UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the annual period ended December 31, 2014

 

      ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT

For the transition period from ___________ to _____________

 

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC.

(Exact name of small business issuer as specified in its charter)

 

Commission File No. 333-170480

 

Nevada	80-0638212
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

Room 2119 Mingyong Building, No. 60 Xian Road.

Shahekou District, Dalian, China 116021

(Address of Principal Executive Offices)

 

0086-13909840703

(Issuer’s telephone number)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☑ No ☐

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☑ *

 

* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes ☑ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☑

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

 

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant (2,943,500 shares of common stock), as of June 30, 2014, was approximately $34,733,300, computed by reference to the last reported sale price of $11.80 per share on June 30, 2014.  All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be "affiliates" of the registrant.

 

As of April 15, 2015 there were 27,678,779 shares of common stock of the registrant outstanding.

 

FORM 10-K

 

TABLE OF CONTENTS

 

		Page
FORWARD LOOKING STATEMENTS		4
PART I
Item 1.	Business.	5
Item 1A.	Risk Factors.	7
Item 1B.	Unresolved Staff Comments.	7
Item 2.	Properties.	7
Item 3.	Legal Proceedings.	8
Item 4.	Mine safety disclosures.	8
PART II
Item 5.	Market for Common Equity, Related Shareholder Matters and Small Business Issuer Purchases of Equity Securities.	9
Item 6.	Selected Financial Data.	9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	16
Item 8.	Financial Statements and Supplementary Data.	16
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.	16
Item 9A.	Controls and Procedures.	16
Item 9B.	Other Information.	17
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	18
Item 11.	Executive Compensation.	19
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	19
Item 13.	Certain Relationships and Related Transactions, Director Independence.	20
Item 14.	Principal Accountant Fees and Services.	20
Item 15.	Exhibits, Financial Statement Schedules.	21
Signature		22
Annex: Financial Statements

 

Explanatory Note

 

On October 9, 2014, the Company effected a 1 for 20 reverse stock split of its authorized common stock. The number of authorized common stock remained the same at 75,000,000 shares. The number of shares outstanding has been adjusted retrospectively to reflect the reverse stock split in all periods presented. Also, all share prices, have been adjusted retrospectively to reflect the reverse stock split.

 

Forward-Looking Statements

 

Various statements contained in this report constitute “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “plan,” “intend” or “anticipate” or the negative thereof or comparable terminology, or by discussion of strategy. Forward-looking statements represent as of the date of this report our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. Such forward-looking statements are based largely on our current expectations and are inherently subject to risks and uncertainties. Our actual results could differ materially from those that are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, a number of factors, such as: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles and the other risks and uncertainties that are set forth in Item 1, “Business” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the Securities and Exchange Commission (“SEC”) pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this report will in fact transpire.

 

As used in this Annual Report on Form 10-K, unless the context requires or is otherwise indicated, the terms “we,” “us,” “our,” the “Registrant,” the “Company,” “our company” and similar expressions include the following entities (as defined below):

 

(i) China Liaoning Dingxu Ecological Agriculture Development, Inc. (“CLAD”), formerly known as

Hazlo! Technologies, Inc., a Nevada corporation;

 

(ii) China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (“DingXu BVI”), a wholly-owned subsidiary of CLAD;

 

(iii) Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the People’s Republic of China and a ninety-nine percent owned subsidiary of DingXu BVI (“Panjin Hengrun”);

 

(iv) Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the People’s Republic of China and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). 

 

“China” or “PRC” refers to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan.  

 

“RMB” or “Renminbi” refers to the legal currency of China and “$” or “U.S. Dollars” refers to the legal currency of the United States.   We make no representation that the RMB or U.S. Dollar amounts referred to in this report could have been or could be converted into U.S. Dollars or RMB, as the case may be, at any particular rate or at all.  

 

“GAAP” unless otherwise indicated refers to accounting principles generally accepted in the United States.

 

ITEM 1. BUSINESS

 

History

 

We were incorporated under the name “Hazlo! Technologies, Inc.” on August 19, 2010 in the State of Nevada. Our initial business plan was to modify and translate software and web applications originally written in English into Spanish and to focus on the needs of the Arizona business community to better serve the Spanish-speaking population.  We did not generate any revenue from said IT services and data translation services.

 

On December 12, 2011, we entered a Share Exchange Agreement with DingXu BVI’s sole shareholder (Chin Yung Kong) under which we issue 3,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI (the “Share Exchange”). Upon closing of the Share Exchange, DingXu BVI became the wholly owned subsidiary of CLAD.

 

China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (the “DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.

 

On July 5, 2011, DingXu BVI formed Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the PRC (“Panjin Hengrun”). DingXu BVI owns 99% of the total ownership of Panjing Hengrun.

 

On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the PRC and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu, Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.

 

Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entity (“VIE”) of Panjin Hengrun pursuant to ASC-810-10-05 and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.

 

Liaoning Dingxu was formed as a limited liability company organized under the laws of the PRC on August 6, 2009. It mainly engages in the business of growing mushrooms and marketing, producing and selling mushrooms and related agricultural products.

 

Since the completion of the Share Exchange, our business operations have been carried out through Panjin Hengrun and its affiliated operating entity Liaoning Dingxu. On December 12, 2011, we ceased the business of development stage IT services and data translation services and started to engage in the business of growing mushrooms and marketing, producing and selling mushrooms and related agricultural products through Liaoning Dingxu.

 

Business Overview

 

We mainly engage in the business of growing mushrooms and marketing, producing and selling mushrooms and related agricultural products through our affiliated VIE Liaoning Dingxu.

 

Main Products

 

We mainly produce and sell three types of products:

 

(1) Fresh mushrooms. We grow fresh mushrooms in our greenhouses and sell them to stores that sell products directly to individual customers. Our fresh mushrooms include oyster mushrooms, king oyster mushrooms, shiitake mushrooms, king trumpet mushrooms and button mushrooms.

(2) Mushroom seeds. We sell mushroom seeds to farmers in the form of stick shaped containers filled with fertilizers on which the mushrooms grow and bottles of mushroom seeds which are also used to grow mushrooms.

(3) Dried Mushrooms. We dry and package fresh mushrooms and sell them to stores that sell products directly to individual customers. Our dried mushrooms include eryngii mushrooms, white mushrooms, jade mushrooms, white king oyster mushrooms and ganoderma.

Seasonality

Our market is not seasonal due to the fact that our mushrooms are grown in the green house and therefore are not affected by season changes. We do, however, need to store our fresh mushrooms, mushroom sticks and spawns in a low temperature environment, which creates extra costs in the spring and summer months.

 

Market Overview

 

We sell all of our products in Liaoning Province China.

Sales and Marketing

 

We conduct direct sales and marketing through our own sales team to stores that sell products directly to individual customers. We have not used agencies and brokers to sell our products.

Our Customers

 

Our main customers are stores that sell our products to individual customers. We do not have any written agreements with any customers. Seven customers comprise 100% of our revenue, with each customer having sales ranging from 12% - 20%.

Raw Materials and Source of Raw Materials

 

The raw materials we use for growing our products include sawdust, straw, bran and chicken manure. We collect materials from local farmers and do not have any supply contracts with any farmers.

Our Competitors

 

There are many mushroom producers and sellers in China and we only have a very small percentage of the total market in China. On a daily basis, we produce approximately 25,000 kg of fresh mushrooms, 10,000 mushroom sticks and 10,000 bottles of mushroom seed. Our daily production is approximately 33% of our daily production capacity. We believe that Xinghe Biological Inc. located at Dongguan, Guangdong, has approximately 60 tons daily production capability and has approximately 8% of the market share in South China markets and Gaorong Company, located in Shanghai, China, has approximately 100 tons daily production capability and has approximately 10% of the market share in South China markets.

