YITD Yinhang Internet Technologies Development Inc (CE)

PART I –FINANCIAL INFORMATION

Item 1.  Financial Statements

 

INDEX TO FINANCIAL STATEMENTS
Unaudited Financial Statements of Yinhang Internet Technologies Development, Inc.
	Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015	F-2
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015 (Unaudited)	F-3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (Unaudited)	F-4
	Notes to the Unaudited Consolidated Financial Statements	F-5

 

 

F-1

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PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

YINHANG INTERNET TECHNOLOGIES DEVELOPMENT, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015

 

		March 31, 2016				December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	31,144			$	27,795
Prepaid expenses			31,855				45,276
Other receivables and deposits			20,697				4,017
Advances to suppliers, net			3,521				77
Taxes receivable			13,973				11,353
Inventories, net			40,710				40,506
Advances to related parties, net			-				251,985
Prepaid commissions - current			2,084,251				2,080,168
Deferred tax assets - current, net			682,959				679,397
Total current assets			2,909,110				3,140,574
NONCURRENT ASSETS:
Property and equipment, net			58,747				72,983
Intangible assets, net			72,287				81,403
Prepaid commissions - noncurrent			2,034,066				2,537,644
Deferred tax assets - noncurrent, net			866,604				1,037,739
Total non current assets			3,031,704				3,729,769
TOTAL ASSETS		$	5,940,814			$	6,870,343
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	4,470			$	4,448
Unearned revenue			2,859,751				2,875,614
Accrued liabilities and other payables			1,777,066				1,765,116
Commissions payable			712,447				708,892
Taxes payable			167,636				167,225
Advances from related parties, net			175,074				-
Deferred revenue - current			4,920,337				4,906,964
Total current liabilities			10,616,781				10,428,259
NONCURRENT LIABILITIES:
Deferred revenue - noncurrent			5,500,481				6,688,599
Other payable			50,970				50,970
Total noncurrent liabilities			5,551,451				6,739,569
Total Liabilities			16,168,232				17,167,828
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' DEFICIT:
Preferred stock, $0.001 par value; 1,000,000 shares
authorized, no shares outstanding			-				-
Common stock, $0.001 par value; 20,000,000 shares
authorized, 8,000,224 shares issued and outstanding
as of March 31, 2016 and December 31, 2015			8,000				8,000
Additional paid in capital			2,040,873				2,040,873
Accumulated other comprehensive income			479,123				529,244
Accumulated deficit			(12,755,414	)			(12,875,602	)
Total stockholders' deficit			(10,227,418	)			(10,297,485	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	5,940,814			$	6,870,343

 

YINHANG INTERNET TECHNOLOGIES DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

 

		2016				2015
Revenues
Products		$	-			$	4,279
Services			1,220,127				1,434,649
			1,220,127				1,438,928
Cost of revenues
Products			-				2,885
Services			518,695				638,380
			518,695				641,265
Gross profit			701,432				797,663
Operating expenses
Selling			98,462				89,883
General and administrative			305,830				1,479,721
Total operating expenses			404,292				1,569,604
Income (loss) from operations			297,140				(771,941	)
Non-operating income (expenses)
Other income			-				113,350
Other expenses			(1,873	)			(6,581	)
Financial expense			(719	)			(433	)
Total non-operating income (expense), net			(2,592	)			106,336
Income (loss) before income tax			294,548				(665,605	)
Income tax expense			174,360				189,304
Net income (loss)			120,188				(854,909	)
Foreign currency translation gain (loss)			(50,121	)			25,269
Comprehensive income (loss)		$	70,067			$	(829,640	)
Basic weighted average shares outstanding			8,000,224				5,581,391
Basic earnings (loss) per share		$	0.02			$	(0.15	)

 

 

