| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation The accompanying consolidated
financial statements have been prepared in conformity with US GAAP. This basis of accounting differs from that used in the statutory
accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The
Company’s functional currency is the Chinese Renminbi (“RMB”); however the accompanying consolidated financial
statements have been translated and presented in United States Dollars (“USD”). All significant intercompany transactions
and balances have been eliminated. Use of Estimates The
preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets
and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful
lives of property and equipment, land use rights and biological assets, and assumptions used in assessing impairment for long-term
assets. Principles of
Consolidation The
Company consolidated the financial results of its wholly-owned subsidiaries, HCS, WFOE, Fengze, Tianzhili, and for the periods
prior to their sales, Hang-ao and OV Orange. All material intercompany accounts and transactions have been eliminated in consolidation. Cash Cash consists of all
cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of
these investments, the carrying amounts approximate their fair value. The Company maintained cash and cash equivalents with various
financial institutions in the PRC. As of September 30, 2017 and December 31, 2016, balances in banks in the PRC were $60,390,668
and $54,458,026, respectively. Accounts Receivable Accounts receivable
is stated at cost, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic
basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability
of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment
history, its current credit-worthiness and current economic trends. Management did not accrue any allowance for doubtful accounts
at September 30, 2017 and December 31, 2016. Inventories Inventories are stated
at the lower of cost, as determined by the weighted-average method, or market value. Management compares the cost of inventories
with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of
raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus
the costs of feed and other maintenance costs through the balance sheet date. Management inspects and monitors inventory on a continual
basis. The Company did not record any inventory reserve at September 30, 2017 and December 31, 2016, respectively. Prepaid Expenses Prepaid expenses at September 30, 2017 and December
31, 2016 totaled $9,102 and $112,676, respectively, and includes prepayments to suppliers for services that had not yet been provided
to the Company. The Company recognizes prepayments as expense as suppliers provide services, in compliance with its accounting
policy. For the three months ended September 30, 2017 and 2016, the Company had amortized its prepaid insurance expense, warehouse
leasing expense, and service expense of $31,828 and $129,985, respectively. For the nine months ended September 30, 2017 and 2016,
the amortization expense from the prepaid expenses were $126,250 and $379,683, respectively. Advances to Suppliers Advances to suppliers are stated at cost, net
of an allowance for doubtful accounts and include prepayments to suppliers for merchandise and raw materials that had not yet been
shipped. The Company recognizes prepayments as inventory or expense as suppliers make delivery of goods in compliance with its
accounting policy. The Company maintains allowances for doubtful accounts for estimated losses resulting from prepayments without
future economic benefits to the Company. The Company reviews the advances to suppliers on a periodic basis and makes allowances
where there is doubt as to the future economic benefits of individual balances. Advances to suppliers at September 30, 2017 and
December 31, 2016 totaled $0 and $1,129,477, respectively, which represented prepayments to the Company’s feed suppliers.
Management did not accrue any allowance for doubtful accounts at September 30, 2017 and December 31, 2016. Plant and Equipment The
Company states plant and equipment at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged
to operations as incurred; additions, renewals and betterments are capitalized. When plant and equipment assets are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any resulting
gain or loss is recorded as an operating expense. In accordance with US GAAP, the Company examines the possibility of decreases
in the value of plant and equipment when events or changes in circumstances reflect the fact that their recorded value may not
be recoverable. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets
with a residual value of 5% of plant and equipment. Estimated
useful lives of the Company’s assets are as follows:
Useful Life
Buildings 20 years
Vehicles 5-10 years
Office equipment 3-5 years
Research equipment 3-20 years
Production equipment 3-20 years Biological Assets Biological assets consist primarily of hogs
purchased or selected from the Company’s own production for breeding and farrowing, which management believes will produce
piglets that grow faster and have better quality breeding capabilities and carcasses with a high percentage of meat and a small
quantity of fat. The costs to purchase and cultivate these breeding hogs and the expenditures related to labor and materials to
feed the breeding hogs until they become commercially productive and breedable are capitalized. When these breeding hogs are entered
into breeding and farrowing production, amortization of the costs of these breeding hogs commences. The estimated production life
for breeding hogs is three years, and the costs are amortized to a residual value of $76 (RMB 500). After the breeding hogs have
completed their production life of breeding, these breeding hogs are then transferred into inventory as the vast majority of these
breeding hogs will then be sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets
are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
If these breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs
until weaned for these piglets are then allocated into biological assets. Amortized expenses pertaining to biological
assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold. Intangible Assets Included in the intangible assets are land use
