution and automatically renew for another one year when the original or extended term of this agreement is due. It will terminate at the earlier of (i) the date on which all of the equity interests of such Xiao De Hunan and its subsidiaries have been transferred to Xiao De Shenzhen or (ii) on the date Xiao De Shenzhen gives a thirty-day notice in writing of the cancellation of the renewal after the agreement is due.

 

8

 

 

As a result of the foregoing contractual arrangements, which give Xiao De Shenzhen effective control of Xiao De Hunan and its subsidiaries with an exclusive power to direct their operating and internal management activities that significantly impact their economic performance, obligate Xiao De Shenzhen to absorb all of the risk of loss from their activities, and enable Xiao De Shenzhen to receive all of their expected residual returns, the Company accounts for each Xiao De Hunan Tian Xia and its subsidiaries as a variable interest entity (“VIE”). Additionally, as the parent company of Xiao De Shenzhen, the Company is considered the primary beneficiary of Xiao De Hunan and its subsidiaries. Accordingly, the Company consolidates the accounts of Xiao De Hunan and its subsidiaries for the period ended December 31, 2017, in accordance with Regulation S-X-3A-02 promulgated by the Securities Exchange Commission, and Accounting Standards Codification (“ASC”) 810-10, Consolidation.

 

We refer to DD’s Deluxe Rod Holder Inc, its consolidated subsidiaries and variable interest entities collectively as “we”, “us” and “our”.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The financial statements included in this report have been prepared in accordance with generally accepted accounting principles in the United States of America. This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. Our financial statements are expressed in U.S. dollars.

 

Principles of Consolidation

 

Our consolidated combined financial statements include the accounts of Deluxe, GS Group, its subsidiaries and its Variable Interest Entities (VIEs). All significant intercompany transactions balances among Deluxe, GS Group, its subsidiaries and its VIEs are eliminated upon consolidation. Since Xiao De Shenzhen and its VIEs are under common control, the contractual arrangements among Xiao De Shenzhen, its VIEs and their shareholders have been accounted for as a reorganization of entities, and the consolidation of its VIEs through the contractual arrangements has been accounted for at historical cost and prepared on the basis as if these agreements became effective as of the beginning of the first period presented in our consolidated financial statements.

 

Consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (accounting acquiree, i.e. DDLX) but as a continuation of the financial statements of the legal subsidiary (accounting acquirer, i.e. GS Group) with an adjustment of retroactively restate on the stockholder’s equity to reflect the legal capital of the legal acquiree under the name of legal parent. This adjustment is required to reflect the capital of legal parent (the legal acquirer or accounting acquiree) in the stockholder’s equity item after the reverse acquisition. Comparative information presented in these financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (legal acquirer or accounting acquiree).

 

9

 

 

The interim condensed consolidated financial statements include the accounts of DD’s Deluxe Rod Holder Inc. and the following subsidiaries:

 

Name of subsidiaries   Ownership / Deemed ownership     Place of incorporation   Capital  
Golden Sunset Group Limited (“GS Group”)     100 %   Republic of Seychelles   $ 115,000  
Golden Sunset International Management Limited (“GS International”)     100 %   Republic of Seychelles   $ 5  
Golden Sunset (Hongkong) Lodging Limited (“GS Hong Kong”)     100 %   Hong Kong Special Kong Special Administrative Region   $ 5  
Xiao De Tian Xia (Shenzhen) Senior Care Service Management Co., Ltd. (“Xiao De Shenzhen”)     100 %   PRC     Nil  
Shenzhen Golden Sunset Technology Limited (“GS Technology”)     100 %   PRC     Nil  
Xiao De Tian Xia (Tangshan) Senior Care Service Management Co., Ltd (“Xiao De Tangshan”)     60 %   PRC   $ 230,793  
Xiao De Tian Xia (Hubei) Senior Care Services Co., Ltd (“Xiao De Hubei”)     67 %   PRC     118,597  
Hunan Xiao De Tian Xia Senior Care Industry Management Co., Ltd (“Xiao De Hunan”)     100 %   PRC   $ 1,512,951  
Hunan Guanzizai Senior Care Services Co. Ltd (“Hunan Guanzizai”)     100 %   PRC   $ 780,827  
Beijing Xiao De Tian Xia Senior Care Industry Management Co., Ltd (“Xiao De Beijing”)     70 %   PRC   $ 338,975  
Hengyang City Red Sunset Tourism Development Co., Ltd (“Red Sunset Tourism”)     100 %   PRC   $ 73,831  

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimate and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may differ from those estimates. Significant estimates for the periods ended March 31, 2019 and December 31, 2018 include the collectability of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived assets, valuation of accruals for expenses and tax due.

 

Reclassifications

 

We have reclassified certain prior period amounts within our consolidated financial statements and accompanying notes to conform to our current period presentation. These reclassifications did not affect total revenue, operating income, or net income.

 

Going Concern Consideration

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements. The Company’s ability to continue as a going concern depends on the liquidation of its current assets and business developments. As of March 31, 2019, the Company incurred working capital deficit of $347,240, a comprehensive loss of $835,701 and incurred a negative operating cash flow of $247,616. As of March 31, 2018, the Company also incurred a comprehensive loss of $596,033 and a negative cash flow from its operating activities of $314,514. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

 

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Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included borrowings from our stockholders and related parties. While we believe that our existing shareholders and related parties will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms.

 

We, through our PRC subsidiaries, continued to explore business opportunities with the local government agencies and senior care communities. By the end of 2018, Our VIE, Xiao De Hunan acquired Red Sunset Tourism in order to expand our senior community care services by coordinating group tour services to the elderly. Moreover, Xiao De Shenzhen also launched a community care prepaid card program and contracted a third party to promote the prepaid card program among the senior communities. As of March 31, 2019, there were approximately 69 participants and approximately $509,208 has been received. To strive to increase our revenue, in the first quarter of 2019, we obtained a government contract that allowed us to provide community care services to a community care center in Hubei. We continued our efforts in obtaining additional government contracts in other provinces. Moreover, GS Hong Kong is still negotiating with Sing Ho Trading Company to explore business opportunities and has remitted $731,336 for deposit. This amount is refundable by Sing Ho Trading Company if new business is not established.

 

We believe that our current cash and financing from our existing stockholders are adequate to support operations for at least the next 12 months.

 

Foreign Currency Translation

 

Our reporting currency is the U.S. dollar. Our subsidiaries in the PRC and Hong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollars (HKD) as their functional currencies as determined based on the criteria of ASC 830, “Foreign Currency Translation”. Assets and liabilities are translated at the unified exchange rate as quoted by the U.S. Federal Reserve at the end of the period. Income and expense accounts are translated at the average translation rates the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The resulting translation adjustments are reported under accumulated other comprehensive loss in the stockholders’ equity section of the balance sheets.

 

Below is a table with foreign exchange rates used for translation for the periods indicated:

 

T hree-month period ended March 31, 2019

(Average Rate)

 

Hong Kong Dollar

(HKD)

    Chinese Renminbi
(RMB)
 
United States dollar ($1)     7.8460       6.7447  
                 
As of March 31, 2019 (Closing Rate)                
United States dollar ($1)     7.8498       6.7112  

 

As of December 31, 2018

(Closing Rate)

 

Hong Kong Dollar

(HKD)

    Chinese Renminbi
(RMB)
 
United States dollar ($1)     7.8305       6.8755  

 

T hree-month period ended March 31, 2018

(Average Rate)

 

Hong Kong Dollar

(HKD)

    Chinese Renminbi
(RMB)
 
United States dollar ($1)     7.8279       6.3535  

 

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Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains its deposits in financial institutions in the PRC and Hong Kong. Deposit accounts at insured banks and financial institutions in Hong Kong will be covered up to a limit of HKD500,000 (approximately US$ 63,696) by Hong Kong Deposit Protection Board in an event of bank failure. As of March 31, 2019 and December 31, 2018, cash balances, $117,319 and $305,416, respectively, held in the PRC banks are uninsured. Our subsidiaries in Hong Kong and PRC have not experienced any losses in bank accounts and believe they are not exposed to any risks on our cash in bank accounts.

 

Financial Instrument

 

The carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value because of the immediate or short-term maturity of these financial instruments.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and equipment are included in operating income (loss). Repairs and maintenance are expensed as incurred.

 

Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the useful lives of the assets are as follows:

 

Classification   Estimated useful life
Leasehold improvements   5 years
Furniture & Fixtures   5 years
Computer Equipment   3-5 years
Office Equipment   3-5 years
Computer Software   5 years
Health Care Equipment   10 years
Motor vehicles   5 years

 

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Capitalization of Software Costs

 

For costs incurred in the acquisition of internal use software, the Company capitalizes costs incurred upon purchase. Internal use software is amortized on a straight-line basis over its estimated useful life.