Office Equipment	3-5 years
Furniture	5 years
Electronic Equipment	5 years

		Three Months Ended March 31,
		2016				2015
Revenue:
Internet platform services		$	1,220,127			$	1,424,656
On-line and physical UKT stores			-				13,703
Advertising income from website and magazine			-				569
Consolidated		$	1,220,127			$	1,438,928
Operating income (loss):
Internet platform services		$	346,987			$	(299,525	)
On-line and physical UKT stores			(15,605	)			(92,920	)
Advertising income from website and magazine			-				(6,080	)
WOFE and holding company			(34,242	)			(373,416	)
Consolidated		$	297,140			$	(771,941	)
Net income (loss):
Internet platform services		$	170,220			$	(374,797	)
On-line and physical UKT stores			(15,669	)			(90,660)
Advertising income from website and magazine			-				(16,064	)
WOFE and holding company			(34,363	)			(373,388	)
Consolidated		$	120,188			$	(854,909	)
Depreciation and amortization:
Internet platform services		$	23,079			$	43,146
On-line and physical UKT stores			798				7,456
Advertising income from website and magazine			-				534
Consolidated		$	23,877			$	51,136

Total assets:		As of March 31, 2016				As of December 31, 2015
Internet platform services		$	6,843,950			$	7,652,600
On-line and physical UKT stores			5,547				(3,325	)
Advertising income from website and magazine			291,083				310,095
WOFE and holding company			2,042,035				2,075,748
Intercompany elimination			(3,241,801	)			(3,164,775	)
Consolidated		$	5,940,814			$	6,870,343

3. OTHER RECEIVABLES AND DEPOSITS

Other receivables and deposits consisted of the following at March 31, 2016 (unaudited) and December 31, 2015, respectively:

		2016				2015
Advance to third party companies		$	11,366			$	582
Advance to employees			35,417				29,390
Deposit for purchases and rents			88,494				88,053
Other			2,395				2,383
Allowance for other receivables			(116,975	)			(116,391	)
Total		$	20,697			$	4,017

4. INVENTORY

 

Inventory consisted of the following at  March 31, 2016 (unaudited)  and December 31, 2015:

		2016				2015
Finished goods		$	664,677			$	609,829
Less: Inventory impairment allowance			(623,967	)			(569,323	)
Total		$	40,710			$	40,506

		2016				2015
Income		167,416				165,879
Other			220				1,346
Taxes payable		$	167,636			$	167,225

6. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following at  March 31, 2016 (unaudited) and December 31, 2015:

 

		2016				2015
Office equipment		$	207,001			$	205,968
Less: Accumulated depreciation			(146,819	)			(131,557	)
Less: impairment provision for fixed assets			(1,435	)			(1,428	)
Net		$	58,747			$	72,983

9. DEFERRED TAX ASSETS (LIABILITIES)

 

As of  March 31, 2016 (unaudited) and December 31, 2015, deferred tax asset (liability) consisted of the following:

 

		2016				2015
Deferred tax asset - current
Accrued expense		$	426,597			$	428,795
Sales return allowance			23,281				23,165
Amortization of deferred revenue			709,022				706,699
Less: valuation allowance			(449,878	)			(451,960	)
Deferred tax asset – current, net			709,022				706,699
Deferred tax liability - current
Amortization of platform and website			(8,343	)			(9,671	)
Accrued commission			(17,719	)			(17,631	)
Deferred tax liabilities – current			(26,063	)			(27,302	)
Deferred tax asset, net of deferred tax liabilities - current		$	682,959			$	679,397
Deferred tax asset - noncurrent
Amortization of platform and website		$	195,577			$	191,788
Amortization of deferred revenue			866,604				1,037,739
Net operating loss			1,577,042				1,460,885
Less: valuation allowance			(1,772,619	)			(1,652,673	)
Deferred tax asset - noncurrent, net		$	866,604			$	1,037,739

 

10. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following at  March 31, 2016 (unaudited) and December 31, 2015:

 

		2016				2015
Deposits		$	240,223			$	239,012
Advance from third parties, payable upon demand, no interest			404,258				341,313
Employee social insurance and salary payable			994,341				1,030,854
Accrued sales return			92,891				92,429
Advance from employees			35,812				52,657
Other payables - current			9,541				8,851
Total		$	1,777,066			$	1,765,116

		2016				2015
US statutory rates (benefit)			34.0	%			(34.0	)%
Tax rate difference			(9.0	)%			9.0	%
Valuation allowance of NOL			34.2	%			53.4	%
Tax expense (benefit) per financial statements			59.2	%			28.4	%

		2016				2015
Income tax expense (benefit) – current		$	-			$	-
Income tax expense - deferred			174,360				189,304
Total income tax expense		$	174,360			$	189,304

