Yes [
]
No [X]
Indicate by check mark if the Registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [
]
No [X]
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X]
No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [
]
No [X]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] |
|
Accelerated filer [ ] |
|
|
|
Non-accelerated filer [ ] |
|
Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the Registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes
[X]
No [ ]
State the aggregate market value of the voting and non-voting
common equity held non-affiliates: none.
At April 10 , 2015, 2,100,215 shares of the Registrants common
stock, par value $0.001 per share, were issued and outstanding.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward looking statements that involve
risks and uncertainties. All statements other than statements of historical fact
contained in this report, including statements regarding future events, our
future financial performance, business strategy and plans and objectives of
management for future operations, are forward-looking statements. We have
attempted to identify forward-looking statements by terminology including
anticipates, believes, can, continue, could, estimates, expects,
intends, may, plans, potential, predicts, should, or will or the
negative of these terms or other comparable terminology. Although we do not make
forward looking statements unless we believe we have a reasonable basis for
doing so, we cannot guarantee their accuracy. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under Risk Factors or elsewhere in this
Report, which may cause our or our industrys actual results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. Moreover, we operate in a very competitive and
rapidly changing environment. New risks emerge from time to time and it is not
possible for us to predict all risk factors, nor can we address the impact of
all factors on our business or the extent to which any factor, or combination of
factors, may cause our actual results to differ materially from those contained
in any forward-looking statements. All forward-looking statements included in
this document are based on information available to us on the date hereof, and
we assumes no obligation to update any such forward-looking statements
USE OF CERTAIN DEFINED TERMS
Except as otherwise indicated by the context, references in
this Report to DLD we, us, our, our Company, or the Company are to
the combined business of DLD Group, Inc., and its consolidated subsidiaries. In
addition, unless the context otherwise requires and for the purposes of this
report only:
|
DLD WOFE refers to Beijing DLD Enterprise
Management Consulting Co., Ltd., a PRC wholly owned foreign enterprise
(WOFE); |
|
Commission refers to the Securities and
Exchange Commission; |
|
DLD BVI refers to DLD Great Industry Limited,
a British Virgin Islands company; |
|
DLD Group refers to DLD Group, Inc., a Nevada
company; |
|
DLD HK refers to DLD International Group
Limited, a Hong Kong company; |
|
DLD Technology refers to Dianliandian Science
& Technology Co., Ltd., a PRC company; |
|
Exchange Act refers to the Securities
Exchange Act of 1934, as amended; |
|
DLD Henan refers to Henan Dianliandian
Information Technology Co., Ltd., a PRC company; |
|
PRC refers to the Peoples Republic of China;
|
|
Securities Act refers to the Securities Act
of 1933, as amended; and |
|
STSW refers to Shenzhen Tongchengyi Sanxing
Weiye Network Technology Inc., a PRC Company. |
PART I
ITEM 1. BUSINESS
Overview
We were incorporated on June 25, 1997 under the laws of the
State of Nevada. The Company re-entered the development stage on January 1,
2002. Until we completed the reverse acquisition transaction with DLD BVI on
December 30, 2014, we had no revenue and our operations were limited to
development of our business plan and target customer market. As a result of the
reverse acquisition of DLD BVI we now are a holding company which through
certain contractual arrangements with operating companies in the PRC, engages in
online, offline and mobile commerce in the PRC.
We are operating as a discount product information platform
which integrates online, offline and mobile commerce in China. We consolidate
discount information by operating DLD Discount Web Http://www.dld.com, an
online-to-offline O2O promotional information marketplace, DLD E-mall, an
online shopping marketplace, and E-supermarket, an online supermarket. We sell
membership cards to offline customers who can enjoy discounts and special price
when they shop in our merchant partners store offline. Our three online
marketplaces and offline membership service and together with our mobile apps as
a whole enables both our online and offline local merchant partners and
brick-and-mortar retailers to reach consumers in a more effective and efficient
manner. Our headquarter resides in the city of Beijing in China.3rd and 4th
Floor, Building 3, Number 11 East Xinyuanli, North of Dongsanhuan road, Chaoyang
District, Beijing, China The size of our headquarter office building is 380
m2.
Reverse Acquisition of DLD BVI
On December 30, 2014, we completed a reverse acquisition
transaction through a share exchange with DLD BVI whereby we acquired all of the
issued and shares of DLD BVI in exchange for 2,000,000 shares of our common
stock, which represented approximately 95.23% of our total shares outstanding
immediately following the closing. As a result, DLD BVI became our wholly-owned
subsidiary and the former shareholders of DLD BVI became our controlling
stockholders. We are now a holding company, which through certain contractual
arrangements with operating companies in the PRC, engages in online, offline and
mobile commerce in the PRC.
The share exchange transaction with DLD BVI was treated as a
reverse acquisition, with DLD BVI as the acquirer and the Company as the
acquired party. Unless the context suggests otherwise, when we refer in this
Report to business and financial information for periods prior to the
consummation of the reverse acquisition, we are referring to the business and
financial information of DLD BVI, the Operating Companies and their respective
consolidated subsidiaries.
Organization & Subsidiaries
DLD Group is a U.S. holding company and we conduct our business
in China mainly through our subsidiaries and variable interest entities.
We established DLD BVI and DLD HK in British Virgin Islands and
Hong Kong in 2012 and 2013 respectively. They are offshore holding companies in
order to facilitate international financing.
We formed DLD WOFE, a wholly foreign owned entity in 2013. We
may rely on dividends from our wholly foreign-owned subsidiaries in China for
our cash requirements. Under PRC laws and regulations, our wholly foreign-owned
subsidiaries in China may pay dividends only out of their respective accumulated
profits as determined in accordance with PRC accounting standards and
regulations.
We assisted in establishing DLD Technology in 2012 and STSW in
2009. We obtained control over DLD Technology and STSW through DLD WOFE by
entering into a series of contractual agreement with DLD Technology, STSW and
their shareholders respectively.
We assisted in establishing DLD Henan in 2014. It is owned 100%
by DLD Technology. DLD Henan is engaged in computer software research and
development, computer data management; and advertisement design, production, and
distribution as well as investment management.
In December 2014, DLD WOFE entered a series of contractual
agreement with DLD Technology and STSW (the Contractual Arrangements). The
following is a summary of each of the Contractual Arrangements:
|
Exclusive Business Cooperation Agreement. DLD
WOFE has the sole and exclusive right to provide specified technology
consulting and services to DLD Technology and STSW. DLD Technology and
STSW agree to pay service fees to DLD WOFE on an annual basis and the
amount of the service fee is decided by DLD WOFE on the basis of the work
performed and commercial value of the services. The initial term of the
agreements is 10 years. |
|
Exclusive Option Agreement. The shareholders of
DLD Technology and STSW irrevocably grant DLD WOFE an exclusive option to
purchase or have its designated persons to purchase at its discretion, to
the extent permitted under PRC law, all or part of their equity interests
in DLD Technology and STSW. The purchase price should equal the amount
that the shareholders contributed to DLD Technology and STSW as registered
capital for the equity interest to be purchased, or be the lowest price
permitted by applicable PRC law. The initial term of these agreements is
10 years and can be renewed for an additional 10 years. |
|
Share Pledge Agreement. Each of the
shareholders of DLD Technology and STSW has pledged all of his equity
interest in DLD Technology and STSW to guarantee their and DLD
Technologys or STSWs performance of his obligations under, where
applicable, the exclusive technology consulting and services agreement,
exclusive option agreement and power of attorney. |
|
Power of Attorney. Each of the shareholders of
DLD Technology and STSW has granted an irrevocable power of attorney,
appointing DLD WOFEs designated person as his attorney-in-fact to
exercise all shareholder rights. Each power of attorney will remain in
force for so long as the shareholder remains a shareholder of DLD
Technology or STSW. |
DLD BVI does not own any equity interests in the PRC operating
companies, DLD Technology and STSW, but controls and receives the economic
benefits of their business operations through the Contractual Arrangements. In
addition, the operating companies are deemed DLD BVIs variable interest
entities and, accordingly, DLD BVI is able to consolidate the operating
companies results, assets and liabilities into its financial statements.
DLD BVIs organizational structure was developed to permit the
infusion of foreign capital under the laws of the PRC and to maintain an
efficient tax structure, as well as to foster internal organizational
efficiencies.
Our corporate structure is as follows:
Our Business Model
Online Business
Discount Web: We start our business by launching our DLD
Discount Web Http://www.dld.com, which is an O2O promotional information
marketplace that helps local merchants to release their daily marketing and
promotional information online to capture our customers in-store spending
needs in 2010 in the city of Shenzhen. To help our customers find more
information about the shops more efficiently and have the most updated
information about shops promotions, DLD Discount Web has grown to cover Chinas
31 provinces, across diverse categories, including food, entertainment, travel,
accommodation, and lifestyle. The number of promotion messages has reached 1000
pieces daily by now. Online member has grown significantly from 1,042,500 at the
end of 2012 to 6, 120,145 at the end of December 2014. Registered customers are
able to enjoy the discounts and special price offer when they go shopping both
online and offline, which are pre-negotiated by our company. We also foster an
online interactive user community which allows customers to discuss, rate and
review products, and services offered by the offline shops , and share shopping
experiences with each other in our online community. We believe it will be the
word-of-mouth spread and help attract more potential customers to our services
more effectively.
E-Supermarket: Our online supermarket DLD E-Supermarket
features a great selection of good quality products, convenient online service
and certainly the low prices. We select quality partners in each city to ensure
the service maintained with the same standards. We are planning to penetrate
lower tier cities to capture the increasing demand for customers daily shopping
needs. DLD E-Supermarket was built in May 2013, by the end of December 2014,
there are more than 15, 800 different types of products selling on DLD
E-supermarket website through B2C model. So far it only operates in the city of
Zhengzhou and we are planning to expand this business to the rest part of China.
We will start from major city like Shanghai and Beijing soon.
DLD E-mall: Our online shopping marketplace DLD E-mall enables
individuals to leverage the power of the Internet to establish their online
presence and conduct commerce with consumers no matter where they are. We offer
customers a wide selection of physical goods including apparel, makeups and
jewelries, consumer electronics, baby products, home furnishings, sport wear,
recreational supplies and many more. It is mainly a C2C business. DLD E-mall was
established in March 2014, till the end of December 2014, DLD E-mall presents
around, 2100 merchant partners with more than 21,000 types of products.
Smart-Life Channel: One of the latest product is
Smart-Life channel that we launched on DLD Discount Web recently. It is a
Groupon type of business, but without requirement of a minimum number of
purchasers. We believe the more convenient experience they have with us, the
higher chances that they will stay with our service. Our payment system provides
high security for customers to make a payment online, so that customers would
not have any concerns of making online payment.
Offline Business
To help our offline customers, we start distributing membership
cards in 2012 in the city of Beijing. Our members can enjoy the discounts and
special price pre-negotiated by our company with our local partners when they
shop offline. Since we launched offline business, our offline customers base
has been enjoying strong growth momentum, and has grown significantly from
504,700 at the end of 2012 to 5,236,200 at the end of December 2014.
DLD as a whole offers customers the most convenient shopping
experience no matter they are online, offline, or on mobile. Our membership
cards together with our major shopping websites http://www.dld.com and
mobile apps will capture and serve customers shopping needs in most of
perspectives. One of our new initiatives is that we will launch a
global-shopping site to expand our merchant partners to foreign countries. We
are aiming at bringing the competitive products and prices to our customers. In
the long term, we will grow our online and mobile business, at the same time,
maintain our offline competitive advantage, expand our product offerings and
expend to more regions.
Revenue Source
Our total revenue principally represents marketing services
revenue, commissions on transactions, and membership. The revenues are generated
from 4 business lines, including DLD Discount Web, DLD E-mall, DLD E-supermarket
and offline business.
Our marketing services revenue comprises of card sales, direct
mail (DM) and electronic direct mail service fees (EDM) and online advertising
fees. Commissions on transactions comprise of commissions generated from online
and offline transactions. Membership fees represent fees charged on merchants
partners as a fixed fee.
Company Milestones
In 2010, we started our online business by launching DLD
Discount Web. The first channel was a merchant partners channel.
In 2011, we mainly developed the website for a better version
and more discounted information to help our customers to fully take advantage of
price cuts.
In 2012, we kicked off our offline business and launched
membership community on DLD Discount Web to provide an online platform for
customers to share their offline shopping experience. Our DM and EDM marketing
also started in 2012, which are effective marketing tools for our merchant
partners.
In 2013, we launched DLD E-Supermarket to capture consumers
daily shopping needs. Currently, it only operates business in Zhengzhou, and we
intend to launch in other major cities very soon.
In 2014, we launched DLD E-Mall website to kick off our online
marketplace business, and we also start operating our Smart-Life channel on DLD
Discount Web, Smart-Life product is a Groupon type of product and now it has
started booking service.
Our Market
China Retail Market
China's retail industry has experienced significant growth in
recent ten years, as a result of rising personal disposable income and
increasing urbanization. Total retail sales grew from RMB6.2 trillion in 2008 to
RMB9.8 trillion (US$1.6 trillion) in 2012, according to Euromonitor
International, representing a compound annual growth rate (CAGR) of 12.2% .
However, Chinas retail market is highly fragmented with the top 20 retailers in
China had a combined market share of approximately 11.5% only in 2013, as
compared with approximately 39.8% in the United States in the same period.
Majority of the market share is dominated by small and medium sized enterprises.
China's large population with huge differences in consumer spending behavior and
purchasing power across the country has presented huge challenges for retailers
to scale up and expand nationwide. The fragmented offline retail market in China
presents a tremendous opportunity for online retailers.
China Online Retail Market
According to iResearch, China's online retail market size
measured by transaction volume was RMB1,320 billion in 2012 and is expected to
reach RMB3,790 billion (US$626 billion) in 2016, representing a CAGR of 30.2%, a
growth rate significantly faster than that of total retail sales. China's online
retail market transaction volume is also expected to have surpassed that of the
United States in 2013. Despite the huge size of the market, China's online
retail penetration of internet users was only 42.9% in 2012, still much lower
than the corresponding figure of 71.6% for the United States. iResearch expects
that China's online retail penetration could further increase to 53.7% by 2016.
China Retail Consumer
According to Euromonitor International, Chinas real
consumption in 2013 was 36.5% of total GDP, which is significantly lower than
that of other countries, such as the United States, that had a consumption
penetration rate of 66.8% in 2013. We believe that growth in Chinese consumption
will drive higher levels of online and mobile commerce.
Chinas online shopping population is relatively
under-penetrated. According to CNNIC, China had the worlds largest Internet
population with 618 million users as of December 31, 2013, and 302 million
online shoppers in 2013. We believe the number of online shoppers will increase,
driven by continued growth in the number of Internet users as well as by the
higher percentage of Internet users making purchases online.
China Mobile Consumer
We believe that the increased usage of mobile devices will make
access to the Internet even more convenient, drive higher online shopper
engagement and enable new applications. China has the worlds largest mobile
Internet user base with 500 million users as of December 31, 2013, according to
CNNIC, and mobile usage is expected to increase, driven by the growing adoption
of mobile devices.
Competition
We face intense competition from Chinese leading online
marketplace like Taobao, and online direct sales companies like JD.com, as well
as offline retailers who are gradually moving to online. However, we see
e-Commerce is moving to multi-layered development stage. With the growth of
local commerce on the web, the links between online and physical commerce are
becoming stronger. Customers would more likely to utilize internet settle their
offline spending needs, and the shopping category is enlarged to be able to
compare with the whole retail market in the future. O2O Commerce is a
combination of payment model and foot traffic generator for merchants, as well
as a discovery mechanism for consumers, which creates offline purchases. We
believe we have certain advantages in the intense competition which is discussed
below.
Advantages
Complexity of product offering
We intend to further expand our product offerings to enrich
customers shopping experience that meets consumers' everyday shopping needs. We
believe that expanding our product offerings will diversify our revenue sources
and further improve our economies of scale. We will focus on providing even
greater product selection within our already extensive general merchandise
product categories. Currently, our Smart-Life product and DLD-Emall have
launched their online channel, which we believe it will attract greater
interests from our customers. Smart-Life is a Groupon like business, offering
food, entertainment, travel, accommodation, lifestyle and shopping. One of the
attractive features of this product is that we dont require a minimum number of
purchases to validate it. Now, Smart-Life has started booking service, and
customers can easily make a booking and go enjoy their offline service. We
believe more flexibility on customer side will give us more competitive
advantage.
Flexibility arrangement with supplier partners
We have more than 26,787 third-party sellers on our three major
websites. For those brick-and-mortar business owners, they do need us help them
upload product information, but we are also giving them proper training to get
familiar with our platform. For those already sophisticated online sellers, we
offer an open platform for them to manage their sales by themselves. At the end
of December 2012, we have accumulated 5,057 online supplier partners, and by the
end of December 2013, the number has reached 12,644. At the end of December 31,
2014, the number of our accumulated online supplier partners was
30,070significantly increased from last year.
Flexibility arrangement with offline customers
For those people who do not use Internet or arbitrarily
shopping on the street, our membership card could still have the customers to
enjoy the discount rate in our merchants shop without any reservation or
pre-notice requirement.
High Growth of Customers
We launched our website DLD Discount Web in 2010, and we have
accumulated online registered customers 1.04 million by the end of December
2012, and this number has reached 2.19 million by the end of 2013, and 6.12
million by the end of December 2014. We are highly motivated by the fast growing
customer base and the valuable feedback about our service.
We first recruited customers from offline market in 2012, and
since then, we have grown our accumulated offline customer base from 504,700 at
the end of 2012 to 1.1 million at the end of 2013 and 5.23 million by the end of
December 2014.
Localized expertise and operation
We have one principal in charge of overall business in each
province. They bring us localized expertise into our daily operation, from
negotiation with suppliers to marketing campaign. As China market is highly
fragmented, and there are huge differences in consumers shopping behavior in
different region. We believe our localized team with local know-how will help
our central management team to make more effective decisions. Currently, we have
31 principals in 31 provinces to expand our business.
