The following excerpt is from the company's SEC filing.
SHANDONG CONFUCIAN BIOLOGICS CO., LTD
For the years ended
DECEMBER 31, 2015 and 2014
SHANDONG CONFUCIAN BIOLOGICS CO., LTD
TABLE OF CONTENTS
DECEMBER 31, 2015 and 2014
i. financial statements:
Statements of Operations and Comprehensive Losses
Statements of Cash Flows
ii. Notes to The financial statements
6 - 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Shandong Confucian Biologics Co. Ltd.
We have audited the accompanying balance sheets of Shandong Confucian Biologics Co. Ltd (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years ended December 31, 2015 and 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shandong Confucian Biologics Co. Ltd. as of December 31, 2015 and 2014 and the results of its operations, stockholders’ deficit, and cash flows for the years ended December 31, 2015 and 2014 in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ TAAD, LLP
September 2, 2016
Cash and cash equivalents
Accounts receivable, net
Other receivable-related party
Total current assets
Property, plant, and equipment, net
Intangible assets, net
LIABILITIES AND OWNERS’ EQUITY
Payroll & payroll taxes payable
Other payable-related party
Short term loan
Total current liabilities
Accumulated other comprehensive loss
Total owners' equity
Total liabilities and owners' equity
The accompanying notes are integral part of these financial statements
statement of operations and comprehensive loss
Cost of goods sold
General & administrative expenses
Total operating expenses
(Loss) from operation
Other income (expenses)
Total other (expenses)
(Loss) before income taxes
Provision for income taxes
Other Comprehensive (loss)
Foreign currency translation (loss)
Net Comprehensive (loss)
statements of CHANGES IN owners’s equity
FOR THE years ended DECEMBER 31, 2015 and 2014
Accumulated Other Comprehensive Loss
Balance as of December 31, 2013
Cumulative foreign currency translation adjustment
Balance as of December 31, 2014
Balance as of December 31, 2015
statement of cash flows
Adjustment to reconcile net (loss) to net cash provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable - trade
Payroll and payroll tax payable
Cash provided by operating activities
Purchase of property and equipment
Purchase of land use rights
Cash used in investing activities
Repayment of Loan
Cash used in financing activities
Effects of foreign currency translation
Net increase (decreases) in cash
Cash at beginning of year
Cash at end of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
– ShanDong Confucian Biologics Co., LTD. (the “Company”), was founded under the laws of the People's Republic of China on October 31, 2012. The Company is located in Food Industrial Park inside the economic development Zone of JinXian County, Jining City in the province of Shan Dong in China. The Company is a limited liability company.
The company possesses manufacturing permits for food product, hygienic products, sanitary products, and health products. The Company's main business scope include technology study and transfer of Chondroitin and Garlic Oil; trading, cold storage, and pretreating of Garlic, fruit, and vegetables products; trading of Chemical products (excluding hazardous chemicals) ; Import and export of goods and technology (excluding those restricted by government); the manufacturing and sale of health products including powder, granules, tablets, hard capsule, soft capsule products.
Basis of Accounting and Presentation
- The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company's functional currency is the Chinese Reminbi ("RMB"), however, all financial statements and notes to the financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”).
Use of Estimates
- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimate and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
– For purpose of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents.
- The Company extends credit to its customers
Accounts receivable was recorded at the contract amount after deduction of trade discounts and, allowances, if any, and do not bear interest. The allowance for doubtful accounts, when necessary, is the Company’s best estimate of the amount of probable credit losses from accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions.
As of December 31, 2015 and 2014, accounts receivable was $3,521 and $0, respectively. The Company believes that its accounts receivable are fully collectable and determined that an allowance for doubtful accounts was not necessary.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
NOTES TO FINANCIAL STATEMENTS
- Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.
Inventory, comprised principally of finished goods, raw material and packaging material, are valued at the lower of cost or market. The value of inventory is determined using average cost method.
The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of December 31, 2015 and 2014.
