NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

 

Nature of Operations

San Lotus Holding Inc. (the“Company”or“San Lotus”), was incorporated on June 21, 2011 in the State of Nevada and changed our state of incorporation from the State of Nevada to the State of California (the "Conversion") on July 21, 2015. The Company’s principal address of business is in Taiwan.

 

The Company acquired several parcels of undeveloped land and is holding these parcels of land for future development of destination real estate.  Through the acquisition of Mao Ren International Inc. (“Mao Ren”) in fiscal 2015, the Company acquired the liquidation rights to certain properties collateralized by a Taiwanese company.  The Company is being compensated by the creditors of this Taiwanese company to use the proceeds from the sale of the collateralized land to re-invest or develop the collateralized land to construct and then re-sell the real estate. 

 

In fiscal 2015 and part of fiscal 2016, the Company, through the acquisition of XO Experience Inc. (“XO”) from the former Chairman, was engaged in the provision of travel services, including hotel reservation services, airline ticketing, and travel package in the United States. In December 2016, the Company decided to dissolve XO.

 

The Company have begun to acquire the ancillary assets and know-how to augment the two main segments to our main businesses. These ancillary assets and know-how include as follows: (1) intellectual property rights on media assets and media production capabilities and (2) proprietary research knowledge on tourism development in Japan and holding structure for future overseas development. These intellectual property rights on media assets and media production capabilities were acquired as a result of the significant transaction to purchase AHI Film Inc. and AHI Records Inc. on August 31, 2016.These transactions were closed on January 1, 2017. The said media assets, which are held under these two companies and their subsidiaries, include, but are not limited to, a feature motion picture; professional-grade photographs; professional-grade video footages; two completed music albums; and one semi-completed music album as well as other miscellaneous items. Through these acquisitions, key personnel have been retained to ensure that crucial functions to media production are kept in house for future development. The Companyhave concluded that these transactions were asset acquisitions. Separately, due to significant projected capital investments into Japan, the substantial efforts, in both time and resources, are devoted to develop and acquire the knowledge on the Japanese economy as a whole. Through the significant transaction on August 31, 2016 closed on January 1, 2017 to purchase San Lotus Holding Inc. registered in British Virgin Islands (the “San Lotus Holding Inc. (BVI)”), the Company have acquired proprietary research knowledge on tourism development in Japan. The said proprietary knowledge includes, but is not limited to, historical research; economic statistics report; geographic analysis; real estate investment analysis; and most notably tourism specific research with particular focus on destination real estate development. Additionally, San Lotus Holding Inc. (BVI) will be used as a holding structure for future overseas development.

 

The acquisition of Da Ren International Insurance Brokers Co. Ltd. (the “Da Ren Insurance”) closed on April 1, 2017. The Company will continue to develop in the insurance brokerage market. The Company determined that the acquisition of Da Ren Insurance will be a business acquisition upon closing of the transaction. 

 

The Company has not conducted business operations nor had significant revenues from operations since its inception.

 

The Company’s year-end is December 31.

 

These unaudited financial statements are those of the Company and its wholly owned subsidiaries.  In the opinion of management, the accompanying Consolidated Financial Statements of the Company, contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state its financial position as of June 30, 2017 and December 31, 2016 and its results of operations and cash flows for the six month periods ended June 30, 2017 and June 30, 2016 in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”). Operating results for the six-month period ended June 30, 2017 are not necessarily indicative of the results that may be experienced for the fiscal year ending December 31, 2017.

 

Basis of Presentation and Measurement

 

These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities Exchange Act of 1934, as amended.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016 as filed in our Annual Report on Form 10-K.  In the opinion of the Company’s management these financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position at June 30, 2017 and the results of its operations for the six months then ended.  Operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  The 2016 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, 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 period.  These judgments, estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances.  While management believes the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.

 

On August 7, 2017, the Board approved these condensed consolidated interim financial statements.

 

 

Consolidation Policy

The consolidated financial statements of the Company include the accounts of San Lotus Holding, Inc. and its subsidiaries, Green Forest Management Consulting Inc. (“Green Forest”), Da Ren International Development Inc. (“Da Ren”), Mao Ren International Inc. and XO Experience Inc. Intercompany accounts and transactions have been eliminated uponconsolidation. The following companies have been consolidated as at June 30, 2017 and December 31, 2016:

 

Consolidated companies

 

* Da Ren International Insurance Brokers became a subsidiary of the Company on April 1, 2017.