 

Our Plan of Growth

 

(1)	Expand our farms. We plan to obtain land use rights to more farmland to expand our mushroom farms and increase the production of our fresh mushrooms.
(2)	Start the production of processed mushroom products. We have purchased, installed and tested equipment to be used in the production of mushroom products, such as canned mushrooms and mushroom drinks. Our production of mushrooms is not sufficient to begin production of such products. We intend to begin production as soon as we can purchase additional mushrooms and hire additional employees.

 

Intellectual Properties

 

We currently have following trademarks registered in China:

 

Trademarks “Dingxu” register number: 8041916;

“Senlinwa” register application number: ZC9880644SL;

“Jindingji” register application number: ZC9880597SL; “Xianzhigu” register application number: ZC9880734SL.

 

Employees

 

As of December 31, 2014, we had 58 employees, all of whom were full-time.

 

ITEM 1A. RISK FACTORS

 

Not Applicable for Smaller Reporting Company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not Applicable for Smaller Reporting Company.

 

ITEM 2. PROPERTIES

 

LAND USE RIGHTS

 

The Company has a land use right to 24,806 square meters of land. The term of the land use right is 50 years, starting in March 2011. The land use right purchase price of $579,580 was fully paid during 2011.  For the years ended December 31, 2014 and 2013, the Company recorded amortization expense of $11,909 and $11,794, respectively. The Company recorded the land use right at its net value of $548,922 and $566,028 as of December 31, 2014 and 2013, respectively.

 

The Company has a land use right to 56,139 square meters of land. The term of the land use right is 46 years, starting in March 2011. The land use right purchase price of $2,698,027 was fully paid for during 2011.   For the years ended December 31, 2014 and 2013, the Company recorded amortization expense of $59,503 and $58, 926, respectively. The Company recorded the land use right at its net value of $2,540,116 and $2,623,698 as of December 31, 2014 and 2013, respectively.

 

The Company has a land use right to 428,214 square meters of land. The term of the land use right is 18 years, starting in January 2012. For the years ended December 31, 2014 and 2013, the Company recorded amortization expense of $157,017 and $157,949, respectively. The Company recorded the land use right at its net value of $2,347,313 and $2,531,925 as of December 31, 2014 and 2013 respectively.  As the land use right was not yet fully paid for as of December 31, 2014, the Company recorded the long term liabilities related to this land use right in the amount of $1,581,775 and $1,548,644 as of December 31, 2014 and 2013, respectively.

 

Under the 1982 Constitution, urban land in China is owned by the State and collectives own the rural land. Since the local and central governments administer the rural collectives, it can be construed that all land ownership is under control of the State. However, the Constitution's Amendment Act of 1988 to Article 10 adopted on April 12, 1988, states that a land use right may be transferred in accordance to law. Based on this statement, a land use right becomes divisible from land ownership, thus making land use right likely to be privatized. Individuals, including foreigners can hold long-term leases for land use. They can also own buildings, apartments, and other structures on land, as well as own personal property.

 

Real estate transfers in China take place in the form of transfer of right to use land. To obtain land-use rights, the land user must sign a land-grant contract with the local land authority and pay a land-grant fee up front. The grantee will enjoy a fixed land-grant term and must use the land for the purpose specified in the land-grant contract. Depending on the type and purposes of land use, the maximum term of a land grant ranges from 40 years for commercial usage, 50 years for industrial purpose, to 70 years for residential use.

 

The application of “Land Usage Right” on any leased land must be submitted to and approved by many authorities of the local and central government supported by a minimum of 80% of the signatories of its original land leasers who had leased the land from the government before they transfer the land to the new leasers.

 

LONG TERM PREPAID LEASE

 

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

 

The Company records lease payments at cost less accumulated rent. The Company entered into a long term agreement with certain unrelated parties to rent land in 2010. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years beginning at January 1, 2010. The lease payment for the entire contract period were prepaid in the amount of $1,030,900. For the year ended December 31, 2014 and 2013, the Company recorded lease expense of $54,350 and $55,240, respectively.

 

The Company entered into a long term agreement with certain unrelated parties to rent land in 2013. The lease payments are recorded as operating lease expense using the straight line method during the contract period of 17 years beginning at December 25, 2013. The lease payments for the entire contract period were prepaid in the amount of $984,107. For the year ended December 31, 2014 and 2013, the Company recorded lease expense of $56,040 and $0, respectively.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are not a party to any legal proceedings that we believe will have a material adverse effect upon the conduct of our business or our financial position.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

 

Our common stock is currently listed on the OTC Bulletin Board (“OTCBB”) under the symbol “CLAD.”

 

The following table sets forth the range of high and low prices of our common stock as quoted on the OTCBB during the periods indicated. The prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions.

 

						High				Low
	2013			First Quarter		$	1.40			$	0.70
				Second Quarter		$	1.60			$	0.80
				Third Quarter		$	1.70			$	0.90
				Fourth Quarter		$	9.00			$	1.10
	2014			First Quarter		$	10.20			$	2.80
				Second Quarter		$	15.20			$	2.40
				Third Quarter		$	12.00			$	3.00
				Fourth Quarter		$	6.00			$	2.42

 

Our transfer agent is Island Stock Transfer, 15500 Roosevelt Boulevard, Suite 301 Clearwater, Florida 33760, Office phone: 727-289-0010.

 

Dividend Policy

 

We did not pay any cash dividends on our common stock in the years ended December 31, 2014 and December 31, 2013. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business.

 

Recent Sales of Unregistered Securities

 

None.

 

Equity Compensation Plan Information

 

The Company has no equity compensation plan in place.

 

ITEM 6.  SELECTED FINANCIAL DATA.

 

Not Applicable for Smaller Reporting Company.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 

 

OVERVIEW

 

We mainly engage in the business of growing mushrooms and marketing, producing and selling mushrooms and related agricultural products through our affiliated VIE Liaoning Dingxu.

 

We mainly produce and sell three types of products:

 

(1) Fresh mushrooms. We grow fresh mushrooms in our greenhouses and sell them to stores that sell products directly to individual customers. Our fresh mushrooms include oyster mushrooms, king oyster mushrooms, shiitake mushrooms, king trumpet mushrooms and button mushrooms.

The revenues from the sales of fresh mushrooms constitute approximately 67.2% and 67.1% of our total revenues in the fiscal year of 2014 and 2013, respectively.

(2) Mushroom seeds. We sell mushroom seeds to farmers in the form of stick shaped containers filled with fertilizers on which the mushrooms grow and bottles of mushroom seeds which are also used to grow mushrooms.

The revenues from the sales of mushroom seeds was approximately 10.2% and 10.4% of our total revenues in the fiscal year of 2014 and 2013, respectively.

(3) Dried Mushrooms. We dry and package fresh mushrooms and sell them to stores that sell products directly to individual customers. Our dried mushrooms include eryngii mushrooms, white mushrooms, jade mushrooms, white king oyster mushrooms and ganoderma.

We marketed and sold dried mushrooms through cooperation with wholesalers, local supermarkets, and specialty stores. The revenue from the sales of dried mushrooms was approximately 22.2% and 22.5% of our total revenues in the fiscal year of 2014 and 2013, respectively.

(4) Mushroom drinks. We tried to produce and sell a few mushroom drinks through cooperation with local supermarkets and we wanted to watch if the mushroom drinks were welcomed by the market in the year of 2014.

The revenues from the sales of mushroom drinks were approximately 0.4% and 0% of our total revenues in the fiscal year of 2014 and 2013, respectively.

Significant Accounting Policies

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the 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 period.  In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included.  Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.

 

Inventories

 

Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Inventories consist of raw materials, finished goods and growing crops. Cost of finished goods comprises direct material and direct production cost based on normal operating capacity.

 

Property, Plant and Equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:

 

Building			20 years
Plant equipment			5-10 years
Office equipment			3-5 years
Vehicles			4  years

 

Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

 

Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.

 

Land Use Rights

 

The Company states land use right at cost less accumulated amortization. The land use right is amortized on straight line method during the contract period.

 

Long Term Prepaid Lease

 

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

 

The Company records lease payments at cost less accumulated rent.

