The accompanying notes are an integral part of these consolidated financial statements.
AF OCEAN INVESTMENT MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Month Period Ended June 30, 2015 and 2014
NOTE 1. NATURE OF BUSINESS
Organization.
AF Ocean Investment Management Company was incorporated under the laws of the State of Florida on April 2, 2003. We have one wholly-owned subsidiary, AF Ocean Investment Management Company (Shanghai Ltd.) (the "Subsidiary"), which we acquired as of July 6, 2012. AF Ocean Investment Management Company (together with the Subsidiary, the "Company", "AF Ocean" "our" or "we") promotes business relations and exchanges between Chinese and U.S. companies, facilitating international mergers and acquisitions, and increasing co-operation between Chinese companies and Wall Street financial institutions. Our mission is to help Wall Street investors identify and work with respectable and reputable Chinese counterparts and companies and assist Chinese corporations to understand that the only way to benefit from the world's biggest capital market is through strict and consistent adherence to the rules and regulations that govern companies listed on U.S. stock exchanges. However, we are in the process of a strategic change in operations due to our acquisition in July 2014 of non-patented technology relating to a new energy electric vehicle based on electromagnetic induction (the "Technology"). We believe that our primary business enterprise going forward will be based on the Technology.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates.
In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of (a) the result of operations for the three and six month period ended June 30, 2015 and 2014; (b) the financial position at June 30, 2015; and (c) cash flows for the six month period ended June 30, 2015 and 2014, have been made. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates. Operating results for the three and six month period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information regarding the Company's significant accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 31, 2015.
Cash and Cash Equivalents.
The majority of cash for our Subsidiary is maintained with a major financial institution in Shanghai, China. There are also funds held in the United States. Deposits with these banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. All amounts referenced in these financial statements and this report are in U.S. Dollars unless otherwise stated.
Property and Equipment.
Property and equipment is stated at cost. Depreciation is computed by the straight-line method over estimated useful lives. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment exists at June 30, 2015.
Foreign Currency Gain (Loss).
The Company addressed the effect of the exchange rate differences resulting from the translation of the consolidated financial statements of the Subsidiary into the consolidated corporate statements on the Balance Sheet with an Exchange rate loss of ($1,338). The effect of the foreign currency translation is recorded in comprehensive income. The relative value of the Chinese CNY to the United States USD remained relatively constant during the six month period ended June 30, 2015 ranging from .1628 on January 1, 2015 to .1611 on June 30, 2015, CNY to the USD.
Impairment of Long-lived Assets.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
Revenue Recognition.
Revenue from consulting and management services is recognized according to the terms of the consulting and management services agreements. Generally, consulting and management services revenue will be recognized over the term of the agreement. At times deposits or prepayments may result in deferred income which will be recognized into income as the services are performed. During the six month period ended June 30, 2015 we had deferred income of $20,480.
Share-based Compensation.
The Company may issue stock options whereby all share-based payments to employees, including grants of employee stock options are recognized as compensation expense in the consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.
The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition provisions ASC Topic 505-50. The Company estimates the fair value of stock options at the grant date by using the Black-Scholes option-pricing model.
The Company may issue restricted stock for various business and administrative services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached; or (ii) the date at which the counterparty's performance is complete.
During the six month period ended June 30, 2015, the Company issued 10,000 shares at par value in the form of share-based compensation.
Advertising.
Our advertising expenses are recognized as incurred. There were no marketing expenses during the six month period ended June 30, 2015.
Income Taxes.
The Company accounts for income taxes pursuant to the provisions of ASC 740-10, "Accounting for Income Taxes," which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
Earnings per Share.
In accordance with ASC 260-10, "Earnings Per Share", basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Diluted earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average number of shares plus the effect of the dilutive potential common shares outstanding during the period using the treasury stock method.
Diluted income per share includes the dilutive effects of stock options, warrants, and stock equivalents. To the extent stock options, stock equivalents and warrants are anti-dilutive; they are excluded from the calculation of diluted income per share.
Segment Information.
In accordance with the provisions of ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information", the Company is required to report financial and descriptive information about its reportable operating segments which meet the quantitative thresholds delineated. The Company has one reporting segment that does not meet any of the quantitative thresholds to require separate reporting. However, see Note 7 for limited disclosure.
Recent Accounting Pronouncements.
The Company reviews new accounting standards as issued. No new standards had any material effect on these consolidated financial statements. The accounting pronouncements issued subsequent to the date of these consolidated financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented.
NOTE 3. GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2015, current assets exceeded current liabilities by $156,932. Total assets decreased from $1,405,722 at December 31, 2014 to $926,864 at June 30, 2015, and total liabilities decreased from $851,748 at December 31, 2014 to $460,599 at June 30, 2015.