 

Going Concern

The accompanying consolidated financial statements were prepared on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company had an accumulated deficit of $23,405,966 as of June 30, 2017.

 

The Company faces all the risks common to companies at the development stage, including capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams and difficulties in managing growth. The Company's losses raise substantial doubt about its ability to continue as a going concern. The Company's consolidated financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

 

The Company is currently addressing its liquidity issue by continually seeking investment capital through private placements of common stock and debt. The Company’s expected cash receipts to fund its liabilities is through the realization of its long term receivable (note 5).The Company believes its current and future plans enable it to continue as a going concern. The Company's ability to achieve these objectives cannot be determined at this time. These consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities other than the normal course of business and at amounts which may differ from those in the accompanying consolidated financial statements.

 

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 revenue and expenses during the reporting period. Significant estimates incorporated into the Company’s consolidated financial statements include the estimated recoverable amount of the long term receivable, the estimated useful lives for depreciable and amortizable assets and litigation contingencies and claims.  Actual results could differ from those estimates. 

 

Revenue recognition

The Company’s revenues have been principally derived from providing hotel reservation, air ticketing, other travel and non-travel services. During the period ended June 30, 2017, the Company acquired a 100% interest in Da Ren Insurance.  Da Ren Insurance’ source of revenue is from insurance commission.  The Company recognizes revenues when all of the following have occurred: persuasive evidence of arrangement with the customer, services have been performed, fees are fixed or determinable and collectability of the fees is reasonably assured, as prescribed by ASC 605-10, Revenue Recognition, Overall. These criteria as related to revenues are considered to have been met as follows:

 

Insurance commission:  The Company recognizes commission revenues at the later of the billing or the effective date of the related insurance policies.  The commission is based on a percentage basis in the contract and is determined by the insurance carrier in advance of the contractual period.  The Company recognizes supplemental commission revenues using internal data and information received from insurance carriers that allows the Company to reasonably estimate the supplemental commissions earned in the period. A supplemental commission is a commission paid by an insurance carrier that is above the base commission paid, is determined by the insurance carrier, and is established periodically in advance of the contractual period based on historical performance criteria.

 

 

Packaged-tour: The Company receives referral fees from travel product providers for packaged -tour products and services through its service platform and branch offices. Referral fees are recognized as commissions on a net basis after the packaged-tour service are rendered and collections are reasonably assured .

In cases where these entities undertake the majority of the business risks and acts as principal related to the travel tour services provided, revenues are recognized at gross amounts received from customers after the services are rendered. Revenue from such principal arrangement is minimal in the past.

Air ticketing services: Commissions from air ticketing services rendered are recognized upon the issuance of air tickets, net of estimated cancellations. Customers purchase the air tickets, and the Company remits the net amount less base commission to the airlines. Estimated cancellations were insignificant for the years ended June 30, 2017 and December 31, 2016. The Company presents revenues from such transactions on a net basis in the consolidated statements of operations, as the Company acts as an agent, does not assume any inventory risk, and has no obligations for cancelled airline ticket reservations. The Company sometimes also receives additional discretionary commissions from certain airlines when performance targets are met. Such discretionary commissions are recognized on a cash basis because the Company cannot reasonably estimate the amount, or timing of receipt, of such commissions in advance.

Other travel services: Other travel services are mainly commissions from insurance companies for the sale of travel insurance. Customers purchase the travel insurance, and the Company remits the net amount less commission to the insurance companies. The Company recognizes revenue when the travel insurance is issued to the customer, net of estimated cancellations.

 

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.

 

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

 

Estimated useful life

 

 

Net Income (Loss) Per Share

The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which specifies the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of the diluted loss per share if their effect would be anti-dilutive. For the years presented, the Company did not have any common equivalent shares.

 

Impairment of Long-Lived Assets

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long-lived assets currently exist.

 

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting, which requires the Company to record assets acquired, liabilities assumed and any non-controlling interest in the acquire at their respective fair values as of the acquisition date in the Company's consolidated financial statements.