 

Impairment of Long-lived Assets

 

Long-lived assets, including buildings and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of March 31, 2019 and December 31, 2018, management determined that there was no impairment.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed as a result of the Company’s acquisitions of interests in Red Sunset Tourism by our VIE, Xiao De Hunan, in the fourth quarter in 2018.

 

Goodwill is not depreciated or amortized but is tested for impairment at the reporting unit level at least on an annual basis, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. The test consists of two steps. First, identify potential impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired. Second, if there is impairment identified in the first step, an impairment loss is recognized for any excess of the carrying amount of the reporting units’ goodwill over the implied fair value of goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC Topic 805 “Business Combinations.”

 

Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired. The Company performs its annual impairment test of goodwill on December 31 of each fiscal year or whenever events of circumstances change or occur that would indicate that goodwill might be impaired. When assessing goodwill for impairment, the Company uses qualitative and if necessary, quantitative methods in accordance with FASB ASC Topic 350, “Goodwill”.

 

The Company’s goodwill is attributable to its reporting unit of VIEs within which Xiao De Hunan acquired Red Sunset Tourism on December 11, 2018. The Company performed the annual test on goodwill impairment for this reporting unit on December 31, 2018. See Note 9 for detailed disclosures about the impairment of goodwill and the related valuation technique(s) and inputs used in the fair value measurement for the Company’s goodwill.

 

For the year ended December 31, 2018, the Company recorded an impairment of goodwill in an amount of $177,954.

 

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Noncontrolling Interest

 

Noncontrolling interest is accounted for in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheet and the consolidated net income/(loss) attributable to the parent and the noncontrolling interest identified and presented on the face of the consolidated statement of operations an comprehensive loss. ASC Topic 810-10-45 also requires that losses attributable to the parent and the noncontrolling interest in a subsidiary be attributed to those interests even if it results in a deficit noncontrolling interest balance.

 

Fair Values of Financial Instruments

 

ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all non-financial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.

 

Disclosure requirements for fair value measures. The three levels are defined as follows:

 

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.

 

The Company considers the carrying amount of cash, other receivables and other short-term payables, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

Comprehensive Income (Loss)

 

Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. The Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments.

 

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Revenue Recognition

 

We adopted FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, under the full retrospective approach applied to its contracts entered since its inception date in March 2017. Since the Company adopted ASC Topic 606 since its inception date, the adoption of ASC 606 did not have a material impact on the measurement nor on the recognition of contracts as if it would have adopted ASC Topic 605 prior to January 1, 2018. The early adoption did not result in an adjustment to our retained earnings.

 

The five-step model defined by ASC Topic 606 requires us to (1) identify our contracts with customers, (2) identify our performance obligations under those contracts, (3) determine the transaction prices of those contracts, (4) allocate the transaction prices to our performance obligations in those contracts and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

 

Service management revenue – Service management relates to a service management agreement between Xiao De Hunan and Red Sunset Apartment. Pursuant to the agreement, Xiao De Hunan provides advisory and administrative services to Red Sunset Apartment.

 

Leasing revenue – This portion of our revenue relates to contracts with residents for leasing services at Red Sunset Apartment that are generally short term in nature with approximately from three months through one year and fall under FASB ASC Topic 842, Leases, which are specifically accounted outside the scope of ASC Topic 606.

 

Lodging management revenue – We provide referral service of senior residents of Hengyang City Yueping Retirement Home (Red Sunset Apartment) and lodging management to Red Sunset Tourism Development Co. Ltd.

 

Community care revenue – Our PRC entities and VIEs provide senior community care services such as preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities. We charge the senior residents after we have provided such services. During 2018, we offered a prepayment options for those services. Beginning the first quarter of 2019, we entered into service agreements with municipal offices that we were permitted to provide community care services to the local senior community care centers. The agreements provide that we receive government subsidies to support our operational costs as we incur in those community care centers.

 

Group tour revenue-Through Red Sunset Tourism which we acquired on December 11, 2018, we generate group tour revenue through organizing and coordinating travel tours for our elderly participants. 

 

Operating revenue of the Company represents the selling price of services provided on invoice, net of a value-added tax (“VAT”).

 

Leases

 

On the inception date of a lease and upon any relevant amendments to such lease, we test the classification of such lease as either a direct financing lease or an operating lease. None of our leases have met any of the criteria to be classified as a direct financing lease under FASB ASC Topic 842, Leases, and, therefore, we have accounted for all of our leases as operating leases and recognized a right-of-use (ROU) in non-current assets and an operating lease liability in current and non-current liabilities on the consolidated balance sheet. ASC Topic 842 provides a practical expedient election that unless a practical expedient is available and elected, utilities reflect a nonlease component that both lessor and lessee must separate from the lease components and to which consideration in the contract must be allocated. We did not elect the practical expedient and accounted for utilities as a nonlease component.

 

Income Taxes

 

The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

 

15

 

 

The Company applies ASC 740, Accounting for Income Taxes , to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction with majority of the tax provision effective after December 31, 2017.

 

Certain activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on DDLX when its subsidiaries, controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal Revenue Code beginning after December 31, 2017.

 

The Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations for the three-month period ended March 31, 2019 and the year ended December 31, 2018. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.

 

Earnings per share

 

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the year.

 

Recent Accounting Pronouncement

 

Recently adopted accounting pronouncements

 

Revenue Recognition: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 provides two application methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method). The Company elected to apply the ASC Topic 606 by using full retrospective approach since its inception date in the current fiscal year.

 

16

 

 

Disclosure of Going Concern Uncertainties : In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. We adopted this amendment since our inception date in the current fiscal year. The adoption of ASU 2014-15 did not have a material impact on the Company’s financial statements.

 

Balance Sheet Classification of Deferred Taxes : In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent on the consolidated balance sheet. The Company adopted this guidance since its inception date in the current fiscal year. The Company also adopted this guidance to present the deferred tax assets and deferred tax liabilities with a netted off amount in all period presented

 

Leases : In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which provides guidance on lease amendments to the FASB Accounting Standard Codification. Topic 842 changes how the definition of a lease is applied and judgment may be required in applying the definition of a lease to certain arrangements. The Company elected to early adopt the standard effective its inception date in the current fiscal year concurrent with the adoption of Topic 606 related to revenue recognition, using the full retrospective approach. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. These amendments have the same effective date and transition requirements as the new leases standard, as such the Company adopted the new ASU.

 

Stock-based Compensation : In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Current GAAP provides that excess tax benefits are recognized in additional paid-in capital whereas tax deficiencies are recognized either as an offset to accumulated excess tax benefit, if any, or in the income statement. Excess tax benefits are not recognized until the deduction reduces tax payable. Excess tax benefits must be separate from other income tax cash flows and classified as a financing activity. Under this amendment, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they incur. Excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period and classified along with other income tax cash flows as an operating activity. The Company has made an accounting policy election to account for forfeitures when they occur. The Company adopted this amendments since its inception date in the current fiscal year. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

 

17

 

 

Statement of Cash Flows: In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes in restricted cash activity, which are currently recognized in other financing activities, on the Statements of Consolidated Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated Cash Flows. The Company has elected to adopt this update since its inception date in the current fiscal year. The adoption of this update does not have material impact to its consolidated financial statements.

 

Income Taxes : On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As of December 31, 2017, the Company has completed most of its accounting for the effects of the Tax Act based on the currently available information. The Company will monitor future guidance set forth by the Department of Treasury with regard to the Transition Tax provisions under the Act, and true up this estimate as appropriate within the one year measurement period. If revisions are needed as new information becomes available, the final determination of the deemed incremental income tax expense, deemed re-measurement of the deferred assets and liabilities or other applicable provisions of the Tax Act will be completed as additional information becomes available within the 12 months re-measurement period.

 

Business Combination : In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. The amendments in this ASU provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this ASU (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the Board has developed more stringent criteria for sets without outputs. Lastly, the amendments in this ASU narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. Public business entities should apply the amendments in this ASU to annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. Based on the Company’s evaluation, the Company does not expect the adoption of these amendments to have a material impact on its consolidated financial position and results of operations.

 

Compensation - Stock Compensation : In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , which is intended to align the accounting for share-based payment awards issued to employees and nonemployees, however, this amendment does not apply to instruments issued in a financing transaction nor to equity instruments granted to a customer under a contract in the scope of Topic 606. Currently, performance conditions are recognized once the performance conditions are met. Under this new amendment, equity-classified nonemployee share-based payments will be measured at the grant-date fair value and will be recognized based on the probable outcome of the performance conditions. This ASU is effective for fiscal periods beginning after December 15, 2018. The current stock-based compensation is granted to employees only when employees have subscribed the stock purchase plan and fulfilled their employment terms. Therefore, the impact of the adoption of this update on our consolidated financial statements is not significant.