rights and distribution networks. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals
are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are
being amortized using the straight-line method over their lease terms or estimated useful life. The Company carries intangible assets at cost
less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible
assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes
amortization using the straight-line method over the 50 year life of the land use rights and 10 year life of acquired distribution
network. Impairment of
Long-lived Assets In accordance with US GAAP, the Company periodically
reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. For the nine months ended September 30, 2017 and 2016, the Company did not record impairment
charges against its plant and equipment. Fair Value of
Financial Instruments Effective
January 1, 2008, the Company adopted ASC 820, Fair Value Measurements and Disclosure (“ASC 820”) for assets and liabilities
measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally
accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value
and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s
financial position or operating results, but did expand certain disclosures. ASC
820 defines fair value as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below: Level
1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level
2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level
3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. The
Company did not identify any assets and liabilities that are required to be presented on the consolidated balance sheets at fair
value in accordance with the relevant accounting standards. The
carrying values of cash, trade receivables and payables, and short-term bank loans and debts approximate their fair values due
to the short maturities of these instruments. Non-controlling
Interest Non-controlling
interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component
of equity, separate from the parent’s equity. Purchase or sale 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. Revenue Recognition Pursuant to the guidance
of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured.
The Company generates revenues from the business of breeding, raising, and selling hogs for use in Chinese pork meat production
and the sale of hogs for breeding by other hog producers. The Company also sells specialty pork products to retailers and direct
to consumers through the internet. Revenues generated
from sales of breeding and meat hogs and specialty pork are recognized when these products are delivered to customers in accordance
with previously agreed upon pricing and delivery arrangements, and the collectability of these sales is reasonably assured. Cash
payment, which sometimes is in the form of wired cash transfers to the Company’s bank account, is usually received by the
Company at the time hogs are sold. Sold hogs and specialty pork are not returnable and accordingly, no provision has been made
for returnable goods. The customers are responsible for shipping the hogs they purchase. Segment Information The Company follows
FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about
allocating resources to segments and evaluating their performance. In the second quarter
of 2013, the Company entered into distribution agreements with supermarkets whereby the Company is permitted to sell specialty
pork products in the supermarkets’ retail facilities. Consequently, management determined that as of the end of the second
quarter of 2013, the Company was engaged in the retail business. As of September 30, 2017 and December 31, 2016, the Company was
operating in two segments, Hog Farming and Retail. Income Taxes The Company accounts for income taxes under
the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of September
30, 2017 and December 31, 2016. The Company is subject to the Enterprise Income
Tax law (“EIT”) of the People’s Republic of China. However, according to the EIT, companies that are engaged
in the agricultural business and primary processing of agricultural products are exempt from the 25% enterprise income tax. The
Company’s operations in breeding, raising, and selling hogs for use in Chinese pork meat production and hog breeding, are
exempt from the Chinese income tax. Renmin Tianli is incorporated in the British Virgin Islands. Under the current tax laws of
the British Virgin Islands, the Company is not subject to income taxes. In addition
the Company’s hog sales are not subject to the PRC’s 17% VAT tax or the 5% business tax levied on incomes from services
rendered. According to the PRC tax regulations, companies engaging in the agricultural business are exempt from these taxes. With
respect to the Company’s operations in retail, the Company is engaged in breeding, processing, and distributing black hogs
and black hog meats which are exempt from VAT taxes and corporate income tax as well. Related parties A party is considered
to be related to the Company if the party, directly or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners and management and other parties with which the Company may deal with if
one party controls or can significantly influence the management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party
transactions. All transactions are recorded at fair value of the goods or services exchanged. Basic and Diluted
Earnings per Share The Company reports
earnings per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share
are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are
computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying
the treasury stock method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds
thus obtained were assumed to be used to purchase common stock at the average market price during the period. There were no dilutive
instruments outstanding during the nine month periods ended September 30, 2017 and 2016. Foreign Currency
Translation As of September 30, 2017 and December 31, 2016,
the accounts of Renmin Tianli were maintained and its financial statements were expressed in Chinese Renminbi (RMB). Such financial
statements were translated into United States Dollars (USD) in accordance with US GAAP, with the RMB as the functional currency.