 

Goodwill and intangible assets

Goodwill represents the excess of costs over fair value of the net assets of businesses acquired. The Company follows ASC subtopic 350-20, Intangibles-Goodwill and Other: Goodwill. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually, or more frequently if certain circumstances indicate a possible impairment may exist. The Company performs its annual impairment assessment for goodwill and indefinite-lived intangible assets in December of each year.

 

The Company adopted ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends the guidance in ASC subtopic 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairment. ASU 2012-02 provides an entity testing an indefinite-lived intangible asset for impairment the option of performing a qualitative assessment before calculating the fair value of the asset. Although ASU 2012-02 revises the examples of events and circumstances that an entity should consider in interim periods, it does not revise the requirements to test indefinite-lived intangible assets (1) annually for impairment and (2) between annual tests if there is a change in events or circumstances. If the Company determines, on the basis of qualitative factors, that the fair value of indefinite-lived intangible assets is more likely than not less than the carrying amount, further testing is required. Under the further testing, the impairment test on indefinite-lived intangible assets that are not subject to amortization consists of a comparison of the fair value of each intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Assets with definite lives are carried at cost less accumulated amortization. Intangible assets with definite lives are amortized using the straight-line method over the estimated economic life.

 

Discontinued Operations

The Company follows the policy of segregating the assets and liabilities of subsidiaries or lines of business on its balance sheet from the assets and liabilities of continuing subsidiaries or lines of business when it has decided to close or dispose of a subsidiary or line of business. The Company also follows the policy of separately disclosing the assets and liabilities and the net operations of a subsidiary or line of business in its financial statements when it is decided to close or dispose of a subsidiary or line of business.

 

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.  Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

 

Financial Instruments

The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practicable to estimate such values:

 

Cash and cash equivalent – the carrying amount approximates fair valule because the amounts consist of cash held at banks.

Accounts payable and accrued liabilities – the carrying amounts approximate fair value due to the short-term nature of the obligations.

 

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 - Inputs that are not based on observable market data.

Cash and cash equivalent is measured at level 1 inputs.

 

Foreign Currency Translation Adjustment

The Company’s financial statements are presented in the U.S. dollar ($), which is the Company’s reporting currency, while its functional currencies are the U.S. Dollar for its U.S. based operations and New Taiwan Dollar (NTD) for its Taiwanese based operations. Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of operations.

 

In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from NTD into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income (loss). The exchange rates used for financial statements in accordance with ASC 830, Foreign Currency Matters, are as follows:

 

Foreign currency exchange rates

 

 

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update, (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers. This update provides further guidance on applying collectability criterion to assess whether the contract is valid and represents a substantive transaction on the basis whether a customer has the ability and intention to pay the promised consideration. The requirements of this standard include an increase in required disclosures. Management has not yet selected a transition method and is currently analyzing the impact of the adoption of this guidance on the Company’s consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting. The Company believes that the adoption of the standard will not have a significant impact on its consolidated financial statements.

 

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.”The new guidance is intended to provide specific guidance on cash flow classification issues such as debt prepayment or debt extinguishment costs, settlement of zero coupon debt instruments or cases where the coupon interest rate is insignificant compared to the effective interest rate of the borrowing, contingent consideration payments in a business combination, proceeds from insurance claim settlements and distributions received by equity method investees. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The amendments should be applied using a retrospective transition method to each period presented. The Company believes there will be no impact on the consolidated financial statements as a result of the adoption of the new accounting standard.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Business Combinations (Topic 805).” The amendments in this Update are intended to clarify the definition of business. The current guidance specifies three elements of a business – inputs, processes, and outputs. The new guidance provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that needs to be further evaluated. The standard is effective to annual periods beginning after December 15, 2017, including interim periods within those periods. The Company believes that the adoption of the standard will not have a significant impact on its consolidated financial statements.

 

NOTE 2. PROPERTY AND EQUIPMENT

 

Property and equipment

 

During the period ended June 30, 2017, the Company’s subsidiary, San Lotus Holding Inc. (BVI) had acquired three properties in Kyushu, Japan. These properties are held in trust under the Company’s chairman’s, Kuan Yu Chen, name. Details of these purchase are listed below.

 

Land Acquired During Period

 

Depreciation Expense

 

In June 2016, The Company has sold vehicles, details of which are listed below.