 

Investments

 

The Company analyzes equity investments in privately held companies to determine if it should be accounted for under the cost or equity method of accounting based on such factors as the percentage ownership of the voting stock outstanding and our ability to exert significant influence over these companies. For the cost method investments, the Company determines at each reporting period whether a decline in fair value has occurred and whether such decline is considered to be an other-than-temporary impairment. If a decline in fair value is determined to be other-than-temporary, the Company would recognize an impairment to reduce the investment to the lower of cost or fair value.

 

Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

 

Revenue Recognition

 

The Company engages in the business of growing, producing, marketing and selling fresh mushrooms, dried mushrooms, and mushroom seeds through its affiliated VIE, LiaoNing DingXu.

 

The Company’s products are mainly sold to secondary wholesalers of local wholesale markets. Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.

 

The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

 

Fair Value of Financial Instruments

 

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no other items that required fair value measurement on a recurring basis.

 

Basic and Diluted Loss Per Share

 

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, there were no outstanding potential common stock equivalents and therefore basic and diluted earnings per share result in the same figure.

 

Stock-Based Compensation

 

The Company adopted FASB guidance on stock based compensation upon inception on September 9, 2010. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company did not issue any share-based payments for services or compensation to employees, or otherwise for the periods presented.

 

Taxation

 

Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into account the benefits from any special tax credits or “tax holidays” allowed in the county of operations.

 

The Company does not accrue United States income tax since it has no operating income in the United States. The operating subsidiary is organized and located in the PRC and does not conduct any business in the United States.

 

Enterprise income tax

 

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the operating subsidiary is exempted from enterprise income tax from 2010 to 2014. Accordingly, the Company statutory rate was 0% and 0% for the year ended December 31, 2014 and 2013, respectively.

 

Value added tax

 

The Provisional Regulations of The PRC concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

 

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT from 2010 to 2014.

 

Foreign Currency Translation

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. 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. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. In accordance with ASC Topic 230, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

 

Accumulated and Other Comprehensive Income

 

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.

 

FINANCIAL CONDITION

 

Results of Operations for the year ended December 31, 2014 and 2013

 

1. Revenue

 

The following table sets forth the breakdown of our revenue for the year ended December 31, 2014 and 2013, respectively:

 

		2014				2013
Fresh Mushrooms			8,931,715				8,469,853
Mushroom seeds			1,361,222				1,309,197
Dried mushrooms			2,942,062				2,838,942
Mushroom drinks			57,054				—
Total revenue			13,292,053				12,617,992

 

We derived our revenues predominantly from sales of our mushroom products. For the year ended December 31, 2014 and 2013, revenues were $13,292,053 and $12,617,992, respectively, representing an increase of $674,061.

 

The revenue from sales of our fresh mushrooms increased $461,862 resulting from our increased production capacity since that we completed 4 new greenhouses in fourth quarter of 2013.

 

The revenue from sales of our mushroom seeds decreased by $52,025, resulting from normal marketing fluctuation, not a significant change since our production capacity has remained relatively steady from 2013 till now.

 

The revenue from sales of our dried mushrooms increased $103,120, resulting from both of our increased sales volume 10% and decreased sales price 6% as that we engage to grow our market through appropriately reduce our sales price.

 

The revenue from sales of our mushroom drinks increased $57,054, resulting from that we tried to produce and sell mushroom drinks through cooperation with local supermarkets and we wanted to watch if the mushroom drinks were welcomed by the market in the year of 2014.

 

2. Cost of revenue

 

The following table presents a breakdown of our cost of revenue of our mushroom products for the years ended December 31, 2014 and 2013.

 

		2014				2013
Cost of fresh mushroom sales			4,215,085				4,232,658
Cost of mushroom seed sales			541,579				499,998
Cost of dried mushroom sales			606,843				484,525
Mushroom drinks			42,790				—
Total			5,406,297				5,217,181

 

For the year ended December 31, 2014 and 2013, cost of fresh mushroom sales were $4,215,085 and $4,232,658 respectively, representing a decrease of $17,573. The cost did not increase with a corresponding increase of the sales because that we continued to improve our production skill and decreased the unit cost.

 

For the year ended December 31, 2014 and 2013, cost of mushroom seed sales were $541,579 and $499,998, respectively, representing an increase of $41,581. The increase in cost was mainly related to a corresponding increase of the sales.

 

For the year ended December 31, 2014 and 2013, cost of dried mushroom sales were $606,843 and $484,525, respectively, representing an increase of $122,318. The increase in cost was consistent with the increase in sales volume of dried mushrooms in the year of 2014 compared to 2013.

 

For the year ended December 31, 2014 and 2013, cost of mushroom drinks sales were $42,790 and $0, respectively, representing an increase of $42,790. The increase in cost was due to that we tried to produce and sell mushroom drinks through cooperation with local supermarkets and we wanted to watch if the mushroom drinks were welcomed by the market in the year of 2014.

 

3. Gross profit

 

The following table presents the gross profit of our businesses for the year ended December 31, 2014 and 2013:

 

Production Category		2014				2013
Fresh mushrooms sales			4,716,630				4,237,195
Mushroom crops and seeds sales			819,643				809,199
Dried Mushroom sales			2,335,219				2,354,417
Mushroom drinks			14,264				—
Total gross profit			7,885,756				7,400,811

 

Gross profit from our mushroom growing business increased $484,945 for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase primarily resulted from the cumulative effect of sales volume increase from our business developed and cost reduce from our production skill improved continuously. The gross margin of our fresh mushrooms and mushroom seeds increased $489,879 because the 4 new greenhouses were completed in the fourth quarter of 2013 and our sales increased accordingly, which improved our gross margin. In addition, dried mushrooms, usually purchased as gifts by customers, have large added value and high gross margin as before. The gross margin of dried mushrooms decreased $19,198 mainly resulted from the cumulative effect of sales price decreased 6% and the sales volume increased 10% as that we engage to grow our market through appropriately reduce our sales price. The gross margin of mushroom drinks increased $14,264 due to that we tried to produce and sell the mushroom drinks began at 2014.

 

4. Depreciation and amortization

 

For the year ended December 31, 2014, our depreciation and amortization was $844,469, representing an increase of $124,201 compared to the year ended December 31, 2013. The increase was primarily a result of the increased fixed assets transferred from CIP in fourth quarter of 2013, the increased prepaid lease for land in December of 2013 that was be amortized beginning at January of 2014 and the new built workshop for soy in June of 2014 that was be depreciated from July of 2014. Additionally, $241,746 and $224,626 of depreciation expense was recorded in Cost of Goods Sold for the year ended December 31, 2014 and 2013, respectively.

 

5. Bad debt

 

The bad debt represented an allowance for doubtful receivable accounts. For the year ended December 31, 2014, our bad debt was $624,226, representing an increase of $542,217 compared to the year ended December 31, 2013 resulting from the $652,200 due from a related party was expensed during 2014 partially offset by $27,974 of another receivable which had previously been expensed, but was collected during 2014.

 

6. General and administrative

 

For the year ended December 31, 2014, our general and administrative was $6,499,829, representing an increase of $5,935,823 compared to the year ended December 31, 2013. The increase is primarily due to the Company granting 856,000 shares to a consultant for $6,334,400.

 

7. Other income

 

Other income is used to record the Company’s non-operating income, such as government grants and other receivable adjustments. For the year ended December 31, 2014, the other income was $0, representing an decrease of $19,839 compared to the year ended December 31, 2013 because that the Company collected $19,839 other receivables in 2013 which had been expensed previously.

 

8. Impairment loss

 

For 2014, the impairment losses were $5,782,648, which was composed of $891,148 in construction in progress and $4,891,500 in the investment of the Liaoning Shenglande Biotechnology Co., Ltd (“Liaoning Shenlande”) and Shenyang Yiguan organic food Co., Ltd (“Shenyang Yiguan”).