Innovation and Technology
We are a technology-driven company, and we invest great fortune
to develop online platform. We provide the fundamental technology infrastructure
and marketing reach to help our partners leverage the power of the Internet to
establish an online presence and conduct commerce with consumers. We will
continuously invest heavily on technology to support our rapid growth.
Growth Strategies
We focus on bringing offline service business to online, and
directing online users to offline local sales or transacting online directly. We
aim at satisfying customers shopping experience either they are online or
offline. China e-Commerce is under tremendous growth and increasing competition.
We believe our competitive differentiation strategy will give us huge
opportunity ahead.
Geography expansion
Currently we have around 855 employees, and they are mainly
working in Shenzhen, Beijing and Zhengzhou City of China. Between June and
September 2014, the company opened 7 branch companies in 7 different cities
which include the city of Hefei, Nanchang, Nanjing, Shanghai, Qingdao,
Shijiazhuang, and Luoyang. We intend to launch our DLD Discount Web and DLD
E-Mall in more areas and cities, which we will recruit more employees to cover
those new cities. For our DLD Discount Web and E-Mall business, we are planning
to launch our business in 31 provinces by the end of 2014.
Attract new customers and cultivate customer loyalty
With expanded geography coverage, we intend to launch more
marketing campaigns in the coming years to attract more new customers and retain
our existing customers. Online marketing is an effective way to attract
customers, however, traditional marketing tools can also drive customers
interests from offline to online, like direct mail DM. We intend to leverage
both online and offline channels to speed up customer acquisition.
Development of mobile shopping
There is a significant portion of our customers have begun
registering on our mobile platform, and we will invest more on developing more
convenient mobile apps to capture the increasing usage demand for mobile
information platform and mobile shopping. Currently, we have one mobile app for
DLD Discount Web with registered customers 230,000 up to now, but we will
develop more mobile apps to serve mobile internet users. We intend to launch our
mobile apps for DLD E-Mall and DLD E-Supermarket soon.
Free Wifi
In China, especially some undeveloped cities, there is no Wifi
in the public place, DLD intend to offer free Wifi to our existing individual
members in our merchants shop such as restaurant or beverage shops, members of
DLD could enjoy their meal or drinks with internet access in the same time and
therefore to attract more potential members to join DLD Membership.
POS Machine
Our offline payment system provides high security for customers
to make a payment offline by using DLDs point of sale (POS) machine. We intend
to launch more POS machines in our Merchants shop to provide more convenience
and discount rate to DLD members. We believe the more convenient experience they
have with us, the higher chances that they will stay with our service.
Government Regulations
Foreign Exchange Regulation Relating to Foreign Invested
Enterprises
Under current Chinese regulations, RMB are freely convertible
for trade and service-related transactions denominated in foreign currency,
including the distribution of dividends, interest payments, trade and
service-related foreign exchange transactions, but not for direct investment,
loans, repatriation of investments or investments in securities outside China
without the prior approval of the SAFE or its local branches. In May 2013, SAFE
promulgated SAFE Circular 21 which provides for and simplifies the operational
steps and regulations on foreign exchange matters related to direct investment
by foreign investors, including foreign exchange registration, account opening
and use, receipt and payment of funds, and settlement and sales of foreign
exchange.
Foreign-invested enterprises in China may execute foreign
exchange transactions without the SAFE approval for trade and service-related
transactions denominated in foreign currency by providing commercial documents
evidencing these transactions. Foreign exchange transactions related to direct
investment, loans and investment in securities outside China are still subject
to limitations and require approval from the SAFE.
Furthermore, on August 29, 2008, the SAFE issued the Circular
on the Relevant Operating Issues Concerning the Improvement of the
Administration of the Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises, or Circular 142. Pursuant to Circular 142, RMB
capital derived from the settlement of a foreign-invested enterprises foreign
currency capital must be used within the business scope approved by the
applicable government authority and cannot be used for domestic equity
investment, unless specifically provided for otherwise. Documents certifying the
purposes of the settlement of foreign currency capital into RMB, including a
business contract, must also be submitted for the settlement of such foreign
currency. In addition, foreign-invested enterprises may not change how they use
such capital without the SAFEs approval and may not in any case use such
capital to repay RMB loans if they have not used the proceeds of such loans.
Violation of Circular 142 can result in severe penalties, including heavy fines
as set forth in the Foreign Exchange Administration Rules. The SAFE promulgated
a circular on November 9, 2010, or Circular 59, which tightens the regulation
over settlement of net proceeds from overseas offerings like this offering and
requires that the settlement of net proceeds must be consistent with the
description in the prospectus for the offering. Furthermore, the SAFE
promulgated the Circular on Further Clarification and Regulation of the Issues
Concerning the Administration of Certain Capital Account Foreign Exchange
Businesses, or Circular 45, on November 9, 2011, which expressly restricts a
foreign-invested enterprise from using RMB converted from its registered capital
to provide entrusted loans or repay loans between non-financial enterprises.
Circular 142, Circular 59 and Circular 45may significantly limit our ability to
transfer the net proceeds from this offering to our PRC subsidiary and convert
the net proceeds into RMB, which may adversely affect our liquidity and our
ability to fund and expand our business in the PRC.
Regulations on Dividend Distributions
The principal regulations governing dividend distributions of
wholly foreign owned companies include: the Companies Law (2005), the Wholly
Foreign Owned Enterprise Law (2000), and the Wholly Foreign Owned Enterprise Law
Implementing Rules (2001).
Under these regulations, wholly foreign owned companies in
China may pay dividends only out of their accumulated profits, if any, as
determined in accordance with PRC accounting standards and regulations. In
addition, wholly foreign owned companies are required to set aside at least 10%
of their respective accumulated profits each year, if any, to fund certain
reserve funds, until the aggregate amount of these funds reaches 50% of the
companys registered capital. Wholly foreign owned companies may, at their
discretion, allocate a portion of their after-tax profits based on PRC
accounting standards to staff benefits and bonus funds. These reserve funds and
staff benefits and bonus funds are not distributable as cash dividends.
Regulations Relating to Internet Information Services and
Content of Internet Information
According to the Administrative Measures on Internet
Information Services, or the Internet Measures issued in September 2000 by the
State Council to regulate the provision of information services to online users
through the internet, our business conducted through our dld.com website
involves operating commercial internet information services, which requires us
to obtain a value-added telecommunications business license, or an ICP license.
If an internet information service provider fails to obtain an ICP license, the
relevant local telecommunications administration authority may levy fines,
confiscate its income or even block its website.
According to the Administrative Provisions on Foreign-Invested
Telecommunications Enterprises promulgated by the State Council in December,
2001 and revised in September, 2008, foreign investors cannot hold more than 50%
equity interest in a value-added telecommunications services provider. The
Circular on Strengthening the Administration of Foreign Investment in and
Operation of Value-added Telecommunications Business promulgated by the Ministry
of Industry and Information Technology of the People's Republic of China in
2006, or the MIIT Circular, requires foreign investors to set up foreign
invested enterprises and obtain an ICP license to conduct any value-added
telecommunications business in China. Under the MIIT Circular, a domestic
company that holds an ICP license is prohibited from leasing, transferring or
selling the license to foreign investors in any form, and from providing any
assistance, including providing resources, sites or facilities, to foreign
investors that conduct value-added telecommunications business illegally in
China. We hold two ICP licenses through a VIE structure due to above
restrictions. DLD Technology and STSW currently hold ICP license issued by
Communication of Management Bureau of Beijing City and Communication of
Management Bureau of Guangdong Province respectively. Communication of
Management Bureau is the branch of the Ministry of Information Industry. Our
Beijing ICP license will expire in May 16th 2019 and Shenzhen ICP
license will expire in June 18th 2015 and we will renew such license
prior to its expiration date.
In May 2010, the State Administration for Industry and Commerce
issued the Interim Measures for the Trading of Commodities and Services through
the Internet effective in July 2010, which requires internet service providers
that operate internet trading platforms to register and verify online shop
owners identities along with their business credentials, establish mechanisms
to ensure safe online transactions, protect online shoppers rights, and prevent
the sale of counterfeit goods. We are subject to this rule as a result of our
operation of the www.dld.com.
Regulations Relating to Privacy Protection
As an internet information provider, we are subject to
regulations relating to protection of privacy. Under the Internet Measures,
internet information providers are prohibited from producing, copying,
publishing or distributing information that is humiliating or defamatory to
others or that infringes the lawful rights and interests of others. Internet
information providers that violate the prohibition may face criminal charges or
administrative sanctions by PRC security authorities. In addition, relevant
authorities may suspend their services, revoke their licenses or temporarily
suspend or close down their websites. We believe that we are currently in
compliance with these regulations in all material aspects.
Regulations on Advertising Business
The State Administration for Industry and Commerce, or SAIC, is
the government agency responsible for regulating advertising activities in
China. Regulations governing advertising business mainly include:
Advertisement Law of the Peoples Republic of China promulgated by the
Standing Committee of the National Peoples Congress on October 27, 1994 and
went into effect on February 1, 1995; Administrative Regulations for
Advertising promulgated by the State Council on October 26, 1987 and went
into effect on December 1, 1987; and Implementation Rules for the
Administrative Regulations for Advertising promulgated by the State Council
on January 9, 1988 and amended on December 3, 1998, December 1, 2000 and
November 30, 2004 respectively.
Regulations on Product Liability and Consumers
Protection
Product liability claims may arise if the products sold have
any harmful effect on the consumers. The injured party may claim for damages or
compensation. The Product Quality Law of the PRC, which was enacted in 1993 and
amended in 2000, strengthens the quality control of products and protects
consumers rights and interests. Under this law, manufacturers and distributors
who produce or sell defective products may be subject to confiscation of
earnings from such sales, revocation of business licenses and imposition of
fines, and in severe circumstances, may be subject to criminal liability.
The Law of the PRC on the Protection of the Rights and
Interests of Consumers was promulgated on October 31, 1993 and became effective
on January 1, 1994 to protect consumers rights when they purchase or use goods
or services. All business operators must comply with this law when they
manufacture or sell goods and/or provide services to customers.
The Tort Law of the PRC effective on July 1, 2010 requires that
when the product defect endangers peoples life or property, the injured party
may hold the producer or the seller liable in tort and require that it remove
obstacles, eliminate danger, or take other action. The Tort Law also requires
that when a product is found to be defective after it is put into circulation,
the producer and the seller shall give timely warnings, recall the defective
product, or take other remedial measures.
Regulations on Trademarks
The PRC Trademark Law, adopted in 1982 and revised in 1993 and
2001, provides protection to the holders of registered trademarks. The State
Trademark Bureau, under the authority of the State Administration for Industry
and Commerce (SAIC) handles trademark registrations and grants rights of a
term of 10 years in connection with registered trademarks. License agreements
with respect to registered trademark must be filed with the State Trademark
Bureau.
Environmental Matters
Our business currently does not implicate any environmental
regulation in China.
Intellectual Property
Trademark
We do not own any trademarks.
Domain Names
We have applied to add the domain name www.dld.com to
the Internet Content Provider License that we currently hold and we have
received the updated ICP License covering the foregoing domain name.
Employees
As of March 2015, the Company had 855 employees, all of whom
has entered into labor contract with the Company. According to the Labor Law
of the PRC and the Labor Contract Law of the PRC, an enterprise shall
enter into labor contract with its employees. The Companys employees are not
represented by any collective bargaining agreement, and the Company has never
experienced a work stoppage. The Company believes it has good relations with its
employees.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the
information required by this item.
Item 1B. Unresolved Staff Comments.
Smaller reporting companies are not required to provide the
information required by this item.
ITEM 2. PROPERTIES
Our headquarter resides in the city of Beijing in China.3rd and
4th Floor, Building 3, Number 11 East Xinyuanli, North of Dongsanhuan Road,
Chaoyang District, Beijing, China.
The Company pays a rent of RMB 600,000, approximately $97,592
per year to Kunming Precious Metals Co., Ltd. for this 380 square meters
office.
ITEM 3. LEGAL PROCEEDINGS
Currently there are no legal proceedings pending or threatened
against the Company or its subsidiaries. However, from time to time, we may
become involved in various lawsuits and legal proceedings which arise in the
ordinary course of business. Litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that
may harm our business.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
No established public trading market exists for the Companys
common stock as of the date hereof.
Common Stock
Our Articles of Incorporation authorizes the issuance of up to
200,000,000 shares of common stock, par value $0.001 per share.
Preferred Stock
Our Articles of Incorporation authorizes the issuance of up to
500,000 shares of preferred stock, par value $0.01 per share. As of the date
hereof, there are no shares of preferred stock issued and outstanding.
Holders
As of the date hereof, there are 198 stockholders of record
holding an aggregate of 2,100,215 shares of the Companys common stock. This
does not reflect the number of persons or entities who held stock in nominee or
street name through various brokerage firms.
Dividends
Since inception we have not paid any dividends on our common
stock. We currently do not anticipate paying any cash dividends in the
foreseeable future on our common stock, when issued pursuant to this offering.
Although we intend to retain our earnings, if any, to finance the exploration
and growth of our business, our Board of Directors will have the discretion to
declare and pay dividends in the future. Payment of dividends in the future will
depend upon our earnings, capital requirements, and other factors, which our
Board of Directors may deem relevant.
Securities Authorized for Issuance under Equity Compensation
Plans
We do not have in effect any compensation plans under which our
equity securities are authorized for issuance.
Penny Stock Regulations
The Commission has adopted regulations which generally define
penny stock to be an equity security that has a market price of less than
$5.00 per share. Our common stock, when and if a trading market develops, may
fall within the definition of penny stock and be subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000, or annual incomes
exceeding $200,000 individually, or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such securities and
have received the purchasers prior written consent to the transaction.
Additionally, for any transaction, other than exempt transactions, involving a
penny stock, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealers presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the penny stock rules may
restrict the ability of broker-dealers to sell our common stock and may affect
the ability of investors to sell their common stock in the secondary market.
ITEM 6. SELECTED FINANCIAL DATA
Smaller reporting companies are not required to provide the
information required by this item.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of operation of DLD Group Inc. for fiscal years ended December 31, 2014 and 2013 should be read in conjunction with the selected consolidated financial data, the financial statements
and the notes to those statements that are included elsewhere in this report (the Report). In addition to historical information, the following discussion contains certain forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as may,
will, could, expect, anticipate, intend, believe, estimate, plan, predict, and similar terms or terminology, or the negative of such terms or
other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from
those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the Risk Factors section. We undertake no obligation to update publicly any forward-looking
statements for any reason even if new information becomes available or other events occur in the future.
Our financial statements are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See Critical Accounting Policies and Estimates - Foreign currency translation below for
information concerning the exchanges rates at which Renminbi and Hong Kong Dollar were translated into U.S. Dollars at various pertinent dates and for pertinent periods.
Overview
We are operating as a discount product information platform which integrates online, offline and mobile commerce in China. We consolidate discount information by operating DLD Discount Web Http://www.dld.com, an online-to-offline O2O
promotional information marketplace, DLD E-mall, an online shopping marketplace, and E-supermarket, an online supermarket. We sell membership cards to offline customers who can enjoy discounts and special price when they shop in our merchant
partners store offline. Our three online marketplaces and offline membership service and together with our mobile apps as a whole enables both our online and offline local merchant partners and brick-and-mortar retailers to reach consumers in
a more effective and efficient manner. Our headquarter resides in the city of Beijing in China.3rd and 4th Floor, Building 3, Number 11 East Xinyuanli, North of Dongsanhuan road, Chaoyang District, Beijing, China The size of our headquarter office
building is 1200 m2
Online Business
Discount Web: We start our business by launching our DLD Discount Web Http://www.dld.com, which is an O2O promotional information marketplace that helps local merchants to release their daily marketing and promotional information online to
capture our customers in-store spending needs in 2010 in the city of Shenzhen. To help our customers find more information about the shops more efficiently and have the most updated information about shops promotions, DLD
Discount Web has grown to cover Chinas 31 provinces, across diverse categories, including food, entertainment, travel, accommodation, and lifestyle. The number of promotion messages has reached 1000 pieces daily by now. Online member has grown
significantly from 1,042,500 at the end of 2012 to 6,120,145 at the end of December 2014. Registered customers are able to enjoy the discounts and special price offer when they go shopping both online and offline, which are pre-negotiated by our
company. We also foster an online interactive user community which allows customers to discuss, rate and review products, and services offered by the offline shops , and share shopping experiences with each other in our online community. We believe
it will be the word-of-mouth spread and help attract more potential customers to our services more effectively.
E-Supermarket: Our online supermarket DLD E-Supermarket features a great selection of good quality products, convenient online service and certainly the low prices. We select quality partners in each city to ensure the service maintained with the
same standards. We are planning to penetrate lower tier cities to capture the increasing demand for customers daily shopping needs. DLD E-Supermarket was built in May 2013, by the end of December 2014, there are more than 15,800 different
types of products selling on DLD E-supermarket website through B2C model. So far it only operates in the city of Zhengzhou and we are planning to expand this business to the rest part of China. We will start from major city like Shanghai and Beijing
soon.
DLD E-mall: Our online shopping marketplace DLD E-mall enables individuals to leverage the power of the Internet to establish their online presence and conduct commerce with consumers no matter where they are. We offer customers a wide selection of
physical goods including apparel, makeups and jewelries, consumer electronics, baby products, home furnishings, sport wear, recreational supplies and many more. It is mainly a C2C business. DLD E-mall was established in March 2014, till the end of
December 2014, DLD E-mall presents around, 2100 merchant partners with more than 21,000 types of products.
Smart-Life Channel: One of the latest products is
Smart-Life channel that we launched on DLD Discount Web recently. It is a
Groupon type of business, but without requirement of a minimum number of
purchasers. We believe the more convenient experience they have with us, the
higher chances that they will stay with our service. Our payment system provides
high security for customers to make a payment online, so that customers would
not have any concerns of making online payment.