 

Vehicle Sale

 

 

NOTE 3. ACQUISITION AND DIVESTURE OF XO EXPERIENCE INC. (“XO”)

 

On August 14, 2015, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Chen-Tseng, Chih-Ying and Chen, Li Hsing, our former CEO and former Chairman respectively, for the acquisition of XO EXPERIENCE INC. (“XO”) to acquire all of the issued and outstanding common stock of XO in exchange for$1.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:     

 

Fair value of XO Experience acquisition

 

 

The acquisition of XO is considered to be a business acquisition; accordingly, goodwill (refer to above table) was recognized on the acquisition date.  As at December 31, 2015, the Company performed an impairment test on its goodwill and determined that an impairment existed due to negative expected cash flows that will be generated in the business.  Accordingly, the Company recorded an impairment charge equal to the full amount of its goodwill (refer to above table).

 

On December 31, 2016, the Company decided to dissolve XO EXPERIENCE INC. pursuant to Section 1900 (a) of California Corporations Code.  The Company follows the policy of segregating the assets and liabilities of subsidiaries or lines of business on its balance sheet from the assets and liabilities of continuing subsidiaries or lines of business when it decided to close or dispose of a subsidiary or line of business.  As a result of the decision to dissolve XO, XO’s assets, liabilities, revenues and expenses have been classified as discontinued operations on the consolidated balance sheets and statement of operations.  The components of discontinued operations summarized on the statement of operations arising from the decision to dissolve XO are as follows:

 

Discontinued Operations

 

The components of discontinued operations summarized on the balance sheets arising from the decision to dissolve XO are as follows:

 

Discontinued Operations

 

As at December 31, 2016, the Company wrote off the residual net receivable due from companies owned by our former CEO and Chairman totaling $27,836.

 

NOTE 4.         ACQUISITION OF MAO REN INTERNATIONAL INC.

 

On March 31, 2015 (the acquisition date), Green Forest Management Consulting Inc. ("Green Forest"), our wholly-owned subsidiary, entered into a stock purchase agreement with Chiu, Pao-Chi, Chiun Jing Inc., Haug Inc., Jiu Bang Inc., and Wan Fu Inc., (collectively the "Mao Ren Sellers") for the acquisition of Mao Ren International Inc., a Taiwan (R.O.C.) company ("Mao Ren"). Green Forest acquired all of the issued and outstanding common stock of Mao Ren from the Mao Ren Sellers in exchange for $1.

 

The main assets and liabilities acquired from Mao Ren included the liquidation rights to proceeds from collateralized land totaling US$18,190,911 and the related promissory notes payable totaling US$18,190,911 respectively.  See Note 5.

 

NOTE 5.  LONG-TERM RECEIVABLES

 

In February 2010, Mao Ren took on debt from the creditors of a Taiwanese based company in exchange for the creditors’ rights to the proceeds from the sale of collateralized land pledged by this Taiwanese company.  Pursuant to the assumption agreements, the creditors agreed with Mao Ren to enforce and execute the auction by the court or itself against the debtor’s remaining assets which are the collateralized land.

 

The above mentioned creditors of the Taiwanese company are segregated into three groups. In response to the three groups of creditors, three private companies were incorporated by Chen, Kuan Yu, our Chairman, and Yu, Chien Yang, our former Director to facilitate further development. Prior to the acquisition date of March 31, 2015, these three private companies assumed the debt which Mao Ren owed to the three groups of creditors respectively and in turn accepted promissory notes from Mao Ren as consideration. On June 12, 2015, the first group of creditors, represented by the first of the three private companies, agreed to take common stock of the Company as settlement for cancellation of the promissory notes from Mao Ren. The common stock issued was recorded at the par value of $1/common share. The difference between the carrying amount (that being the cost of the seller) and the par value was recorded in deficit. The Company issued those shares to our Chairman in trust for those individual creditors.  The second group of creditors, who wish to collect cash proceeds from the sale of collateralized land, settled with the second private company (owned by our former Director) whereby the former director would be personally liable to settle the amounts with the creditors. The Company could not locate the remaining third group creditors and could not settle any of their debts. 