All assets and liabilities are translated at the current exchange rates as of the balance sheet dates. These rates were RMB 6.637
and RMB 6.945 per US dollar as of September 30, 2017 and December 31, 2016, respectively. Stockholders’ equity is translated
at the historical rates and items in the statements of operations and cash flows are translated at the average exchange rate for
the period. The resulting translation adjustments are reported under other comprehensive income in accordance with US GAAP as a
component of stockholders’ equity. During the nine months
ended September 30, 2017 and 2016, the transactions of Renmin Tianli were denominated and recorded in RMB and are translated at
the average rates of exchange for the period. These rates were RMB 6.798 and RMB 6.5405 per US dollar for the nine months ended
September 30, 2017 and 2016, respectively. Exchange gains and losses are recognized for the different foreign exchange rates applied
when the foreign currency assets and liabilities are settled. 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. Contingencies Certain conditions
may exist as of the date financial statements are issued, which may result in a loss to the Company but which will only be resolved
when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent
liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought. If the assessment of
a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies
considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would
be disclosed. Accrual of Environmental
Obligations ASC Section 410-30-25
“Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions
are met:
a) Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements.
b) The amount of the loss can be reasonably estimated. As of September 30,
2017 and December 31, 2016, the Company did not have any environmental remediation obligations, nor did it have any asset retirement
obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition
or disclosure in its financial statements. Recently Issued
Accounting Pronouncements In August 2017,
the FASB issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge
accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of
hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted
for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective
approach through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the
impact of this standard on our consolidated financial statements, including accounting policies, processes, and systems. In November 2016, the
FASB issued an ASU amending the presentation of restricted cash within the statement of cash flows. The new guidance requires that
restricted cash be included within cash and cash equivalents on the statement of cash flows. The ASU is effective retrospectively
for reporting periods beginning after December 15, 2017, with early adoption permitted. In October 2016, the
Financial Accounting Standards Board (“FASB”) issued new guidance requiring an entity to recognize the income tax consequences
of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold
to an outside party. This guidance is effective for us beginning July 1, 2018, with early adoption permitted beginning July 1,
2017. The Company plans to adopt the guidance effective July 1, 2018. Adoption of the guidance will be applied using a modified
retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. A cumulative-effect
adjustment will capture the write-off of income tax consequences deferred from past intra-entity transfers involving assets
other than inventory and new deferred tax assets for amounts not recognized under current U.S. GAAP. The Company is currently evaluating
the impact of the guidance on its consolidated financial statements, including accounting policies, processes, and systems. In June 2016, the FASB
issued a new standard to replace the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans,
and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an
allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective
beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Adoption of the standard will be applied
using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The
Company is currently evaluating the impact of this standard on our consolidated financial statements, including accounting policies,
processes, and systems. In February 2016, the
FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition
of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the
standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under
current U.S. GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements
to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company will be required to recognize and
measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified
retrospective approach, with certain practical expedients available. The standard will be
effective for the Company beginning January 1, 2019, with early adoption permitted. The Company is currently evaluating the
impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems. It anticipate
this standard will have a material impact on its consolidated balance sheets. However, the Company does not expect adoption will
have a material impact on its consolidated income statements. While the Company is continuing to assess potential impacts of the
standard, it currently expects the most significant impact will be the recognition of ROU assets and lease liabilities for operating
leases. ROU assets and lease liabilities for operating leases are expected to increase upon the Company’s adoption of the