Property, Plant and Equipment
– Property, plant, and equipment are stated at cost less accumulated depreciation. The costs of a constructed asset are accumulated in the account Construction-in-Progress until the asset is placed into service. When the asset is completed and placed into service, the account Construction-in-Progress will be credited for the accumulated costs of the asset and will be debited to the appropriate Property, Plant and Equipment account. Depreciation begins after the asset has been placed into service.
Expenditures for maintenance and repairs are charged to operations; major expenditures for renewals and betterments are capitalized. Assets that are still kept in service after reaching the end of their estimated useful lives are depreciated over the estimated useful life of their residual value. Gain or loss on disposal of property, plant, and equipment is recognized as non-operating income or expenses.
Depreciation is computed by applying the following methods and estimated lives:
- Land use rights represent the exclusive right to occupy and use a piece of land in the PRC during the contractual term of the land use right. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective periods of the rights of 50 years or the remaining period of the rights upon acquisition.
- The Company recognizes product revenue in accordance with ASC 605. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price paid by the customer is fixed or determinable and (iv) collection of the resulting account receivable is reasonably assured. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company has no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable.
Cost of goods sold
- Cost of goods sold includes cost of inventory sold during the period, net of discounts and inventory allowances, freight and shipping costs, warranty and rework costs, and sales tax.
Impairment of Long-Live Assets
- The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will recognize the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets.
There are no impairment of our long-lived assets in 2014 & 2015
– The Company adopts FASB ASC Topic 740, "Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
In accordance with ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB ASC Topic 740” , which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
The Company has made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by ASC 740-10 and has not recognized any material uncertain tax positions.
In addition, companies in the PRC are required to pay an Enterprise Income Tax at 25%.
Employee Benefit Costs
- The Company contributes to a defined contribution retirement plan organized by the municipal government in the province in which the Company’s subsidiary is registered. The Company contributes for qualified employees that are eligible to participate in the plan. Contributions to the plan are calculated at
% of the employees’ salaries above a fixed threshold amount; employees contribute 8% and the Company’s subsidiary contributes the balance of 18%. The Chinese government is responsible for the benefit liability to retired employees. The Company has no other material obligation for the payment of retirement beyond the annual contribution.
Foreign Currency Translation
- The Company's functional currency is the Chinese Renminbi (RMB). The reporting currency is that of the US Dollar. Assets, liabilities and owners’ contribution are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The RMB is not freely convertible into foreign currency and all foreign currency exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollar at the rates used in translation.
The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:
RMB 6.49 to US $1.00
Statement of operation and other comprehensive income
RMB 6.28 to US $1.00
RMB 6.20 to US $1.00
RMB 6.14 to US $1.00
Fair Value of Financial Instruments
– FASB ASC 820, “Fair Value Measurement” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level 1 Inputs— Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
Level 2 Inputs— Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3 Inputs— Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash and cash equivalents, accounts receivable, inventories, prepaid expenses, advances from customers, accounts payable, taxes payable, accrued liabilities and other payables, and loan from bank, approximated their fair values due to the short maturity of these financial instruments. There were no changes in methods or assumptions during the periods presented.
NOte 2 -
The Company sustained operating losses of $345,596 and $217,818 during the years ended December 31, 2015 and 2014. The Company has accumulated deficit of $634,692 as of December 31, 2015. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOte 3 -
concentration of credit risk
We maintain our cash balance in several banks in China. These accounts are not insured and we believe are exposed to credit risk on cash. The cash balance in China as of December 31, 2015 and 2014 are $21,747 and $140,317, respectively.
NOTe 4 -
Total other receivable consists of balance from the following parties:
From ShanDong MingYuan Import & Export Co.
From Related Party -Wenxiu Song
Shandong Mingyuan Import & Export Co.(Mingyuan) is one of the Company’s vendor, in 2014, the Company made prepaid purchase order of raw material with Mingyuan, and at later date of 2014, both parties cancelled the order and Mingyun returned the fund to the Company in 2015.
