| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Text Block] | 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The audited consolidated financial statements for all periods presented include the financial statements of China Longyi Group International Holdings Limited, and its subsidiaries: Top Team Holdings Limited, Full Ample Group Limited (Daykeen Group, BVI), Top Time International Limited (HK), Beijing SOD, and Chongqing SOD. The audited consolidated financial statements have been prepared in accordance with US GAAP. All significant intercompany accounts and transactions have been eliminated during consolidation.
The Company has determined the People’s Republic of China Chinese Yuan Renminbi (“RMB”) to be its functional currency. The accompanying audited consolidated financial statements are presented in United States (US) dollars. The audited consolidated financial statements are translated into US dollars from RMB at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.
NONCONTROLLING INTEREST IN SUBSIDIARIES
The Company owns
90% of the equity interest in the Beijing LongYi Biology Technology Co. Ltd, and the remaining
10% is owned by Miss Ran Wang. Therefore, the Company records noncontrolling interest to allocate
10% of the results of the Beijing Longyi Biology Technology limited to Miss Ran Wang, its noncontrolling shareholder.
The Company owns
81% of the equity interest in the Chongqing JiuZhou Dismutase Biology Technology Co. Ltd, and remaining
9% is owned by Miss Ran Wang, and another
10% is owned by Mr. Guoqing Tan. Therefore, the Company records noncontrolling interest to allocate
19% of the results of the Chongqing JiuZhou Dismutase Biology Technology Co. Ltd to Miss Ran Wang and Mr. Guoqing Tan, its noncontrolling shareholder.
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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
SIGNIFICANT ESTIMATES
Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant areas requiring the use of management estimates related to the valuation of acquired companies, inventories, allowance for doubtful accounts, equipment, patent rights, accrued liabilities and stock options, and the useful lives for amortization and depreciation.
REVENUE RECOGNITION
Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, delivery has occurred and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price and considers delivery to have occurred when the customer takes title of the products.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with maturities of three months or less when purchased.
Cash and Cash Equivalents as of December 31, 2016 were $33,976
and $29,429
in December 31, 2015.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expenses as incurred. Equipment purchased for specific research and development projects with no alternative uses are expensed. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses from the disposal of property, plant and equipment are recorded in loss on disposal and impairment of property, plant and equipment included in the consolidated statements of comprehensive income (loss).
Depreciation and amortization are provided for financial reporting purposes primarily on the straight-line method over the estimated useful lives of the respective assets as follows:
Estimated
Useful Life
Transportation equipment
5
years
Furniture and fixtures
5
years
Production equipment
10
years
Building and improvements
20
years
INVENTORY Prior to January 1, 2015, inventories are stated at the lower of cost or replacement cost with respect to raw materials and the lower of cost or market with respect to finished goods and work in progress. The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 201511 (“ASU 201511”), Simplifying the Measurement of Inventory, which the Company adopted on January 1, 2015. Subsequent to January 1, 2015, inventories are stated at the lower of cost or replacement cost with respect to raw materials and the lower of cost or net realizable value with respect to finished goods and work in progress. The cost of work in progress and finished goods is determined on a weighted average cost basis and includes direct material, direct labor and overhead costs. Net realizable value represents the anticipated selling price, net of distribution cost, less estimated costs to completion for work in progress.
Inventories as of December 31, 2016 were $440,643
and $359,194
in December 31, 2015.
FOREIGN CURRENCY TRANSLATION The financial records of the Group’s subsidiaries are maintained in their local currencies. Monetary assets and liabilities denominated in currencies other than their local currencies are translated into local currencies at the rates of exchange in effect at the balance sheet dates. Transactions denominated in currencies other than their local currencies during the year are converted into local currencies at the applicable rates of exchange prevailing when the transactions occur. Transaction gains and losses are recorded in other income/ (expense), net in the statements of income.
The reporting currency of the Group is the United States dollar (“US dollar”). When translating local financial reports of the Group’s subsidiaries into US dollar, assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are translated at the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statements of operations and comprehensive income.
The relevant exchange rates are listed below:
December 31,
2016 2015
RMB HK$ RMB HK$
Balance sheet items, except for equity accounts
6.9370
7.7551
6.4936
7.7510
Items in the statements of income and comprehensive income, and the statements of cash flows
6.6401
7.7621
6.2272
7.7522
FINANCIAL INSTRUMENTS ETC For certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, accounts payable, and accrued expenses, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
•
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
•
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•
Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement. The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging. As of December 31, 2016 and 2015, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when a different tax rate is enacted.
Pursuant to the provisions of ASC No. 740, Income Taxes, the Group provides valuation allowances for deferred tax assets for which it does not consider realization of such assets to be more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the historical taxable income generation, projected future taxable income, the reversal of existing deferred tax liabilities and tax planning strategies in making this assessment.
The corporate income tax rate applicable to the company is from
15% to
35%. As of December 31, 2016, the Company had a Net Operating Loss of $30,839,409
to be carried forward into future years and will expire in 2037 if not utilized. A full valuation allowance is established against all deferred tax assets relating to NOL carry forwards based on estimates of recoverability. While the Company has optimistic plans for its business, it is determined that such a valuation allowance was necessary given the uncertainty with respect to its ability to generate sufficient profits from its new business model.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share ("EPS") is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive stock options.
The numerator and denominator used in the basic and diluted LPS of common stock computations are presented in the following table:
Year ended December 31,
2016
2015
NUMBERATOR FOR BASIC AND DILUTED EPS
Net income (loss) attributable to common stockholders
$
157,498
$ (
342,732)
DENOMINATOR FOR BASIC AND DILUTED EPS
Weighed average shares of common stock outstanding
77,655,862
77,655,862
EPS – Basic and diluted
$
0.0020
$
(0.0044)
There were no potentially dilutive securities outstanding at December 31, 2016 and 2015 as the result would be anti-dilutive. COMPARATIVE FIGURES Certain comparative figures have been reclassified in order to conform to the presentation adopted in the current period. COMPREHENSIVE INCOME (LOSS) The Company’s comprehensive income (loss) consists of net income (loss) and foreign currency translation.
RECENTLY ADOPTED ACCOUNTING STANDARDS
There were no changes to the new accounting pronouncements as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 except for the following:
In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance which amends the existing accounting standards for leases. Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize right-of-use assets and lease liabilities on the balance sheet. The new guidance is effective for us from November 1, 2020, and interim periods in the following year. Early adoption of this guidance is permitted and we will be required to adopt using a modified retrospective approach. We are evaluating the timing and the impact of adopting this guidance on our audited consolidated financial statements and disclosures.
In January 2016, FASB issued amendments to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The provisions under this amendment are effective for us from November 1, 2018, and for interim periods in the following year and early adoption is not permitted. We are evaluating the impact of adopting this guidance to our audited consolidated financial statements.
In November 2015, FASB issued guidance intended to simplify accounting for deferred taxes. Beginning on November 1, 2017 and including the interim periods following that date, we will be required to present all deferred tax balances as non-current. Existing GAAP guidance requires us to record deferred tax balances as either current or non-current in accordance with the classification of the underlying attributes. Early adoption of this guidance is permitted and may be applied either prospectively or retrospectively to all periods presented.
Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our audited consolidated financial statements upon adoption. |