Item 2 .   Management's Discussion And Analysis Of Financial Condition And Results Of Operations

Overview

 

On May 13, 2015, we entered into a share exchange agreement, or the Share Exchange Agreement, with Yinhang Internet Technologies Development, Inc., a Nevada corporation (“Yinhang US”) and the stockholders of Yinhang US (the “Yinhang Stockholders”), pursuant to which we acquired 100% of the issued and outstanding capital stock of Yinhang US in exchange for a total of 758,116,667 shares (pre-reverse split) of our common stock (the “Share Exchange” or the “Yinhang Acquisition”).   After giving effect to the Share Exchange, we had outstanding 800,000,000 shares (pre-reverse split) of common stock, representing all of our authorized shares of common stock.  The 758,116,667 shares (pre-reverse split) include 200,000,000 shares (pre-reverse split) issued to the three investors pursuant to a subscription agreement.

As a result of the Share Exchange, Yinhang US became our wholly-owned subsidiary, and we now own all of the outstanding capital stock of Yinhang HK, which in turn owns all of the outstanding capital stock of Huashang, a Chinese limited company.  

Yinhang HK was established in Hong Kong on June 4, 2014 to serve as an intermediate holding company.  Huashang was established in the PRC on August 8, 2014, and on August 5, 2014, the local government of the PRC issued a certificate of approval regarding the foreign ownership of Huashang by Yinhang HK.  

Prior to February 5, 2015, none of Yinhang US, Yinhang HK or Huashang, Yinhang’s indirect wholly-owned subsidiary and a wholly-foreign owned enterprise under PRC law, had any operations.

 

 

F-18

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On February 5, 2015, Huashang entered into the VIE Agreements with each of Beijing Huashangjie Electronic Business Service Co., Ltd. (“Huashangjie” or “HSJ”), Beijing UKT Investment Management Co., Ltd. (“UKT”), and Beijing Qianxian Media Advertising Co., Ltd. (“Qianxian Media”), and their respective shareholders, pursuant to which Huashang effectively controls the operations of Huashangjie, UKT and Qianxian Media and is entitled to receive the pre-tax profits of each of Huashangjie, UKT and Qianxian Media.

Huashangjie operates an Internet information service which provides a classified information platform to end user merchants who advertise their products or services on its website. Huashangjie’s platform provides merchants with an affordable and effective marketing channel to reach a broad and targeted local consumer base. Through our “3ghuashang.com” and “HS.cn” websites and mobile applications, the platform contains a vast amount of credible and up-to-date local information in 34 provinces, including about 8,000 counties, across diverse content categories, including housing, jobs, used goods, automotive, pets, tickets, yellow pages and other local services. Huashangjie was incorporated on December 22, 2009 in Beijing, China. Huashangjie gradually ceased promoting sales of its information based platform but keeps providing maintenance services for existing users. It is currently transforming its business to a rural e-commerce trading platform, which integrates e-commerce and electronic administrative affairs of villages, and targets users from villages and rural areas. The Company is currently test running the rural e-commerce trading platform and expects official operation to begin within a few months.

UKT operates a virtual on-line web mall (www.hs.cn/ukt), which enables merchants and manufacturers to sell their products to on-line customers through an on-line store, and provides hardware and software assistance to these merchants. UKT’s online store features green, organic merchandise and through direct cooperation with the manufacturers many featured products sold in the UKT mall carry trademarks of UKT. These products also are sold under UKT marks in “UKT” retail stores operated by local merchants. UKT charges the local store operator a trademark usage fee. UKT was incorporated on September 1, 2011 in Beijing, China.

 

Qianxian Media distributes a Chinese language agricultural magazine, free of charge, through distribution services provided by unaffiliated third parties and sells advertising space in the magazine and on the website “qianxianhuinong.com.” Through the magazine and its website, Qianxian Media provides information and news regarding urban and rural areas such as agriculture polices and agriculture related videos to attract advertising revenue.  Qianxian Media was incorporated on December 19, 2006 in Beijing, China.

