| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting and presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include those of the Company and its wholly-owned subsidiaries based in the PRC, which include America Pine Beijing, Arki Beijing, Arki Fuxin, 51% majority ownership in Arki Tianjin, and the discontinued operations of Yin Hang. As a result of contractual arrangements, the Company consolidates Arki Network Service in accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) 810, Consolidation. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements of the Company as of June 30, 2017 and December 31, 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-Q filed with the SEC. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for future years. All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$”
or“$”). Variable interest entity Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity. Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. Arki Network Service’s actual stockholders do not hold any kick-out rights that affect the consolidation determination. The following financial statement amounts and balances of Arki Network Service, Inc.
have been included in the accompanying consolidated financial statements: June 30, December 31, 2017 2016 (Unaudited) Cash and cash equivalent $ 498,678 $ 664,321 Loan receivables, net 632,757 683,496 Interest receivables - 19,350 Prepaid expenses 54,715 - Due from inter-company 1,673,001 1,391,205 Due from related party 93,981 157,098 Other receivables 414,057 354,876 Current assets from discontinued operations 3,511,648 3,081,886 Total current assets 6,246,080 6,352,232 Property and equipment, net 54,593 5,582 Intangible assets, net 1,489,322 1,508,985 Long-term investment 10,054 - Total non-current assets 1,553,969 1,514,567 Total assets $ 7,800,049 $ 7,866,799 Loans payable, current portion $ 892,254 $ 2,332,330 Interest payable 113,369 - Accrued liabilities 3,771 - Taxes payable 32 - Other payable - 8,812 Due to inter-company 1,758,661 2,318,844 Due to related party 248,029 229,890 Deferred tax liability 115,243 112,628 Current liabilities from discontinued operations 61,995 508,633 Total Current liabilities $ 3,193,354 $ 5,511,137 Loans payable, non-current portion 2,116,338 - Total non-current liabilities $ 2,116,338 $ - Total liabilities 5,309,692 5,511,137 For the Six Months Ended 2017 2016 (Unaudited) (Unaudited) Net revenue $ - $ Net loss from continuing operation $ (1,099,698 ) $ (402,929 ) Less: Net loss attributable to the non-controlling interest (455,895 ) (53,473 ) Net loss attributable to the company – continuing operations $ (643,803 ) $ (349,456 ) Net income from discontinued operations $ 751,807 $ 1,231,518 Less: Net income attributable to the non-controlling interest - 605,661 Net income attributable to the company – discontinued operations $ 751,807 $ 625,857 Net loss for the periods $ (347,891 ) $ (828,589 ) Net (loss) income attributable to the Company’s shareholders $ 108,004 $ 276,401 For the Three Months Ended June 30, 2017 2016 (Unaudited) (Unaudited) Net revenue $ - $ Net loss from continuing operation $ (901,367 ) $ (262,541 ) Less: Net loss attributable to the non-controlling interest (422,856 ) (36,575 ) Net loss attributable to the company – continuing operations $ (478,511 ) $ (225,966 ) Net income from discontinued operations $ 555,022 $ 1,446,503 Less: Net income attributable to the non-controlling interest - 711,391 Net income attributable to the company – discontinued operations $ 555,022 $ 735,112 Net loss for the periods $ (346,345 ) $ 1,183,962 Net (loss) income attributable to the Company’s shareholders $ 76,511 $ 509,146 For the Six Months Ended 2017 2016 (Unaudited) (Unaudited) Cash flow (used in) operating activities $ (1,185,473 ) $ (2,506,496 ) -Net cash (used in) operating activities from continuing operations (1,434,436 ) (200,735 ) -Net cash provided by operating activities from discontinued operations 248,963 ) (2,305,761 ) Cash flow provided by (used in) investing activities $ 5,679 $ (3,535,110 ) -Net cash provided by (used in) investing activities from continuing operations 5,679 (311,788 ) -Net cash (used in) investing activities from discontinued operations - (3,223,322 ) Net cash provided by financing activities $ 1,248,378 $ 4,238,010 -Net cash provided by financing activities from continuing operations 1,248,378 620,587 -Net cash provided by financing activities from discontinued operations - 3,617,423 Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Foreign currency translations Almost all of the Company assets are located in the PRC. The functional currency for the Company’s operations is the Renminbi (“RMB”). The Company uses the United States Dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The financial statements of the Company have been translated into US Dollars in accordance with FASB