Offline Business
To help our offline customers, we start distributing membership
cards in 2012 in the city of Beijing. Our members can enjoy the discounts and
special price pre-negotiated by our company with our local partners when they
shop offline. Since we launched offline business, our offline customers base
has been enjoying strong growth momentum, and has grown significantly from
504,700 at the end of 2012 to 5,236,200 at the end of December 2014.
DLD as a whole offers customers the most convenient shopping
experience no matter they are online, offline, or on mobile. Our membership
cards together with our major shopping websites http://www.dld.com and
mobile apps will capture and serve customers shopping needs in most of
perspectives. One of our new initiatives is that we will launch a
global-shopping site to expand our merchant partners to foreign countries. We
are aiming at bringing the competitive products and prices to our customers. In
the long term, we will grow our online and mobile business, at the same time,
maintain our offline competitive advantage, expand our product offerings and
expend to more regions.
For the Years Ended December 31, 2014 and 2013
Results of Operations for the Year Ended December 31, 2014
Compared to the Year Ended December 31, 2013
Revenues
Our revenues generate primarily from marketing services,
memberships, commissions on transactions and rent income.
For the year ended December 31, 2014, we had net revenues of
$3,344,235, as compared to those of $673,431 for the year ended December 31,
2013, an increase of approximately $2,670,804 or 396.6% . The increase in net
revenues was primarily due to core business started in 2012 and showed the sign
of business beginning rally in 2014.
Revenue from marketing service amounted to $2,755,757 for the
year ended December 31, 2014 as compared to $80,189 for the year ended December
31, 2013. Revenue from marketing service significantly increased as a result of
our efforts in promoting our products and services. Membership income amounted
to $5,854 for the year ended December 31, 2014 as compared to $9,444 for the
same year in 2013 as the number of participated member increment slowdown.
Commissions on transactions gained $5,217 for the year ended December 31, 2014
and $1,768 for the year ended December 31, 2013. Rent income were $577,407 for
the year ended December 31, 2014, a slightly decrease of $4,623 or 0.8%, as
compared to $582,030 for the same year in 2013.
Cost of Revenue
Cost of revenue mainly came from cost of rental business. We
purchased a portion of a building situated in a growing CBD in Beijing, China in
August 2012. The real property is offices with total 4763 square meters for the
purpose of rental business. The investment in this real property cost
approximately $14,393,812 (RMB 90,804,800). Rental income amounted to $577,407
for the year ended December 31, 2014 as compared to the rental income of
$582,030 for the same year in 2013. Costs of rental were $840,165 and $814,663
for the year ended December 31, 2014 and 2013, respectively. The cost of rental
primarily consists of depreciation ($684,976), exercise tax ($30,206) and
property taxes ($124,983) for the year ended December 31, 2014 as compared to
the depreciation ($670,111), exercise tax ($20,550) and property taxes
($124,002) for the year ended December 31, 2013.
Gross profit
The gross profits were dramatically increased to $2,504,070 for
the year ended December 31, 2014 as compared to gross loss of $141,232 for the
year ended December 31, 2013. As discussed above, the depreciation of rental
real property was part of cost of revenue.
Selling expenses
Selling expenses mainly consist of salaries and wages for our
sales and marketing personnel, promotion expenses and other operating expenses
that are associated with sales and marketing activities.
Selling expenses were $2,369,447 and $401,712, for the year
ended December 31, 2014 and 2013, respectively, increased by $1,967,735 or
489.8% . Higher costs were mainly due to increment in promotion.
Selling expenses consisted of the following:
|
|
For the Year Ended December 31 |
|
|
Increase/decrease |
|
|
|
2014 |
|
|
2013 |
|
|
$ |
|
|
% |
|
Salary, wage and related
benefits |
|
2,242,381 |
|
|
345,505 |
|
|
1,896,876 |
|
|
549.0% |
|
Promotion |
|
77,926 |
|
|
26,476 |
|
|
51,450 |
|
|
194.3% |
|
Web system maintenance |
|
24,027 |
|
|
27,804 |
|
|
-3,777 |
|
|
-13.6% |
|
Others |
|
25,113 |
|
|
1,927 |
|
|
23,186 |
|
|
1203.2% |
|
Total |
|
2,369,447 |
|
|
401,712 |
|
|
1,967,735 |
|
|
489.8% |
|
Selling expenses as % of operating revenue |
|
85.64% |
|
|
439.51% |
|
|
- |
|
|
-353.87% |
|
Compensation and related benefits increased by $1,896,876, or
549.0%, in the year ended December 31, 2014 compared to the year ended December
31, 2013, due to the sales force re-enforced in the expansion of business. Sales
and service offices are expended from a few locations to 38 sales offices across
the country by the end of year of 2014.
Promotion expense increased by $51,450 or 194.3% as the
promotion was the part of efforts to promote our e-marketplace and products in
additional to the advertisement.
Web systems maintenance mainly consisted of server system
maintenance, web traffic and web utility fees. Maintenance expenses decreased by
$3,777 or 13.6%, as a result of the maintaining in volume traffic and
transactions.
Other expense includes vehicle maintenance and miscellaneous
expenses.
Advertising expense
Advertising expense mainly consists of advertising on various
channels such as billboard and mobile billboard, television, celebrity branding,
and other traditional off-line media, and advertising design and production.
Advertising costs were $305,734 and $468,772 for the year ended
December 31, 2014 and 2013, respectively. Advertising costs dropped by $163,038
or 34.8% compared to the cost for the year ended December 31, 2013 as the
Company made re-assessment and re-evaluation of advertising campaign strategy.
The Company will re-launch advertising campaign in 2015 as we introduce and
promote the public awareness of our service, particularly through advertising on
CCTV, Chinas biggest television network, which was reported as prepaid TV
airtime on the consolidated balance sheet of 2014.
Research and Development Expenses
Research and development expenses mainly consist of salaries,
benefits for product development and engineering personnel and other operating
expenses such as rental and depreciation of equipment that are associated with
product development and engineering activities. Total research and development
expenditures were $2,116,961 and $298,418 for the year ended December 31, 2014
and 2013, respectively, a 609.4% increased. Purchased software incurred $370,991
in 2014 compared none in 2013. The purpose of purchasing software was to develop
e-commerce platform. System maintenance and development cost $98,239 in 2014
compared to $40,360 in 2013 due to increased utility of system for research and
development, and other material and testing cost maintained unchanged for
$30,646 in 2004 and $30,246 in 2013. Salaries and wages in research and
development amounted to $1,548,015 for the year ended December 2014 compared to
$161,305 in 2013 mainly due to more high salaried engineers and professionals
hired, and rent expenses were $69,072 and $66,507 for the year ended December
31, 2014 and 2013, respectively, slightly increased.
General and administrative expenses
General and administrative expenses amounted to
$1,842,604 for the year ended December 31, 2014, as compared to $521,335 for the
same year in 2013, an increase of $1,321,269 or 253.4% . General and
administrative expenses consisted of the following:
|
|
For the Year
Ended |
|
|
|
|
|
|
|
|
|
December 31 |
|
|
Increase/decrease |
|
|
|
2014 |
|
|
2013 |
|
|
$ |
|
|
% |
|
Salary Wage and related
benefits |
|
465,696 |
|
|
- |
|
|
465,696 |
|
|
100.0% |
|
Depreciation |
|
196,724 |
|
|
62,839 |
|
|
133,885 |
|
|
213.1% |
|
Office expenses |
|
115,665 |
|
|
62,426 |
|
|
53,239 |
|
|
85.3% |
|
Professional fees |
|
154,504 |
|
|
68,415 |
|
|
86,089 |
|
|
125.8% |
|
Rent |
|
485,098 |
|
|
306,734 |
|
|
178,364 |
|
|
58.1% |
|
Travel & meeting |
|
241,325 |
|
|
16,843 |
|
|
224,482 |
|
|
1332.8% |
|
Other expenses |
|
183,592 |
|
|
4,078 |
|
|
179,514 |
|
|
4402.0% |
|
Total |
|
1,842,604 |
|
|
521,335 |
|
|
1,321,269 |
|
|
253.4% |
|
G&A expense as % of operating revenue |
|
66.60% |
|
|
570.38% |
|
|
- |
|
|
-503.79% |
|
Salary and wages expenses incurred $465,696 in general and
administration for the year ended December 31, 2014 as compared to $0 for the
year ended December 31, 2013 as start-up year, mainly because business rapid
expansion and management and administration personals and staff were hired.
Depreciation expense increased by $133,885, or 213.1%, in the
year ended December 31, 2014, as compared to the same year in 2013. The increase
was primarily due to the most of equipment purchased in second half year of 2013
and the full depreciations were taken in the year ended December 31, 2014.
Office and office related expenses increased by $53,239, or
85.3%, in the year ended December 31, 2014, as compared to the same year in
2013. As the business expanded office expense increased accordingly.
Professional service fees increased by 86,089 in the year ended
December 31, 2014, as compared to the year in 2013. The increase is due to most
of consulting, accounting and legal fees incurred and paid in current periods.
Rent expenses incurred for offices of the Company's
subsidiaries located in China. Rent expense increased by 178,364, or 58.1%, for
the year ended December 31, 2014, as compared to the same year in 2013. The
increase is primarily because the Companys subsidiaries begun to operate by
increasing office space in order to fulfill the tasks and support the marketing
forces.
Travel and meeting increased to $241,325 in the year ended
December 31, 2014 as compared to $16,843 in the year of 2013. As the business is
booming the activities increased.
Other general and administrative expenses mainly include local
transportation, repairs, annual filling fees and certain low-value miscellaneous
items. Their amounts varied period over period due to different circumstances.
Loss from operations
For the year ended December 31, 2014, loss from operations was
$4,130,676, as compared to $1,831,469 for the year ended December 31, 2013, a
loss increase by $2,299,207 or 126%, mainly due to obvious business expansion in
increasing in the labor force, R&D expenditure and general and
administrative costs.
Other income (expenses)
For the year ended December 31, 2014 and 2013, other income
(expense) mainly came from interest income and other expenses.
Income tax expense
For the year ended December 31, 2014 and December 31, 2013,
income tax amounted to $0 due to the operating losses.
Net loss
As a result of the factors described above, our net losses for
the year ended December 31, 2014 was loss of $4,158,011. For the year ended
December 31, 2013, we had net loss of $1,834,080.
Foreign currency translation gain
The functional currency of our subsidiaries operating in the
PRC is the Chinese Yuan or Renminbi (RMB). The financial statements of our
subsidiaries are translated to U.S. dollars using year end rates of exchange for
assets and liabilities, and average rates of exchange (for the year) for
revenues, costs, and expenses. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations.
As a result of these translations, which are a non-cash adjustment, we reported
a foreign currency translation loss of $12,666 for the year ended December 31,
2014 as compared to the gain of $19,952 for the same year in 2013. This non-cash
loss had the effect of decreasing our reported comprehensive income.
Comprehensive loss
For the year ended December 31, 2014 and 2013, comprehensive
losses of $4,170,677 and $1,814,128 were derived from the sum of our net losses
of $4,158,011 and 1,834,080 plus foreign currency translation loss of $12,666
and gain of $19,952, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operation primarily through paid-in capital,
sales of services, and advance from stockholders. The Company currently
generates its cash flow through advance from shareholders and officers and
operations, major shareholders will continue to either infuse the capital or
advance the cash in order to sustain current level operations and expansion for
the next twelve months.
As of December 31, 2014, our balance of cash and cash
equivalents was $1,524,467. As of December 31, 2013, our balance of cash and
cash equivalents was $16,367, an increase of $1,508,914 or 9214.3%, mainly due
to net cash provided by financing activities.
The following summarizes the key components of the Companys
cash flows for the year ended December 31, 2014 and 2013:
|
|
For the Year Ended December 31, |
|
|
Increase/decrease |
|
|
|
2014 |
|
|
2013 |
|
|
$ |
|
|
% |
|
Net cash used in operating
activities |
|
(8,109,533 |
) |
|
(2,901,838 |
) |
|
(5,207,695 |
) |
|
179.5% |
|
Net cash used in investing activities |
|
(886,955 |
) |
|
(142,139 |
) |
|
(744,816 |
) |
|
524.0% |
|
Net cash provided by
financing activities |
|
10,519,026 |
|
|
2,857,949 |
|
|
7,661,077 |
|
|
268.1% |
|
Effect of foreign currency translation |
|
(14,438 |
) |
|
3,705 |
|
|
(18,143 |
) |
|
-489.7% |
|
Net increase(decrease) in
cash and cash equivalents |
|
1,508,100 |
|
|
(182,323 |
) |
|
1,690,423 |
|
|
-927.2% |
|
In summary, our cash flows were:
Net cash used by operating activities decreased in the year
ended December 31, 2014 by $5,207,695 to $8,109,533, from net cash used in
operating activities of $2,901,838 for the year ended December 31, 2013. These
changes were mainly caused by the following changes: an increase in net loss of
$2,323,931, an increase in depreciation of $134,986, a decrease in accounts
receivable of $144,320, a decrease in various prepayments of $4,403,323, an
decrease in other long term assets for $362,444, an increase in account payable
of $235,837, an increase of customer deposit by $409,078, an increase in cash
provided in accrued expenses and other current liabilities of $1,124,095, and an
increase in deferred revenue of $32,983.
Net cash used in investing activity decreased by $744,816, from
$142,139 to $886,955, in the year ended December 31, 2014 compared to the same
year ended in 2013, which is mainly due to increases in purchases of hardware
for research and development, various office furniture and equipment as office
space and labor increased.
Net cash provided by financing activities increased by
$7,661,077 to $10,519,026 in the year ended December 31, 2014 compared to
$2,857,949 provided by financing activities at the same year ended in 2013. This
was due to a combination of additional capital contribution for $17,814,917,
repayment of advances from major shareholders approximately $10,240,863, and
cash provided by related parties for $87,022.
Working capital increased by $13,232,893 to deficit of
$1,369,141 as of December 31, 2014 from working capital deficit of $14,602,034
as of December 31, 2013. In order to stay cost competitive in the long-run, we
plan to introduce venture capital as many venture capitalists find our
profitable business model and remarkable progress.
On November 26, 2014, we received capital contribution in the
amount of RMB 107.5 million (approximately $17,814,917), and paid off majority
short term advances and payables. We will continue to invest in our business,
with expected positive operating cash flow fueled by our profit. We will also
plan to restructure the debts and advances from major shareholders to keep
sufficient operating cash to sustain current level operations for at least the
next twelve months.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be
considered off-balance sheet arrangements. We do not participate in transactions
that create relationships with unconsolidated entities or financial
partnerships, which would have been established for the purpose of facilitating
off-balance sheet arrangements. We have not entered into any off-balance sheet
financing arrangements, established any special purpose entities, guaranteed any
debt or commitments of other entities, or entered into any non-financial assets.
Going concern
The Report of Our Independent Registered Public Accounting
Firm Contains Explanatory Language That Substantial Doubt Exists About Our
Ability To Continue As A Going Concern.
As reflected in the accompanying consolidated financial
statements, we had an accumulated deficit of $11,721,222, a working capital
deficiency of $1,369,141 as of December 31, 2014, a net loss of $4,158,011 and
net cash used in operating activities of $8,109,533 for the year ended December
31, 2014. These factors raise substantial doubt about our ability to continue as
a going concern. Management intends to further implement its business plan and
generate sufficient revenue and to raise additional funds by way of a private or
public offering. While we believes in the viability of our strategy to further
implement our business plan and generate sufficient revenue and in its ability
to raise additional funds, there can be no assurances to that effect. The
ability of our company to continue as a going concern is dependent upon our
ability to further implement our business plan and generate sufficient revenue
and our ability to raise additional funds by way of a public or private
offering. Our consolidated financial statements do not include any adjustments
that might be necessary if our company is unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We continually evaluate our estimates, including those related to
bad debts, inventories, recovery of long-lived assets, income taxes, and the
valuation of equity transactions. We base our estimates on historical experience
and on various other assumptions that we believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Any future changes to these estimates and assumptions could cause
a material change to our reported amounts of revenues, expenses, assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
the financial statements.
While our significant accounting policies are fully described
in Note 2 to our consolidated financial statements for the year ended December
31, 2014 and 2013, we believe that the following accounting policies are the
most critical to aid you in fully understanding and evaluating this managements
discussion and analysis.
Accounts receivable
Accounts receivable are recorded net of allowance for doubtful
accounts. We provide an allowance for doubtful accounts equal to the estimated
uncollectible amounts. Periodically, our management assesses customer credit
history and relationships as well as performs accounts receivable aging
analysis. Based on the results, our management determines whether certain
balances are deemed uncollectible at the end of each period. Currently, we have
no, or have a few accounts receivables due to our nature of business.
Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using straight-line method over the
estimated useful lives of the assets. The estimated useful lives of the assets
are as follows:
|
|
Estimated Useful Life |
|
Electronic equipment |
|
3 years |
|
Office furniture |
|
5 years |
|
Buildings |
|
20 years |
|
Revenue recognition
We derive our core revenues primarily from marketing services,
memberships, commissions and membership. Revenue is recognized when persuasive
evidence of an arrangement exists, the price is fixed or determinable, service
is performed and collectability of the related fee is reasonably assured.
Marketing services mainly consists of online and offline
membership card sales, advertising income from direct mail (DM),electronic
direct email(EDM) and Advertising revenue is recognized ratably over the period
in which the advertisement by displaying of an online storefront on our
marketplace through our e-commerce platform. Discounted membership cards sales
revenue is recognized when the card is delivered to the customer. Membership is
a terminal operating merchant of our e-commerce platform. Members can buy our
membership card at discount rate and resale of the membership cards to general
consumers. Membership fee income is recognized ratably over the term of the
membership when membership service is provided.
