| 2. Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited interim consolidated financial statements of the Company as of 31, 2015 and for the three and nine month periods ended 31, 2015 and 2014, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (the SEC) which apply to interim 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 interim financial statements The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Companys Form 10-K 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 three and nine months ended , 2015 are not necessarily indicative of the results to be expected for future quarters or for the year ending , 2015. 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) 810, Consolidation 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 VIEs 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 entitys 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. Guangdong Gewang Through the VIE agreements disclosed in Note 1, the Company is deemed the primary beneficiary of Guangdong Gewang Guangdong Gewang Guangdong Gewang Guangdong Gewang The following financial statement amounts and balances of Guangdong Gewang August 31, 2015 November 30, 2014 (Unaudited) TOTAL ASSETS $ 9,006,739 $ 3,220,192 TOTAL LIABILITIES $ 5,004,657 $ 114,515 Three Months Ended August 31, Nine Months Ended August 31, 2015 2014 2015 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income $ 315,980 $ 245,915 $ 1,082,115 $ 566,280 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 All Company assets are located in the PRC. The functional currency for the Companys 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 Financial 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 income (loss) and comprehensive income (loss), changes in stockholders equity and cash flows have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Companys 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: August 31, 2015 November 30, 2014 Balance sheet items, except for stockholders equity, as of period end 0.1563 0.1631 Nine Months Ended August 31, 2015 2014 Amounts included in the statements of income (loss) and comprehensive income (loss), changes in stockholders equity and cash flows for the periods presented 0.1624 0.1627 Three Months Ended August 31, 2015 2014 Amounts included in the statements of income (loss) and comprehensive income (loss), changes in stockholders equity and cash flows for the periods presented 0.1618 0.1622 For the three months ended August 31, 2015 and 2014, foreign currency translation adjustments of $(314,805) and $7,935, respectively, and for the nine months ended August 31, 2015 and 2014, foreign currency translation adjustment of $(317,904) and $ (11,850), respectively, have been reported as other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. Although 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 PRCs political and economic conditions. Any significant revaluation of the RMB may materially affect the Companys financial condition in terms of US dollar reporting. Revenue Recognition Revenues are primarily derived from selling selenium related products to contract distributors, and from our retail stores. The Companys revenue recognition policies comply with FASB ASC 605 Revenue Recognition The Companys revenues are comprised as follows: Three Months Ended August 31, Nine Months Ended August 31, 2015 2014 2015 2014 ( Un audited) (Unaudited) ( Un audited) (Unaudited) Wholesale $ 875,340 $ 510,792 $ 2,173,717 $ 1,411,976 Retail 191,041 146,909 899,276 272,620 $ 1,066,381 $ 657,701 $ 3,072,993 $ 1,684,596 Shipping Costs Shipping costs incurred by the Company are recorded as selling expenses. Shipping costs for the three months ended August 31, 2015 and 2014 were $11,357 and $7,004, respectively; for the nine months ended August 31, 2015 and 2014 were $30,837 and $20,663, respectively. Advertising Costs Advertising costs are charged to operations when incurred. For the three months ended August 31, 2015 and 2014, advertising expenses were $21,804 and $14,568 respectively; for the nine months ended August 31, 2015 and 2014 were $60,900 and $55,318, respectively. 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. Accounts Receivable Accounts receivable are recorded at the contract amount after deduction of trade discounts, allowances, if any, and do not bear interest. The allowance for doubtful accounts, when necessary, is the Companys best estimate of the amount of probable credit losses of accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. The Company required a 30% advance from customers through December 31, 2014. Commencing in January 2015, an advance from customers is no longer required. As of August 31, 2015 and November 30, 2014, accounts receivable was $292,594 and $0, respectively. The Company believes that its accounts receivable are fully collectable and has determined that an allowance for doubtful accounts is not necessary. Inventories Inventories, comprised principally of boxed selenium capsules, selenium-glossy ganoderma capsules and selenium powder, are valued at the lower of cost or market. The value of inventory is determined using the first-in, first-out method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of August 31, 2015 and November 30, 2014. 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 Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, prepaid expenses, a ccrued expenses, and other payables, and stockholder loans, approximated their fair values Prepaid Expenses Prepaid expenses primarily consist of rent, consulting fees, advertising expenses and licensing fees. On January 5, 2011, the Company entered into a license agreement with a third party for the technology utilized for the manufacture of the Company's products. Under the terms, the Company is required to pay a fee of $97,440 (RMB 600,000) in advance each year for five years from January 2011 to December 2015. The related prepaid licensing fees of $31,260 and $8,155 were included in prepaid expenses on the balance sheets as of August 31, 2015 and November 30, 2014, respectively. The license provides for renewal options. Since this agreement requires the advance payment of the annual licensing fee, there are no minimum payments remaining under this agreement. Advance from Customers There are no advances from customers as of August 31, 2015. For the year ended November 30, 2014, the advance from customers consists of a payment received from an unrelated third party on a sales contract entered into on November 30, 2014. The contract was completed upon delivery of products to the customer in December 2014. Impairment of Long-Live Assets The Company applies FASB ASC 360, Property, Plant and Equipment Statutory Reserve Fund Pursuant to corporate law of the PRC, the Company is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the Companys registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after use is not less than 25% of registered capital. The required statutory reserve fund was $245,900 and $144,454 as of August 31, 2015 and November 30, 2014, respectively. 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 August 31, 2015 and November 30, 2014, the Company does not have a liability for any unrecognized tax benefits. The Companys tax filings are subject to examination by the tax authorities. The tax years of 2013 to 2014 remain open to examination by tax authorities in the PRC. |