 

On June 10, 2014, the Company entered into a contract with Liaoning Shenglande organized under the laws of the PRC. Under the contract, the Company invested $2,438,033 into Liaoning Shenglande to plant fresh mushroom from July 15, 2014 to July 15, 2019. During the period of cooperation, the Company will get the 50% of profit after tax of Liaoning Shenglande. The Company has the right to receive $2,438,033 at the end of cooperation period. At December 31,2014, we impaired the investment to its fair value as an other than temporary impairment.

 

On December 20, 2014, the Company entered into a contract with Shenyang Yiguan organized under the laws of the PRC. Under the contract, the Company invested $2,453,467 into Shenyang Yiguan to plant fresh mushroom from January 1, 2015 to January 1, 2020. During the period of cooperation, the Company will get the 50% of profit after tax of Shenyang Yiguan. The Company has the right to receive $2,453,467 at the end of cooperation period. At December 31,2014, we impaired the investment to its fair value as an other than temporary impairment.

 

9. Income taxes

 

In accordance with the relevant tax laws, the Company statutory rate was 0% and 0% for the year ended December 31, 2014 and 2013, respectively.

 

Liquidity and Capital Resources:

 

To date, our operations have been funded by contributions from “due to related parties” and the net cash provided by operations. As a result, at December 31, 2014 we had $536,246 current assets and $2,670,115 current liabilities mainly consisting of the $2,545,915 due to related parties and $124,200 of other payables and accrued liabilities. We had a working capital deficit of $2,133,869 as of December 31, 2014. Given the working capital deficit there is a liquidity risk for the coming period. Although we believe management will continue to fund the Company on an as needed basis, we do not have a written agreement requiring such funding. For the due to related party, the shareholders promised that they would not demand repayment from the Company with in next fiscal year.

 

We believe that our operations will provide sufficient net cash to fund our business for the next 12 months. During the year ended December 31, 2014, we had cash provided by operating activities was $7,617,094. Over the long term, our expectation is to see steadily growing sales of our mushroom products as we continue to invest in and to develop our fresh mushrooms and begin to manufacture processed products such as mushroom soy sauce and mushroom drinks.

 

Cash flow for the years ended December 31, 2014 and 2013

 

Operating Activities

 

Net cash provided by operating activities for the year ended December 31, 2014 was $7,617,094, which was primarily due to (i) net losses of $6,067,088 offset by, (ii) depreciation and amortization of fixed assets and land use rights in the amount of $1,030,686, (iii) bad debt of $624,226, (iv) imputed interest of $196,302, (iv) impairment loss of $5,782,648, (v) stock based compensation $6,334,400 and (vi) a total decrease of $289,218 in assets and liabilities.

 

Net cash provided by operating activities for the year ended December 31, 2013 was $5,346,056, which was primarily due to (i) net income $5,693,481, (ii) depreciation and amortization of fixed assets and land use rights in the amount of $916,666, (iii) bad debt of $82,009, (iv) imputed interest of $299,319 and (v) a total decrease of $1,706,087 in assets and liabilities.

 

Investing Activities

 

Net cash used in investing activities was $7,652,593 for the year ended December 31, 2014, which was primarily due to (i) the cash paid for fixed assets $896,677, (ii) the deposit paid on property $1,864,416 and (iii) the cash paid for long term investments $4,891,500.

 

Net cash used in investing activities was $2,878,530 for the year ended December 31, 2013, which was primarily attributable to (i) payment of $2,386,445 to a rice seed cultivation workshop contractor and (ii) payment of $492,085 paid to a land use rights seller.

 

Financing activities

 

Net cash provided by financing activities was $364,514 for the year ended December 31, 2014, which was mainly attributable to the $364,514 of proceeds from advances from related parties.

 

Net cash used in financing activities was $3,120,151 for the year ended December 31, 2013, which was mainly attributable to the $3,267,139 repayment made to related parties and $146,988 advances from related parties.

 

Impact of inflation

 

We are subject to commodity price risks arising from price fluctuations in the market prices of the raw materials. We have generally been able to pass on cost increases through price adjustments. However, the ability to pass on these increases depends on market conditions influenced by the overall economic conditions in China. We manage our price risks through productivity improvements and cost-containment measures. We do not believe that inflation risk is material to our business or our financial position, results of operations or cash flows.

 

Impact of foreign currency fluctuations

 

The reporting currency of the Company is the U.S. dollar. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. 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. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

Financial Instruments

 

We have not used any financial instruments to manage funding or treasury since our inception.

 

Commitments for Capital Expenditures

 

We have no commitments for capital expenditures. For our business, we plan to obtain land use rights to more farmland and build additional greenhouses to expand our mushroom farms and increase the production of our fresh mushrooms. We have purchased, installed and tested equipment to be used in the production of dried-processed mushroom products, such as canned mushrooms and mushroom drinks. Our production of mushrooms is not sufficient to begin production of such products. We intend to begin production as soon as we purchase additional mushrooms and hire additional employees.

 

Research and Development

We have not incurred any research and development expenses since our inception.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

See the financial statements annexed to this annual report immediately after the signature page of this Form 10-K.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2014 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the Exchange Act rules and forms due to the material weakness described below. As a result, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes the consolidated financial statements included in this Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

Management’s Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial and accounting officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our control over financial reporting includes those policies and procedures that:

 

•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

 

•

provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures of the company are being made only in accordance with authorizations of our management and our directors; and

 

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

Internal control over financial reporting has inherent limitations which may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the level of compliance with related policies or procedures may deteriorate.

 

Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2014. In making the assessment, management used the framework in “Internal Control –Integrated Framework” promulgated in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on that assessment, our principal executive officer and principal financial and accounting officer concluded that our internal control over financial reporting was not effective as of December 31, 2014 because pervasive material weaknesses existed in our internal control over financial reporting. Specifically, the Company does not have an independent board of directors or audit committee or adequate segregation of duties. All of our financial reporting is carried out by our financial consultant. We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company. 

 

As a result, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes the consolidated financial statements included in this Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

 

Remediation of Material Weakness

 

The Company intends to establish the following remediation efforts:

 

(1)

Commence a process and procedure to locate, and nominate for election to the Company’s board of directors, independent directors, including at least one individual qualified to be an audit committee financial expert;

 

(2)

At such time as independent directors are elected to the Company’s board of directors, establish an independent audit committee;

 

(3)

Commence a process and procedure to locate and hire qualified individuals to act as Chief Financial Officer and/or Chief Accounting Officer; and

 

(4)

Under the supervision of the Audit Committee and with the assistance of the Chief Executive Officer and Chief Financial Officer procure the resources, appoint additional personnel and establish the procedures necessary to produce Internal Controls over Financial Reporting that will be effective as evaluated under the framework in “Internal Control – Integrated Framework” promulgated in 2014 by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Conclusion

 

We believe the measures described above will remediate the material weaknesses we have identified and will continue to strengthen our internal controls over financial reporting. We are committed to continually improving our internal control processes and will diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal controls over financial reporting, we may determine that additional measures are necessary to address control deficiencies. Moreover, we may decide to modify certain of the remediation measures described above.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION.

 

Not applicable.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Chin Yung Kong, age 62, has served as the Company’s President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer and Director since December 2012 and will continue in such capacity until the next annual meeting of shareholders or his earlier termination, resignation or death. Mr. Chin is our only executive officer and director. Mr. Chin is the Managing Director of QMIS Capital Finance. Since 2002, Mr. Chin has devoted most of his time to advising PRC clients on financial restructuring, pre-audit evaluation before going public, pre-IPO investment strategies, and the process of going public in the United States. From 1995 to 2002, Mr. Chin was financial controller for the Kwok Group Company in the PRC. Prior to 1995, Mr. Chin was a practicing auditor and Certified Public Accountant (CPA) with Foo Kon & Tan in Singapore. Mr. Chin graduated from University of Hull in the United Kingdom with a Masters degree in Finance. Mr. Chin provides financial and strategic expertise to the Company as our sole executive officer and director.