Commissions on transactions are the income shared the profits
with our contracted or associated online and offline stores when cardholder
shopping with that store by using membership cards. Commission income is earned
when a transaction is completed and settled through the DLD supported payment
system on online and offline retail marketplace. Commission on the transaction
is recognized when the underlying transaction is completed.
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
Foreign Currency Translation and Transactions
Our accompanying audited consolidated financial statements are
presented in U.S. dollars (USD). DLD Group, Inc. and DLD Great Industries Ltd.
are kept in US dollars, and DLD International Group Limiteds functional
currency in portion is Hong Kong Dollar (HKD) but keep the accounting book in
US dollars; Beijing DLD Enterprise Management Consulting Co. Ltd.(DLD WOFE), DLD
Technology Co., Ltd. and its 7 branch companies, and its subsidiary company
Henan Dianliandian Information Technology Co., Ltd. and Shenzhen Tonychengyi
Sanxing Weiye Internet Technology Co., Ltd.s functional currency is Chinese
Yuan Renminbi (RMB). Our audited consolidated financial statements are
translated into USD in accordance with the Codification ASC 830, Foreign
Currency Matters. All assets and liabilities were translated at the current
exchange rate, at respective balance sheet dates, stockholders equity is
translated at the historical rates and income statement items are translated at
the average exchange rate for the reporting periods. The resulting translation
adjustments are reported as other comprehensive income and accumulated other
comprehensive income in stockholders equity in Accordance with the Codification
ASC 220, Comprehensive Income.
Transaction gains and losses that arise from exchange rate
fluctuations from transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred. There
were no material transaction gains or losses in the periods presented.
Cash flow from our operations included in the statement of cash
flows is calculated based upon the functional currency using the average
translation rate. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with
arithmetical changes in the corresponding balances on the consolidated balance
sheets. No presentation is made that the RMB amounts could have been, or could
be, converted into USD at the rates used in translation.
The PRC government imposes significant exchange restrictions on
fund transfers out of the PRC that are not related to business operations. These
restrictions have not had a material impact on us since we have not engaged in
any significant transactions that are subject to the restrictions.
The exchange rates used to translate amounts in RMB into USD
for the purposes of preparing our consolidated financial statements were as
follows:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Year-end RMB:USD exchange
rate |
|
6.1460 |
|
|
6.1122 |
|
Average yearly RMB:USD exchange rate |
|
6.1457 |
|
|
6.1934 |
|
Recently Issued Accounting Pronouncements
Refer to Note 2 in our accompanying consolidated audited
financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Smaller reporting companies are not required to provide the
information required by this item
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
DLD Group, Inc.
December 31, 2014 and 2013
Index to the Consolidated Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders
DLD Group, Inc.
We have audited the accompanying consolidated balance sheets of
DLD Group, Inc. (DLD Group or the Company) as of December 31, 2014 and 2013,
and the related consolidated statements of operations and comprehensive income
(loss), changes in stockholders equity (deficit) and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purposes
of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining on a test basis, evidence supporting the amount and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2014 and 2013, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the consolidated financial statements, the Company had an
accumulated deficit at December 31, 2014, a net loss and net cash used in
operating activities for the year then ended. These factors raise substantial
doubt about the Companys ability to continue as a going concern. Managements
plans in regards to these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Li and Company, PC
Li and Company, PC
Skillman, New Jersey
April 15, 2015
F - 2
DLD Group, Inc. |
Consolidated Balance Sheets |
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
1,524,467 |
|
$ |
16,367 |
|
Accounts receivable |
|
143,182 |
|
|
- |
|
Prepayments and other current
assets |
|
7,671,318 |
|
|
1,900,476 |
|
|
|
|
|
|
|
|
Total
current assets |
|
9,338,967 |
|
|
1,916,843 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
Property and equipment |
|
16,010,912 |
|
|
15,196,657 |
|
Accumulated depreciation |
|
(1,946,369 |
) |
|
(1,060,890 |
) |
|
|
|
|
|
|
|
Property
and equipment, net |
|
14,064,543 |
|
|
14,135,767 |
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
Deferred expenses |
|
370,360 |
|
|
39,765 |
|
|
|
|
|
|
|
|
Total other assets |
|
370,360 |
|
|
39,765 |
|
|
|
|
|
|
|
|
Total assets |
$ |
23,773,870 |
|
$ |
16,092,375 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts payable |
$ |
3,677 |
|
$ |
- |
|
Taxes payable |
|
76,249 |
|
|
669 |
|
Advances from stockholders |
|
8,659,481 |
|
|
16,006,183 |
|
Accrued expenses and other
current liabilities |
|
1,042,853 |
|
|
108,923 |
|
Deferred revenue |
|
481,423 |
|
|
19,878 |
|
Advances from affiliates |
|
444,425 |
|
|
383,224 |
|
|
|
|
|
|
|
|
Total
current liabilities |
|
10,708,108 |
|
|
16,518,877 |
|
|
|
|
|
|
|
|
Total liabilities |
|
10,708,108 |
|
|
16,518,877 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
|
Preferred stock par value $0.01: 500,000
shares authorized;
none issued or outstanding |
|
- |
|
|
- |
|
Common stock par value $0.001:
200,000,000 shares authorized;
2,100,215 and
2,000,000 shares issued and outstanding, respectively |
|
2,100 |
|
|
2,000 |
|
Additional paid-in capital |
|
24,798,512 |
|
|
7,135,671 |
|
Accumulated deficit |
|
(11,721,222 |
) |
|
(7,563,211 |
) |
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
Foreign
currency translation gain (loss) |
|
(13,628 |
) |
|
(962 |
) |
|
|
|
|
|
|
|
Total
stockholders' equity (deficit) |
|
13,065,762 |
|
|
(426,502 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit) |
$ |
23,773,870 |
|
$ |
16,092,375 |
|
See accompanying notes to the consolidated financial
statements.
F - 3
DLD Group, Inc. |
Consolidated Statements of Operations and Comprehensive
Income (Loss) |
|
|
For the Year |
|
|
For the Year |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
Marketing services |
$ |
2,755,757 |
|
$ |
80,189 |
|
Terminal operator membership
fees |
|
5,854 |
|
|
9,444 |
|
Commission income |
|
5,217 |
|
|
1,768 |
|
Rental income |
|
577,407 |
|
|
582,030 |
|
|
|
|
|
|
|
|
Total revenue |
|
3,344,235 |
|
|
673,431 |
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
Cost of rental income |
|
840,165 |
|
|
814,663 |
|
|
|
|
|
|
|
|
Total
cost of revenue |
|
840,165 |
|
|
814,663 |
|
|
|
|
|
|
|
|
Gross margin |
|
2,504,070 |
|
|
(141,232 |
) |
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Advertising costs |
|
305,734 |
|
|
468,772 |
|
Selling expenses |
|
2,369,447 |
|
|
401,712 |
|
Research and development expenses |
|
2,116,961 |
|
|
298,418 |
|
General and administrative
expenses |
|
1,842,604 |
|
|
521,335 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
6,634,746 |
|
|
1,690,237 |
|
|
|
|
|
|
|
|
Loss from operations |
|
(4,130,676 |
) |
|
(1,831,469 |
) |
|
|
|
|
|
|
|
Other (income) expense |
|
|
|
|
|
|
Interest income |
|
(1,694 |
) |
|
(230 |
) |
Other (income) expense |
|
15,431 |
|
|
2,841 |
|
|
|
|
|
|
|
|
Other
(income) expense, net |
|
13,737 |
|
|
2,611 |
|
|
|
|
|
|
|
|
Loss before income tax provision |
|
(4,144,413 |
) |
|
(1,834,080 |
) |
|
|
|
|
|
|
|
Income tax provision |
|
13,598 |
|
|
- |
|
|
|
|
|
|
|
|
Net loss |
|
(4,158,011 |
) |
|
(1,834,080 |
) |
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
(12,666 |
) |
|
19,952 |
|
|
|
|
|
|
|
|
Total
other comprehensive income (loss) |
|
(12,666 |
) |
|
19,952 |
|
|
|
|
|
|
|
|
Comprehensive loss |
$ |
(4,170,677 |
) |
$ |
(1,814,128 |
) |
|
|
|
|
|
|
|
Earnings Per Share - Basic and Diluted |
$ |
(2.08 |
) |
$ |
(0.92 |
) |
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
- basic and diluted |
|
2,000,000 |
|
|
2,000,000 |
|
See accompanying notes to the consolidated financial
statements.
F - 4
DLD Group, Inc. |
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) |
For the Year Ended December 31, 2014 and 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
Common stock par value $0.001: |
|
|
Additional |
|
|
|
|
|
Income (Loss) |
|
|
Total |
|
|
|
Number of |
|
|
|
|
|
Paid-in |
|
|
Accumulated |
|
|
Foreign Currency |
|
|
Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Translation Gain(loss) |
|
|
Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 |
|
2,000,000 |
|
$ |
2,000 |
|
$ |
7,135,671 |
|
$ |
(5,729,131 |
) |
$ |
(20,914 |
) |
$ |
1,387,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
|
|
|
(1,834,080 |
) |
|
|
|
|
(1,834,080 |
) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,952 |
|
|
19,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,814,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
2,000,000 |
|
|
2,000 |
|
|
7,135,671 |
|
|
(7,563,211 |
) |
|
(962 |
) |
|
(426,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse acquisition adjustment |
|
100,215 |
|
|
100 |
|
|
(152,077 |
) |
|
|
|
|
|
|
|
(151,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital |
|
|
|
|
|
|
|
17,814,918 |
|
|
|
|
|
|
|
|
17,814,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(4,158,011 |
) |
|
|
|
|
(4,158,011 |
) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,666 |
) |
|
(12,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,170,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 |
|
2,100,215 |
|
$ |
2,100 |
|
$ |
24,798,512 |
|
$ |
(11,721,222 |
) |
$ |
(13,628 |
) |
$ |
13,065,762 |
|
See accompanying notes to the consolidated financial statements.
F - 5
DLD Group, Inc. |
Consolidated Statements of Cash Flows |
|
|
For the Year |
|
|
For the Year |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net loss |
$ |
(4,158,011 |
) |
$ |
(1,834,080 |
) |
Adjustments to reconcile net loss to net
cash used in operating activities |
|
|
|
|
|
|
Depreciation expense |
|
889,024 |
|
|
754,038 |
|
Changes in operating
assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
(143,190 |
) |
|
1,130 |
|
Prepayments and other current assets |
|
(5,781,578 |
) |
|
(1,378,255 |
) |
Other long term assets |
|
(330,829 |
) |
|
31,615 |
|
Customer deposit |
|
409,078 |
|
|
- |
|
Accounts
payable |
|
3,677 |
|
|
(232,160 |
) |
Taxes payable |
|
75,589 |
|
|
(13,755 |
) |
Accrued
expenses and other current liabilities |
|
874,109 |
|
|
(249,986 |
) |
Deferred revenue |
|
52,598 |
|
|
19,615 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
(8,109,533 |
) |
|
(2,901,838 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Cash
acquired from business acquisition |
|
6,932 |
|
|
- |
|
Purchases of property and
equipment |
|
(893,887 |
) |
|
(142,139 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
(886,955 |
) |
|
(142,139 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Advances
from (repayment to) stockholders |
|
(7,359,103 |
) |
|
2,881,760 |
|
Advances from (repayments
to) affiliates |
|
63,211 |
|
|
(23,811 |
) |
Capital
contribution |
|
17,814,918 |
|
|
- |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
10,519,026 |
|
|
2,857,949 |
|
|
|
|
|
|
|
|
Effect of foreign exchange rate change on
cash |
|
(14,438 |
) |
|
3,705 |
|
|
|
|
|
|
|
|
Net change in cash |
|
1,508,100 |
|
|
(182,323 |
) |
|
|
|
|
|
|
|
Cash at beginning of the reporting period |
|
16,367 |
|
|
198,690 |
|
|
|
|
|
|
|
|
Cash at end of the reporting period |
$ |
1,524,467 |
|
$ |
16,367 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION: |
|
|
|
|
|
|
Interest paid |
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
Income tax paid |
$ |
- |
|
$ |
- |
|
See accompanying notes to the consolidated financial
statements.
F - 6
DLD Group, Inc. |
December 31, 2014 and 2013 |
Notes to the Consolidated Financial Statements
|
Note 1 Organization and Operations
DLD Group, Inc. (formerly Europa Resources Inc. and EWRX
Internet Systems, Inc.)
DLD Group, Inc. (formerly Europa Resources Inc. and EWRX
Internet Systems, Inc.) ("DLD Group" or the "Company") was incorporated on June
25, 1997 under the laws of the State of Nevada. DLD Group is currently a non-operating holding entity with nominal assets and liabilities.
Acquisition of DLD Great Industry Limited and
Consolidated Entities (DLD BVI) Recognized as a Reverse Acquisition
On December 30, 2014, DLD Group entered into a share exchange
agreement (the Share Exchange Agreement) with all of the shareholders of DLD
BVI, representing 100% of the then issued and outstanding capital stock of DLD
BVI, and consummated the Share Exchange Agreement with the signing of the Share
Exchange Agreement. Pursuant to the terms of the Share Exchange Agreement, DLD
Group acquired all of the issued and outstanding shares of the capital stock of
DLD BVI in exchange for 2,000,000 shares of common stock of DLD Group. The
number of shares issued represented approximately 95.2% of the issued and
outstanding common stock immediately after the consummation of the Share
Exchange Agreement.
As a result of the controlling financial interest of the former
stockholders of DLD BVI, for financial statement reporting purposes, the
business combination between DLD Group and DLD BVI has been treated as a reverse
acquisition with DLD BVI deemed the accounting acquirer and DLD Group deemed the
accounting acquiree under the acquisition method of accounting in accordance
with FASB ASC Section 805-10-55. The reverse acquisition is deemed a capital
transaction and the net assets of DLD BVI (the accounting acquirer) are carried
forward to DLD Group (the legal acquirer and the reporting entity) at their
carrying value before the acquisition. The acquisition process utilizes the
capital structure of DLD Group and the assets and liabilities of DLD BVI which
are recorded at historical cost. The equity of the combined entity is the
historical equity of DLD BVI retroactively restated to reflect the number of
shares issued by DLD Group in the transaction.
DLD Great Industry Limited and Consolidated
Entities
DLD Great Industry
Limited
DLD Great Industry Limited (DLD BVI) was incorporated on
December 11, 2012 under the laws of the Territory of the British Virgin Islands
(BVI).
Formation of a Wholly Owned
Subsidiary, DLD International Group Limited
On August 29, 2013, DLD BVI formed a wholly owned subsidiary,
DLD International Group Limited ("DLD HK") under the laws of the Hong Kong
Special Administrative Region (HK SAR) of the Peoples Republic of China
(PRC).
On November 21, 2013, DLD HK formed a wholly owned foreign
enterprise, Beijing DLD Enterprise Management Consulting Co., Ltd. (DLD WOFE")
under the laws of the Peoples Republic of China (PRC) in the City of Beijing,
China.
Variable Interest Entity (VIE)
under Common Control
Formation/Acquisition of
VIEs
DLD Technology Co., Ltd. ("DLD Technology") was incorporated by
the same shareholders of DLD BVI on February 23, 2012 under the laws of the
Peoples Republic of China (PRC) in the City of Beijing, China. DLD Technology
engages in technology development, technology transfer, technology consulting,
technology services; computer system service; data processing; application
service; and software service (collectively, the Principal Business). On June 11, 2014, DLD Technology formed a wholly owned subsidiary, Henan DLD Information Technology Co., Ltd. ("DLD Henan") under the laws of the People’s Republic of China (“PRC”) in the City of Zhengzhou, China. DLD Henan engages in the same line of business of DLD Technology.
Shenzhen Tonychengyi Sanxing Weiye Network Technology Co., Ltd.
("STSW") was incorporated by the same shareholders of DLD BVI on August 14, 2009
under the laws of the Peoples Republic of China (PRC) in the City of
Shenzhen, Guangdong Province, China. STSW engages in research and development of
internet technology and social network.
F - 7
Obtaining Control of VIE upon
Entry into a Series of Agreements
On November 25, 2014, DLD WOFE entered into a series of
agreements with DLD Technology and STSW (individually VIE or
collectively "VIEs") including an Exclusive Business Cooperation and Management
Agreement, an Equity Interest Pledge Agreement, an Exclusive Option Agreement
and the power of attorney executed by the shareholders of DLD Technology and STSW.
(i) Exclusive Business
Cooperation and Management Agreement
Under the Exclusive Business Cooperation and Management
Agreement, VIE appoints DLD WOFE as VIEs exclusive service provider to provide
VIE with complete business support, operational management and technical and
consulting services to the extent permitted by the currently effective laws of
China, which may include all services within the business scope of VIE as may be
determined from time to time by DLD WOFE, such as but not limited to technical
services, business consultations, equipment or property leasing and marketing
consultancy.
DLD WOFE shall be fully and exclusively responsible for the
operation of VIE, which includes the right to appoint and terminate members of
its Board of Directors and the right to hire managerial and administrative
personnel etc. DLD WOFE or its voting proxy shall make a shareholders
resolution and a Board of Directors resolution based on the decision of DLD
WOFE. DLD WOFE has the full and exclusive right to manage and control all cash
flow and assets of DLD WOFE. DLD WOFE has the full and exclusive right to decide
the use of the funds of VIE. DLD WOFE shall have the full and exclusive right to
control and administer the financial affairs and daily operations of VIE, such
as entering into and performance of contracts, and payment of fees and expenses
etc.
VIE further agrees that unless receiving DLD WOFE's prior
written consent, VIE shall not accept any similar consultations and/or services
provided by any third party and shall not establish a similar corporate
relationship with any third party regarding the matters contemplated by this
agreement.
VIE may enter into equipment or property leases with DLD WOFE
or any other party designated by DLD WOFE which shall permit VIE to use DLD WOFE
or third parties' relevant equipment or property based on the needs of the
business of VIE.