new standard primarily due to the impact of the change in accounting for the land on which its hog farms are located which is leased
from the third parties. In January 2016, the
FASB issued a new standard related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
Most prominent among the changes in the standard is the requirement for changes in the fair value of equity investments, with certain
exceptions, to be recognized through net income rather than other comprehensive income (“OCI”). The standard will be
effective for the Company beginning January 1, 2018. Adoption of the standard will be applied using a modified retrospective
approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating
the impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems. In May 2014, the FASB
issued a new standard related to revenue recognition. Under the standard, revenue is recognized when a customer obtains control
of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those
goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and
cash flows arising from contracts with customers. The guidance permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective
method). The standard will be effective for the Company beginning January 1, 2018, with early adoption permitted as of the original
effective date of July 1, 2017. The Company is currently evaluating the impact of this standard on our consolidated financial
statements, including accounting policies, processes, and systems. Reclassification Certain
prior year balances were reclassified to conform to the current year's presentation with consideration of reflecting two of the
Company’s subsidiaries, Hang-ao and OV Orange, as discontinued operations. None of these reclassifications had an impact
on reported financial position or cash flows for any of the periods presented. Acquisitions On July 15, 2014, the
Company acquired Hang-ao, a Chinese limited liability company located in Xiangyang, Hubei Province. In accordance with the acquisition
agreement, Renmin Tianli became the holder of 88% of the equity interest of Hang-ao for consideration of $9,055,605, including
RMB 42 million or approximately $6.8 million in cash and 261,750 common shares of Renmin Renmin . The following is a
reconciliation of the purchase:
Shares Price per Share Amount
Fair value of the Company’s stock issued 261,750 $ 8.52 $ 2,230,110
Cash 6,825,495
Total purchase price $ 9,055,605
Acquired assets and liabilities:
Cash $ 215,236
Current assets 8,121,512
Fixed assets 2,036,448
Intangible assets 3,684,084
Liabilities (3,766,820 )
10,290,460
Percentage of acquired equity 88 %
88% of acquired assets and liabilities 9,055,605
Purchase price 9,055,605
Goodwill $ —
Amount
Acquired assets and liabilities, net $ 10,290,460
Percentage of equity 12 %
Noncontrolling Interest $ 1,234,855 On August 26, 2014, the Company entered into
and consummated a stock purchase agreement (the “Stock Purchase Agreement”) whereby it acquired 95% of the outstanding
equity of Wuhan Optical Valley Orange Technology Co., Ltd., a corporation organized under the laws of the People’s Republic
of China (“OV Orange”), from certain of the former shareholders of OV Orange in exchange for 638,000 of the Company’s
common shares, of which 100,750 shares were deposited in escrow to be issued to Mr. Hai Liu, CEO of OV Orange and the former beneficial
owner of 7,500,000 (representing 15% of the outstanding) OV Orange shares (the “Escrow Shares”), subject to the attainment
by OV Orange of certain agreed upon net profit targets for the years ended December 31, 2014, 2015 and 2016 . The following is a
reconciliation of the purchase:
Shares Price per Share Amount
Fair value of the Company’s stock issued 638,000 $ 7.80 $ 4,976,400
Acquired assets and liabilities:
Cash $ 690,990
Current assets 3,881,918
Fixed assets 376,075
Long-term prepaid expense 1,282,037
Intangible assets 2,699,753
Liabilities (989,226 )
7,941,547
Discount from bargain purchase (2,703,232 )
5,238,315
Percentage of acquired equity 95 %
95% of acquired assets and liabilities 4,976,400
Purchase price 4,976,400
Goodwill $ —
Amount
Acquired assets and liabilities, net $ 5,238,315
Percentage of equity 5 %
Noncontrolling Interest $ 261,915 Before Renmin Tianli acquired OV Orange, 45%
of OV Orange’s equity interest was held by Hubei Aoxin Science & Technology Group Co. Ltd., a company whose Chairman
and principal shareholder is Mr. Ping Wang, formerly the Chairman of Renmin Deconsolidation On December 29, 2015, the Company sold 95% of
OV Orange’s equity interest for $7,317,036 in cash. Renmin Tianli recognized a gain of $2,144,226 from this transaction. The following is a reconciliation of the deconsolidation:
Amount
Selling price $ 7,317,036
Disposed assets and liabilities:
Cash 65,446
Current assets 2,202,581
Long-term prepaid expenses 1,103,974
Fixed assets and construction in progress 925,524
Intangible assets 2,190,288
Liabilities (1,315,003 )
5,172,810
Gain from disposal of subsidiaries, net of income tax $ 2,144,226 On December
23, 2016, the Company sold 88% of Hang-ao’s equity interest for $3,913,894 in cash. Renmin Tianli recognized a gain of $70,820
from this transaction. The following is a reconciliation of the deconsolidation:
Amount
Selling price $ 3,913,894
Disposed assets and liabilities:
Cash 17
Current assets 1,554,722
Fixed assets 4,581,775
Intangible assets —
Liabilities (2,293,440 )
3,843,074
Gain from disposal of subsidiaries, net of income tax $ 70,820 |