On June 24, 2015, we filed a certificate of merger with the Office of the Secretary of State of Nevada merging our wholly-owned subsidiary, Yinhang US, a holding company without any operations of its own, with and into our company, in a short-form merger pursuant to Section 92.180 of the Nevada Revised Statutes, which under Nevada law does not require stockholder approval.

 

On June 11, 2015, our Board of Directors unanimously adopted, and holders of a majority of our outstanding shares of common stock approved amendments to our Articles of Incorporation changing our corporate name to Yinhang Internet Technologies Development, Inc., the name of the Nevada entity which we acquired in the Yinhang Acquisition, reducing our authorized capital stock to 21,000,000 shares, comprised of 1 million shares of preferred stock and 20 million shares of common stock, each having  par value of $0.001, and effecting a one-for one hundred (1-for-100) reverse stock split of our common stock which reduced the number of our outstanding shares of common stock to slightly more than 8,000,000 shares.

 

The chart below presents our corporate structure:

 

Yinhang Internet Technologies Development, Inc. (a Nevada corporation)
100%
Yinhang (Hong Kong) Internet Technologies Development Limited (HK) (“Yinhang HK”)
100%
Huashang Wujie (Beijing) Internet Technology Co., Ltd. (PRC) (“Huashang” or “WFOE”)
VIE Contractual Arrangements
Beijing Huashangjie Electronic Business Service Co., Ltd. (PRC) (“Huashangjie”)		Beijing UKT Investment Management Co., Ltd. (PRC) (“UKT”)		Beijing Qianxian Media Advertising Co., Ltd. (PRC) (“Qianxian Media”)

 

 

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Results of Operations

Comparison of Three Months Ended March 31, 2016 and 2015

The following table sets forth the results of our operations for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:

 

	Three Months Ended March 31,
	2016									2015
Revenue		$				% of Revenue				$				% of Revenue
Products		$	-			-		%		$	4,279			0.3		%
Services			1,220,127			100		%			1,434,649			99.7		%
			1,220,127			100		%			1,438,928			100		%
Cost of revenue
Products			-				-	%			2,885				0.2	%
Services			518,695				43	%			638,380				45	%
			518,695				43	%			641,265				45	%
Gross profit			701,432				57	%			797,663				55	%
Operating expenses			404,292				33	%			1,569,604				109	%
Income (loss) from operations			297,140				24	%			(771,941	)			(54	)%
Non-operating income (expenses), net			(2,592	)			(0.2	)%			106,336				7	%
Income tax expense			174,360				14	%			189,304				13	%
Net income (loss)		$	120,188				10	%		$	(854,909	)			(59	)%

 

Segment Information

HSJ

The following table sets forth the results of our operations for HSJ’s Internet platform services for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:

 

		Three months ended March 31,
		2016								2015
		$				% of Revenue				$				% of Revenue
Revenue		$	1,138,194							$	1,337,506
Cost of revenue			473,378				42	%			590,139				44	%
Gross profit			664,816				58	%			747,367				56	%
Operating expenses			317,707				28	%			1,046,891				78	%
Income (loss) from operations			347,109				30	%			(299,524	)			(22	)%
Non-operating income (expenses), net			(2,226	)			(0.2	)%			104,295				8	%
Income tax expense			165,206				15	%			179,567				13	%
Net income (loss)		$	179,677				16	%		$	(374,796	)			(28	)%

 

 

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UKT

The following table sets forth the results of UKT's on-line and physical stores, and trademark usage fee income for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:

		Three months ended March 31,
		2016								2015
		$				% of Revenue				$				% of Revenue
Revenue		$	-							$	13,703
Cost of revenue			-				-	%			2,905				21	%
Gross profit			-				-	%			10,798				79	%
Operating expenses			15,605				-	%			103,719				757	%
Loss from operations			(15,605	)			-	%			(92,921	)			(678	)%
Non-operating income (expenses), net			(64	)			-	%			2,261				16	%
Income tax expense			-				-	%			-				-	%
Net loss		$	(15,669	)			-	%		$	(90,660	)			(662	)%

Qianxian Media

The following table sets forth the results of advertising income from Qianxian Media's websites and magazines for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:

 