DLD WOFE shall have exclusive and proprietary rights and
interests in all rights, ownership, interests and intellectual properties
arising out of or created during the performance of this Agreement, including
but not limited to copyrights, patents, patent applications, software, technical
secrets, trade secrets and others.
The term of this Agreement is 10 years and may be extended if
confirmed in writing by DLD WOFE prior to the expiration thereof. The extended
term shall be determined by DLD WOFE, and VIE shall accept such extended term
unconditionally. Unless renewed in accordance with the relevant terms of this
Agreement, the Agreement shall be terminated upon the date of expiration hereof.
During the term of the Agreement, unless DLD WOFE commits gross negligence, or a
fraudulent act, against VIE, VIE shall not terminate the Agreement prior to its
expiration date. Nevertheless, DLD WOFE shall have the right to terminate the
Agreement upon giving 30 days prior written notice to VIE at any time.
VIE shall pay an annual service fee to DLD WOFE in the
equivalent amount of VIEs audited total amount of net income of such year (the
Annual Service Fee). If VIEs annual net income is zero, VIE is not required
to pay the Annual Service Fee; if VIE sustains losses in any fiscal year, all
such losses will be carried over to next year and deducted from next years
Annual Service Fee.
(ii) Equity Interest Pledge
Agreement
As collateral security for the timely and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of any or all of the payments due by VIE, including without limitation the
annual service fee payable to DLD WOFE under the Exclusive Business Cooperation
and Management Agreement, VIEs shareholders pledge to DLD WOFE a first security
interest in all of VIEs shareholders right, title and interest in the Equity
Interest of VIE. Prior to the full payment of the consulting and service fees
described in the Exclusive Business Cooperation and Management Agreement,
without DLD WOFEs written consent, VIEs shareholders shall not assign the
Pledge or the Equity Interest in VIE.
The term of this Agreement is conditioned upon the performance
of the Exclusive Business Cooperation and Management Agreement and is terminated
when the Exclusive Business Cooperation and Management Agreement is terminated.
(iii) Exclusive Option
Agreement
VIEs shareholders grant DLD WOFE an irrevocable and exclusive
right to purchase, or designate one or more persons (each, a Designee) the
right to purchase the equity interests in VIE now or then held by VIE
shareholders (regardless of whether VIEs shareholders capital contribution
and/or shareholder ownership percentage is changed) at any time in part or in
whole at DLD WOFE's sole and absolute discretion to the extent permitted by Chinese
law.
F - 8
Unless an appraisal is required by the laws of China applicable
to the Equity Interest Purchase Option when exercised by DLD WOFE, the purchase
price of the Optioned Interests (the Equity Interest Purchase Price) shall
equal the actual capital contributions paid in the registered capital of VIE by
VIEs shareholders for the Optioned Interests.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not in any manner supplement, change or amend the articles of
association and bylaws of VIE, increase or decrease its registered capital, or
change its structure of registered capital in other manners; VIE shareholders
shall maintain VIE's corporate existence in accordance with good financial and
business standards and practices by prudently and effectively operating its
business and handling its affairs.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not at any time following the date hereof, sell, transfer,
mortgage or dispose of in any manner any assets of VIE or legal or beneficial
interest in the business or revenues of VIE, or allow the encumbrance thereon of
any security interest; incur, inherit, guarantee or suffer the existence of any
debt, except for (i) debts incurred in the ordinary course of business other
than through loans; and (ii) debts disclosed to DLD WOFE for which DLD WOFE's
written consent has been obtained.
VIEs shareholders shall provide DLD WOFE with information on
VIEs business operations and financial condition at DLD WOFE's request; without
the prior written consent of DLD WOFE, VIEs shareholders shall not cause VIE to
provide any person with any loan or credit.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not cause VIE to execute any major contracts, except
contracts in the ordinary course of business (a contract with a value exceeding
RMB100,000 shall be deemed a major contract).
If requested by DLD WOFE, VIEs shareholders shall procure and
maintain insurance in respect of VIE's assets and business from an insurance
carrier acceptable to DLD WOFE, at an amount and type of coverage typical for
companies that operate similar businesses.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall not cause or permit VIE to merge, consolidate with, acquire
or invest in any person. VIEs shareholders shall immediately notify DLD WOFE of
the occurrence or possible occurrence of any litigation, arbitration or
administrative proceedings relating to VIE' assets, business or revenue.
To maintain the ownership by VIE of all of its assets, VIEs
shareholders shall execute all necessary or appropriate documents, take all
necessary or appropriate actions and file all necessary or appropriate
complaints or raise necessary and appropriate defenses against all claims.
Without the prior written consent of DLD WOFE, VIEs
shareholders shall ensure that VIE shall not in any manner distribute dividends
to its shareholders, provided that upon VIEs written request, VIE shall
immediately distribute all distributable profits to its shareholders. At the
request of DLD WOFE, VIEs shareholders shall appoint any persons designated by
DLD WOFE as the director and/or executive director of VIE.
The term of this Agreement is 10 years expiring November 25, 2024.
(iv) Power of Attorney
Each shareholder of VIE has granted DLD WOFE a Power of
Attorney to act on his/her behalf as his/her exclusive agent and attorney with
respect to all matters concerning their Shareholding, including without
limitation to: 1) attend shareholders meetings; 2) exercise all the
shareholder's rights and shareholder's voting rights, including but not limited
to the sale or transfer or pledge or disposition of their Shareholding in part
or in whole; and 3) designate and appoint on their behalf the legal
representative, the executive director and/or director, supervisor, the chief
executive officer and other senior management members of VIE.
DLD WOFE shall have the power and authority to execute the
Transfer Contracts stipulated in the Exclusive Option Agreement and to effect
the terms of the Share Pledge Agreement and Exclusive Option Agreement.
DLD WOFE is entitled to re-authorize or assign its rights
related to the aforesaid matters to any other person or entity at its own
discretion without giving prior notice to shareholder of VIE or obtaining their
consent.
Determination of VIE
Variable interest entity (VIE) refers to an entity (the
investee) in which the investor holds a controlling interest that is not based
on the majority of voting rights. A VIE is an entity meeting one of the
following three (3) criteria as elaborated in FASB ASC 810-10 [formerly FIN 46
(Revised)]:
F - 9
|
1. |
The equity-at-risk is not sufficient to support the
entity's activities (e.g.: the entity is thinly capitalized, the group of
equity holders possesses no substantive voting rights, etc.); |
|
2. |
As a group, the equity-at-risk holders cannot control the
entity; or |
|
3. |
The economics do not coincide with the voting interests
(commonly known as the "anti-abuse rule"). |
Under the above described contractual arrangements, DLD
Technology and STSW became the variable interest entity of DLD WOFE
on November 25, 2014 upon the entry into the above described agreements.
Presentation of the Total Assets and Liabilities of the VIEs
Pursuant to ASC paragraph 810-10-45-25 a reporting entity shall present each of the following separately on the face of the statement of financial position: a. Assets of a consolidated variable interest entity (VIE) that can be used only to settle obligations of the consolidated VIE, and b. Liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. The Company reports the disclosures about VIEs in the aggregate for all of its VIE entities as they all are engaged in the same line of business and separate reporting would not provide more useful information to financial statement users in accordance with ASC paragraph 810-10-50-9.
The Company’s total assets and liabilities presented in the consolidated financial statements represent substantially all of total assets and liabilities of the VIE and VIE’s subsidiaries as DLD Group is a non-operating holding entity with nominal assets and liabilities.
Note 2 Significant and Critical Accounting Policies and
Practices
The Management of the Company is responsible for the selection
and use of appropriate accounting policies and the appropriateness of accounting
policies and their application. Critical accounting policies and practices are
those that are both most important to the portrayal of the Companys financial
condition and results and require managements most difficult, subjective, or
complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain. The Companys significant and
critical accounting policies and practices are disclosed below as required by
generally accepted accounting principles.
Basis of Presentation
The Company's financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP).
Use of Estimates and Assumptions and Critical Accounting
Estimates and Assumptions
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 the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date(s) of the financial statements and the reported amounts
of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates for which (a) the
nature of the estimate is material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change and (b) the impact of the estimate on financial
condition or operating performance is material. The Companys critical
accounting estimates and assumptions affecting the financial statements were:
(i) |
Assumption as a going concern: Management assumes
that the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of
liabilities in the normal course of business. |
(ii) |
Allowance for doubtful accounts: Managements
estimate of the allowance for doubtful accounts is based on historical
sales, historical loss levels, and an analysis of the collectability of
individual accounts; and general economic conditions that may affect a
clients ability to pay. The Company evaluated the key factors and
assumptions used to develop the allowance in determining that it is
reasonable in relation to the financial statements taken as a
whole. |
(iii) |
Fair value of long-lived assets: Fair value is
generally determined using the assets expected future discounted cash
flows or market value, if readily determinable. If long-lived assets are
determined to be recoverable, but the newly determined remaining estimated
useful lives are shorter than originally estimated, the net book values of
the long-lived assets are depreciated over the newly determined remaining
estimated useful lives. The Company considers the following to be some
examples of important indicators that may trigger an impairment review:
(i) significant under-performance or losses of assets relative to expected
historical or projected future operating results; (ii) significant changes
in the manner or use of assets or in the Companys overall strategy with
respect to the manner or use of the acquired assets or changes in the
Companys overall business strategy; (iii) significant negative industry
or economic trends; (iv) increased competitive pressures; (v) a
significant decline in the Companys stock price for a sustained period of
time; and (vi) regulatory changes. The Company evaluates acquired assets
for potential impairment indicators at least annually and more frequently
upon the occurrence of such events. |
(iv) |
Valuation allowance for deferred tax assets:
Management assumes that the realization of the Companys net deferred tax
assets resulting from its net operating loss (NOL) carryforwards for
Federal income tax purposes that may be offset against future taxable
income was not considered more likely than not and accordingly, the
potential tax benefits of the net loss carry-forwards are offset by a full
valuation allowance. Management made this assumption based on (a) the
Company has incurred recurring losses, (b) general economic conditions,
and (c) its ability to raise additional funds to support its daily
operations by way of a public or private offering, among other
factors. |
These significant accounting estimates or assumptions bear the
risk of change due to the fact that there are uncertainties attached to these
estimates or assumptions, and certain estimates or assumptions are difficult to
measure or value.
Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable in relation to the
financial statements taken as a whole under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources.
F - 10
Management regularly evaluates the key factors and assumptions
used to develop the estimates utilizing currently available information, changes
in facts and circumstances, historical experience and reasonable assumptions.
After such evaluations, if deemed appropriate, those estimates are adjusted
accordingly.
Actual results could differ from those estimates.
Principles of Consolidation
The Company applies the guidance of Topic 810
Consolidation of the FASB Accounting Standards Codification (ASC) to
determine whether and how to consolidate another entity.
Pursuant to ASC Paragraph 810-10-15-10 all majority-owned
subsidiariesall entities in which a parent has a controlling financial
interestshall be consolidated except (1) when control does not rest with the
parent, the majority owner; (2) if the parent is a broker-dealer within the
scope of Topic 940 and control is likely to be temporary; (3) consolidation by
an investment company within the scope of Topic 946 of a non-investment-company
investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a
controlling financial interest is ownership of a majority voting interest, and,
therefore, as a general rule ownership by one reporting entity, directly or
indirectly, of more than 50 percent of the outstanding voting shares of another
entity is a condition pointing toward consolidation. The power to control may
also exist with a lesser percentage of ownership, for example, by contract,
lease, agreement with other stockholders, or by court decree. The Company
consolidates all less-than-majority-owned subsidiaries, if any, in which the
parents power to control exists.
Pursuant to ASC Paragraph 810-10-25-38 a reporting entity shall
consolidate a VIE if that reporting entity has a variable interest (or
combination of variable interests) that will absorb a majority of the VIE's
expected losses, receive a majority of the VIE's expected residual returns, or
both. A reporting entity shall consider the rights and obligations conveyed by
its variable interests and the relationship of its variable interests with
variable interests held by other parties to determine whether its variable
interests will absorb a majority of a VIE's expected losses, receive a majority
of the VIE's expected residual returns, or both. If one reporting entity will
absorb a majority of a VIE's expected losses and another reporting entity will
receive a majority of that VIE's expected residual returns, the reporting entity
absorbing a majority of the losses shall consolidate the VIE. A reporting entity
shall consolidate a VIE when that reporting entity has a variable interest (or
combination of variable interests) that provides the reporting entity with a
controlling financial interest on the basis of the provisions in paragraphs
810-10-25-38A through 25-38G. The reporting entity that consolidates a VIE is
called the primary beneficiary of that VIE. Pursuant to ASC Paragraph
810-10-35-3, the principles of consolidated financial statements apply to
primary beneficiaries accounting for consolidated variable interest entities
(VIEs). After the initial measurement, the assets, liabilities, and
non-controlling interests of a consolidated VIE shall be accounted for in
consolidated financial statements as if the VIE were consolidated based on
voting interests. Any specialized accounting requirements applicable to the type
of business in which the VIE operates shall be applied as they would be applied
to a consolidated subsidiary. The consolidated entity shall follow the
requirements for elimination of intra-entity balances and transactions and other
matters described in Section 810-10-45 and paragraphs 810-10-50-1 through 50-1B
and existing practices for consolidated subsidiaries. Fees or other sources of
income or expense between a primary beneficiary and a consolidated VIE shall be
eliminated against the related expense or income of the VIE. The resulting
effect of that elimination on the net income or expense of the VIE shall be
attributed to the primary beneficiary (and not to non-controlling interests) in
the consolidated financial statements.
Pursuant to ASC Paragraph 810-10-30-1 if the primary
beneficiary of a variable interest entity (VIE) and the VIE are under common
control, the primary beneficiary shall initially measure the assets,
liabilities, and non-controlling interests of the VIE at amounts at which they
are carried in the accounts of the reporting entity that controls the VIE (or
would be carried if the reporting entity issued financial statements prepared in
conformity with generally accepted accounting principles (U.S. GAAP).
Pursuant to ASC Paragraph 810-10-30-2 if the primary
beneficiary of a variable interest entity (VIE) and the VIE are not under common
control, the initial consolidation of a VIE that is a business is a business
combination and shall be accounted for in accordance with the provisions in
Topic 805.
The Company's consolidated subsidiaries and/or entities are as
follows:
Name of consolidated subsidiary or |
State or other jurisdiction of |
Date of incorporation or formation |
Attributable interest |
entity |
incorporation or organization |
(date of acquisition, if applicable) |
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
DLD Great Industry Limited ("DLD BVI") |
British Virgin Islands |
November 12, 2012 |
100% |
|
|
|
|
DLD International Group Limited ("DLD
HK") |
Hong Kong SAR |
August 29, 2013 |
100% |
|
|
|
|
Beijing DLD Enterprise Management
Consulting Co., Ltd. (DLD
WOFE) |
PRC |
November 21, 2013 |
100% |
|
|
|
|
Variable Interest Entity
(VIE)
under Common Control with
DLD
BVI |
|
|
|
|
|
|
|
DLD Technology Co., Ltd. ("DLD
Technology") |
PRC |
February 23, 2012 |
100% |
|
|
|
|
Shenzhen Tongchengyi Sanxing
Weiye
Network Technology Co.
Ltd. ("STSW") |
PRC |
August 14, 2009 |
100% |
F - 11
The Company, the primary beneficiary, measures the assets,
liabilities, and non-controlling interests, if any, of the VIE at amounts at
which they are carried in the accounts of the reporting entity that controls the
VIE (or would be carried if the reporting entity issued financial statements
prepared in conformity with generally accepted accounting principles (U.S.
GAAP) due to the fact that the Company, through DLD WOFE, the primary
beneficiary of the variable interest entity (VIE) and the VIE are under common
control.
The consolidated financial statements include all accounts of
the Company and its consolidated subsidiaries and/or VIEs at the historical cost
as of the reporting period ending date(s) and for the reporting period(s) then
ended.
All inter-company and inter-entity balances and transactions
have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB
Accounting Standards Codification (Paragraph 820-10-35-37) to measure the fair
value of its financial instruments and paragraph 825-10-50-10 of the FASB
Accounting Standards Codification for disclosures about fair value of its
financial instruments. Paragraph 820-10-35-37 establishes a framework for
measuring fair value in accounting principles generally accepted in the United
States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value
measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels. The three (3) levels of fair
value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
Quoted market prices available
in active markets for identical assets or liabilities as of the reporting
date. |
|
|
Level 2 |
Pricing inputs other than
quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reporting date. |
|
|
Level 3 |
Pricing inputs that are
generally observable inputs and not corroborated by market data.
|
Financial assets are considered Level 3 when their fair values
are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is
unobservable.
The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the
financial assets and liabilities fall within more than one level described
above, the categorization is based on the lowest level input that is significant
to the fair value measurement of the instrument.
The carrying amounts of the Companys financial assets and
liabilities, such as cash and cash equivalents, accounts receivable, prepaid
television airtime, prepayments and other current assets, accounts payable,
taxes payable, accrued expenses and other current liabilities and deferred
revenue approximate their fair values because of the short maturity of these
instruments.
Transactions involving related parties cannot be presumed to be
carried out on an arm's-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about
transactions with related parties, if made, shall not imply that the related
party transactions were consummated on terms equivalent to those that prevail in
arm's-length transactions unless such representations can be substantiated.
Carrying Value, Recoverability and Impairment of
Long-Lived Assets
F - 12
The Company has adopted Section 360-10-35 of the FASB
Accounting Standards Codification for its long-lived assets. Pursuant to ASC
Paragraph 360-10-35-17 an impairment loss shall be recognized only if the
carrying amount of a long-lived asset (asset group) is not recoverable and
exceeds its fair value. The carrying amount of a long-lived asset (asset group)
is not recoverable if it exceeds the sum of the undiscounted cash flows expected
to result from the use and eventual disposition of the asset (asset group). That
assessment shall be based on the carrying amount of the asset (asset group) at
the date it is tested for recoverability. An impairment loss shall be measured
as the amount by which the carrying amount of a long-lived asset (asset group)
exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment
loss is recognized, the adjusted carrying amount of a long-lived asset shall be
its new cost basis. For a depreciable long-lived asset, the new cost basis shall
be depreciated (amortized) over the remaining useful life of that asset.
Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the Companys long-lived
asset (asset group) is tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The
Company considers the following to be some examples of such events or changes in
circumstances that may trigger an impairment review: (a) significant decrease in
the market price of a long-lived asset (asset group); (b) A significant adverse
change in the extent or manner in which a long-lived asset (asset group) is
being used or in its physical condition; (c) A significant adverse change in
legal factors or in the business climate that could affect the value of a
long-lived asset (asset group), including an adverse action or assessment by a
regulator; (d) An accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a long-lived asset
(asset group); (e) A current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived asset
(asset group); and (f) A current expectation that, more likely than not, a
long-lived asset (asset group) will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life. The
Company tests its long-lived assets for potential impairment indicators at least
annually and more frequently upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-45-4 and 360-10-45-5 an
impairment loss recognized for a long-lived asset (asset group) to be held and
used shall be included in income from continuing operations before income taxes
in the income statement of a business entity. If a subtotal such as income from
operations is presented, it shall include the amount of that loss. A gain or
loss recognized on the sale of a long-lived asset (disposal group) that is not a
component of an entity shall be included in income from continuing operations
before income taxes in the income statement of a business entity. If a subtotal
such as income from operations is presented, it shall include the amounts of
those gains or losses.
Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to be cash
equivalents.
Accounts Receivable and Allowance for Doubtful
Accounts
Pursuant to FASB ASC paragraph 310-10-35-47 trade receivables
that management has the intent and ability to hold for the foreseeable future
shall be reported in the balance sheet at outstanding principal adjusted for any
charge-offs and the allowance for doubtful accounts. The Company follows FASB
ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for
doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9 Losses from
uncollectible receivables shall be accrued when both of the following conditions
are met: (a) Information available before the financial statements are issued or
are available to be issued (as discussed in Section 855-10-25) indicates that it
is probable that an asset has been impaired at the date of the financial
statements, and (b) The amount of the loss can be reasonably estimated. Those
conditions may be considered in relation to individual receivables or in
relation to groups of similar types of receivables. If the conditions are met,
accrual shall be made even though the particular receivables that are
uncollectible may not be identifiable. The Company reviews individually each
trade receivable for collectability and performs on-going credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customers current credit worthiness, as determined by the review of their
current credit information; and determines the allowance for doubtful accounts
based on historical write-off experience, customer specific facts and general
economic conditions that may affect a clients ability to pay. Bad debt expense
is included in general and administrative expenses, if any.
Pursuant to FASB ASC paragraph 310-10-35-41 Credit losses for
trade receivables (uncollectible trade receivables), which may be for all or
part of a particular trade receivable, shall be deducted from the allowance. The
related trade receivable balance shall be charged off in the period in which the
trade receivables are deemed uncollectible. Recoveries of trade receivables
previously charged off shall be recorded when received. The Company charges off
its trade account receivables against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote.
There was no allowance for doubtful accounts at December 31,
2014 or 2013.
Property and Equipment
F - 13
Property and equipment are recorded at cost. Expenditures for
major additions and betterments are capitalized. Maintenance and repairs are
charged to operations as incurred. Depreciation of property and equipment is
computed by the straight-line method (after taking into account their respective
estimated residual values) over the estimated useful lives of the respective
assets as follows:
|
Estimated Useful |
|
Life
(Years) |
Buildings |
20 |
Equipment |
3-5 |
Upon sale or retirement, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
the statements of operations.
Leases
Lease agreements are evaluated to determine whether they are
capital leases or operating leases in accordance with paragraph 840-10-25-1 of
the FASB Accounting Standards Codification (Paragraph 840-10-25-1). Pursuant
to Paragraph 840-10-25-1 a lessee and a lessor shall consider whether a lease
meets any of the following four criteria as part of classifying the lease at its
inception under the guidance in the Lessees Subsection of this Section (for the
lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer
of ownership. The lease transfers ownership of the property to the lessee by the
end of the lease term. This criterion is met in situations in which the lease
agreement provides for the transfer of title at or shortly after the end of the
lease term in exchange for the payment of a nominal fee, for example, the
minimum required by statutory regulation to transfer title. b. Bargain purchase
option. The lease contains a bargain purchase option. c. Lease term. The lease
term is equal to 75 percent or more of the estimated economic life of the leased
property. d. Minimum lease payments. The present value at the beginning of the
lease term of the minimum lease payments, excluding that portion of the payments
representing executory costs such as insurance, maintenance, and taxes to be
paid by the lessor, including any profit thereon, equals or exceeds 90 percent
of the excess of the fair value of the leased property to the lessor at lease
inception over any related investment tax credit retained by the lessor and
expected to be realized by the lessor. In accordance with paragraphs
840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four
lease classification criteria in Paragraph 840-10-25-1, the lease shall be
classified by the lessee as a capital lease; and if none of the four criteria in
Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an
operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the
present value of the minimum lease payments using the lessee's incremental
borrowing rate unless both of the following conditions are met, in which
circumstance the lessee shall use the implicit rate: a. It is practicable for
the lessee to learn the implicit rate computed by the lessor. b. The implicit
rate computed by the lessor is less than the lessee's incremental borrowing
rate. Capital lease assets are depreciated on a straight line method, over the
capital lease assets estimated useful lives consistent with the Companys normal
depreciation policy for tangible fixed assets. Interest charges are expensed
over the period of the lease in relation to the carrying value of the capital
lease obligation.
Operating leases primarily relate to the Companys leases of
office spaces. When the terms of an operating lease include tenant improvement
allowances, periods of free rent, rent concessions, and/or rent escalation
amounts, the Company establishes a deferred rent liability for the difference
between the scheduled rent payment and the straight-line rent expense
recognized, which is amortized over the underlying lease term on a straight-line
basis as a reduction of rent expense.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting
Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant to Section 850-10-20 the related parties include a.
affiliates of the Company (Affiliate means, with respect to any specified
Person, any other Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such
Person, as such terms are used in and construed under Rule 405 under the
Securities Act); b. entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair
Value Option Subsection of Section 8251015, to be accounted for by the equity
method by the investing entity; c. trusts for the benefit of employees, such as
pension and profit-sharing trusts that are managed by or under the trusteeship
of management; d. principal owners of the Company; e. management of the Company;
f. other parties with which the Company may deal 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; and g. other parties that can significantly
influence the management or operating policies of the transacting parties or
that have an ownership interest in one of the transacting parties and can
significantly influence the other to an extent that one or more of the
transacting parties might be prevented from fully pursuing its own separate
interests.
The financial statements shall include disclosures of material
related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However,
disclosure of transactions that are eliminated in the preparation of
consolidated or combined financial statements is not required in those
statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the
transactions, including transactions to which no amounts or nominal amounts were
ascribed, for each of the periods for which income statements are presented, and
such other information deemed necessary to an understanding of the effects of
the transactions on the financial statements; c. the dollar amounts of
transactions for each of the periods for which income statements are presented
and the effects of any change in the method of establishing the terms from that
used in the preceding period; and d. amounts due from or to related parties as
of the date of each balance sheet presented and, if not otherwise apparent, the
terms and manner of settlement.
F - 14
Commitment and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting
Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the consolidated 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
assesses such contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted claims that may
result in such proceedings, the Company evaluates the perceived merits of any
legal proceedings or un-asserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.
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 Companys
consolidated 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,
and an estimate of the range of possible losses, if determinable and material,
would be disclosed.
Loss contingencies considered remote are generally not
disclosed unless they involve guarantees, in which case the guarantees would be
disclosed.
Revenue Recognition
The Company follows paragraph 605-10-S99-1 of the FASB
Accounting Standards Codification for revenue recognition. The Company
recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when all of the following
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the
product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured. In addition to the aforementioned general policy, the
following are the specific revenue recognition policies for each major category
of revenue:
Marketing services
The Companys marketing service revenues include advertising
fees for online advertising, direct mail, electronic direct mail service, and
selling discounted membership cards to online and offline customers who can
enjoy discounts and special prices when they shop in the Companys merchant
partners stores online and offline. Advertising revenue is recognized ratably
over the period in which the advertisement is displayed. Discounted membership
cards sales revenue is recognized when the card is delivered to the customer.
Terminal operator membership
fees
The Company earns membership fees from terminal operators. The
terminal operators pay membership fees upon the signing of the terminal operator
membership agreements which are initially deferred upon receipt and recognized
ratably over the term of the membership.
Commission income
The Company earns commissions on a certain percentage of the
transaction amount from merchants when transactions are completed and settled
through the DLD supported payment system on online and offline retail
marketplace. Commission on the transaction is earned and recognized when the
underlying transaction is completed.
Rental income
Rental income is recognized on a straight-line basis over the
term of the lease. Depreciation expense and maintenance cost of the property are
recorded as the cost of rental income.
Net revenues from the sale of services represent the invoiced
value of services provided, net of value added taxes (VAT). The Company is
subject to VAT which is levied on all of the Companys services on the invoiced
value of services provided. Sales or Output VAT is borne by customers in
addition to the invoiced value of services and Purchase or Input VAT is borne by
the Company in addition to the invoiced value of purchases to the extent not
refunded for export sales, if any.
Advertising Costs
F - 15
The Company follows the guidance of the Section 720-35-25 of
the FASB Accounting Standards Codification (Section 720-35-25) as to when
advertising costs should be expensed. Pursuant to ASC Paragraph 720-35-25-1 the
costs of advertising shall be expensed either as incurred or the first time the
advertising takes place. The accounting policy the Company selected from these
two alternatives was to expense the advertising costs when the first time the
advertising takes place. Deferring the costs of advertising until the
advertising takes place assumes that the costs have been incurred for
advertising that will occur, such as the first public showing of a television
commercial for its intended purpose and the first appearance of a magazine
advertisement for its intended purpose. Such costs shall be expensed immediately
if such advertising is not expected to occur.
Pursuant to ASC Paragraph 720-35-25-5 costs of communicating
advertising are not incurred until the item or service has been received and
shall not be reported as expenses before the item or service has been received,
such as the costs of television airtime which shall not be reported as
advertising expense before the airtime is used. Once it is used, the costs shall
be expensed, unless the airtime was used for direct-response advertising
activities that meet the criteria for capitalization under ASC paragraph
340-20-25-4.
Research and Development
The Company follows paragraph 730-10-25-1 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 2 “Accounting for Research and Development Costs”) and paragraph 730-20-25-11 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 68 “Research and Development Arrangements”) for research and development costs. Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment, material and testing costs for research and development as well as research and development arrangements with third party research and development institutions.
Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities
The research and development arrangements usually involve specific research and development projects. Often times, the Company makes non-refundable advances upon signing of these research and development arrangements. The Company adopted paragraph 730-20-25-13 and 730-20-35-1 of the FASB Accounting Standards Codification (formerly Emerging Issues Task Force Issue No. 07-3 “Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities”) for those non-refundable advances. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the related services are performed. The management continues to evaluate whether the Company expect the goods to be delivered or services to be rendered. If the management does not expect the goods to be delivered or services to be rendered, the capitalized advance payment are charged to expense.
Foreign Currency Transactions
The Company applies the guidelines as set out in Section
830-20-35 of the FASB Accounting Standards Codification (Section 830-20-35)
for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB
Accounting Standards Codification, foreign currency transactions are
transactions denominated in currencies other than U.S. Dollar, the Companys
reporting currency or Chinese Yuan or Renminbi, the Companys functional
currency. Foreign currency transactions may produce receivables or payables that
are fixed in terms of the amount of foreign currency that will be received or
paid. A change in exchange rates between the functional currency and the
currency in which a transaction is denominated increases or decreases the
expected amount of functional currency cash flows upon settlement of the
transaction. That increase or decrease in expected functional currency cash
flows is a foreign currency transaction gain or loss that generally shall
be included in determining net income for the period in which the exchange rate
changes. Likewise, a transaction gain or loss (measured from the transaction
date or the most recent intervening balance sheet date, whichever is
later) realized upon settlement of a foreign currency transaction generally
shall be included in determining net income for the period in which the
transaction is settled. The exceptions to this requirement for inclusion in net
income of transaction gains and losses pertain to certain intercompany
transactions and to transactions that are designated as, and effective as,
economic hedges of net investments and foreign currency commitments. Pursuant to
Section 830-20-25 of the FASB Accounting Standards Codification, the following
shall apply to all foreign currency transactions of an enterprise and its
investees: (a) at the date the transaction is recognized, each asset, liability,
revenue, expense, gain, or loss arising from the transaction shall be measured
and recorded in the functional currency of the recording entity by use of the
exchange rate in effect at that date as defined in section 830-10-20 of the FASB
Accounting Standards Codification; and (b) at each balance sheet date, recorded
balances that are denominated in currencies other than the functional currency
or reporting currency of the recording entity shall be adjusted to reflect the
current exchange rate.
Net gains and losses resulting from foreign exchange
transactions, if any, are included in the Companys statements of income and
comprehensive income (loss).
Deferred Tax Assets and
Income Tax Provision
The Company accounts for income taxes under Section 740-10-30
of the FASB Accounting Standards Codification, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance to the
extent management concludes it is more likely than not that the assets will not
be realized. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of income and comprehensive income (loss) in the period
that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting
Standards Codification (Section 740-10-25). Section 740-10-25 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 Section 740-10-25,
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 should be measured based on the largest benefit that has a greater than
fifty (50) percent likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures.
The estimated future tax effects of temporary differences
between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carry-backs and
carry-forwards. The Company periodically reviews the recoverability of deferred
tax assets recorded on its consolidated balance sheets and provides valuation
allowances as management deems necessary.
F - 16
Management makes judgments as to the interpretation of the tax
laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple
taxing jurisdictions and is subject to audit in these jurisdictions. In
managements opinion, adequate provisions for income taxes have been made for
all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Tax years that remain subject to examination by major tax
jurisdictions
The Company discloses tax years that remain subject to
examination by major tax jurisdictions pursuant to the ASC Paragraph
740-10-50-15.
Foreign Currency Translation
The Company follows Section 830-10-45 of the FASB Accounting
Standards Codification (Section 830-10-45) for foreign currency translation to
translate the financial statements of the foreign subsidiary from the functional
currency, generally the local currency, into U.S. Dollars. Section 830-10-45
sets out the guidance relating to how a reporting entity determines the
functional currency of a foreign entity (including of a foreign entity in a
highly inflationary economy), re-measures the books of record (if necessary),
and characterizes transaction gains and losses. Pursuant to Section 830-10-45,
the assets, liabilities, and operations of a foreign entity shall be measured
using the functional currency of that entity. An entitys functional currency is
the currency of the primary economic environment in which the entity operates;
normally, that is the currency of the environment, or local currency, in which
an entity primarily generates and expends cash.
The functional currency of each foreign subsidiary is
determined based on managements judgment and involves consideration of all
relevant economic facts and circumstances affecting the subsidiary. Generally,
the currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and other expenditures, would be
considered the functional currency, but any dependency upon the parent and the
nature of the subsidiarys operations must also be considered. If a subsidiarys
functional currency is deemed to be the local currency, then any gain or loss
associated with the translation of that subsidiarys financial statements is
included in accumulated other comprehensive income. However, if the functional
currency is deemed to be the U.S. Dollar, then any gain or loss associated with
the re-measurement of these financial statements from the local currency to the
functional currency would be included in the consolidated statements of income
and comprehensive income (loss). If the Company disposes of foreign
subsidiaries, then any cumulative translation gains or losses would be recorded
into the consolidated statements of income and comprehensive income (loss). If
the Company determines that there has been a change in the functional currency
of a subsidiary to the U.S. Dollar, any translation gains or losses arising
after the date of change would be included within the statement of income and
comprehensive income (loss).
Based on an assessment of the factors discussed above, the
management of the Company determined the relevant subsidiarys local currency to
be the functional currency for its foreign subsidiary.
The financial records of the Company are maintained in their
local currency, the Renminbi (RMB), which is the functional currency. Assets
and liabilities are translated from the local currency into the reporting
currency, U.S. dollars, at the exchange rate prevailing at the balance sheet
date. Revenues and expenses are translated at weighted average exchange rates
for the period to approximate translation at the exchange rates prevailing at
the dates those elements are recognized in the financial statements. Foreign
currency translation gain (loss) resulting from the process of
translating the local currency financial statements into U.S. dollars are
included in determining accumulated other comprehensive income in the statement
of stockholders equity.
RMB is not a fully convertible currency. All foreign exchange
transactions involving RMB must take place either through the Peoples Bank of
China (the PBOC) or other institutions authorized to buy and sell foreign
exchange. The exchange rate adopted for the foreign exchange transactions are
the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China
adopted a managed floating exchange rate regime based on market demand and
supply with reference to a basket of currencies. The exchange rate of the US
dollar against the RMB was adjusted from approximately RMB 8.28 per U.S. dollar
to approximately RMB 8.11 per U.S. dollar on July 21, 2005. Since then, the PBOC
administers and regulates the exchange rate of the U.S. dollar against the RMB
taking into account demand and supply of RMB, as well as domestic and foreign
economic and financial conditions.