 

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Income Statement-Reporting Comprehensive Income: In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

 

The ASU requires financial statement preparers to disclose:

 

A description of the accounting policy for releasing income tax effects from AOCI;
Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and
Information about the other income tax effects that are reclassified.

 

The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

 

Codification Improvements: In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements . This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. The majority of the amendments in ASU 2018-09 are effective for periods beginning after December 15, 2018. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

 

Fair Value Measurement: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) . This update changes the fair value measurement disclosure requirements of ASC 820. The ASU modifies the disclosure objective paragraphs of ASC 820 to eliminate (1) “at a minimum” from the phrase “an entity shall disclose at a minimum” and (2) other similar “open-ended” disclosure requirements to promote the appropriate exercise of discretion by entities. The ASU also added new disclosure requirements for level 3 – changes in unrealized gains or losses. Entities are required to disclose the amount of total gains or losses for the period recognized in OCI that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy (see ASC 820-10-50-2(d)). This disclosure requirement is incremental to the existing requirement to disclose such total unrealized gains or losses for the period recognized in earnings (or changes in net assets) under ASC 820-10-50-2(d). This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosure upon issuance of this ASU. The Company is evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

 

19

 

 

NOTE 3 – ACQUISITIONS

 

Acquisition of Tourism Business

 

On November 23, 2018, Xiao De Hunan entered into an equity transfer agreement with Xinhui Li, a Chinese citizen and the sole shareholder of Hengyang City Red Sunset Tourism Development Co., Ltd. (“Red Sunset Tourism”), pursuant to which Xiao De Hunan agreed to acquire 100% equity interest in Red Sunset Tourism from Mr. Li at the purchase price of RMB 510,000 (approximately $73,831, converted based on the spot rate of US dollar to Chinese Renminbi, $1 to RMB 6.9077, on December 10, 2018).

 

On December 10, 2018, Xiao De Hunan completed all the legitimate registration with related government authorities to update Red Sunset Tourism’s business license reflecting the change of its shareholder name to Xiao De Hunan. As a result, the equity transfer was consummated and completed.

 

The Company has included the results of operations of the acquired business in the consolidated statements of operations from the acquisition date. The assets acquired and liabilities assumed in Red Sunset Tourism have been recorded based on the fair value at the acquisition date. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired and is not deductible for tax purposes.

 

The following table summarizes the fair value of assets acquired and liabilities assumed:

 

Total purchase price   $ 73,831  
         
Cash and restricted cash     5,041  
Prepaid expenses and advance to suppliers     662  
Amounts due from a related party     3,578  
Property and equipment, net     -  
Deposits-noncurrent     14,477  
Total identifiable assets     23,758  
         
Other payables and accrued liabilities     (6,662 )
Deferred rent     (869 )
Amount due to directors and related parties     (120,350 )
Total liabilities assumed     (127,881 )
Goodwill     177,954  

 

Acquisition of the Operational Rights of the “Tangshan City 12349 Senior Care Service Center”

 

On November 21, 2018, our subsidiary, Xiao De Tangshan entered into an agreement with Tangshan City Civil Administration Bureau which approved the transfer of an operational right of the Tangshan City 12349 Senior Care Service Center (“12349 Center”) to Xiao De Tangshan. The operational right of 12349 Center was originally granted to Tangshan Qicheng Technology Co Ltd., which is a noncontrolling interest of Xiao De Tangshan on August 1, 2016. The ownership of 12349 Center still remains under Tangshan City Civil Administration Bureau. There was no cash consideration pursuant to the transfer and no goodwill was recognized.

 

20

 

 

NOTE 4- REVENUES

 

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”.

 

Upon inception date in March 2017, we adopted ASC Topic 606, Revenue from Contracts with Customers, using the full retrospective method.

 

The five-step model defined by ASC Topic 606 requires us to (1) identify our contracts with customers, (2) identify our performance obligations under those contracts, (3) determine the transaction prices of those contracts, (4) allocate the transaction prices to our performance obligations in those contracts and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

 

Service management revenue – Service management relates to a service management agreement between Xiao De Hunan and Red Sunset Apartment. Pursuant to the agreement, Xiao De Hunan provides advisory and administrative services to Red Sunset Apartment.

 

Leasing revenue – This portion of our revenue relates to contracts with residents for leasing services at Red Sunset Apartment that are generally short term in nature with approximately from three months through one year and fall under FASB ASC Topic 842, Leases, which are specifically accounted outside the scope of ASC Topic 606.

 

Lodging management revenue – We provide referral service of senior residents of Red Sunset Apartment and lodging management to Red Sunset Tourism.

 

Community care revenue – Our PRC entities and VIEs provide senior community care services such as preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities. We charge the senior residents after we have provided such services. During 2018, we offered a prepayment options for those services. Starting the first quarter of 2019, we entered into service agreements with municipal offices that we were permitted to provide community care services to the local senior community care centers. The agreements provide that we receive government subsidies to support our operational costs as we incur in those community care centers. For the three-month period ended March 31, 2019, we earned approximately $2,965 (RMB20,000) government subsidy for the community care services provided in Hubei province Wuhan City Hangyang District Senior Community Center. The agreement provides that the final 20% of the subsidy amount is contingent upon the evaluation of our services by the municipal office.

 

Group tour revenue-Through Red Sunset Tourism which we acquired on December 11, 2018, we generate group tour revenue through organizing and coordinating travel tours for our elderly participants.

 

Operating revenue of the Company represents the selling price of services provided on invoice, net of a value-added tax (“VAT”).

 

21

 

 

The following table presents our revenue disaggregated by revenue source and timing of recognition. Value-added tax is excluded from revenues:

 

Major service lines  

T hree-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
Service management   $ 30,518     $ 41,270  
Leasing     9,091       -  
Lodging management     -       4,854  
Community care     67,005       -  
Group tour     12,839       -  
Total   $ 119,453     $ 46,124  

 

Timing of recognition  

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
Services transferred at a point in time   $ 79,844     $ 4,854  
Services transferred over time     39,609       41,270  
Total   $ 119,453     $ 46,124  

 

Costs of revenue primarily include the following:

 

  Labor cost (salary and wages, employee benefits, labor unions, medical insurance)
  Transportation cost for elderly participants and staff members
  Uniform for staff members
  Meals and accommodation for elderly participants
  Property maintenance
  Depreciation
  Lease expense
  Utilities

 

These costs of revenue have been included in the various streams of services provided: service management, leasing, lodging management, community care and group tour:

 

   

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
Service management   $ 8,781     $ 2,876  
Leasing     371       -  
Lodging management     -       6,124  
Community care     147,845       7,390  
Group tour     12,310       -  
Depreciation     31,674       39  
Total   $ 200,981     $ 16,429  

 

22

 

 

NOTE 5 – VARIABLE INTEREST ENTITIES

 

On November 6, 2017, Xiao De Shenzhen entered into contractual agreements with Xiao De Hunan and its subsidiaries and its shareholders. The significant terms of the contractual agreements were summarized in “Note 1-Organization and Description of Business” above. As a result of the contractual agreements, we classify Xiao De Hunan and its subsidiaries as a variable interest entity (VIE).

 

VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, exclusive power to direct operating and internal management activities that significantly impact economic performance, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Xiao De Shenzhen is deemed to have a controlling financial interest and be the primary beneficiary of Xiao De Hunan and its subsidiaries because it has all of the following characteristics:

 

The power to direct activities of Xiao De Hunan and its subsidiaries that most significantly impact the economic performance of Xiao De Hunan and its subsidiaries.
   
The right to receive the expected residual returns of Xiao De Hunan and its subsidiaries.
   
The obligation to absorb the expected loss of Xiao De Hunan and its subsidiaries.

 

Pursuant to the contractual agreements, Xiao De Hunan and its subsidiaries agree to pay service fees based on their actual monthly incomes from major business to Xiao De Shenzhen. Xiao De Shenzhen is authorized to, but not limited to, manage and control the daily operation and internal management structure, manage financial management, enter and execute external contracts, handle tax filings and payments, direct and supervise human resources including board of directors nomination, appointment of directors and officers, approve budgets and compensation plans, resolve capital structure, acquisitions and dissolutions. The contractual agreements were designed so that Xiao De Hunan and its subsidiaries operate for the benefit of Xiao De Shenzhen and ultimately the Company.