		Three months ended March 31,
		2016								2015
		$				% of Revenue				$				% of Revenue
Revenue		$	81,933							$	87,719
Cost of revenue			45,317				55	%			48,221				55	%
Gross profit			36,616				45	%			39,498				45	%
Operating expenses			36,738				45	%			45,577				52	%
Loss from operations			(122	)			(0.1	)%			(6,079	)			(7	)%
Non-operating expenses, net			(182	)			(0.2	)%			(248	)			(0.3	)%
Income tax expense			9,154				11	%			9,737				11	%
Net loss		$	(9,457	)			(12	)%		$	(16,064	)			(18	)%

 

Revenue

 

Revenue for the three months ended March 31, 2016, was $1.22 million, consisting of $1.14 million for internet platform services provided by HSJ and $0.08 million for internet platform services provided by Qianxian, while revenue for the comparable period in 2015, was $1.44 million, consisting of $1.34 million for internet platform services, $0.01 million from UKT's on-line and physical stores and trademark usage fee income, and $0.09 million for advertising income from Qianxian Media's websites and magazines and internet platform services, an overall decrease of $0.22 million or 15%. We did not have revenue from products in the three months ended March 31, 2016, compared with $4,279 for the comparable period of 2015. We had $1.22 million from internet platform income for the three months ended March 31, 2016, compared with $1.43 million for the comparable period of 2015.  The decrease in revenue from both products and services was due to the strategic change in our current business model to a rural e-commerce trading platform, which integrates e-commerce and electronic administrative affairs of villages, and targets users from villages and rural areas. Commencing with the 2nd quarter of 2015, the Company did not attract any new customers for its existing internet platform services but only maintained its existing customers as a result of this change in its business model. The Company is currently test running the rural e-commerce trading platform, and expects to begin commercial operations of this platform within a few months.

 

 

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Cost of Revenue

 

Cost of revenue (“COR”) was $0.52 million for the three months ended March 31, 2016, compared to $0.64 million for the comparable period of 2015. COR mainly consisted of the cost of purchasing the inventory, commissions paid to sales agents and amortization of the web hosting platform.  Write-down of inventory to lower of cost or market also is recorded in COR.     COR as a percentage of revenue was 43% in the three months ended March 31, 2016, compared with 45% for comparable period of 2015.

 

Gross Profit

 

Gross profit was $0.70 million for the three months ended March 31, 2016, compared to $0.80 million for the comparable period of 2015. Blended gross margin ratio was 57% and 55% for the three months ended March 31, 2016 and 2015, respectively. Gross margin ratio for HSJ was 58% and 56% for the three months ended March 31, 2016 and 2015, respectively; gross margin ratio for UKT was 0% and 79% for the three months ended March 31, 2016 and 2015, respectively; gross margin ratio for Qianxian Media was 45% for the three months ended March 31, 2016 and 2015.  UKT did not have any sales and cost of sales in the three months ended March 31, 2016.

 

Operating Expenses

Operating expenses were $0.40 million for the three months ended March 31, 2016, compared to $1.57 million for the comparable period of 2015, a decrease of $1.17 million, or 74%. The decrease was mainly due to a reduction in meeting expenses, salary expense and rent expense of HSJ.

Non-Operating Income (Expense), net

Net non-operating expense was $2,592 for the three months ended March 31, 2016, compared to non-operating income of $106,336 for the comparable period of 2015, a decrease of $108,928 or 102% from non-operating income. HSJ had $110,973 income from government support funding in the three months ended March 31, 2015. 

  

Income Tax Expense

We had income tax expense of $174,360 for the three months ended March 31, 2016, compared to income tax expense of $189,304 for the comparable period of 2015. The effective income tax rate on taxable income for the three months ended March 31, 2016, was 59 % compared to (28)% for the three months ended March 31, 2015; the change in income tax expense was mainly due to a change in the valuation allowance for NOL.

Net Income (Loss)

Our net income for the three months ended March 31, 2016, was $0.12 million compared to net loss of $0.85 million for the comparable period of 2015, an increase of $0.98 million or 114%. Net income as a percentage of revenue was 10% in the three months ended March 31, 2016, and net loss as a percentage of revenue was (59)% in the comparable period of 2015. This increase in net income was mainly attributable to the significant decrease in operating expense by $1.17 million. 