Unless otherwise noted, the rate presented below per U.S. $1.00
was the midpoint of the interbank rate as quoted by OANDA Corporation
(www.oanda.com) contained in its financial statements. Management
believes that the difference between RMB vs. U.S. dollar exchange rate quoted by
the PBOC and RMB vs. U.S. dollar exchange rate reported by OANDA Corporation
were immaterial. Translations do not imply that the RMB amounts actually
represent, or have been or could be converted into, equivalent amounts in U.S.
dollars. Translation of amounts from RMB into U.S. dollars has been made at the
following exchange rates for the respective periods:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Balance sheets |
|
6.1460 |
|
|
6.1122 |
|
Statements of operations and comprehensive income (loss)
|
|
6.1457 |
|
|
6.1943 |
|
F - 17
Comprehensive Income (Loss)
The Company has applied section 220-10-45 of the FASB
Accounting Standards Codification (Section 220-10-45) to present comprehensive
income (loss). Section 220-10-45 establishes rules for the reporting of
comprehensive income (loss) and its components. Comprehensive income (loss), for
the Company, consists of net income and foreign currency translation adjustments
and is presented in the Companys consolidated statements of income and
comprehensive income (loss) and stockholders equity.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24 of the FASB
Accounting Standards Codification for cash flows reporting, classifies cash
receipts and payments according to whether they stem from operating, investing,
or financing activities and provides definitions of each category, and uses the
indirect or reconciliation method (Indirect method) as defined by paragraph
230-10-45-25 of the FASB Accounting Standards Codification to report net cash
flow from operating activities by adjusting net income to reconcile it to net
cash flow from operating activities by removing the effects of (a) all deferrals
of past operating cash receipts and payments and all accruals of expected future
operating cash receipts and payments and (b) all items that are included in net
income that do not affect operating cash receipts and payments.
The Company reports the reporting currency equivalent of
foreign currency cash flows, using the current exchange rate at the time of the
cash flows and the effect of exchange rate changes on cash held in foreign
currencies is reported as a separate item in the reconciliation of beginning and
ending balances of cash and cash equivalents and separately provides information
about investing and financing activities not resulting in cash receipts or
payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting
Standards Codification.
Subsequent Events
The Company follows the guidance in Section 855-10-50 of the
FASB Accounting Standards Codification for the disclosure of subsequent events.
The Company will evaluate subsequent events through the date when the financial
statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards
Codification, the Company as an SEC filer considers its financial statements
issued when they are widely distributed to users, such as through filing them on
EDGAR.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued the FASB Accounting Standards
Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) (ASU
2014-09).
This guidance amends the existing FASB Accounting Standards
Codification, creating a new Topic 606, Revenue from Contracts with
Customer. The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
To achieve that core principle, an entity should apply the
following steps:
|
1. |
Identify the contract(s) with the customer |
|
2. |
Identify the performance obligations in the
contract |
|
3. |
Determine the transaction price |
|
4. |
Allocate the transaction price to the performance
obligations in the contract |
|
5. |
Recognize revenue when (or as) the entity satisfies a
performance obligations |
The ASU also provides guidance on disclosures that should be
provided to enable financial statement users to understand the nature, amount,
timing, and uncertainty of revenue recognition and cash flows arising from
contracts with customers. Qualitative and quantitative information is required
about the following:
|
1. |
Contracts with customers including revenue and
impairments recognized, disaggregation of revenue, and information about
contract balances and performance obligations (including the transaction
price allocated to the remaining performance obligations) |
|
2. |
Significant judgments and changes in judgments
determining the timing of satisfaction of performance obligations (over
time or at a point in time), and determining the transaction price and
amounts allocated to performance obligations |
|
3. |
Assets recognized from the costs to obtain or fulfill
a contract. |
ASU 2014-09 is effective for periods beginning after December
15, 2016, including interim reporting periods within that reporting period for
all public entities. Early application is not permitted.
F - 18
In August 2014, the FASB issued the FASB Accounting Standards
Update No. 2014-15 Presentation of Financial StatementsGoing Concern
(Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to
Continue as a Going Concern (ASU 2014-15).
In connection with preparing financial statements for each
annual and interim reporting period, an entitys management should evaluate
whether there are conditions or events, considered in the aggregate, that raise
substantial doubt about the entitys ability to continue as a going concern
within one year after the date that the financial statements are issued
(or within one year after the date that the financial statements are
available to be issued when applicable). Managements evaluation should be
based on relevant conditions and events that are known and reasonably knowable
at the date that the financial statements are issued (or at the date that
the financial statements are available to be issued when applicable).
Substantial doubt about an entitys ability to continue as a going concern
exists when relevant conditions and events, considered in the aggregate,
indicate that it is probable that the entity will be unable to meet its
obligations as they become due within one year after the date that the financial
statements are issued (or available to be issued). The term probable is
used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or events that raise
substantial doubt about an entitys ability to continue as a going concern,
management should consider whether its plans that are intended to mitigate those
relevant conditions or events will alleviate the substantial doubt. The
mitigating effect of managements plans should be considered only to the extent
that (1) it is probable that the plans will be effectively implemented and, if
so, (2) it is probable that the plans will mitigate the conditions or events
that raise substantial doubt about the entitys ability to continue as a going
concern.
If conditions or events raise substantial doubt about an
entitys ability to continue as a going concern, but the substantial doubt is
alleviated as a result of consideration of managements plans, the entity should
disclose information that enables users of the financial statements to
understand all of the following (or refer to similar information disclosed
elsewhere in the footnotes):
|
a. |
Principal conditions or events that raised substantial
doubt about the entitys ability to continue as a going concern (before
consideration of managements plans) |
|
b. |
Managements evaluation of the significance of those
conditions or events in relation to the entitys ability to meet its
obligations |
|
c. |
Managements plans that alleviated substantial doubt
about the entitys ability to continue as a going
concern. |
If conditions or events raise substantial doubt about an
entitys ability to continue as a going concern, and substantial doubt is not
alleviated after consideration of managements plans, an entity should include a
statement in the footnotes indicating that there is substantial doubt about
the entitys ability to continue as a going concern within one year after
the date that the financial statements are issued (or available to be issued).
Additionally, the entity should disclose information that enables users of the
financial statements to understand all of the following:
|
a. |
Principal conditions or events that raise substantial
doubt about the entitys ability to continue as a going concern |
|
b. |
Managements evaluation of the significance of those
conditions or events in relation to the entitys ability to meet its
obligations |
|
c. |
Managements plans that are intended to mitigate the
conditions or events that raise substantial doubt about the entitys
ability to continue as a going concern. |
The amendments in this Update are effective for the annual
period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early application is permitted.
In November 2014, the FASB issued the FASB Accounting Standards
Update No. 2014-16 Derivatives and Hedging (Topic 815):
Determining Whether the Host Contract in a Hybrid Financial
Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
(ASU 2014-16).
The amendments in ASU No. 2014-16 clarify that an entity must
take into account all relevant terms and features when reviewing the nature of
the host contract. Additionally, the amendments state that no one term or
feature would define the host contracts economic characteristics and risks.
Instead, the economic characteristics and risks of the hybrid financial
instrument as a whole would determine the nature of the host contract.
The amendments in this Update are effective for public business
entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption, including adoption in an
interim period, is permitted.
In January 2015, the FASB issued the FASB Accounting Standards
Update No. 2015-01 Income StatementExtraordinary and Unusual Items
(Subtopic 225-20): Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items (ASU 2015-01).
This Update eliminates from GAAP the concept of extraordinary
items and the requirements in Subtopic 225-20 for reporting entities to separately classify, present, and disclose extraordinary events
and transactions.
F - 19
The amendments in this Update are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15,
2015. Early adoption is permitted provided that the guidance is applied from the
beginning of the fiscal year of adoption.
In February 2015, the FASB issued the FASB Accounting Standards
Update No. 2015-02 Consolidation (Topic 810) - Amendments to the
Consolidation Analysis (ASU 2015-02) to improve certain areas of
consolidation guidance for reporting organizations (i.e., public, private, and
not-for-profit) that are required to evaluate whether to consolidate certain
legal entities such as limited partnerships, limited liability corporations, and
securitization structures (e.g., collateralized debt/loan obligations).
All legal entities are subject to reevaluation under the
revised consolidation model. Specifically, the amendments:
- Eliminating the presumption that a general partner should consolidate a
limited partnership.
- Eliminating the indefinite deferral of FASB Statement No. 167, thereby
reducing the number of Variable Interest Entity (VIE) consolidation models
from four to two (including the limited partnership consolidation model).
- Clarifying when fees paid to a decision maker should be a factor to
include in the consolidation of VIEs. Note: a VIE is a legal entity in which
consolidation is not based on a majority of voting rights.
- Amending the guidance for assessing how related party relationships affect
VIE consolidation analysis.
- Excluding certain money market funds from the consolidation guidance.
The amendments in this Update are effective for public business
entities for fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted, including
adoption in an interim period.
Management does not believe that any recently issued, but not
yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying consolidated financial statements.
Note 3 Going Concern
The Company has elected to adopt early application of
Accounting Standards Update No. 2014-15, Presentation of Financial
StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an
Entitys Ability to Continue as a Going Concern (ASU 2014-15).
The Companys consolidated financial statements have been
prepared assuming that it will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities
in the normal course of business.
As reflected in the consolidated financial statements, the
Company had an accumulated deficit at December 31, 2014, a net loss and net cash
used in operating activities for the reporting period then ended. These factors
raise substantial doubt about the Companys ability to continue as a going
concern.
The Company is attempting to further implement its business
plan and generate sufficient revenue; however, the Companys cash position may
not be sufficient to support its daily operations. Management intends to raise
additional funds by way of a private or public offering. While the Company
believes in the viability of its strategy to further implement its business plan
and generate sufficient revenue and in its ability to raise additional funds,
there can be no assurances to that effect. The ability of the Company to
continue as a going concern is dependent upon its ability to further implement
its business plan and generate sufficient revenue and its ability to raise
additional funds by way of a public or private offering.
The consolidated financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company is unable to continue as a going concern.
Note 4 Prepayments and other current assets
Prepayments and other current assets consisted of the
following:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Prepaid advertising fees (i) |
$ |
1,498,902 |
|
$ |
40,902 |
|
Prepaid television airtime (ii) |
|
5,044,883 |
|
|
- |
|
Prepaid server hosting and broadband fees
(iii) |
|
259,079 |
|
|
- |
|
Deposit on intended acquisition of land use right (iv) |
|
- |
|
|
1,636,072 |
|
Other receivable-short term lending (v) |
|
325,415 |
|
|
- |
|
Prepaid rent |
|
322,079 |
|
|
- |
|
Others |
|
220,960 |
|
|
223,502 |
|
|
$ |
7,671,318 |
|
$ |
1,900,476 |
|
F - 20
(i) |
Prepaid advertising fees represent prepayments to third
parties for advertising services, mainly through internet and outdoor
media. The advertising expenses are expensed when the services are
received. |
|
|
(ii) |
Prepaid television airtime represents prepayments to the
China Central Television CCTV) for airtime to be aired on February 18,
2015 during the Chinese Spring Festival New Years Eve Concert. The
Company expensed the prepaid television airtime upon communicating its
advertisement on February 18, 2015. |
|
|
(iii) |
Prepaid server hosting and broadband fees represent
prepayments to third parties for server hosting and broadband services.
These prepayments are expensed when the services are received. |
|
|
(iv) |
On September 2, 2014, the entire balance was returned to
the Company. |
|
|
(v) |
On January 9, 2015, the entire balance was returned to
the Company. |
Note 5 Property and Equipment
Property and equipment, stated at cost, less accumulated
depreciation consisted of the following:
|
|
Estimated Useful |
|
|
|
|
|
|
|
|
|
Life
(Years) |
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Buildings |
|
20 |
|
$ |
14,774,618 |
|
$ |
14,856,320 |
|
Equipment |
|
3-5 |
|
|
1,236,294 |
|
|
340,337 |
|
|
|
|
|
|
16,010,912 |
|
|
15,196,657 |
|
Less accumulated depreciation |
|
|
|
|
(1,946,369 |
) |
|
(1,060,890 |
) |
|
|
|
|
$ |
14,064,543 |
|
$ |
14,135,767 |
|
(i) Depreciation
Expense
Depreciation expense was $889,024 and $754,038 for the
reporting period ended December 31, 2014 and 2013, respectively.
(ii) Impairment
The Company completed its annual impairment testing of property
and equipment and determined that there was no impairment as their fair value,
exceeded their carrying values at December 31, 2014.
Note 6 Related Party Transactions
Related parties
Related parties with whom the Company had transactions are:
F - 21
Related Parties |
Relationship |
|
|
Management and
significant
stockholders |
|
|
|
Mr. Wang, Fenglin |
Chairman, CEO and significant stockholder of
the Company |
|
|
Mr. Wang, Wenyong |
Significant stockholder of the
Company, Mr. Wang, Fenglins son |
|
|
Entities under common control |
|
|
|
DLD Henan Network Technology Co., Ltd. ("DLD Network") |
An entity majority-owned and controlled by
Chairman, CEO and significant stockholder of the Company |
|
|
DLD Industry Development Co., Ltd.
(DLD Industry) |
An entity majority-owned and
controlled by Chairman, CEO and significant stockholder of the Company |
|
|
DLD Beijing Hotel Co., Ltd. ("DLD Hotel") |
An entity majority-owned and controlled by
Chairman, CEO and significant stockholder of the Company |
|
|
DLD E-Payment Co., Ltd. ("DLD
E-payment") |
An entity majority-owned and
controlled by Chairman, CEO and significant stockholder of the Company |
|
|
Zhengzhou DLD Trade and Business Co., Ltd ("DLD
Zhengzhou Trade) |
An entity majority-owned and controlled by
significant stockholder of the Company, Mr. Wang Fenglins son
|
Advances from Significant Stockholders
From time to time, the Chairman, CEO and significant
stockholders of the Company advance funds to the Company for working capital
purpose. These advances are unsecured, non-interest bearing and due upon
demand.
Operating Lease from Chairman and CEO
On June 6, 2014, DLD Henan entered into a non-cancellable
operating lease for its 119.99 square meters commercial office space in the City
of Zhengzhou, Henan Province, PRC from Mr. Wang for RMB36, 000 per year expiring
on June 8, 2015. Rent expense incurred for the year ended December 31, 2014 was
RMB 21,000 (approximately $3,417). Future minimum lease payments are RMB15,000
(approximately $814) for the remainder of the lease term.
Operating Lease from DLD Henan Network Technology Co.,
Ltd. (DLD Network)
On June 30, 2014, DLD Henan entered into a non-cancellable
operating lease for its commercial office space in the City of Zhengzhou, Henan
Province, PRC from DLD Network for RMB2,160,000 for a period of two years
expiring on June 30, 2016. Rent expense incurred for the year ended December 31,
2014 was RMB540,000 (approximately $87,862). Future minimum lease payments are
RMB1,620,000 (approximately $263,586) for the remainder of the lease term.
Advances from (repayments to) Affiliates
From time to time, certain affiliates of the Company advance
funds from (to) the Company for working capital purpose. These advances are
unsecured, non-interest bearing and due upon demand.
Note 7 Commitments and Contingencies
Operating Leases
(i) Operating Lease DLD Technology Office Space
On July 10, 2012, DLD Technology entered into a non-cancelable
operating lease for office space that will expire on July 10, 2015. The annual
lease payment is RMB1,900,000 (approximately $309,144).
On September 24, 2014, DLD Technology and DLD E-payment entered
into a rent sharing agreement for the sharing of leased office space. Per the
rent sharing agreement, DLD Technology and DLD E-payment will each pay RMB600,
000 (approximately $97,624) and RMB1,300,000 (approximately $211,520),
respectively, effective August 1, 2014.
Future minimum lease payments required under this
non-cancelable office lease without consideration of rent sharing agreement were
as follows:
Year Ending December 31: |
|
RMB |
|
|
$ |
|
2015 |
|
1,002,250 |
|
$ |
163,074 |
|
|
|
1,002,250 |
|
$ |
163,074 |
|
F - 22
The total amount of minimum rent to be received in the future
from DLD E-payment under the rent sharing agreement was as follows:
Year Ending December 31: |
|
RMB |
|
|
$ |
|
2015 |
|
685,750 |
|
$ |
111,576 |
|
|
|
685,750 |
|
$ |
111,576 |
|
(ii) Operating Lease STSW
Office Space
On August 7, 2013, STSW entered into a non-cancelable operating
lease for office space expiring on January 6, 2016. The annual lease payment is
RMB 417,540 (approximately $67,937).
Future minimum lease payments required under this
non-cancelable office lease were as follows:
Year ending December 31: |
|
RMB |
|
|
$ |
|
2015 |
|
417,540 |
|
$ |
67,937 |
|
2016 |
|
6,959
|
|
|
1,132
|
|
|
|
424,499 |
|
$ |
69,069 |
|
Note 8 -Stockholders Equity (Deficit)
Shares Authorized
Upon formation the total number of shares of all classes of
stock which the Company is authorized to issue is Fifty Million and Five Hundred
Thousand (50,500,000) shares of which Five Hundred Thousand (500,000) shares
shall be Preferred Stock, par value $0.01 per share, and Fifty Million
(50,000,000) shares shall be Common Stock, par value $0.001 per share.
Amendment to the Articles of Incorporation on May 14,
1999
On May 14, 1999, the Board of the Directors of the Company
unanimously adopted resolutions declaring the advisability of, and recommended
that Stockholders approve the amendment to the Companys Articles of
Incorporation to authorize the Company to file a certificate of amendment to its
Articles of Incorporation to increase the number of authorized shares of common
stock par value $0.001 from Fifty Million (50,000,000) shares to One Hundred
Million (100,000,000) shares. The amendment became effective upon the filing of
the Certificate of Amendment to the Articles of Incorporation with the Secretary
of State of Nevada on May 18, 1999.
Amendment to the Articles of Incorporation on November 5,
2009
On November 5, 2009, the Board of the Directors of the Company
unanimously adopted resolutions declaring the advisability of, and recommended
that Stockholders approve the amendment to the Companys Articles of
Incorporation to authorize the Company to file a certificate of amendment to its
Articles of Incorporation to increase the number of authorized shares of common
stock par value $0.001 from One Hundred Million (100,000,000) shares to Two
Hundred Million (200,000,000) shares. The amendment became effective upon the
filing of the Certificate of Amendment to the Articles of Incorporation with the
Secretary of State of Nevada on November 5, 1999.