ASC Section 830, “ Foreign Currency Matters All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of operations and comprehensive income (loss) and cash flows have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Company’s financial statements are recorded as other comprehensive income (loss). The exchange rates used to translate amounts in RMB into US Dollars for the purposes of preparing the financial statements are as follows: As of As of (Unaudited) Balance sheet items, except for stockholders’ equity accounts 0.1475 0.1440 For the three months ended For the six months ended 2017 2016 2017 2016 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Items included in the statements of operations and comprehensive income (loss) and cash flows for the periods presented 0.1475 0.1533 0.1463 0.1531 Foreign currency translation adjustments of $147,390 and $22,144 for the six months ended June 30, 2017 and 2016, respectively, have been reported as other comprehensive (loss) income. Other comprehensive (loss) income of the Company consists entirely of foreign currency translation adjustments. Although PRC government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain. Hence, such translations should not be construed as representations that the RMB could be converted into US Dollars at that rate or any other rate. The value of the RMB against the US Dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US Dollar reporting. Revenue recognition We recognize revenue from services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. E-commerce Revenue Recognition The Company evaluates whether it is appropriate to record the net amount of sales earned as commissions. The Company is not the primary obligor nor is it subject to inventory risk as the agreements with its suppliers specify that they have the responsibility to provide the product or service to the customer. Also, the amounts it earns from its vendors/suppliers is based on a fixed percentage and bound contractually. Additionally, the Company does not have any obligation to resolve disputes between the vendors and the customers that purchase the products on its website. Any disputes involving damaged, non-functional, product returns, and/or warranty defects are resolved between the customer and the vendor. The Company has no obligation for right of return and/or warranty for any of the sales completed using its website. Since the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, it records its revenues as commissions earned on a net basis. The Company records deferred revenue when cash is received in advance of the performance of services or delivery of goods. Deferred revenue is also recorded to account for the seven-day grace period offered to customers for potential product disputes, if any. Servicing fee income Borrowers typically pay the Company a servicing fee on each payment received. The service fees compensate the Company for the costs it incurs in servicing the related loan, including managing funding from investors, payments to investors and maintaining borrower’ account portfolios. The Company records servicing fees paid by borrower as a component of operating revenue when received. Yin Hang provided credit risks assessment services to the borrowers and lenders on a third party P2P online lending platform. The service fees are calculated based on complexity, required time, contents and commercial value of the coordination services between borrowers and lenders and are collected when the loan agreements are signed by all parties but before releasing the money to the borrowers. Interest income on loans Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded in accrued interest receivable. The Company does not charge a prepayment penalty if they repay the loans in advance with or without notice. Discontinued Operations “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity” is utilized by the Company to present the operations of Yin Hang which have been disposed of. The amendments contained in this update change the criteria for reporting discontinued operations and enhance the reporting requirements for discontinued operations. Under the revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results. Examples could include a disposal of a major line of business, a major geographical area, a major equity method investment, or other major parts of an entity. The revised standard also allows an entity to have certain continuing cash flows or involvement with the component after the disposal. Additionally, the standard requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company accounted for the dispose of Yin Hang as discontinued operations pursuant to this standard. Refer to Note 11 for additional details. The Company accounted for the disposal of Yin Hang in 2017 as a discontinued operation pursuant to this standard. Refer to Note 11 for additional details. Non-controlling interest Non-controlling interests held 49% shares of one of subsidiary is recorded as a component of our equity, separate from the Company’s equity. Purchase or sales of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. Comprehensive income (loss) Comprehensive income (loss) includes all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, Accounting Standards Codification (ASC) 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For the periods presented, the Company’s comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments and is presented in the consolidated statements of operations and comprehensive income (loss). Earnings per share The Company calculates basic earnings per share by dividing its net income (loss) by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period and the weighted average number of dilute common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is not anti-dilute or the Company has a loss. Cash and cash equivalents The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents. Loans receivable Loans receivable primarily represents the principle lent to the borrowers. Management regularly reviews the aging of the loans receivable and changes in payment trends and records an allowance when management believes collection of amounts due are at risk. Loans receivable considered noncollectable are written off after exhaustive efforts at collection. Allowance for loan losses The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. The Company calculates the provision amount as below: 1. General Reserve - is based on the total loan receivable balance and to be used to cover unidentified probable loan loss. The General Reserve is required to be no less than 1% of total loans receivable. 