Involvement in Certain Legal Proceedings

 

To the knowledge of the Company, no executive officer or director has been involved in the last five years in any of the following:

 

(1) any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

(2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

 

(4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

(5) being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or

 

(6) being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Term of Office

 

All directors have a term of office expiring at the next annual general meeting of the Company, unless reelected or earlier vacated in accordance with our bylaws. All officers have a term of office lasting until their removal or replacement by the board of directors.

 

Board Committees

 

We have not yet implemented any board committees.

 

Audit Committee

 

We do not have a standing audit committee, an audit committee financial expert, or any committee or person performing a similar function. Although we currently have limited working capital and no revenues the Company is reviewing whether it would be in our best interests at this time to retain independent directors to sit on an audit committee. The Company is currently reviewing the processes and procedures required to retain qualified independent directors to sit on an audit committee and other committees of the Company’s board of directors.

 

Compliance with Section 16(A) of The Securities Exchange Act of 1934

 

In the year ended December 31, 2014, none of our officers, directors or 10 percent or greater shareholders have been required to file the reports required under Section 16(a).

 

Indemnification of Directors and Officers 

 

Our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Nevada corporation laws. There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.

ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION

 

Since inception, we have paid no cash or non-cash compensation (including stock options or awards, perquisites, or deferred compensation plans), to our officers or directors. The following tables set forth certain summary information concerning all plan and non-plan compensation awarded to, earned by, or paid to the named executive officers and directors by any person for all services rendered in all capacities to the Company:

 

Name of Executive Officer and/or Director	Position	Salary	Bonus and Other Compensation	Securities Underlying Stock Options
Chin Yung Kong	President, Secretary, Treasurer and Director, Chief Executive Officer and Chief Financial Officer	None	None	None

 

Employment Agreement

 

There are currently no employment agreements or other contracts or arrangements with our Officer or Director. There are no compensation plans or arrangements, including payments to be made by us, with respect to our Officer, Director or Consultants that would result from the resignation, retirement or any other termination of any of our Director, officer or consultants. Most business activities to date have been undertaken by our Chief Executive Officer and other individual retained as independent contractors.

 

Outstanding Equity Awards at Fiscal Year-End 

 

None in the year ended December 31, 2014.

 

Stock Option and Awards Plan

 

None in the year ended December 31, 2014.

 

Director Compensation

  

None in the year ended December 31, 2014.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER

 

The following table sets forth certain information concerning the number of shares of Company common stock owned beneficially by: each person known or believed by us to own, directly or beneficially, more than 5% of our common stock, each of our directors, each of our officers and all of our officers and directors as a group. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the common shares shown.  

 

 

Name of Beneficial Owner		Number of Common Shares [1]				Percentage of Class [2]
Chin Yung Kong			21,145,587				76.4	%
Room 2119 Mingyong Building, No. 60 Xian Road
Shahekou District, Dalian, China 116021
All Officers, Directors and Beneficial Owners as a group (Chin Yung Kong is also the only greater than 5% shareholder)			21,145,587				76.4	%

 

	(1)	Unless otherwise indicated, the Company has been advised that all individuals listed have the sole power to vote and dispose of the number of shares set forth opposite their names. For purposes of computing the number and percentage of shares beneficially owned by a stockholder, any shares which such person has the right to acquire within 60 days are deemed to be outstanding, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other stockholder.
	(2)	Based on 27,678,779 shares issued and outstanding as of April 15, 2015.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The Share Exchange that we consummated on December 12, 2011 is a related transaction because the shareholder of Dingxu BVI, Mr. Chin Yung Kong, is our current officer and director and majority shareholder.

 

On January 8, 2013, Chin Yung Kong cancelled 1,000,000 shares of common stock.

 

Due to related parties: The total amount due to related parties consisted of the borrowing from shareholders to purchase land use rights and build greenhouses and planting structure and purchase the equipment. The balance was $2,545,915 and $2,181,401 as of December 31, 2014 and 2013, respectively.

 

Imputed interest: Certain shareholders lent money without interest to the Company, the interest valued at $196,302 and $299,319 for the years ended December 31, 2014 and 2013, respectively. The total interest was reflected in the statement of operations as interest expenses in 2014 and 2013, respectively, with a corresponding contribution of paid-in capital and non-controlling interest.

   

Policy for Approval of Related Party Transactions

 

We do not currently have a formal related party approval policy for review and approval of transactions required to be disclosed pursuant to Item 404(a) of Regulation S-K.  

 

Director Independence

 

We do not have any independent Director as defined by a national securities exchange.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees

 

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:

 

2014	$	70,000	M&K CPAS, PLLC
2013	$	111,097	M&K CPAS, PLLC

 

Item 15.    Exhibits and Financial Statement Schedules

 

Financial Statements

 

The financial statements are attached immediately after the signature page of this Annual Report on Form 10-K.

 

Exhibit

 

Exhibit No.		Description
3.1		Articles of Incorporation
3.2		Bylaws*
10.1		Share Exchange Agreement**
10.2		Consulting Service Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.3		Operating Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.4		Equity Pledge Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.5		Option Agreement (Panjin Hengrun and Liaoning Dingxu)**
10.6		Proxy Agreement (Panjin Hengrun and Liaoning Dingxu)**
21		Subsidiaries
31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
101***		The following materials from our Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholders' Equity (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.
		101.INS****      XBRL Instance
		101.SCH***     XBRL Taxonomy Extension Schema
		101.CAL***     XBRL Taxonomy Extension Calculation
		101.DEF***      XBRL Taxonomy Extension Definition
		101.LAB***     XBRL Taxonomy Extension Labels
		101.PRE***      XBRL Taxonomy Extension Presentation

 

* Incorporated by reference to our Registration Statement on Form S-1, filed on November 9, 2010

 

**Incorporated by reference to the Form 8-K Current Report filed on December 13, 2011.

 

*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	China Liaoning DingXu Ecological Agriculture DevelopmenT, INC.
April 15, 2015	By:	/s Chin Yung Kong
		Chin Yung Kong
		Chief Executive Officer, President, Chief Financial Officer, President, Secretary and Treasurer
		(Principal Executive Officer
		and Principal Financial Officer)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name	Title	Date
/s/ Chin Yung Kong
Chin Yung Kong	Director, Chief Executive Officer, President, Chief Financial Officer, President, Secretary and Treasurer	April 15, 2015
	(Principal Executive Officer and Principal Financial Officer)

 

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC .

 

FINANCIAL STATEMENTS

 

DECEMBER 31, 2014 and 2013 (Audited)

 

FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm			F-1
Balance Sheets			F-2
Statements of Income and Comprehensive Income			F-3
Statements of Changes in Stockholders' Equity			F-4
Statements of Cash Flows			F-5
Notes to Financial Statements			F-6

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

 

China Liaoning Dingxu Ecological Agriculture Development, Inc.

 

We have audited the accompanying consolidated balance sheets of China Liaoning Dingxu Ecological Agriculture Development, Inc. as of December 31, 2014 and 2013 and the related consolidated statements of income and comprehensive income, changes in stockholders' equity and cash flows for each of the twelve month periods then ended.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Liaoning Dingxu Ecological Agriculture Development, Inc. as of December 31, 2014 and 2013, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.