 

The Company has hired an independent appraiser to appraise the collateralized land and recorded the long-term receivable based on the potentially realizable value NT$913,401,823 of the collaterals at initial recognition. The realizable value constitutes the carrying amount of the seller because the agreements with the creditors stipulated that the maximum amount the creditors could recover is limited to the proceeds received from the sale of the collateralized land relative to their proportionate investment. Further to realization of some of the liquidation rights to the debtor’s remaining assets during fiscal 2016, the Company has re-assessed our remaining rights to the debtor’s remaining assets as follow:

 

Land Fair Value

 

 

As of June 30, 2017 and December 31, 2016, the Company’s receivable amounts are shown below.

 

Receivables

 

 

During fiscal 2016, three parcels of the debtor’s land were sold for the following amounts:

 

 

 

Land Sales Proceeds

 

 

No gain or loss was recognized upon sale of the debtor’s land because the initial carrying value was adjusted to its fair value as agreements with the first group of the creditors stipulated that the cost of the seller to equal to the estimated expected proceeds from the sales.

 

NOTE 6.         ACQUISITION OF AHI FILM INC.

On August 31, 2016, the Company entered into an agreement to purchase all outstanding shares of AHI Film Inc. from Chang, Hsin-Yu (the “Seller”), the sole shareholder of AHI Film and AHI Film’s creditor’s right from Yu, Chien-Yang, a former director and major shareholder. This transaction closed on January 1, 2017.  

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:     

 

Fair value of AHI Film acquisition

 

The Company performed an impairment test on the assets acquired after acquisition and determined that the full balance of the assets is to be impaired due to the uncertainty in the ultimate benefit to the Company.  The Company decided to purchase these assets to reimburse the original creditors for their advances and expenses paid on behalf of these companies.

 

NOTE 7.         ACQUISITION OF AHI RECORD INC.

On August 31, 2016, the Company entered into an agreement to purchase all outstanding shares of AHI Records Inc. from Chang, Hsin-Yu (the “Seller”), the sole shareholder of AHI Records Inc. (“AHI Records”) and AHI Records’ creditor’s right from Yu, Chien-Yang, a former director and major shareholder. This transaction closed on January 1, 2017.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:     

 

Fair value of AHI Record acquisition

 

The Company performed an impairment test on the assets acquired after acquisition and determined that the full balance of the assets is to be impaired due to the uncertainty in the ultimate benefit to the Company.  The Company decided to purchase these assets to reimburse the original creditors for their advances and expenses paid on behalf of these companies.

 

NOTE 8.         ACQUISITION OF SAN LOTUS HOLDING INC (BVI)

On August 31, 2016, the Company entered into an agreement to purchase all outstanding shares of San Lotus Holding Inc. registered in British Virgin Islands (the “BVI Company”) from Chang, Hsin-Yu (the “Seller”), the sole shareholder of the BVI Company and the BVI Company’s creditor’s right from Yu, Chien-Yang, a former director and major shareholder. This transaction closed on January 1, 2017.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:     

 

Fair value of San Lotus Holdong Inc. (BVI) acquisition

 

The Company performed an impairment test on the assets acquired after acquisition and determined that the full balance of the assets is to be impaired due to the uncertainty in the ultimate benefit to the Company.  The Company decided to purchase these assets to reimburse the original creditors for their advances and expenses paid on behalf of these companies.

 

NOTE 9.         ACQUISITION OF Da Ren International Insurance Brokers Co. Ltd

On December 31, 2016, the Company entered into an agreement to purchase all outstanding shares of Da Ren International Insurance Brokers Co.,Ltd registered in Taiwan (R.O.C) (the “Da Ren Insurance”) from Wu, Ting–Kuang (the “Seller”), the sole shareholder of the Da Ren International Insurance Brokers Co.,Ltd. This transaction closed on April 1, 2017.  Da Ren Insurance and the Company have common officers and directors at the time of acquisition.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:     

 

Fair value of Da Ren International Insurance Brokers Co.,Ltd acquisition

The purpose of the acquisition of Da Ren Insurance was to complement the future development of the Company’s real estate holdings. 

 

NOTE 10.           FORMATION OF AHI FILM’S LLC SUBSIDIARIES

 

On April 23, 2017, AHI Film formed four LLC subsidiaries to develop four separate film projects. The specifics of film projects have yet to be determined.  During the period ended June 30, 2017, there are no transactions in these LLC’s.

