2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | ' |
Basis of Presentation and Consolidation | ' |
BASIS OF PRESENTATION AND CONSOLIDATION |
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The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements and accompanying notes thereto for the year ended December 31, 2013 filed with the SEC in the Company’s Form 10-K on March 31, 2014. |
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In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the nine month period have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. |
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The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries based in the PRC, which include America Pine (Beijing), Bio-Tech, Inc., Arki (Beijing), E-Commerce Technology Corp., America Arki (Fuxin) Network Management Co. Ltd., and 51% majority ownership in Beijing Beitun Trading Co. Ltd, prior to April 1, 2014, the disposal date. As a result of contractual arrangements with Arki Network Service, the Company consolidates Arki Network Service. All intercompany balances and transactions have been eliminated in consolidation. |
GOING CONCERN | ' |
GOING CONCERN |
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The Company incurred net loss of approximately $3.75 million for the nine months ended September 30, 2014 and had an accumulated deficit of approximately $7.82 million as of September 30, 2014. The Company had a cash balance of $11,507 as of September 30, 2014. The Company financed its operations mainly through borrowings from directors and officers and from a shareholder. Payables to related parties amounted to $1,114,214 as of September 30, 2014. Payables to a shareholder Caesar Capital Management Ltd. amounted to $83,966 as of September 30, 2014. There are no formal agreements between the Company and the directors and officers. If the Company cannot generate enough cash flow from its operating activities, it will need to consider other financing methods such as borrowings from banking institutions or raising additional capital through new equity issuances. There are no assurances that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company plans to continue to control its administrative expenses in the coming years as well as further develop its sales from its main business. |
RECLASSIFICATION | ' |
RECLASSIFICATION |
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Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position. |
USE OF ESTIMATES | ' |
USE OF ESTIMATES |
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The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires our 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. Actual results could differ from those estimates. |
FOREIGN CURRENCY TRANSLATION | ' |
FOREIGN CURRENCY TRANSLATION |
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The Company’s reporting currency is the U.S. dollar. The Company’s functional currency is the local currency in the PRC, the Chinese Yuan (RMB). The financial statements of the Company are translated into United States dollars in accordance with ASC 830, FOREIGN CURRENCY MATTERS, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. As of September 30, 2014 and December 31, 2013, the cumulative translation adjustment of $56,875 and $62,539, respectively, was classified as an item accumulated of other comprehensive income in the stockholders’ equity (deficit) section of the consolidated balance sheets. For the nine months ended September 30, 2014 and 2013, the foreign currency translation adjustment to accumulated other comprehensive deficit was $9,278 and $(4,010), respectively. For the three months ended September 30, 2014 and 2013, the foreign currency translation adjustment to accumulated other comprehensive deficit was $481 and $(2,905), respectively. |
FAIR VALUE OF FINANCIAL INSTRUMENTS | ' |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
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The Company’s financial instruments include cash and cash equivalents, accounts receivable, other assets, and other payables. These financial instruments are measured at their respective fair values. For fair value measurement, U.S. GAAP establishes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value: |
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Level 1 observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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Level 2 include other inputs that are directly or indirectly observable in the marketplace. |
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Level 3 unobservable inputs which are supported by little or no market activity. |
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Fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. |
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We have determined that certain convertible note covered by these financial statements qualifies as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “ Derivatives and Hedging – Contracts in an Entity’s Own Stock ”. See Note 10 for more details. |
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Estimating the fair value of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. The assumptions used to value the Company’s derivatives will have a direct effect on the fair values. In addition, valuation techniques are sensitive to changes in the trading market price of the our Common Stock and its estimated volatility interest rate changes and other variables or market conditions not within the Company’s control that can significantly affect management’s estimates of fair value and changes in fair value. Because derivative financial instruments are initially and subsequently carried at fair value, the Company’s net income may include significant charges or credits as these estimates and assumptions change. |
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The fair value of the derivative liability was determined using the Black-Scholes Model with any change in fair value during the period recorded in earnings as “Change in fair value of derivative liability”. Significant inputs used to calculate the fair value of the derivative liability include expected volatility, risk-free interest rate and dividend yield. |
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The carrying value of cash and cash equivalents, accounts receivable, account payable and accrued liabilities approximates their fair value due to their short-term maturities. |
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Management believes it is not practical to estimate the fair value of related party payables because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs. |
DISCONTINUED OPERATIONS | ' |
DISCONTINUED OPERATIONS |
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On April 1, 2014, the Company sold its entire 51% equity of Beijing Beitun Trading Co. Ltd. (“Beitun”) to Yifan Zhang for $41,030 (RMB 255,000). Yifan Zhang is the daughter of Ms. Wei Guo, the shareholder and managing director of Beitun. See Note 16 — Discontinued Operations for additional information. |