Liquidity and Capital Resources

As of March 31, 2016, cash and equivalents were $31,144, compared to $27,795 as of December 31, 2015. At March 31, 2016, we had a working capital deficit of $7.71 million, a increase of $0.42 million from the deficit at December 31, 2015 of $7.29 million.

We incurred net income of $ 0.12 million for the three months ended March 31, 2016. However, we had a working capital deficit of $7.71 million, and a shareholders' deficit of $10.23 million as of March 31, 2016. These conditions raised a substantial doubt about our ability to continue as a going concern. We are currently changing our business model to a rural e-commerce trading platform, which integrates e-commerce and electronic administrative affairs of villages, and targets users from villages and rural areas. We are currently test running the rural e-commerce trading platform, and expect commercial operations to begin within a few months. With existing resources for sales and marketing channels, and a huge market for internet users in rural areas, managements expects our business to grow. Management also intends to raise additional financing through debt and equity financing or through other means that it deems appropriate. However, no assurance can be given that we will be successful in raising additional capital or satisfactory terms, if at all.

 

 

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The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2016 and 2015, respectively.  

		Three Months Ended March 31,
		2016				2015
Net cash used in operating activities		$	(33,438	)		$	(901,757	)
Net cash used in investing activities		$	-			$	(3,515	)
Net cash provided by financing activities		$	36,619			$	325,213

 

Net cash used in operating activities

 

Cash has historically been used in operations. Net cash used in operating activities was $33,438 for the three months ended March 31, 2016, compared to net cash used in operating activities of $0.90 million in the comparable period of 2015. The decrease of cash outflow from operating activities for the three months ended March 31, 2016 was principally attributed to increased net income of $0.97 million.

Net cash used in investing activities

There was no cash used in or provided from investing activities for the three months ended March 31, 2016, compared to cash used in investing activities of $3,515 for the comparable period of 2015.  We paid $3,515 for acquisition of fixed assets in the three months ended March 31, 2015.

 

Net cash provided by financing activities

 

Net cash provided by financing activities was $36,619 for the three months ended March 31, 2016, compared to $325,213 of net cash provided by financing activities in the comparable period of 2015.  The net cash provided by financing activities in the three months ended March 31, 2016 was due to advances from related parties for our working capital needs, while in the comparable period of 2015, we had advances from related parties of $325,213.

Contractual Obligations

 

We have no long-term fixed contractual obligations or commitments.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an uncombined entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any uncombined entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Critical Accounting Policies and Estimates

 

Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which were prepared in accordance with US GAAP. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.  

 

 

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Basis of Presentation

 

Our financial statements are prepared in accordance with US GAAP and the requirements of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).

In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.

Revenue Recognition

 

Our revenue recognition policies are in compliance with FASB ASC Topic 605, “Revenue Recognition”.  Revenues are recognized when a formal arrangement exists, which is generally represented by a contract between our companies and the buyer; the price is fixed or determinable; title has passed to the buyer, which generally is at the time of delivery of the products or services; we have no other significant obligations and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue. 

We grants perpetual access to platform usage to certain customers. Revenue and commission costs relating to such licenses are recorded over a 5-year estimated turnover period based on our historical experience of customers’ activity.

Deferred Revenue and Prepaid Commission

 

HSJ provides platform-hosting services to end users which advertise their products on its website.  The end users are solicited through independent sales agents. The agents solicit end customers at their designated territories to advertise end customers’ products on HSJ’s website for a fee determined by the sales agents. The sales agents are HSJ’s customers and they pay a fee to HSJ.  However, the fees paid by the agents to HSJ are not determined by reference to the fees they receive from end users.  Some agents make periodic payments for the periods they use the HSJ’s platform service; some pay the entire fees at once, at the outset of the relationship; and others pay the entire fee over five years.  These fees are HSJ’s main revenue source. Fee received is recorded as deferred revenue and amortized over a period of five years.

 

Certain agents get the right to use the platform for an agreed upon period and pay in installments over five years, even though their use right might be greater than five years. Lump sum payers and some payers which pay over five years are given the right to use the system in perpetuity assuming all amounts are paid.  HSJ provides rebates in the form of cash or points credit to sales agents ranging from 20% - 30% of the platform-usage fee. Such rebates are treated similar to sales commissions. HSJ paid commissions when fees are received from agents are recorded as prepaid commission; such prepaid commission is expensed when the corresponding revenue is recognized. 