 

NOTE 11.           RELATED PARTY TRANSACTIONS

The principal related party transactions for the six months ended June 30, 2017 and year ended June 30, 2016 were as follows:

 

a)                  Purchase of vehicle

During fiscal 2016, the Company purchased two vehicles from a private company controlled by Yu, Chien-Yang , our former Director for total purchase price of $39,600

 

b)                  Amounts due from/to related parties

Amounts Due From or To Related Parties

 

The amounts due from/to related parties are non-interest bearing, unsecured and have no fixed terms of repayment.

 

c)               Acquisitions

 

The acquisitions of XO, Mao Ren, AHI Film Inc., AHI Records Inc., San Lotus Holding Inc. (BVI) and Da Ren Insurance as outlined in notes 3,4,6,7, 8 and 9 are considered to be transactions with related parties.

 

NOTE 12.           CAPITAL STOCK

Common Stock

 

Holders of common stock are entitled to one vote for each share held.  There are no restrictions that limit the Company’s ability to pay dividend on its common stock.  The Company has not declared any dividend since incorporation. 

 

There are no capital transactions during the six months period ended June 30, 2017 or fiscal year ended December 31, 2016.

 

NOTE 13.       COMMITMENTS AND CONTINGENCIES

 

a)    The Company has several operating leases, primarily for offices and employee dormitories. Payments under operating leases, including periodic rent escalation and rent holidays, are expensed on a straight-line basis over the lease term.

 

Future minimum lease payments under non-cancellable operating leases as of Jun 30, 2017 are as follows:

 

Minimum lease payments

 

Rental expenses

 

 

b)        As outlined in Note 5, the Company could not locate the third group of creditors and could not settle any of their debts.  Should these creditors come forward to claim their debt, there is a risk that the Company would be obligated to settle with these creditors and the potential obligation could result in a liability to the Company.  As at the date of these financial statements, the Company cannot reasonably estimate the amount of any contingent payments to these creditors. 

 

NOTE 14.           SEGMENTED INFORMATION

 

The Company has two principal reportable segments, one of which is considered to be discontinued operations as at June 30, 2017.  These reportable segments were determined based on the nature of products and services offered.  Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

 

Business Segments

* The Company’s travel services business segment is considered to be a discontinued operations as at December 31, 2016 due to the dissolution of XO which is the only entity carrying out travel services.  Further information about this segment is outlined in Note 3.

 

The following table lists the Company’s capital assets by geographical area:

 

Geographical Areas

 

 

NOTE 15.           CONCENTRATIONS

Credit risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents.  The Company places its cash with high quality financial institutions.  The majority of the Company’s cash is deposited with banks in Taiwan.  The government-owned Central Deposit Insurance Corporation in Taiwan provides deposit insurance coverage limit of up to NTD3,000,000 per depositor. 

 

 

NOTE 16.                   RESTATEMENT AND CORRECTION OF ERRORS

Subsequent to the issuance of the Company’s 2015 consolidated financial statements on May 6, 2016, the Company became aware of errors in its determination of certain previously reported amounts in its 2015 consolidated financial statements related to the acquistion of XO and Mao Ren and the application of its revenue recognition policy.  These errors were related to the measurement of the purchase price allocation on acquistion dates and the subsequent measurement of these amounts as well as the recognition policy of the revenue from the travel services business.  The Company has also identified other adjustments that have been corrected as part of this restatement, including classification of related party balances, and adjustments to accounts receivable and unearned revenue related to errors in revenue recognition. The errors in revenue recognition are related to the fact that the Company booked revenue on a gross basis instead of net basis in accordance with ASC 605-45 Revenue Recognition: Principal Agent Considerations. The purchase price allocation has been adjusted to reflect the carrying amounts to the seller of Mao Ren.The Company determined its previously issued consolidated financial statements should be restated to correct these errors.  The following tables summarize the impact of the restatement on our previously reported consolidated balance sheets as at June 30, 2016, consolidated statement of comprehensive loss, and consolidated statement of cash flows for the three months period ended June 30, 2016.

 

Consolidated balance sheets

 

 

 

Consolidated statements of loss and comprehensive loss

 

Consolidated statements of stockholder’s equity

 

Consolidated statements of cash flows

 

 

  

  

  

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