 

 

 /s/ M&K CPAS, PLLC

 www.mkacpas.com

Houston, Texas

 

April 15, 2015

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

(AMOUNTS EXPRESSED IN US DOLLARS)

 

		As of				As of
		December 31, 2014				December 31, 2013
ASSETS
Cash and cash equivalents		$	82,776			$	11,797
Inventories			307,260				103,913
Advances to suppliers, short-term			—				82,195
Receivables, net			56,862				166,310
Other current assets			89,348				90,182
Total Current Assets			536,246				454,397
Property and equipment, net			11,089,999				11,015,908
Advances to suppliers, long-term			1,864,416				—
Construction in progress			—				896,438
Land use right			5,436,351				5,721,651
Prepaid lease for land			1,707,203				1,836,789
Total Assets		$	20,634,215			$	19,925,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Account payable		$	105,211			$	3,842
Accrued expenses			18,989				18,539
Other payable			—				1,148
Due to related parties			2,545,915				2,181,401
Total Current Liabilities			2,670,115				2,204,930
Long term payable			1,581,775				1,548,644
Total Liabilities			4,251,890				3,753,574
Stockholders' Equity:
Common stock ($0.001 par value; 75,000,000 shares authorized; 3,178,500 and 2,322,500 shares issued and outstanding at December 31, 2014 and December 31, 2013)			3,178				2,322
Additional paid-in capital			15,105,490				8,577,244
Retained earnings			432,585				6,499,673
Accumulated other comprehensive income			677,494				933,042
Non-controlling interests			163,578				159,328
Total Stockholders' Equity			16,382,325				16,171,609
Total Liabilities and Stockholders' Equity		$	20,634,215			$	19,925,183

 

See accompanying notes to audited consolidated financial statements

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(AMOUNTS EXPRESSED IN US DOLLARS)

 

		The year ended				The year ended
		December 31, 2014				December 31, 2013
NET REVENUES		$	13,292,053			$	12,617,992
COST OF REVENUES			5,406,297				5,217,181
GROSS PROFIT			7,885,756				7,400,811
OPERATING EXPENSES:
Depreciation and amortization			844,469				720,268
Bad debt			624,226				82,009
General and administrative			6,499,829				564,019
Total Operating Expenses			7,968,524				1,366,296
INCOME FROM OPERATIONS			(82,768	)			6,034,515
OTHER INCOME (EXPENSE):
Other income			—				19,852
Interest expense			(196,534	)			(300,218	)
Impairment loss			(5,782,648	)			—
INCOME BEFORE PROVISION FOR INCOME TAX			(6,061,950	)			5,754,149
PROVISION FOR INCOME TAXES			—				—
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTERESTS		$	(6,061,950	)		$	5,754,149
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS			(5,138	)			(60,668	)
NET INCOME (LOSS)		$	(6,067,088	)		$	5,693,481
OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency translation gain (loss)			(258,036	)			643,177
LESS: OTHER COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS			(2,488	)			6,432
COMPREHENSIVE INCOME		$	(6,322,636	)		$	6,330,226
NET INCOME PER COMMON SHARE:
Basic		$	(2.46	)		$	2.43
Diluted		$	(2.46	)		$	2.43
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic			2,465,558				2,341,678
Diluted			2,465,558				2,341,678

 

See accompanying notes to audited  consolidated financial statements.

 

 CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(AMOUNTS EXPRESSED IN US DOLLARS)

 

														RETAINED				ACCUMULATED
										ADDITIONAL				EARNINGS				OTHER				NON-				TOTAL
		COMMON								PAID-IN				(ACCUMULATED				COMPREHENSIVE				CONTROLLING				SHAREHOLDERS'
		STOCK				AMOUNT				CAPITAL				LOSS)				INCOME				INTERESTS				EQUITY
Balance, December 31, 2012			3,322,500			$	3,322			$	8,278,254			$	806,192			$	296,297			$	90,900			$	9,474,965
Cancellation of shares			(1,000,000	)			(1,000	)			1,000				—				—				—				—
Imputed Interest			—				—				297,990				—				—				1,328				299,318
Net income			—				—				—				5,693,481				—				60,668				5,754,149
Foreign currency translation adjustment			—				—				—				—				636,745				6,432				643,177
Balance, December 31, 2013			2,322,500			$	2,322			$	8,577,244			$	6,499,673			$	933,042			$	159,328			$	16,171,609
Shares issued for Services			856,000				856				6,333,544				—				—				—				6,334,400
Imputed Interest			—				—				194,702				—				—				1,600				196,302
Net income (loss)			—				—				—				(6,067,088	)			—				5,138				(6,061,950	)
Foreign currency translation adjustment			—				—				—				—				(255,548	)			(2,488	)			(258,036	)
Balance, December 31, 2014			3,178,500			$	3,178			$	15,105,490			$	432,585			$	677,494			$	163,578			$	16,382,325

 

See accompanying notes to audited consolidated financial statements.

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS EXPRESSED IN US DOLLARS)

 

		For the year Ended
		December 31,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	(6,067,088	)		$	5,693,481
Net income attributable to non-controlling interests			5,138				60,668
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt			624,226				82,009
Depreciation and amortization			1,030,686				916,666
Stock based compensation			6,334,400				—
Impairment loss			5,782,648				—
Imputed interest			196,302				299,319
Changes in assets and liabilities:
Inventories			(203,347	)			36,002
Receivables			(514,778	)			(157,648	)
Other current assets			834				(4,268	)
Prepaid expense			82,195				(972,628	)
Accounts payable and accrued liabilities			345,878				(607,545	)
NET CASH PROVIDED BY (USED IN)  OPERATING ACTIVITIES			7,617,094				5,346,056
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(896,677	)			(2,386,445	)
Deposit paid on property			(1,864,416	)			—
Cash paid for investments			(4,891,500	)			—
Acquisition of land use right			—				(492,085	)
NET CASH USED IN INVESTING ACTIVITIES			(7,652,593	)			(2,878,530	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments to) related parties			364,514				(3,120,151	)
NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES			364,514				(3,120,151	)
EFFECT OF EXCHANGE RATE ON CASH			(258,036	)			643,177
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			70,979				(9,448	)
CASH AND CASH EQUIVALENTS - beginning of period			11,797				21,245
CASH AND CASH EQUIVALENTS - end of period		$	82,776			$	11,797
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for Interest		$	—			$	899
NON-CASH INVESTING AND FINANCING ACTIVITIES
Cancellation of common shares by shareholder		$	—			$	1,000

 

See accompanying notes to audited consolidated financial statements.

 

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT INC.

 

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2014 AND 2013

 

NOTE 1.   ORGANIZATION AND DESCRIPTION OF BUSINESS

 

China Liaoning Dingxu Ecological Agriculture Development Inc. (the "Company") was incorporated under the laws of State of Nevada on August 19, 2010.  The Company is primarily engaged in the growing, marketing, producing and selling of agriculture products in People’s Republic of China (“PRC”).

 

On December 12, 2011, the Company entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which the Company issued  3,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI.

 

China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (“DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.

 

On July 5, 2011, DingXu BVI formed Panjin Hengrun Biological Technology Development Co, Ltd., a limited liability company organized under the laws of the PRC (“Panjin Hengrun”). DingXu BVI owns 99% of the total ownership of Panjing Hengrun.

 

On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd., a limited liability company organized under the laws of the PRC and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu and to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu. Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.

 

Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entity (“VIE”) of Panjin Hengrun pursuant to ASC-810-10-05 and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.

 

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The company maintains its books and accounting records in Renminbi (“RMB”), and its reporting currency is United States dollars.

 

ACCOUNTING METHOD

 

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the 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 period.  In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included.  Actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. The Company had cash balances of $82,776 and $11,797 as of December 31, 2014 and 2013, respectively.  The Company had no cash equivalents as of December 31, 2014 and 2013.

 

INVENTORIES

 

Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Inventories consist of raw materials, finished goods and growing crops. Cost of finished goods comprises direct material and direct production cost based on normal operating capacity.

 

PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:

 

Building			20 years
Plant equipment			5-10 years
Office equipment			3-5 years
Vehicles			4  years

  

Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

 

Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.

 

LAND USE RIGHTS

 

The Company states land use right at cost less accumulated amortization. The land use right is amortized on straight line method during the contract period.

 

The Company has a land use right to 24,806 square meters of land. The term of the land use right is 50 years, starting in March 2011. The land use right purchase price of $579,580 was fully paid during 2011.  For the years ended December 31, 2014 and 2013, the Company recorded amortization expense of $11,909 and $11,794, respectively. The Company recorded the land use right at its net value of $548,922 and $566,028 as of December 31, 2014 and 2013 respectively.