 

Accordingly, the accounts of Xiao De Hunan and its subsidiaries are consolidated in the accompanying financial statements as provided under ASC 810-10, Consolidation. Their financial positions and results of operations are also included in the Company’s financial statements.

 

The carrying amount of the VIE’s consolidated assets and liabilities as of March 31, 2019 and December 31, 2018 was as follows:

 

    March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
Current assets   $ 4,217,381     $ 4,321,731  
Property and equipment, net     704,490       693,372  
Other noncurrent assets     1,189,025       1,262,608  
Total assets     6,110,896       6,277,711  
Total liabilities     5,732,435       5,681,494  
Net assets   $ 378,460     $ 596,217  

 

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The VIEs’ liabilities consisted of the following for the years ended March 31, 2019 and December 31, 2018:

 

    March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
Current liabilities:                
Accounts payable, net     12,128       61,542  
Operating lease obligations-current     169,245       167,410  
Amount due to related parties     4,399,972       4,296,446  
Other current liabilities     210,568       192,862  
Total current liabilities     4,791,913       4,718,260  
                 
Long term liabilities:                
Operating lease obligations-non-current     940,522       963,234  
Total non-current liabilities     940,522       963,234  
Total liabilities   $ 5,732,435     $ 5,681,494  

 

The operating results of the VIEs are as follows:

 

    Three-Month Period Ended
March 31, 2019
(Unaudited)
    Three-Month Period Ended
March 31, 2018
(Unaudited)
 
Revenue   $ 89,008     $ 46,124  
Gross (loss) / profit   $ (91,176 )   $ 29,695  
Loss from operations   $ (261,645 )   $ (77,318 )
Net loss   $ (261,882 )   $ (75,599 )

 

NOTE 6 – PREPAYMENTS AND OTHER CURRENT ASSETS

 

Prepayments and other current assets consisted of the following:

 

    March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
             
Prepaid professional fees   $ 149,662     $ 120,134  
Prepaid rent     29,031       9,272  
Prepaid repair and maintenance     5,921       29,089  
Deposits     865,669       889,672  
Staff advance     -       15,950  
Prepaid supplies     118,710       12,524  
Tax refund     197       152  
Prepaid recruitment fee     433       -  
Prepaid telecommunications     4,970       -  
Prepaid insurance     541       -  
Other current assets     5,871       59,391  
Total prepayments and other current assets   $ 1,181,005     $ 1,136,182  

 

24

 

 

Deposits mainly included $110,485 refundable security deposit of our operating leases of our administrative offices and community care centers in PRC and $731,336 to Sing Ho Trading Company, incorporated in Hong Kong, by GS Hong Kong for exploring potential new business opportunities. GS Hong Kong is still in the progress of negotiating with Sing Ho Trading Company for business opportunities. This deposit amount is refundable to GS Hong Kong if a new business is not established.

 

NOTE 7 - PREPAYMENTS, NET OF CURRENT PORTION AND OTHER ASSETS

 

Prepayments, net of current portion and other assets consisted of the following:

 

   

March 31, 2019

(Unaudited)

   

December 31, 2018

(Audited)

 
             
Prepaid repair and maintenance – non-current   $ 19,238     $ 54,276  
Prepaid professional fee – non-current     96,980       134,097  
Deposits – non current     14,900       14,544  
Prepaid advertising-non-current     14,450       -  
Prepaid telecommunications-non-current     4,099       -  
Prepaid postal services-non-current     4,247       -  
Others non-current assets     -       11,457  
Total prepayments, net of current portion and other assets   $ 153,914     $ 214,374  

 

NOTE 8 – PROPERTY AND EQUIPMENT, NET

 

Property, plant and equipment consisted of the following:

 

    March 31, 2019
(Unaudited)
    December 31, 2018
(Reclassified)
    Reclassification     December 31, 2018
(Audited)
 
Furniture and fixtures   $ 116,631     $ 99,542     $ (13,465 )   $ 113,008  
Equipment     398,074       375,515       (22,258 )     397,773  
Motor vehicle     8,869       8,657               8,657  
Leasehold improvement     489,904       387,237               387,237  
Sub-total     1,013,478       870,952       (35,723 )     906,675  
Less: accumulated depreciation     (118,823 )     (65,612 )     35,723       (101,335 )
Total property and equipment, net   $ 894,655     $ 805,340     $ -     $ 805,340  

 

The depreciation expense for three-month periods ended March 31, 2019 and 2018 was $51,288 and $2,485, respectively.

 

25

 

 

NOTE 9 – GOODWILL

 

The Company’s goodwill, $177,954, was attributable to the acquisition of Red Sunset Tourism by our VIE, Xiao De Hunan as discussed in Note 3.

 

The change in the carrying value of goodwill is as follows:

 

      Three-Month Period Ended
March 31, 2019
(Unaudited)
     

As of
December 31, 2018

(Audited)

 
Balance   $ -     $ -  
Acquired goodwill     -       -  
Impairment     -       -  
Balance   $ -     $ -  

 

In accordance with FASB ASC 350, “Intangibles – Goodwill and Other,” we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

 

For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, each of our operation constitutes a reporting unit and we must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the reporting unit. We perform an annual impairment review as of December 31, 2018.

 

On December 31, 2018, we performed our annual goodwill impairment test and estimated the fair value of our tourism reporting unit based on the income approach (also known as the discounted cash flow (“DCF”) method, which utilizes the present value of cash flows to estimate fair value). The future cash flows for our tourism operation (which we acquired on December 10, 2018) were projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital). We took into account expected competitive tourism industry and market conditions, including expected local government subsidies for the elderly. Due to the uncertainty of the tourism development particularly in senior communities, we assumed growth rate estimates in our projections that were approximates to the estimated inflationary rate in the local area that we provide senior care and tourism services. The discount rates used in our DCF method were based on a weighted-average cost of capital (“WACC”) (borrowing rate for loans over 5 years provided by Bank of China) determined from relevant market comparisons (primarily the uncertainty of achieving projected operating cash flows). We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach. Under the income approach, we estimated a fair value based on comparable companies’ market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. Based on the aforementioned, we concluded that the estimated fair value, below the respective carrying value, determined under the income approach for our tourism reporting unit, as of December 31, 2018, was fairly conservative and reasonable. We concluded that the goodwill assigned to our tourism reporting unit, as of December 31, 2018, was impaired.

 

26

 

 

NOTE 10- INTANGIBLES, NET

 

Intangible assets consisted of the following:

 

    March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
Software acquired   $ 14,090     $ 13,673  
Less: accumulated amortization     (1,021 )     (576 )
Total intangibles, net   $ 13,069     $ 13,097  

 

The amortization expense of the use of software acquired for the three-month periods ended March 31, 2019 and 2018 was $697 and $42, respectively.

 

The estimated amortization expense for each of the five succeeding years is as follows:

 

Year ending December 31,   Estimated amortization expense  
       
2019   $ 2,804  
2020     2,804  
2021     2,804  
2022     2,804  
2023     1,853  
Thereafter     -  
Total   $ 13,069  

 

NOTE 11 – ACCRUED EXPENSES AND OTHER PAYABLES

 

Accrued expenses and other payables as of March 31, 2019 and December 31, 2018 consisted of:

 

    March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
             
Staff deposits   $ -     $ 291  
Payroll payable     114,403       107,345  
Customer deposits     69,405       12,773  
Deferred rent     9,483       1,018  
Taxes payable     3,970       4,744  
Other accrued expenses and payables     91,578       127,192  
Total accrued expenses and other payables   $ 288,839     $ 253,363  

 

27

 

 

NOTE 12 – RELATED PARTY TRANSACTIONS

 

The following is a list of related parties to which the Company has transactions with:

 

(a) Red Sunset Apartment, Ms. Ling Zhou is the Chief Executive Officer and Mr. Xinhui Li is the Director and Chief Executive Officer
   
(b) Hunan Zhongfeng Investment Real Estate Co., Ltd., Ms. Ling Zhou and Ms. Jun Quan are the Directors and Mr. Xinhui Li is the Director and Chief Executive Officer
   
(c) Shenzhen Dingda Sheng Trading Co., Ltd., Ms. Qin Zhang is the legal representative. She’s also a legal representative of Xiao De Tangshan
   
(d) Tangshan Qicheng Technology Co. Ltd., one of the shareholders of Xiao De Tangshan.
   
(e) Mr. Zhen Gao, one of the shareholders of Xiao De Beijing.
   