NOTe 5 -
Prepaid expenses were $195,101 and $109,596 as of December 31, 2015 and 2014, respectively, and were comprised of the following:
Prepaid property and equipments
Note 6 -
property, plant and equipment
Property, plant and equipment as of as of December 31, 2015 and 2014 are summarized as following:
Construction in progress
Property, plant, and equipment - total
Less: accumulated depreciation
Fixed assets, net
For the years ended December 31, 2015 and 2014, depreciation expense was $117,397 and $5,074 respectively.
note 7 -
intangible assets -net
All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants landholders a "land use right" after a purchase price for such "land use right" is paid to the government. The "land use right" allows the holder to use the land for 50 years and enjoys all the incidents of ownership of the land. As of December 31, 2015 and 2014, the land use rights net of amortization was $760,819 and $561,863, respectively. The use term was 50 years. For the year ended December 31, 2015 and 2014, amortization expense was $11,460 and $11,685, respectively.
note 8 -
short term loan
The Company entered into a short term loan agreement with rural credit cooperative of ShanDong. Total loan amount is $1,543,734 and balance was $1,080,614 and $1,611,707 as of December 31, 2015 and 2014, respectively. The term of the loan is from August 6, 2015 and expired at August 5, 2016. The interest rate is fixed at 8.245%, interest is calculated from the day the loan is used and due on a monthly basis. The loan is guaranteed by owner and collateralized with land use rights and 3 manufacturing buildings owned by the Company.
note 9 -
The Company’s registered capital was $1,641,805, consisting owners’ contribution of cash at $661,877 and carrying value of the building at $979,928 as of December 31, 2015 and 2014.
note 10 -
related party transactions
Name of related party
Relationship with the Company
Owner since 2013
Wenxiu Song's spouse
Owner from inception
Qinbao Kong's spouse
ShanDong Yibao Biologics Co., LTD
Affiliated company with common parent
The Company has receivable from Wenxiu Song $0, and $338,459 as of December 31, 2015 and 2014 respectively.
The Company is still in start-up stage, to sustain the Company’s operating, construct manufacturing building and purchase equipment, current and previous owners along with its affiliated company need loan the Company money through their own account. The Company has the following payables to related parties:
To ShanDong Yibao Biologics Co., LTD
To Xiuhua Song
To Wenxiu Song
To others – non related parties
NOTE 11 -
MAJOR SUPPLIERS AND CUSTOMERS
The Company purchases the majority of its inventory and packaging supplies from two suppliers which accounted for 16% each of our total purchases in 2015 and 0% in 2014.
The Company had three major customers for the years ended December 31, 2015: Ping Xiang Import and Export Company, Hebei Tongzhu Medical Technology Company and Zhonghua Jiangsu providence Co. Ltd. These three customers accounted for 64%, 24% and 10% of revenue for the years ended December 31, 2015
The Company made no sales for the year ended December 31, 2014.
note 12 -
At December 31, 2015 and 2014, based on the weight of available evidence, management determined that it was unlikely that the Company's deferred tax assets would be realized and have provided for a full valuation allowance associated with the net deferred tax assets.
The Company periodically analyzes its tax positions taken and expected to be taken and has determined that since inception there has been no need to record a liability for uncertain tax positions. The Company classifies income tax penalties and interest, if any, as part of selling, general and administrative expenses in the accompanying statements of operations. There was no accrued interest or penalties as of December 31, 2015 or 2014.
The Company is neither under examination by any taxing authority, nor has it been notified of any impending examination.
Under the Law of People’s Republic of China on Enterprise Income Tax (“EIT Law”), which was effective from January 1, 2008, domestically-owned enterprises and foreign-invested enterprises are subject to a uniform tax rate of 25%. As of December 31, 2015, the Company have net operating losses carry forward of $634,692 that begin expiring in 2018. The potential benefit of the company’s net operating losses has not been recognized in these financial statements because it is more likely-than-not it will not utilize the net operating losses carried forward as it does not expect to generate sufficient taxable income in future or the amount involved is not significant.
Deferred Tax Assets and Liabilities:
Net operating loss carry forwards
Net deferred tax assets
Year Ended December 31,
Income tax at U.S. statutory rate (34%)
Tax rate difference
note 13 -
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through September 2, 2016, the date the financial statements were issued.
On Mach 29, 2016, Mr. Qinbao Kong transferred his 51% of ownership to Hengchun Zhang by all owner's approval. See note 10 for their relationship with the Company.
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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