 

The Company has a land use right to 56,139 square meters of land. The term of the land use right is 46 years, starting in March 2011. The land use right purchase price of $2,698,027 was fully paid for during 2013.   For the year ended December 31, 2014 and 2013, the Company recorded amortization expense of $59,503 and $58,926, respectively. The Company recorded the land use right at its net value of $2,540,116 and $2,623,698 as of December 31, 2014 and 2013 respectively.

 

The Company has a land use right to 428,214 square meters of land. The term of the land use right is 18 years, starting in January 2012. For the year ended December 31, 2014 and 2013, the Company recorded amortization expense of $157,017 and $157,949, respectively. The Company recorded the land use right at its net value of $2,347,313 and $2,531,925 as of December 31, 2014 and 2013 respectively.  As the land use right was not yet fully paid for as of December 31, 2014, the Company recorded long term liabilities related to this land use right in the amount of $1,581,775 and $1,548,644 as of December 31, 2014 and 2013 respectively.

 

LONG TERM PREPAID LEASE

 

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

 

The Company records lease payments at cost less accumulated rent. The Company entered into a long term agreement with certain unrelated parties to rent land in 2010. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years beginning at January 1, 2010. The lease payments for the entire contract period were prepaid of $1,030,900. For the year ended December 31, 2014 and 2013, the Company recorded lease expense of $54,350 and $55,240, respectively.

 

The Company entered into a long term agreement with certain unrelated parties to rent land in 2013. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 17 years beginning at December 25, 2013. The lease payments for the entire contract period were prepaid of $984,107. For the year ended December 31, 2014 and 2013, the Company recorded lease expense of $56,040 and $0, respectively.

 

INVESTMENTS

 

The Company analyzes equity investments in privately held companies to determine if it should be accounted for under the cost or equity method of accounting based on such factors as the percentage ownership of the voting stock outstanding and our ability to exert significant influence over these companies. For the cost method investments, the Company determines at each reporting period whether a decline in fair value has occurred and whether such decline is considered to be an other-than-temporary impairment. If a decline in fair value is determined to be other-than-temporary, the Company would recognize an impairment to reduce the investment to the lower of cost or fair value.

 

Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

 

For the years ended December 31, 2014 and 2013, the Company recorded an impairment on its cost-method investments in the amount of $4,891,500 and $0, respectively, in other expense, net in the consolidated statements of operations. As of December 31, 2014, the net carrying value of the Company’s investments in privately-held companies was $0.

 

REVENUE RECOGNITION

 

The Company engages in the business of growing, producing, marketing and selling fresh mushrooms, dried mushrooms, and mushroom seeds through its affiliated VIE, LiaoNing DingXu.

 

Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.

 

The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no other items that required fair value measurement on a recurring basis.

 

BASIC AND DILUTED LOSS PER SHARE

 

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, there were no outstanding potential common stock equivalents and therefore basic and diluted earnings per share result in the same figure.

 

STOCK-BASED COMPENSATION

 

The Company adopted FASB guidance on stock based compensation upon inception on September 9, 2010. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company did not issue any share-based payments for services or compensation to employees, or otherwise for the periods presented.

 

TAXATION

 

Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into account the benefits from any special tax credits or “tax holidays” allowed in the county of operations.

 

The Company does not accrue United States income tax since it has no operating income in the United States. The operating subsidiary is organized and located in the PRC and does not conduct any business in the United States.

 

Enterprise income tax

 

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the operating subsidiary is exempted from enterprise income tax from 2010 to 2014. Accordingly, the Company statutory rate was 0% and 0% for the year ended December 31, 2014 and 2013, respectively.

 

Value added tax

 

The Provisional Regulations of The PRC concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

 

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT from 2010 to 2014.

 

FOREIGN CURRENCY TRANSLATION

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. 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. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

In accordance with ASC Topic 230, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

On August 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements – Going Concerns (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our financial position or results of operations.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

 

In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.

 

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

 

•

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

 

•

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

 

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

 

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

 

NOTE 3. INVENTORIES

 

Inventories consist of raw materials, finished goods, growing crops and others.

 

Raw materials that were not put into production as of fiscal year end were stated at the lower of cost or market.

 

Finished goods consist of dried mushrooms.

 

Growing crops consist of expenditures valued at the lower of cost or market and are deferred and charged to cost of goods sold when the related crop is harvested and sold. The deferred growing costs included in inventories in the consolidated balance sheets consist primarily of raw material of the crops, direct labor, depreciation of fixed assets used directly in growing, land lease payment for the field used to grow crops, and utilities used in the production site. Costs included in growing crops related to the current crop year.

 

Inventories at December 31, 2014 and 2013 consisted of the following:

 

		December 31, 2014				December 31, 2013
Raw materials and supplies		$	14,005			$	8,145
Growing crops			254,248				91,860
Finished goods			—				—
Others			39,007				3,908
Total Inventories		$	307,260			$	103,913

 

 

NOTE 4. ADVANCES TO SUPPLIERS

 

Advances to suppliers were mainly used to record the advances paid as deposits on raw materials, equipment, or other fixed assets being purchased. Advances to suppliers at December 31, 2014 and 2013 consist of the following:

 

		December 31, 2014				December 31, 2013
Advances to suppliers – short-term
Au Rui Jin Packaing Co., LTD		$	—			$	40,840
Chaoyang Co., LTD			—				32,804
Other			—				8,551
Total advances to suppliers – short-term		$	—			$	82,195
Advances to suppliers – long-term
PanJin XingHua Real Estate Development Co., LTD		$	1,864,416			$	—
Total advances to suppliers – long-term		$	1,864,416			$	—

 

On September 20, 2014, the Company signed a contract to purchase an apartment building which has six floors to be used as a dormitory for the Company’s workers. The Company paid $1,864,416 to PanJin XingHua Real Estate Development Co., Ltd for the purchase of this building. The building is scheduled to be completed during April 2015 at which time it will be transferred into fixed assets and put into use by the Company.

 

NOTE 5. RECEIVABLES

 

Receivables consisted of account receivables due from the sales of mushroom products and advances made to Company employees for future business related expenses. The balances as of December 31, 2014 and 2013 are as follows:

 

		December 31, 2014				December 31, 2013
Account receivable		$	56,862			$	150,832
Employee advances			—				15,478
		$	56,862			$	166,310

 

 

NOTE 6.  PROPERTY, PLANT AND EQUIPMENT

 

Property, Plant and Equipment at December 31, 2014 and 2013 consists of the following:

 

		December 31, 2014				December 31, 2013
Building		$	12,276,999			$	11,699,426
Plant			774,705				569,533
Vehicles			34,087				34,405
Office equipment			75,154				75,857
			13,160,945				12,379,221
Less: Accumulated depreciation			2,070,946				1,363,313
Property, plant and equipment, net		$	11,089,999			$	11,015,908

 

For the year ended December 31, 2014 and 2013, the Company recorded depreciation expense of $707,633 and $687,997, respectively.

 

NOTE 7. CONSTRUCTION IN PROGRESS

 

Construction in progress activities for the year ended December 31, 2014 and 2013 as following:

 

		December 31, 2014				December 31, 2013
The beginning balance:
Greenhouse and planting structures		$	145,237			$	354,943
Factory workshop			751,201				728,661
Total		$	896,438			$	1,083,604
Activities:
Unrealized foreign currency translation gain (loss)		$	(5,290	)		$	33,521
Transfer to fixed assets			—				(220,687	)
Impairment loss			(891,148	)			—
Total		$	(896,438	)		$	(187,166	)
The ending balance:
Greenhouse and planting structures		$	—			$	145,237
Factory workshop			—				751,201
Total		$	—			$	896,438

 

NOTE 8. INVESTMENTS

 

Investments made during the period from December 31, 2012 through December 31, 2014 are as follows:

December 31, 2012		$	—
Activity during fiscal year 2013			—
December 31, 2013			—
Purchase of investment in Liaoning Shenglande Biotechnology Co., Ltd.			2,438,033
Purchase of investment in Shenyang Yiguan Organic Food Co., Ltd.			2,453,467
Other than temporary impairment			(4,891,500	)
December 31, 2014		$	—

 

On June 10, 2014, the Company entered into a contract with Liaoning Shenglande Biotechnology Co., Ltd., a limited liability company (“Liaoning Shenlande”) organized under the laws of the PRC. Under the contract, the Company invested $2,438,033 into Liaoning Shenglande to plant fresh mushroom from July 15, 2014 to July 15, 2019. During the period of cooperation, the Company will get the 50% of profit after tax of Liaoning Shenglande. The Company has the right to receive $2,438,033 at the end of cooperation period. At December 31,2014, we impaired the investment to its fair value as an other than temporary impairment.