(f) Gunda Holdings Limited, one of the shareholders of DDLX
   
(g) Yingsheng Holdings Limited, one of the shareholders of DDLX and wholly owned by Ms. Jun Quan
   
(h) Mr. Xinhui Li, the consultant of Xiao De Hunan and an immediate family member of Ms. Jun Quan.
   
(i) Ms. Jun Quan, the Director of Golden Sunset Group Limited and a shareholder of DD Deluxe and Yingsheng Holdings Limited. She is also an immediate family member of Mr. Xinhui Li.
   
(j) Ms. Zhenzhu Li, one of the shareholders of Xiao De Tian Xia (Hubei).
   
(k) Ms.Erzhi Liu, one of the shareholders of Xiao De Tian Xia (Hubei).
   
(l) Ms. Ling Liu, one of the shareholders and former Chief Executive Officer, President of DD’s Deluxe Rod Holder Inc.
   
(m) Ms. Hui Liu, an Operation Manager of Hunan Guanzizai and a legal representative of Hunan Chunyi Culture Communication Co. Ltd.

 

Amounts due from related parties

 

Amounts due from related parties consisted of the following as of the periods indicated:

 

Name of related parties   March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
             
Red Sunset Apartment (a) (1)   $ 203,663     $ 225,415  
Hunan Zhongfeng Investment Real Estate Co., Ltd. (b) (2)     2,980       2,909  
Shenzhen Dingda Sheng Trading Co. Ltd. (c ) (3)     62,582       61,086  
Tangshan Qicheng Technology Co., Ltd. (d) (4)     72,140       70,278  
Mr. Zhen Gao (e) (5)     102,813       76,358  
Gunda Holdings Limited (f) (6)     477       465  
Yingsheng Holdings Limited (g) (7)     477       465  
Ms. Zhenzhu Li (j)(13)     20,265       -  
Ms. Erzhi Liu (k)(14)     19,073       -  
Ms. Ling Liu (l)(15)     6,542       -  
Total   $ 491,012     $ 436,977  

 

28

 

 

Amounts due to related parties

 

Amounts due to related parties consisted of the following as of the periods indicated:

 

Name of related parties   March 31, 2019
(Unaudited)
    December 31, 2018
(Audited)
 
             
Red Sunset Apartment (a) (8)   $ 4,213     $ 4,078  
Tangshan Qicheng Technology Co., Ltd. (d) (9)             4,496  
Mr. Zhen Gao (e) (10)             2,744  
Mr. Xinhui Li (h) (11)     41,193       40,208  
Ms. Jun Quan (i) (12)     895,826       840,254  
Mr. Hui Liu (m) (16)     1,118       -  
Total   $ 942,350     $ 891,780  

 

(1) The amount due from Red Sunset Apartment to Xiao De Hunan related to the service management fee payable to Xiao De Hunan.
   
(2) The amount due from Hunan Zhongfeng Investment Real Estate Co., Ltd. was the membership fee to the Chamber of Commerce paid by Xiao De Hunan on behalf of Zhongfeng Investment Real Estate Co. Ltd.
   
(3) The amount receivable from Shenzhen Dingda Sheng Trading Co. Ltd. was pertinent to the operational support of this entity.
   
(4) The amount receivable from Tangshan Qicheng Technology Co., Ltd related to the capital financing provided by Xiao De Shenzhen to Tangshan Qicheng Technology Co. Ltd.
   
(5) The amount receivable from Mr. Zhen Gao related to the capital financing provided by Xiao De Hunan to Mr. Gao.
   
(6) Xiao De Shenzhen paid business registration fee to Republic of Seychelles on behalf of Gunda Holdings Limited
   
(7) Xiao De Shenzhen paid business registration fee to Republic of Seychelles on behalf of Yingsheng Holdings Limited
   
(8) The amount payable to Red Sunset Apartment was pertinent to the group tour fee paid on behalf of Red Sunset Tourism.

 

29

 

 

(9) Tangshan Qicheng Technology Co., Ltd paid salary and wages as well as other administrative expenses on behalf of Xiao De Tangshan
   
(10) Mr. Gao paid administrative expenses on behalf of Xiao De Beijing
   
(11) The amount payable to Mr. Li was the operational support for Red Sunset Tourism.
   
(12) Ms. Jun Quan made payments to the third parties for the the business operations of Golden Sunset (Lodging) Hongkong, Red Sunset Apartment and DD’s Deluxe Rod Holder Inc.
   
(13) The amount receivable from Ms. Zhenzhu Li related to the capital financing provided by Xiao De Shenzhen to Ms. Li.
   
(14) The amount receivable from Ms. Erzhi Liu related to the capital financing provided by Xiao De Shenzhen to Ms. Liu.
   
(15) Ms. Liu sold her ownership interest to a third party and is obligated to pay commission fee to the transfer agent. Xiao De Shenzhen paid the commission to the transfer agent on behalf of Ms. Liu.
   
(16) Mr. Liu made payments to the third parties for the purchase of food and supplies on behalf of Hunan Guanzizai

 

Non-cash transactions-related parties

 

There was no non-cash transaction between related parties for the three-month periods ended March 31, 2019 and 2018.

 

NOTE 13 – INCOME TAXES

 

We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgements and estimates are required in evaluating our uncertain tax positions and provision for income taxes.

 

Tax Cuts and Jobs Act Enacted in 2017

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) providing modification to subpart F provisions and new taxes on certain foreign earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions go into effect starting January 1, 2018.

 

The Global Intangible Low-taxed Income (GILTI) is a new provision introduced by the Tax Cuts and Jobs Act. U.S. shareholders, who are domestic corporations, of controlled foreign corporations (CFCs) are eligible for up to an 80% deemed paid foreign tax credit (FTC) and a 50% deduction of the current year inclusion with the full amount of the Section 78 gross-up subject to limitation. This new provision is effective for tax years of foreign corporations beginning after December 31, 2017. The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its foreign controlled corporations. The Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable amount related to GILTI as a current period expense when incurred. As of March 31, 2019, the Company does not have any aggregated positive tested income; and as such, does not have additional provision amount recorded for GILTI tax

 

30

 

 

Our effective rate for the three-month periods ended March 31, 2019 and 2018 was 0% and 0%, respectively. Our effective tax rate for the three-month period ended March 31, 2019 was lower than the U.S. federal statutory rate, primarily due to the fact that our subsidiaries and VIEs incurred book and tax losses. Our effective tax rate for the three-month period ended March 31, 2018 was lower than the U.S. federal statutory rate, primarily due to the fact that our subsidiaries and VIEs incurred book and tax losses.

 

The Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations for the three-month period ended March 31, 2019 and the year ended December 31, 2018. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months

 

NOTE 14- EARNINGS/(LOSS) PER SHARE

 

Basic earnings/(loss) per share is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Diluted loss per share will not be computed because of the anti-dilutive effect.

 

   

Three-Month Period Ended

March 31, 2019

   

Three-Month Period Ended

March 31, 2018

 
             
Numerator:                
Net loss attributable to the Company     (828,250 )   $ (606,685 )
Denominator:                
Weighted-average shares outstanding-Basic     234,000,000       230,000,000  
Stock options and restricted shares                
Weighted-average shares outstanding-Diluted     234,000,000       230,000,000  
                 
Loss per share                
-Basic and Diluted     (0.0035 )     (0.0026 )

 

31

 

 

NOTE 15 - COMMITMENTS AND CONTINGENCIES

 

Purchase Commitments

 

The Company entered into service commitments, which are cancellable without significant penalties, with multiple service providers which will render the following services: legal and professional services approximately $129,183, telecommunication services approximately $1,129, advertising services approximately $60,042 and marketing services approximately $203,683 in 2019 and 2020.

 

Operating Leases

 

The Company entered into various operating leases for its office and community care centers in Hengyang city, Hunan Province, Beijing and Tangshan City, Hebei Province, Wuhan City, Hubei Province as well as an office in Shenzhen City, Guangdong Province, PRC since 2017.

 

Related party leases

 

On May 1, 2017, a lease arrangement for our office in Hengyang city, Hunan Province was entered into between Xiao De Hunan and Red Sunset Apartment which is formed in the Hengyang city, Hunan Province, PRC and owned by Mr. Xinhui Li who is also the consultant of Xiao De Hunan. The lease with the related party is classified in accordance with the lease classification criteria applicable to all other leases on the basis of the legally enforceable terms and conditions. Xiao De Hunan leased 6 units from Red Sunset Apartment for our administrative office. Our annual rent payments for this lease RMB12,000 (approximately US$1,779). The lease term is five years and will expire on April 30, 2022.

 

ASC Topic 842 provides a practical expedient election that unless a practical expedient is available and elected, utilities reflect a nonlease component that both lessor and lessee must separate from the lease components and to which consideration in the contract must be allocated. We did not elect the practical expedient; accordingly, we separately accounted for utilities as a nonlease component.