We had revenue from management services fees of $94,394 and a net loss of ($162,534) for the six month period ended June 30, 2015 as compared to revenue of $111,033 and a net loss of ($227,097) for the six month period ended June 30, 2014. These factors raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. These factors raise substantial doubt about our ability to continue as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4. PROPERTY & EQUIPMENT
Fixed Assets Summary
The following table provides the fixed assets and accumulated depreciation results for the Company and the Subsidiary for the six month period ended June 30, 2015, as compared to the fiscal year ended December 31, 2014.
| Fixed Assets Summary | | June 30, 2015 (unaudited) | | | December 31, 2014 (audited) | |
| | | 2015 | | | 2014 | |
| U.S. Fixed Assets | | $ | 19,508 | | | $ | 19,508 | |
| U.S. Accumulated Depreciation | | $ | (11,212 | ) | | $ | (8,948 | ) |
| Total U.S. Assets | | $ | 8,296 | | | $ | 10,560 | |
| | | | | | | | | |
| Foreign Subsidiary Fixed Assets | | $ | 8,989 | | | $ | 8,989 | |
| Foreign Subsidiary Accumulated Depreciation | | $ | (7,920 | ) | | $ | (7,350 | ) |
| Total Foreign Subsidiary Assets | | $ | 1,069 | | | $ | 1,639 | |
| Total Combined Assets | | | 9,365 | | | | 12,199 | |
Assets are depreciated over their useful lives when placed in service. Depreciation expense was $2,834 and $3,232 for the six month period ended June 30, 2015 and 2014, respectively.
Depreciation expense for the three month period ended June 30, 2015 and 2014 is $1,417 and $1,630.
NOTE 5. INTANGIBLE ASSETS
Intangible assets of $294,193 consist of business licenses in the Peoples’ Republic of China and goodwill acquired in an acquisition during 2012. Management has determined that these assets have unlimited lives and will not be amortized.
NOTE 6. RELATED PARTY TRANSACTIONS
On December 23, 2013, the Subsidiary entered into a management agreement with ChinAmerica Andy Movie Entertainment Media Company, a Florida corporation ("ChinAmerica"), for the collection and maintenance of all funds received in the People's Republic of China on behalf of ChinAmerica. All deposits received in China incur a management fee of ten percent (10%) due to the Subsidiary. There were no payments received during the six month period ended June 30, 2015. As of June 30, 2015, the current balance in the account held on behalf of ChinAmerica is $440,119.
On February 23, 2015, the related party subscription receivable due from the majority shareholder in the amount of $74,093 was paid in full and has been satisfied.
Commencing on May 1, 2015, we renewed the management services agreement with ChinAmerica and Sichuan Leaders Petrochemical Company ("Sichuan") for an additional year. We share the same Chief Executive Officer and controlling shareholder as ChinAmerica and Sichuan. Both related parties pay the Company a monthly management fee for a combined total of $21,787 per month for access to and use of the Company's leased office space, legal services, management and accounting related services including, without limitation, preparing periodic and other reports required to be filed under the Securities Exchange Act of 1934, preparing financial reports, bookkeeping, managing their websites, handling previous employee matters, and related governmental filings, handling advertising matters, and processing payables. (collectively, the "Services"). During the six month period ended June 30, 2015, payments totaling $94,394 have been received from both companies for these management services.
NOTE 7. STOCKHOLDERS' EQUITY
Common Stock
On January 12, 2015, the Company issued 10,000 shares as stock based compensation @ a par value of $0.01.
As of June 30, 2015 and December 31, 2014, the Company had 259,211,789 and 259,201,789 shares of common stock issued and outstanding, respectively.
No shares were issued during the three month period ended June 30, 2015.
The Company has no options or warrants issued or outstanding.
As of June 30, 2015, the Company had 5,000,000 shares of Series A Convertible Preferred Stock issued and outstanding, reflecting no change since December 31, 2014.
On December 23, 2013, the Subsidiary entered into a management agreement with ChinAmerica. ChinAmerica has operations' in China and will be receiving payment for such operations in China. Because China employs strict currency regulations that are designed to prevent large amounts of currency moving out of the country, ChinAmerica retained the Subsidiary to manage the money it receives from its Chinese operations. All deposits received in China incur a management fee of ten percent (10%) due to the Subsidiary. As of June 30, 2015, the current balance in the account held on behalf of ChinAmerica is $440,119.
The amounts and terms of the above transaction may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
We acquired one operating segment, the Subsidiary, during the third quarter of 2012. We intend to develop a provider of business services to Chinese individuals who have investments in U.S. companies. There was no revenue during the six month period ended June 30, 2015. The following are the expenses attributed to the Subsidiary for the six month period ended June 30, 2015. At this time, the operating segment does not meet any of the quantitative thresholds which would require separate reporting of its operations, however, management believes that the following information about the segment would be useful to readers of the consolidated financial statements.
Management has evaluated subsequent events through July 31, 2015, the date the consolidated financial statements were available to be issued. Management is not aware of any other significant events that occurred subsequent to the balance sheet date that would have a material effect on the consolidated financial statements thereby requiring adjustment or disclosure.