 

On December 20, 2014, the Company entered into a contract with Shenyang Yiguan Organic Food Co., Ltd.., a limited liability company (“Shenyang Yiguan”) organized under the laws of the PRC. Under the contract, the Company invested $2,453,467 into Shenyang Yiguan to plant fresh mushroom from January 1, 2015 to January 1, 2020. During the period of cooperation, the Company will get the 50% of profit after tax of Shenyang Yiguan. The Company has the right to receive $2,453,467 at the end of cooperation period. At December 31,2014, we impaired the investment to its fair value as an other than temporary impairment.

 

For the years ended December 31, 2014 and 2013, the Company recorded an impairment on its investments in the amount of $4,891,500 and $0, respectively, in other expense, net in the consolidated statements of operations. As of December 31, 2014, the net carrying value of the Company’s investments in investments was $0.

 

NOTE 9. RELATED PARTY TRANSACTIONS

 

Due to related parties: The total amount due to related parties consisted of the borrowing from shareholders to purchase land use rights, building greenhouses and other planting structures.  The balance was $2,545,915 and $2,181,401 as of December 31, 2014 and 2013, respectively.

 

Imputed interest: Certain stockholders advanced funds to the Company with no stated interest rate. The interest is imputed at 8% annually.  The Company recorded imputed interest in the amount of $196,302 and $299,319 for the years ended December 31, 2014 and 2013, respectively.

 

NOTE 10. COMMON STOCK

 

During the years ended December 31, 2014 and 2013, the Company recorded imputed interest on outstanding due to related parties balance as a contribution of paid-in capital in the amount of $196,302 and $299,319, respectively.

 

On January 8, 2013, majority shareholder, Chin Yung Kong, cancelled 1,000,000 common shares.

 

On October 9, 2014, we completed a 1-for-20 reverse stock split of our outstanding common stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented.

 

On October 31, 2014, the Company issued 856,000 common shares to a consultant in consideration for providing business development services. The total fair value of the common stock was $6,334,400 based on the closing price of the Company’s common stock on the date of grant.

 

The Company’s capitalization is 75,000,000 common shares with a par value of $0.001 per share. There are a total of 3,178,500 common shares issued and outstanding at December 31, 2014. No preferred shares have been authorized or issued.

 

The Company has not granted any stock options and has not recorded any stock-based compensation since inception.

 

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no other items that required fair value measurement on a recurring basis.

 

The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following table provides a summary of the fair values of assets and liabilities as of December 31, 2014:

 

Fair Value Measurements at

Balance as of December 31, 2014

Level 1

Level 2

Level 3

$

—

$

—

$

—

$

—

 

The following table provides a summary of the fair values of assets and liabilities as of December 31, 2013:

 

Fair Value Measurements at

Balance as of December 31, 2013

Level 1

Level 2

Level 3

$

—

$

—

$

—

$

—

 

NOTE 12. NON-CONTROLLING INTEREST

 

Non-controlling interest represents the 1% interest in the subsidiaries. The net income, unrealized foreign currency translation gain and imputed interest attributable to non-controlling interest totals $4,250 and $68,428 for the years ended December 31, 2014 and 2013, respectively. The Company recorded $163,578 and $159,328 of non-controlling interest as of December 31, 2014 and 2013, respectively. 

 

NOTE 13. COMMITMENTS AND CONTINGENCIES

 

The Company had a long term payable for the acquisition of a land use right. Based on the contract agreement, the future minimum rental payments required for the coming years are as follows:

 

Years ending December 31:
2015				$	—
2016				—
2017				—
2018				—
2019					16,900
	Remaining payments				1,564,875
	Total future minimum payments			$	1,581,775

 

Besides the long term payable for land use right, the Company will make payment to shareholders time to time.

 

The Company did not have other significant capital commitments, or significant guarantees as of December 31, 2014 and 2013, respectively.

 

NOTE 14. CONCENTRATIONS

 

For the year ended December 31, 2014, seven of the Company’s customers accounted for 100% of revenues.  Each of the seven customers had sales range from 12% - 20%.  As of December 31, 2014, the Company had $56,862 account receivable due from one of the Company’s customers.  An adverse change in the Company’s relationship with these customers could negatively affect the Company’s revenues and their results of operations.

 

For the year ended December 31, 2013, seven of the Company’s customers accounted for 100% of revenues.  Each of the seven customers had sales range from 12% - 20%.  As of December 31, 2013, six of the Company’s customers accounted for approximately 95% of the accounts receivable balance.  Each of the six customers had an account receivable balance range from 10% - 17%.  An adverse change in the Company’s relationship with these customers could negatively affect the Company’s revenues and their results of operations.

 

NOTE 15. BUSINESS COMBINATIONS

 

On December 12, 2011, the Company entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which the Company issued  3,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI.

 

China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (the “DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.

 

On July 5, 2011, DingXu BVI formed Panjin Hengrun Biological Technology Development Co, Ltd., a limited liability company organized under the laws of the PRC (“Panjin Hengrun”). DingXu BVI owns 99% of the total ownership of Panjing Hengrun.

 

On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd., a limited liability company organized under the laws of the PRCand an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu.  Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.

 

Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entities (“VIE”) of Panjin Hengrun pursuant to ASC-805-10-05 and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.

 

Per ASC-805-50-45,”Transactions Between Entities Under Common Control”, the presentation of the financial statements pertain to financial statements of all consolidating subsidiaries for the period from January 1 through December 31 for fiscal year 2014 and 2013.

 

NOTE 16. SUBSEQUENT EVENTS

 

On January 10, 2015, the Company converted the $2,000,000 related party payable to Chin Yung Kong into a convertible note in the amount of $2,000,000. The convertible note has a maturity date of June 10, 2015, and is convertible into the Company’s common stock at the fixed rate of $0.10 per share. The note also bears no interest. Subsequently, on January 15, 2015, Chin Yung Kong converted the $2,000,000 related party convertible note into 20,000,000 shares of common stock.

 

On January 10, 2015, the Company converted accrued expenses for consulting services owed to four consultants totaling $300,000 into four convertible notes, in the amounts of $150,000, $100,000, $25,000 and $25,000. The convertible notes each have a maturity date of January 10, 2016, and are convertible into the Company’s common stock at the fixed rate of $0.10 per share. The notes also bears interest at 10% per annum. Subsequently, on January 15, 2015, the consultants converted each of the convertible notes into a total of 3,000,000 shares of common stock.

 

On January 10, 2015, the Company converted accrued expenses for business development services owed to East to West Investment, Inc. of $150,000 into a convertible note in the amount of $150,000. The convertible note has a maturity date of January 10, 2016, and is convertible into the Company’s common stock at the fixed rate of $0.10 per share. The note also bears interest at 10% per annum. Subsequently, on January 15, 2015, the East to West Investment, Inc. converted the $150,000 convertible note into 1,500,000 shares of common stock.

 

The Company has performed an evaluation of subsequent events in accordance with ASC Topic 855 and the Company is not aware of any other subsequent events which would require recognition or disclosure in the financial statements.

 

 

 

F-13