 

The lease expense for this lease arrangement for the three-month periods ended March 31, 2019 and 2018 was RMB3,000 (approximately US$445) and RMB3,000 (approximately US$472), respectively. The right-of-use balance of this lease as of March 31, 2019 and December 31, 2018 was RMB34,276 (approximately US$5,107) and RMB36,835 (approximately US$5,362), respectively. The lease liability as of March 31, 2019 and December 31, 2018 was RMB34,276 (approximately US$5,107) and RMB 36,835 (approximately US$5,362), respectively.

 

The Company leases real estate under non-cancellable operating leases.

 

The components of lease expense were as follows:

 

    Three-Month Period Ended
March 31, 2019
(Unaudited)
    Three-Month Period Ended
March 31, 2018
(Unaudited)
 
             
Operating lease cost   $ 181,588     $ 109,880  
                 
Total lease cost   $ 181,588     $ 109,880  

 

32

 

 

Other information related to leases was as follows:

 

    Three-Month Period Ended
March 31, 2019
(Unaudited)
    Three-Month Period Ended
March 31, 2018
(Unaudited)
 
             
Cash paid for amounts included in the measurement of lease liabilities:                
Operating cash flows from operating leases   $ 115,494     $ 80,254  
                 
Right-of-use assets obtained in exchange for lease obligations                
Operating leases     71,918       205,524  
                 
Weighted average remaining lease term (years)                
Operating leases     4.73       6.06  
                 
Weighted average discount rate                
Operating leases     4.83 %     4.90 %

 

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

    Operating Leases  
2019   $ 427,270  
2020     661,214  
2021     701,335  
2022     507,352  
2023     127,808  
Thereafter     354,553  
Total future lease payments     2,779,532  
Less: Amount representing interest     331,508  
Present value of future payments     2,448,024  
Less: Current portion     559,218  
Long-term portion   $ 1,888,806  

 

33

 

 

NOTE 16 - SUBSEQUENT EVENTS

 

On April 23, 2019, Xiao De Hubei entered into an agreement with Wuhan City Han Xing Street Municipal Office that Xiao De Hubei was permitted to provide community care services to Han Xing Street Elderly Community Care Service Center from April 24, 2019 through April 23, 2020. Xiao De Hubei will be granted government subsidy in an annual amount of approximately $28,170 (RMB190,000) to support its operational cost incurred for the Han Xing Street Elderly Community Care Service Center. The municipal office will offer 60% of the subsidy amount, approximately $16,900, (RMB114,000), to Xiao De Hubei in 30 days after the agreement was signed. The remaining subsidy amount, RMB76,000, is subject to the evaluation by the municipal office after one year. Xiao De Hubei will be entitled to the full remaining subsidy amount if it earns 90 points (out of 100 points) in the evaluation. Approximately $148 (RMB1,000) will be reduced for each point discounted.

 

On April 23, 2019, Xiao De Hubei entered into agreement with Hubei Hubei Yangtze Long Shang Media Group Co. Ltd. for producing the content of the promotional and marketing television series to be broadcasted on Hubei Long Shang Television Channel Network from April 23, 2019 through April 22, 2020. The broadcasting promotes the senior community care services to be provided by Xiao De Hubei. The estimated fee for the production is approximately $74,130 (RMB500,000) which will be settled in four installments.

 

On May 5, 2019, Xiao De Shenzhen entered into an agreement with Tangshan Yicheng Construction and Design Co., Limited for the leasehold improvement project of Luanjie Hotel in Tangshan City. The project is expected to start in May 2019 and completed in 30 days. The total estimate budget of the project is approximately $32,370 (RMB218,345). The agreement is cancellable with early termination fee.

 

Other than the aforementioned, the Company evaluated and concluded that no other significant subsequent events have occurred that would require recognition or disclosure in the interim condensed consolidated financial statements.

 

34

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

 

Special Note Regarding Forward Looking Statements

 

In addition to historical information, this report contains forward-looking statements. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth; any projections of earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in this annual report, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

 

Overview

 

We were incorporated on September 26, 2014 under the laws of the state of Nevada. We originally intended to build our business by developing, marketing and selling a fishing rod holder for use primarily by ice-fisherman. However, we have conducted limited operations and have had no operating revenues since inception. On June 15, 2018, we entered into a definitive Share Exchange Agreement (the “Share Exchange Agreement”) with Golden Sunset Group Limited, a Seychelles International Business Company (“GS Group”), and the shareholders of GS Group (the “Shareholders”). Pursuant to the Share Exchange Agreement, on November 13, 2018, we acquired all of the outstanding shares of GS Group by issuing 230,000,000 shares of our common stock, which in the aggregate, constitute approximately 98.3% of the issued and outstanding capital stock of us on a fully diluted basis.

 

As a result of our acquisition of GS Group, we are now engaged in the business of senior care services. Specifically through our subsidiaries and affiliated entities located in Beijing, Shenzhen, Tangshan, Hunan and Wuhan, we are involved in the business of providing comprehensive online and offline services to senior people and related facilities, such as senior group travelling, senior community management and services, senior health care, and senior care related retail business.

 

We initially launched our senior care services in Hunan Province, China. We started expanding our footprints in Beijing, Wuhan and Tangshan and established three other entities in these areas. We also introduced a prepaid card program by which our elderly participants can pay for the community care services that we provide. During the first quarter of 2019, our subsidiary in Hubei entered into several service agreements with the municipal offices in Wuhan city where we were permitted to provide community care service to the elderly in the vicinity of Hangyang District. Obtaining government subsidy is one of the channels we plan to apply to expand our senior community care services in different local neighborhoods. Additionally, we completed the d evelopment of our online product, “Xiaode Smart Senior Care Platform V1.0”, in the second quarter of 2019 and it is expected to be placed in services in June 2019. The platform is used for a dmission and discharge management, care records, social event tracking, billing and collection. We obtained our patents and software copyrights of the platform in the second quarter of 2019.

 

Through Hengyang City Red Sunset Tourism Development Co., Ltd. (“Red Sunset Tourism”), we offered group tour services to the seniors who are also participants in our senior community care service facilities.

 

To further promote our senior care services, our subsidiary, Xiao De Tian Xia (Hubei) Senior Care Services Co., Ltd., is expected to host additional marketing activities by launching a television series through a cooperation arrangement with Hubei Yangtze Long Shang Media Group Co. Ltd. who produces the content of the promotional and marketing television series to be broadcasted on Hubei Long Shang Television Channel Network from April 23, 2019 through April 22, 2020. We believe the broadcasting will significantly increase the awareness and recognition of our senior community care services in the vicinity.

 

Results of Operations

 

Comparison of Three Months Ended March 31, 2019 and 2018

 

The following table sets forth key components of our results of operations during the three-month periods ended March 31, 2019 and 2018, both in dollars and as a percentage of our revenue.

 

   

Three-Month Periods Ended

March 31,

 
    2019     2018  
   

Amount

(Unaudited)

   

% of Revenue

(Unaudited)

   

Amount

(Unaudited)

    % of Revenue (Unaudited)  
Revenue   $ 119,453       100       46,124       100  
Cost of revenue     (200,981 )     (168 )     (16,429 )     (36 )
Gross (loss) profit     (81,528 )     (68 )     29,695       64  
Selling expenses     (278,151 )     (233 )     (3,531 )     (7 )
General and administrative expenses     (572,817 )     (480 )     (663,594 )     (1,439 )
Total operating expenses     (850,968 )     (712 )     (667,125 )     (1,446 )
Loss from operations     (932,496 )     (781 )     (637,430 )     (1,382 )
Other income (expenses)     (1,394 )     (1 )     30,745       67  
Loss before income taxes     (933,890 )     (782 )     (606,685 )     (1,315 )
Income tax expense     -       -       -       -  
Net loss   $ (933,890 )     (782 )     (606,685 )     (1,315 )

 

35

 

 

Revenue

 

The following tables identify the sources of our revenue for the three-month periods ended March 31, 2019 and 2018, respectively:

 

Major service lines  

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
Service management   $ 30,518     $ 41,270  
Leasing     9,091       -  
Lodging management     -       4,854  
Community care     67,005       -  
Group tour     12,839       -  
Total   $ 119,453     $ 46,124  

 

Timing of recognition  

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
Services transferred at a point in time   $ 79,844     $ 4,854  
Services transferred over time     39,609       41,270  
Total   $ 119,453     $ 46,124  

 

Our service management revenue was generated from the service management agreement between our variable interest entity (“VIE”), Hunan Xiao De Tian Xia Senior Care Industry Management Co., Ltd. (“Xiao De Hunan”) and Hengyang City Yueping Retirement Home (“Red Sunset Apartment”). Pursuant to the agreement, Xiao De Hunan provides advisory and administrative services to Red Sunset Apartment.