 

Foreign Currency Translation and Comprehensive Income (Loss)

 

The functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.

 

 

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Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There has been no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.

 

We use FASB ASC Topic 220, “Comprehensive Income”.  Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

Segment Reporting

 

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting, codified in FASB ASC Topic 280.  The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

We have three operating segments: 1) providing Internet platform services; 2) on-line and physical stores to sell featured products labeled with UKT's trademarks, and 3) providing advertising-supported websites and magazines to publicize the information and news regarding urban and rural areas to attract advertising source income. These operating segments were determined based on the nature of the products offered or services provided.  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance.  Our chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and other measurement factors of each respective segment.

New Accounting Pronouncements 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Presentation of Financial Statements — Going Concern. This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. We do not anticipate that this adoption will have a significant impact on our consolidated financial statements/(CFS).

 

The FASB has issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. We are in the process of evaluating the impact of adoption of this guidance on the CFS.

 

 

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In July 2015, the FASB issued ASU 2015-11, Inventory, which requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The effective date for the standard is for fiscal years beginning after December 15, 2016. Early adoption is permitted. We do not anticipate that this adoption will have a significant impact on our CFS.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. We do not anticipate that this adoption will have a significant impact on our CFS.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are in the process of evaluating the impact of adoption of this ASU on our CFS.

On March 17, 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provides guidance on assessing whether an entity is a principal or an agent in a revenue transaction and whether an entity reports revenue on a gross or net basis. On April 14, 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing, which provides guidance on identifying performance obligations and accounting for licenses of intellectual property. The effective date and transition requirements for ASU No. 2016-08 and ASU No. 2016-10 are the same as the effective date and transition requirements of ASU No. 2014-09. We are evaluating the effect that ASU No. 2016-08 and ASU No. 2016-10 will have on our consolidated financial statements and related disclosures.

 

On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes amendments to accounting for income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The amendments in ASU 2016-09 are effective for public companies for fiscal years beginning after December 31, 2016, and interim periods within those annual periods. Early adoption is permitted but requires all elements of the amendments to be adopted at once rather than individually. We are evaluating the effect that ASU No. 2016-09 will have on our CFS.

As of March 31, 2016, there is no recently issued accounting standards not yet adopted that would have a material effect on our CFS.

 

 

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Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures .

 

Management. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

At the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that during the period covered by this report, such disclosure controls and procedures were not effective. This was due to our limited resources, including the absence of a financial staff with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”

On May 13, 2015, we, then a public shell company, acquired Yinhang Internet Technologies Development, Inc. (“Yinhang US”), a privately owned company, in a transaction treated as a reverse acquisition. At such time we adopted the system of disclosure controls and procedures of the affiliated variable interest entities of Yinhang US as ours. Such disclosure controls and procedures were not adequate for a public reporting company and our management began the process of upgrading our disclosure controls and procedures.

 

We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

There are inherent limitations in any system of internal control. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Further, the design of a control system must consider that resources are not unlimited and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgment in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II - OTHER INFORMATION

Item 1A. Risk Factors.

 

The purchase of our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described under the heading “Risk Factors” in Item 1A our Annual Report on Form 10-K filed on April 14, 2016 (the “2015 Form 10-K”) and “Management's Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 2 of Part I of this report and our consolidated financial statements and related notes included in Item 1 of Part I of this report. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission.

 

Except as otherwise disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 2 of Part I of this report and our consolidated financial statements and related notes included in Item 1 of Part I of this report, there have been no material changes in the risk factors previously disclosed in the 2015 Form 10-K.

 

Item 6. Exhibits.

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.DEF		XBRL Taxonomy Extension Definition
101.LAB		XBRL Taxonomy Extension Label
101.PRE		XBRL Taxonomy Extension Presentation

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Yinhang Internet Technologies Development, Inc.
Date: May 20, 2016	By:	/s/  Yahong Zhao
		Yahong Zhao Chief Executive Officer (Principal Executive Officer
	By:	/s/  Changqing Liu
		Changqing Liu Chief Financial Officer (Principal Financial Officer)

 

 

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