2. Specific Reserve - is an allowance set aside covering losses due to risks related to a particular country, region, industry, borrower or type of loan. The reserve rate can also be decided based on management’s estimate of loan collectability. Interest receivable Interest receivable represents the amount of interest that has been earned as of the balance sheet date, but which has not yet been received in cash. Management regularly reviews the aging of interest receivable and changes in payment trends and records an allowance when management believes collection of amounts due are at risk. Interest receivable considered noncollectable is written off after exhaustive efforts at collection. Loans payable Loans from individuals primarily represent the principle of lending funds received from the individuals through the Company’s internet platform. The
interest rates of such loans are 4% - 54% per annum with a term lasting from 6 months to two years. Property and equipment, net Property and equipment is recorded at cost and consists of computer equipment, office equipment and furniture and is depreciated using the straight-line method over the estimated useful lives of the related assets (generally three years or less). Costs incurred for maintenance and repairs are expended as incurred and expenditures for major replacements and improvements are capitalized and depreciated over their estimated remaining useful lives. Impairment of long-lived assets The Company evaluates long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change in market conditions that will impact the future use of the assets) indicate its net book value may not be recoverable. The Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over its estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue. Either of these could result in the future impairment of long-lived assets. As of June 30, 2017 and December 31, 2016, the Company has not experienced impairment losses on its long-lived assets for both the continuing and discontinued operations. However, there can be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets in the future. Fair value of financial instruments FASB ASC 820, “Fair Value Measurement” Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access. Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly. Level 3 Inputs – Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements. ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The tables below present information as of June 30, 2017 and December 31 2016, respectively, regarding the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy reflecting the valuation techniques utilized to determine such fair value. June 30, 2017: Level 1 Available-for-sale: Short-term investments $ 442,440 December 31, 2016: Level 1 Available-for-sale: Short-term investments $ 719,855 Income taxes The Company accounts for income taxes in accordance with FASB ASC 740, “ Income Taxes ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of June 30, 2017 and December 31, 2016, the Company does not have liability for any unrecognized tax benefits. The Company’s tax filings are subject to examination by the tax authorities. The tax years of 2017 and 2016 and 2015 remain open to examination by tax authorities in the PRC. Generally, the Company remains subject to PRC examination of its income tax returns annually. It believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. Its tax provision for interim periods is determined using an estimate of our annual effective tax rate based on rates established within the PRC and, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment. Going Concern As shown in the consolidated financial statements, the Company has generated a net loss of $979,312 for the six months ended June 30, 2017 and an accumulated deficit of $5,199,275 as of June 30, 2017. The Company also experienced insufficient cash flows from operations and will be required continuous financial support from the shareholder. The Company will need to raise capital to fund its operations until it is able to generate sufficient revenue to support the future development. Moreover, the Company may be continuously raising capital through the sale of debt and equity securities. The Company’s ability to achieve these objectives cannot be determined at this stage. If the Company is unsuccessful in its endeavors, it may be forced to cease operations. These consolidated financial statements do not include any adjustments that might result from this uncertainty which may include adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors have raised substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances that the Company will be able to obtain adequate financing or achieve profitability. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