 

Our leasing revenue relates to contracts with residents for leasing services at Red Sunset Apartment that are generally in short term in nature ranging from three months to one year and fall under FASB ASC Topic 842, Leases, which are specifically accounted outside the scope of ASC Topic 606.

 

Our lodging management revenue was from the referral service of senior residents of Red Sunset Apartment and lodging management provided to Hengyang City Red Sunset Tourism Development Co., Ltd. (“Red Sunset Tourism”).

 

Our community care revenue was generated by our VIEs and subsidiaries that provide senior community care services including preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities. We charge the senior residents after we provided such services. Since 2018, we have offered a prepayment option for those services. Starting the first quarter of 2019, we began to enter into service agreements with municipal offices that we were permitted to provide community care services to the elderly in the local community care centers. The agreements provide that we receive government subsidies to cover our operational costs as we incur in those community care centers. For the three-month period ended March 31, 2019, we earned approximately $2,965 (RMB20,000) government subsidy for the community care services provided in Hangyang District Senior Community Center in Wuhan city in Hebei Province, China. The agreement provides that the final 20% of the subsidy amount is contingent upon the evaluation of our services by the municipal office.

 

36

 

 

Our group tour revenue was generated through Red Sunset Tourism which we acquired on December 11, 2018. We charge the group tour fee earned from organizing and coordinating travel tours for our elderly participants.

 

Compared to revenue of $46,124 recognized in the three-month period ended March 31, 2018, our revenue for the same period in 2019 was $119,453. The increase by $73,329 was primarily attributable to our group tour revenue after we acquired Red Sunset Tourism in December 2018 and community care revenue after we have operated additional senior community care facilities in Beijing, Tangshan and Wuhan in the fourth quarter in 2018. We also attracted more elderly to utilize our community care services provided by Xiao De Hunan and its subsidiary and branch.

 

Cost of revenue .

 

Cost of revenue primarily includes the following:

 

   

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
Service management   $ 8,781     $ 2,876  
Leasing     371       -  
Lodging management     -       6,124  
Community care     147,845       7,390  
Group tour     12,310       -  
Depreciation     31,674       39  
Total   $ 200,981     $ 16,429  

 

Compared to the cost of revenue of $16,429 for the three-month ended March 31, 2018, our cost of revenue for the same period in 2019 was $200,981. The significant surge by $184,552 was mainly driven by an increase in number of staff members, expenses related to supplies and food for our new senior care facilities in Beijing, Wuhan and Tangshan as well as the senior care facility in Hengyang city, Hunan province. Our facilities incurred additional food costs for celebrating Lunar New Year in February 2019. Moreover, since the fourth quarter of 2018, we have acquired additional office equipment, health equipment and incurred leasehold improvement costs and thus the associated depreciation expense was also incurred.

 

Gross (loss) profit and gross margin

 

Gross loss was $63,736 for the three-month period ended March 31, 2019, compared to a gross profit $29,695 for the three-month period ended March 31, 2018. The decrease was primarily due to an increase in the cost of community care management, particularly increase in lease expense of community care centers and depreciation of equipment acquired in the fourth quarter of 2018.

 

Gross (loss) profit margin decreased to (53%) for the three-month period ended March 31, 2019 from 64.0% for the three-month period ended March 31, 2018, primarily due to an increase in the cost of community care management, which resulted in the increase of our cost of revenue as discussed above.

 

Selling expenses

 

The following table sets forth the main components of the Company’s selling expenses for the three-month periods ended March 31, 2019 and 2018.

 

   

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
             
Advertising   $ 5,939     $ 3,531  
Commission     158,785       -  
Depreciation     5,089       -  
Entertainment     2,061       -  
Office expense     3,031       -  
Salary and employee benefits     66,454       -  
Utilities, repair and maintenance     2,927       -  
Rental expense     9,138       -  
Telecommunications     2,899       -  
Travel, transportation and gasoline     6,772       -  
Others     15,056       -  
Total   $ 278,151     $ 3,531  

 

We incurred $278,151 selling expenses for the three-month period ended March 31, 2019 compared to $3,531 in the same period in 2018. We established Hunan Guanzizai Senior Care Services Co. Ltd., a wholly-owned subsidiary of Xiao De Hunan, Hunan Xiao De Tian Xia Senior Care Industry Management Co. Ltd Community Senior Care Service Center and Xiao De Tian Xia (Shenzhen) Senior Care Service Management Co., Ltd. (“Xiao De Shenzhen”) in late 2017 and our operation in senior care service was an initial phrase. Therefore, our selling expense for the three-month period ended March 31, 2018 limited to advertising expenses. By the end of the three-month ended March 31, 2019, we have established additional senior care service facilities in Beijing, Tangshan and Hubei. We have recruited more staff members for our new facilities for marketing and brand promotion. Xiao De Shenzhen incurred commission expense to its marketing counterparty who promoted the sale of prepaid card program for our senior care services. The commission fee was charged at 40% of the prepaid cards sold to the elderly participants. Various selling expenses were incurred due to the operation of the service facilities.

 

37

 

 

General and administrative expenses

 

The following table sets forth the main components of the Company’s general and administrative expenses for the three-month periods ended March 31, 2019 and 2018.

 

   

Three-Month Period Ended
March 31, 2019

(Unaudited)

   

Three-Month Period Ended
March 31, 2018

(Unaudited)

 
             
Advertising   $ 53,569     $ -  
Agency fees     9,411       -  
Accounting and audit fees     49,000       42  
Building management fee     9,503       -  
Business development     -       35,407  
Meals and entertainment     10,677       10,595  
Depreciation and amortization     15,221       2,447  
Insurance     169       -  
Legal and professional fees     41,174       433,996  
Office expense, supplies, postage and printing     8,269       1,763  
Rental     132,253       102,600  
Salary and employee benefits     187,483       62,859  
Utilities, repair and maintenance     5,073       338  
Telecommunications     1,250       -  
Travel and transportation     22,416       7,903  
Taxes and duties     (41 )     781  
Others     27,390       4,863  
Total   $ 572,817     $ 663,594  

 

We incurred $572,817 general and administrative expenses for the three-month ended March 31, 2019 compared to $663,594 for the same period in 2018. The decrease in general and administrative expenses by $90,777 was mainly driven by a fall in legal and professional fee by $392,822, business development by $35,407; offset by the increase of $124,624 in salary and employee benefits, $53,569 in advertising, $48,958 in accounting and auditing fee, $29,653 in rental, $14,573 in travel and transportation, $12,774 in depreciation and amortization and various other expense items. For the three-month period ended March 31, 2018, we made payments of $70,000 for legal expenses and $289,401 to Asia & America Consultant (Shenzhen) Co., Ltd for services related to business structure, fund raising, acquisitions and legal counsel services as well as shares transfer, investor relations, financial audits and financial reporting in relation to going public in the US.

 

Loss from Operations

 

As a result of the factors discussed above, we incurred a loss from operation of $932,496 and $637,430 for the three-month periods ended March 31, 2019 and 2018, respectively.

 

Other Income (Expenses)

 

The Company’s other income (expenses) for the three-month periods ended March 31, 2019 and 2018 included the following:

 

Interest Income:

 

Interest income for the three-month periods ended March 31, 2019 and 2018 was $149 and $2,078, respectively. The decrease in interest income by $1,929 was primarily due to a decrease in our cash balance of our entities in Hong Kong. We made a deposit payment of $731,336 to Sing Ho Trading Company in the fourth quarter of 2018.

 

Other Income

 

Other income for the three-month periods ended March 31, 2019 and 2018 pertained to foreign exchange gain of $600 and $29,053, respectively. The higher foreign exchange gain incurred in the three-month period ended March 31, 2018 was due to the payment made to Asia & American Consultant (Shenzhen) Co., Ltd in Chinese Renminbi by Xiao De Hunan on behalf of GS Group while the invoice amount was charged in US dollars by Asia & American Consultant (Shenzhen) Co., Ltd.

 

Other Expenses, Net:

 

We have recognized $2,143 and $386 of other expenses, net for the three-month periods ended March 31, 2019 and 2018, respectively. Out of $2,143, $1,550 is related to bank charges and finance expense and $593 is related to penalty for the three-month period ended March 31, 2019. There was $386 related to bank charges and finance expense for the three-month period ended March 31, 2018. For the three-month period ended March 31, 2019, our bank institution in Shenzhen received and processed payments from our elderly participants for the prepaid card program. Our bank charged us processing and service fees in connection with these payments.