Common Stock
Immediately prior to the consummation of the Share Exchange
Agreement on December 30, 2014, the Company had 100,215 common shares issued and
outstanding.
Upon consummation of the Share Exchange Agreement on December
30, 2014, the Company issued 2,000,000 shares of its common stock for the
acquisition of 100% of the issued and outstanding capital stock of DLD BVI.
Note 9 Income Tax Provision
DLD Group Inc ("DLD Group") is a non-operating holding company.
The Companys consolidated subsidiary, DLD HK is subject to Hong Kong
corporation income tax laws, its PRC VIEs and VIE subsidiaries are subject to
the PRC income tax provision, file income tax returns under the Corporation
Income Tax Law of the Peoples Republic of China (the PRC Corporation Income
Tax Law) accordingly. Substantially all of the Companys income before income
tax provision and related income tax expense, if any, are from PRC sources.
United States Income Tax
DLD Group is incorporated in the State of New York and is
subjected to United Sates of America tax law.
Limitation on Utilization of NOLs
due to Change in Control
Pursuant to the Internal Revenue Code Section 382 (Section
382), certain ownership changes may subject the NOLs to annual limitations
which could reduce or defer the NOL. Section 382 imposes limitations on a
corporations ability to utilize NOLs if it experiences an ownership change. In general terms, an
ownership change may result from transactions increasing the ownership of
certain stockholders in the stock of a corporation by more than 50 percentage
points over a three-year period. In the event of an ownership change,
utilization of the NOLs would be subject to an annual limitation under Section
382 determined by multiplying the value of its stock at the time of the
ownership change by the applicable long-term tax-exempt rate. Any unused annual
limitation may be carried over to later years. The imposition of this limitation
on its ability to use the NOLs to offset future taxable income could cause the
Company to pay U.S. federal income taxes earlier than if such limitation were
not in effect and could cause such NOLs to expire unused, reducing or
eliminating the benefit of such NOLs.
F - 23
BVI Income Tax
Under the current BVI tax law, DLD BVIs income, if any, is not
subject to taxation.
HK Income Tax
Under the current Hong Kong (Special Administrative Region) tax
laws, DLD HK's income, if any, is subject to Hong Kong corporation income tax at
the rate of 16.5% .
PRC Income Tax
The Companys PRC consolidated VIEs, DLD Technology, Henan DLD
and STSW, file income tax returns under the Corporation Income Tax Law of the
Peoples Republic of China (the PRC Corporation Income Tax Law), which is 25%
for both domestic and foreign-invested companies.
Note 10 Concentrations and Credit Risk
Credit Risk Arising from Financial Instruments
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash and cash
equivalents.
As of December 31, 2014, substantially all of the Companys
cash and cash equivalents were held in major financial institutions located in
the PRC, none of which are insured. However, the Company has not experienced any
losses on these accounts and management believes that the Company is not exposed
to significant risks on such accounts.
Customers and Credit Concentrations
Customer concentrations and credit concentrations are as
follows:
|
|
Net Sales |
|
|
|
for the reporting period ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Customer A |
|
12.7% |
|
|
48.4% |
|
Customer B |
|
14.2% |
|
|
-% |
|
Customer C |
|
14.6% |
|
|
-% |
|
Customer D |
|
-% |
|
|
12.2% |
|
Customer E |
|
1.4% |
|
|
-% |
|
|
|
42.9% |
|
|
40.6% |
|
|
|
Accounts Receivable at |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Customer A |
|
79.5% |
|
|
-% |
|
Customer E |
|
20.5%
|
|
|
-%
|
|
|
|
100.0% |
|
|
-% |
|
F - 24
A reduction in sales from or loss of such customers would have
a material adverse effect on the Companys results of operations and financial
condition.
Note 11 - Foreign Operations
Operations
Substantially all of the Companys operations are carried out
and all of its assets are located in the PRC, which may be adversely affected by
significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies since 1980, no
assurance can be given that the PRC Government will continue to pursue such
policies or that such policies may not be significantly altered, especially in
the event of a change in leadership, social or political disruption or
unforeseen circumstances affecting the PRCs political, economic and social
conditions; nor that the PRC governments pursuit of economic reforms will be
consistent or effective.
Currency Convertibility Risk
Substantially all of the Companys businesses are transacted in
RMB, which is not freely convertible into foreign currencies. Under Chinas
Foreign Exchange Currency Regulation and Administration, the Company is
permitted to exchange RMB for foreign currencies through banks authorized to
conduct foreign exchange business. All foreign exchange transactions continue to
take place either through the Peoples Bank of China or other banks authorized
to buy and sell foreign currencies at the exchange rates quoted by the Peoples
Bank of China. Approval of foreign currency payments by the Peoples Bank of
China or other institutions requires submitting a payment application form
together with invoices and signed contracts.
Foreign Currency Exchange Rate Risk
On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the RMB to U.S. Dollar. Under the new policy, the
RMB is permitted to fluctuate within a narrow and managed band against a basket
of certain foreign currencies. While the international reaction to the RMB
revaluation has generally been positive, there remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in a further and more significant volatility of the RMB
against the U.S. Dollar.
Any significant revaluation of RMB may materially and adversely
affect the cash flows, revenues, earnings and financial position reported in
U.S. Dollar.
The Company had no foreign currency hedges in place to reduce
such exposure.
Note 12 Subsequent Events
The Company has evaluated all events that occurred after the
balance sheet date through the date when the financial statements were issued.
The Management of the Company determined that there were no reportable
subsequent events to be disclosed.
F - 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934 (Exchange Act), the Company carried out an evaluation, with the
participation of the Company's management, including the Company's Chief
Executive Officer (the Company's principal executive officer and interim
principal accounting officer), of the effectiveness of the Company's disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based upon that evaluation,
the Company's Chief Executive Officer concluded that the Company's disclosure
controls and procedures were not effective as of December 31, 2014 based on the
material weakness as disclosed below.
Managements Report on Internal Control Over Financial
Reporting
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting for the
Company. Our internal control system was designed to, in general, provide
reasonable assurance to the Company's management and board regarding the
preparation and fair presentation of published financial statements, but because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2014. The framework
used by management in making that assessment was the criteria set forth in the
document entitled Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on that
assessment, our management has determined that as of December 31, 2014, the
Company's internal control over financial reporting was not effective as of
December 31, 2014 for the material weakness describe below.
|
The Company does not have sufficient accounting
personnel, which would provide segregation of duties within our internal
control procedures to support the accurate and timely reporting of our
financial results; |
|
The Companys current accounting personal lack
experience and knowledge in identifying and resolving complex accounting
issues under U.S. General Accepted Accounting Principles (GAAP); and
|
|
The Company currently does not have an audit
committee to oversight the financial reporting process.
|
This annual report does not include an attestation report of
the Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
Changes in Internal Control over Financial Reporting
No changes were made to our internal control over financial
reporting during our most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The following chart lists all of the Officers of the Company
and their respective ages, position and term of service.
Name |
Age |
Position |
Fenglin Wang |
58 |
Chairman and President and
Chief Executive Officer |
Fang Wang |
27 |
Director |
Mr. Fenglin Wang, 58, Chairperson of the Board of
Directors, President and Chief Executive Officer. In 2009, Mr. Wang founded and
is Chairman of Dianliandian (DLD) Discount shopping service network, a leading
online, discount shopping service based in Shenzhen City, China. Mr. Wang
graduated from Henan University of Finance and Economics, major in Accounting in
1993 and graduated from Teacher Training School of Hua County of Henan Province
in 1984.
Ms. Fang Wang, 27, Director, is the daughter of Mr.
Fenglin Wang, Chairperson of the Board of Directors, Director and President of
the Registrant. Ms. Wang received a Bachelor of International Business from
Tianjin Foreign Trade Training College in 2009 with a concentration in Financial
Management. Since, July 2009, Ms. Wang has been a Director, owner and the
Financial Manager of Dianliandian Science & Technology Co.,Ltd and since
January 2012 has served as Director of DLD Group Inc, NYS.
Employment Agreements
We currently do not have employment agreements with our
officers and directors.
Term of Office
Our directors are appointed for a one-year term to hold office
until the next annual general meeting of our shareholders or until removed from
office in accordance with our bylaws. Our officers are appointed by our board of
directors and hold office until removed by the board.
Family Relationships
Mr. Fenglin Wang is father of Ms. Fang Wang.
Involvement in Certain Legal Proceedings
To our knowledge, during the past ten (10) years, none of our
directors, executive officers, promoters, control persons, or nominees has
been:
|
the subject of any bankruptcy petition filed by
or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years
prior to that time; |
|
convicted in a criminal proceeding or is
subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); |
|
subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; or |
|
found by a court of competent jurisdiction (in
a civil action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law. |
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and
executive officers and persons who beneficially own more than 10% of our common
stock to file initial reports of ownership and changes in ownership with the
SEC. Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, each person who, at
the time during the most recent fiscal year, was a director, executive officer
and beneficial owners of more than 10% of the common stock of the Company, has
complied with all Section 16(a) filing requirements with respect to the fiscal
year ended December 31, 2014, other than the Forms 4 of Dr. Wenyi Yu and Wenyong
Wang due to their resignatiosn from the director positions on May 6, 2014 and
Form 4 of Keren Zhao due to her resignation from the director and officer
positions on December 30, 2014.
Code of Ethics
We have not adopted a code of ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer, or persons performing similar functions, because of the small number of
persons involved in the management of the Company.
Board Committees
Our Board of Directors has no separate committees and our Board
of Directors acts as the audit committee and the compensation committee. We do
not have an audit committee financial expert serving on our Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following summary compensation table sets forth all
compensation awarded to, earned by, or paid to the named executive officers paid
by us during the fiscal years ended December 31, 2014 and 2013 in all capacities
for the accounts of our executives:
Summary Compensation Table
|
|
|
|
|
|
|
Non-Qualified |
|
|
|
|
|
|
|
|
Non-Equity |
Deferred |
All Other |
|
Name and |
|
|
|
Stock |
Option |
Incentive Plan |
Compensation |
Compensation |
Totals |
Principal |
|
Salary |
Bonus |
Awards |
Awards |
Compensation |
Earnings |
|
|
Position |
Year |
($) |
($) |
($) |
($) |
($) |
($) |
($) |
($) |
Fenling Wang |
2014 |
$ 0 |
0 |
0 |
0 |
0 |
0 |
0 |
$ 0 |
President and Chairman |
2013 |
$ 0 |
0 |
0 |
0 |
0 |
0 |
0 |
$ 0 |
Keren Zhao * |
2014 |
$ 0 |
0 |
0 |
0 |
0 |
0 |
0 |
$ 0 |
Chief Executive Officer |
2013 |
$ 0 |
0 |
0 |
0 |
0 |
0 |
0 |
$ 0 |
* Ms. Keren Zhao resigned from her position as the Chief
Executive Officer of the Company effective as of December 30, 2014.
No retirement, pension, profit sharing, stock option or
insurance programs or other similar programs have been adopted by us for the
benefit of our employees. We had no options outstanding as of December 31, 2014.
Compensation of Directors
Directors are permitted to receive fixed fees and other
compensation for their services as directors. The Board of Directors has the
authority to fix the compensation of directors. No amounts have been paid to, or
accrued to, directors in such capacity.
Employment Agreements
We do not have any employment agreements with our officers or
directors currently.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial ownership is determined in accordance with the rules
of the SEC. Generally, a person is considered to beneficially own securities:
(i) over which such person, directly or indirectly, exercises sole or shared
voting or investment power, and (ii) of which such person has the right to
acquire beneficial ownership at any time within 60 days (such as through
exercise of stock options or warrants). For purposes of computing the percentage
of outstanding shares held by each person or group of persons, any shares that
such person or persons has the right to acquire within 60 days of March 31, 2015
are deemed to be outstanding, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. The inclusion
herein of any shares listed as beneficially owned does not constitute an
admission of beneficial ownership. Unless otherwise indicated below, the address
of each person listed in the table below is c/o 25 Fordham Drive, Buffalo, New
York 14216.
|
|
Amount and
Nature of |
|
|
|
Beneficial
Ownership |
|
|
|
Common
Stock (1) |
|
|
|
No. of |
|
|
|
|
Name and Address of Beneficial
Owner |
|
Shares |
|
|
% of Class |
|
Directors and Officers
|
|
|
|
|
|
|
Fenglin Wang, Chairman and President and Chief
Executive Officer
(2) |
|
2,011,500 |
|
|
95.78% |
|
Fang Wang, Director |
|
- |
|
|
- |
|
All officers and directors as a group (2
persons) |
|
2,011,500 |
|
|
95.78% |
|
(1) |
Based on 2,100,215 shares of common stock issued and
outstanding as of March 31, 2015. |
|
|
(2) |
Including 1,940,000 shares issued in the reverse
acquisition transaction on December 30, 2014 and 71,500 shares transferred
from Marcel A Willoughby to Chairman Wang pursuant to that certain Earn-In
Agreement and Stock Purchase Agreement dated June 2014 among the
parties. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Except as disclosed below, there have been no transactions in
which the amount involved exceeds the lesser of $120,000 or one percent of the
average of the Companys total assets at year end for the last two completed
fiscal years:
Advances from Significant Stockholders
From time to time, the Chairman, CEO and significant
stockholders of the Company advance funds to the Company for working capital
purpose. These advances are unsecured, non-interest bearing and due upon demand.
Operating Lease from Chairman and CEO
On June 6, 2014, DLD Henan entered into a non-cancellable
operating lease for its 119.99 square meters commercial office space in the City
of Zhengzhou, Henan Province, PRC from Mr. Wang for RMB36,000 per year expiring
on June 8, 2015. Rent expense incurred for the year ended December 31, 2014 was
RMB 21,000 (approximately $3,417). Future minimum lease payments are RMB15,000
(approximately $814) for the remainder of the lease term.
Operating Lease from DLD Henan Network Technology Co., Ltd.
(DLD Network)
On June 30, 2014, DLD Henan entered into a non-cancellable
operating lease for its commercial office space in the City of Zhengzhou, Henan
Province, PRC from DLD Network for RMB2,160,000 for a period of two years
expiring on June 30, 2016. Rent expense incurred for the year ended December 31,
2014 was RMB540,000 (approximately $87,862). Future minimum lease payments are
RMB1,620,000 (approximately $263,586) for the remainder of the lease term.
Advances from (repayments to) Affiliates
From time to time, certain affiliates of the Company advance
funds from (to) the Company for working capital purpose. These advances are
unsecured, non-interest bearing and due upon demand.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
For the Company's fiscal years ended December 31, 2014 and
December 31, 2013, we were billed approximately $83,500 and $12,350 for
professional services rendered for the audit and reviews of our financial
statements.
Audit Related Fees
The Company did not incur any audit related fees, other than
the fees discussed in Audit Fees, above, for services related to our audit for
the fiscal years ended December 31, 2014 and December 31, 2013.
Tax Fees
For the Company's fiscal years ended December 31, 2014 and
December 31, 2013, we were not billed for professional services rendered for tax
compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services
rendered by our principal accountant for the fiscal years ended December 31,
2014 and December 31, 2013.
Pursuant to the requirements of Section 13 or 15(d) 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.
Effective May 6, 2003, the Securities and Exchange Commission
adopted rules that require that before our auditor is engaged by us to render
any auditing or permitted non-audit related service, the engagement be:
|
approved by our audit committee; or |
|
entered into pursuant to pre-approval policies
and procedures established by the audit committee, provided the policies
and procedures are detailed as to the particular service, the audit
committee is informed of each service, and such policies and procedures do
not include delegation of the audit committee's responsibilities to
management. |
We do not have an audit committee. Our entire board of
directors pre-approves all services provided by our independent auditors. All of
the above services and fees were reviewed and pre-approved by the entire board
of directors before the respective services were rendered.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
a) Documents filed as part of this Annual Report
1. |
Financial Statements |
|
|
2. |
Financial Statement Schedules |
|
|
3. |
Exhibits |
(1) |
Incorporated herein by reference to the Companys Registration Statement on Form 10SB-12G/A filed with the Commission on November 19, 2007.
|
| |
(2) |
Incorporated herein by reference to the Companys Current Report on Form 8-K filed with the Commission on December 31, 2014.
|
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DLD GROUP, INC. |
|
By:/s/ FenglinWang |
FenglinWang |
Chief Executive Officer |
(Duly Authorized Officer, and Principal Executive |
Officer and interim Principal Financial Officer) |
|
Dated: April 15, 2015 |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Name |
|
Title |
Date |
|
|
|
|
/s/ Fenglin Wang |
|
Chairman, President, Chief Executive Officer
and Interim |
April 15, 2015 |
|
|
Chief Financial Officer |
|
FenglinWang |
|
(Principal Executive Officer and |
|
|
|
Interim Principal Financial Officer) |
|
/s/ Fang
Wang |
|
Director |
April 15, 2015 |
FangWang |
|
|
|
Exhibit 31.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, Fenglin Wang, certify that:
1. I have reviewed this Annually Report on Form 10-K of DLD
Group, Inc.:
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure
controls and procedures; and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants internal
control over financial reporting.
Dated: April 15, 2015 |
By:/s/ Fenglin Wang |
|
Fenglin Wang |
|
Chairman, President, Chief Executive
Officer and Interim Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION
1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Fenglin Wang, Chairman,
President, Chief Executive Officer and Interim Chief Financial Officer of DLD
Group, Inc. (the Company), hereby certify, that:
1. The Annually Report on Form 10-K for the year ended December
31, 2014 (the Report) of the Company fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
Dated: April 15, 2015 |
By:/s/ Fenglin Wang |
|
Fenglin Wang |
|
Chairman, President, Chief Executive
Officer and Interim Chief Financial Officer |