 

Provision for Income Taxes

 

We are subject to U.S. corporate income tax, enterprise income taxation and profits taxation in the PRC and Hong Kong, where all of our business is conducted. Our effective tax rates differ from the statutory rate primarily due to book and taxable losses incurred. For the three-month periods ended March 31, 2019 and 2018, the provision for income tax was $0 and $0, respectively.

 

38

 

 

The effective tax rates for the three-month periods ended March 31, 2019 and 2018 were and 0.00% and 0.00%, respectively.

 

Net loss

 

As a result of the factors discussed above, for the three-month periods ended March 31, 2019 and 2018, we incurred net loss amounted to $933,890 and $606,685, respectively.

 

Limited Operating History; Need for Additional Capital

 

There is limited historical financial information about us on which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, a narrow client base, limited sources of revenue, and possible cost overruns due to the price and cost increases in supplies and services.

 

Without additional funding, management believes that we will not have sufficient funds to meet our obligations beyond one year after the date our consolidated financial statements are issued. These conditions give rise to substantial doubt as to our ability to continue as a going concern.

 

We have been, and intend to continue, working toward identifying and obtaining new sources of financing. To date we have been dependent on related parties for our source of funding. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.

 

If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts.

 

Currently we spend approximately $300,000 per month for basic operations. During the next 12 months, we expect to incur the same costs as the current monthly expenses. However, as we work to expand our operations, we expect to incur significant marketing and development costs and expenses on our online service platforms that meet the constantly evolving industry standards and consumer demands. We will also need to hire additional employees in order to provide new services and accommodate new clients.

 

Liquidity and Capital Resources

 

Working Capital

 

   

March 31, 2019

(Unaudited)

   

December 31, 2018

(Audited)

 
Current Assets   $ 1,789,336     $ 1,918,107  
Current Liabilities     2,136,573       1,842,642  
Working Capital (Deficit)   $ (347,240 )   $ 75,465  

 

As of March 31, 2019, we had cash and cash equivalents of $117,319. To date, we have financed our operations primarily through our shareholders and related parties. We incurred working capital deficit as of March 31, 2019 primarily due to the decrease in cash balance by $210,321 as we acquired additional properties and equipment in the three-month period ended March 31, 2019. Simultaneously, our current liabilities balance as of March 31, 2019 increased as the amount of the current portion of our lease obligations and the amount payable to our auditor and professional fees increased.

 

Going Concern Uncertainties

 

As of March 31, 2019, the Company incurred working capital deficit of $347,240, a comprehensive loss of $835,701 and incurred a negative operating cash flow of $247,616. As of March 31, 2018, the Company also incurred a comprehensive loss of $596,033 and a negative cash flow from its operating activities of $314,514. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

 

39

 

 

Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included borrowings from our stockholders and related parties. While we believe that our existing shareholders will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms.

 

We, through our PRC subsidiaries, continued to explore business opportunities with the local government agencies and senior care communities. By the end of 2018, Our VIE, Xiao De Hunan acquired Red Sunset Tourism in order to expand our senior community care services by coordinating group tour services to the elderly. In addition, our wholly-owned subsidiary, Xiao De Shenzhen launched a community care prepaid card program and engaged a third party to promote the prepaid card program among the senior communities. As of March 31, 2019, there were approximately 69 participants and approximately $509,208 has been received. To strive to increase our revenue, in the first quarter of 2019, we obtained a government contract that allows us to provide community care services to a community care center in Hubei Province. We continued our efforts in obtaining additional government contracts in other provinces. In addition, our subsidiary, Golden Sunset (Hongkong) Lodging Limited is negotiating with Sing Ho Trading Company to explore new business opportunities and has remitted $731,336 for deposit. This amount is refundable by Sing Ho Trading Company if new business is not established.

 

We believe that our current cash and financing from our existing stockholders are adequate to support operations for at least the next 12 months.

 

   

Three-Month Period Ended

March 31,

 
   

2019

(Unaudited)

   

2018

(Unaudited)

 
Net cash used in operating activities   $ (247,616 )   $ (314,514 )
Net cash used in investing activities     (120,602 )     (75,725 )
Net cash provided by financing activities     84,006       1,385,434  
Effect of exchange rate changes on cash and cash equivalents     73,891       88,130  
Net (decrease) increase in cash and cash equivalents     (210,321 )     1,083,325  
Cash and cash equivalents at the beginning of year     327,640       2,481,392  
Cash and cash equivalents at the end of year   $ 117,319     $ 3,564,717  

 

Operating Activities

 

During the three-month period ended March 31, 2019, net cash used in operating activities of $247,616 was primarily attributable to our net book loss after income tax provision of $933,890, which was offset by non-cash expenses such as depreciation and amortization of our equipment and software of $51,776 and amortization of right-of-use assets of our operation leases of $136,901. We received approximately $453,002 from advance payments from our program participants of the prepaid card program launched by our wholly-owned subsidiary, Xiao De Shenzhen during the first quarter of 2019.

 

During the three-month period ended March 31, 2018, net cash used in operating activities of $314,514 was primarily attributable to our net loss after income tax provision of $606,685, payment of other payables and accrued liabilities of 52,153, payments to related parties of 48,492 and decrease in customer deposits of 43,103, offset by an increase in lease obligations of $75,450, decrease in prepaid expenses of $366,721 and non-cash items such as depreciation and amortization of $2,528 and amortization of right-of-use assets of our operating leases of $13,261.

 

Investing Activities

 

Net cash used in investing activities for the three-month period ended March 31, 2019 totaled $120,602 which was mainly for the purchase of additional property and equipment which include leasehold improvement, computer equipment and motor vehicles purchased by our VIEs and their subsidiaries.

 

Net cash used in investing activities for the three-month period ended March 31, 2018 totaled 75,725 which was mainly for the purchase of equipment by our VIEs and their subsidiaries.

 

40

 

 

Financing Activities

 

Net cash provided by financing activities for the three-month period ended March 31, 2019 was $84,006 which was the proceeds of share subscription from our shareholders of our VIEs.

 

Net cash provided by financing activities for the three-month period ended March 31, 2018 was $1,385,434 which was the proceeds of share subscription from our shareholders of our VIEs and foreign subsidiaries.

 

Effect of exchange rate change

 

Effect of exchange rate change on cash totaled $73,891 and $88,130 for the three-month periods ended March 31, 2019 and 2018, respectively.

 

Contractual Obligations and Commercial Commitments

 

We had the following contractual obligations and commercial commitments as of March 31, 2019:

 

Contractual Obligations   Total     Less than
1 year
    1-3 years     3-5 years     More than
5 years
 
                               
Amounts due to related parties   $ 942,350     $ 942,350     $     $     $  
Payable to leasehold improvement construction contractors     112,059       112,059                    
Service commitments     394,037       393,314       723                  
Leases     2,779,532       427,270       1,362,548       635,160       354,554  
TOTAL   $ 4,227,978     $ 1,874,993     $ 1,363,271     $ 635,160     $ 354,554  

 

We believe that our current cash and financing from our existing stockholders are adequate to support operations for at least the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our business or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

 

Off-Balance Sheet Transactions

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

 

Critical Accounting Policies

 

We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies”, is incorporated herein by reference.

 

Recent Accounting Pronouncements

 

Management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. The discussion of our critical accounting policies contained in Note 2 to our financial statements, “Summary of Significant Accounting Policies”, is incorporated herein by reference.

 

41

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and chief financial officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of March 31, 2019 due to the following material weaknesses:

 

a) Lack of audit committee. The Company does not have a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.

 

b) Lack of proper segregation of duties due to limited personnel.

 

c) Lack of a formal review process related to financial reporting that includes multiple levels of review.

 

d) Lack of trained finance and accounting personnel with appropriate expertise in U.S. generally accepted accounting principles.

 

Our management is committed to improving the Company’s internal controls and will: (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities; (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel; and (3) may consider appointing outside directors and audit committee members in the future.

 

Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our financial statements as of and for the quarter ended March 31, 2019 to contain a material misstatement.

 

Changes in Internal Control over Financial Reporting

 

Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

42

 

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

ITEM 1A. RISK FACTORS.

 

As a smaller reporting company, the Company is not required to provide this information.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

The following exhibits are filed as part of this report or incorporated by reference:

 

Exhibit No.   Description
     
31.1   Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

43

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

Date: May 15, 2019

 

  DD’s Deluxe Rod Holder Inc.
     
  By: /s/ Jun Quan
    Jun Quan
    Chief Executive Officer and Chief Financial Officer

 

44

 

 

 

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