SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

☒  Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended September 30, 2016

 

-OR-

 

☐  Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _________ to________

 

 

Commission File Number     333-133961

 

Globalink, Ltd.

(Exact name of registrant as specified in its charter)

 

Nevada		06-1812762
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

 

365 Boundary Road Vancouver, BC		V5K 4S1
(Address of principal executive offices)		(Zip Code)

  

(604) 828-8822

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the issuer (1) 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  ☒   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 (section 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 ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerate filer, or a small reporting company as defined by Rule 12b-2 of the Exchange Act):

Large accelerated filer  ☐		Non-accelerated filer  ☐
Accelerated filer  ☐		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 ☐  No ☒

 

The number of outstanding shares of the registrant's common stock, November 14, 2016: Common Stock  -  45,585,000

 

As used herein, the terms “Globalink”, “Company,” “we,” “our,” “us,” “it,” and “its” refer to Globalink, Ltd., a Nevada corporation and its wholly owned subsidiaries, unless otherwise indicated.  

 

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company’s financial position as of September 30, 2016 and the results of its operations for the three and nine month periods ended September 30, 2016 and 2015 and its cash flows for the nine month periods ended September 30, 2016 and 2015.

 

The quarterly financial statements are presented in accordance with the requirements of Form 10-Q and do not include all of the disclosures required by accounting principles generally accepted in the United States of America.  For additional information, reference is made to the Company’s audited financial statements filed with Form 10-K for the years ended December 31, 2015.  The results of operations for the three and nine month periods ended September 30, 2016 and 2015 are not necessarily indicative of operating results for the full year.

 

 

GLOBALINK, INC.

FORM 10-Q

For the quarterly period ended September 30, 2016

INDEX

 

		Page
PART 1 - FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)		3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosure About Market Risk		33
Item 4.  Controls and Procedures		33
PART II – OTHER INFORMATION
Item 1.  Legal Proceedings		34
Item 1A.  Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3.  Defaults upon Senior Securities		34
Item 4.  Mine Safety Disclosure		34
Item 5.  Other Information		34
Item 6.  Exhibits		34
SIGNATURES		35

  

 

GLOBALINK, LTD.

Condensed Consolidated Balance Sheets

(Expressed in U.S. Dollars)

(Unaudited)

 

 

		September 30, 2016				December 31, 2015
		$				$
Assets
Current assets
Cash (note 4)			32,008				523,032
Other current assets (note 5)			81,831				53,653
Current assets – discontinued operations (note 3)			—				627,789
Total current assets			113,839				1,204,474
Inventories (note 6)			1,651				25,213
Construction in progress (note 8)			226,508				12,884
Growing crops (note 9)			390,354				132,168
Fixed assets (note 7)			154,654				54,402
Total assets			887,006				1,429,141
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 10)			130,167				13,960
Amounts due to related parties (note 11)			30,030				—
Loan payable to related party (note 11)			285,000				—
Current liabilities – discontinued operations (note 3)			—				333,418
Total current liabilities			445,197				347,378
Shareholders’ equity
Common shares, $0.0002 par value; Authorized - 500,000,000 common shares; shares issued and outstanding – 45,585,000 (December 31, 2015 – 43,585,000)  (note 12)			9,117				8,717
Additional paid-in-capital (note 12)			1,855,519				1,660,415
Accumulated other comprehensive loss			(18,286	)			(20,013	)
Deficit			(1,404,541	)			(567,356	)
Total shareholders’ equity			441,809				1,081,763
Total liabilities and shareholders’ equity			887,006				1,429,141
Nature of operations (note 1)
Commitments (note 13)

 

The notes are an integral part of these condensed consolidated interim financial statements.

GLOBALINK, LTD.

Condensed Consolidated Statements of Comprehensive Loss

(Expressed in U.S. Dollars)

(Unaudited)

 

		Three months ended September 30, 2016				Three months ended September 30, 2015				Nine months ended September 30, 2016				Nine months ended September 30, 2015
		$				$				$				$
General and administrative expenses						,
Accounting and legal			31,523				36,735				95,231				37,309
Amortization (note 7)			719				—				2,188				—
Director and management fees (note 11)			15,000				15,000				45,000				45,000
Foreign exchange loss			121				171				246				925
Investor relations (note 12)			26,766				—				65,533
Research and development			10,778				—				31,420				—
Rent			5,157				499				14,552				3,945
Salaries and benefits			26,711				—				100,144				—
Stock-based compensation (notes 11 and 12)			31,383				35,761				115,504				35,761
Telephone			700				571				1,639				1,256
Travel			9,102				1,025				19,565				17,875
Transfer agent and filing fees			1,340				6,797				36,373				13,218
Other general and administrative expenses			8,123				14,216				21,891				14,873
Write-off of growing crops (note 9)			2,071				—				2,071				—
Total general and administrative expenses			169,494				110,775				551,357				170,162
Loss from continuing operations			(169,494	)			(110,775	)			(551,357	)			(170,162	)
Loss on disposal of Oneworld (note 3)			(289,873	)			—				(289,873	)			—
Income from discontinued operations (note 3)			40,663				39,586				4,045				70,159
Net loss for the period			(418,704	)			(71,189	)			(837,185	)			(100,003	)
Other comprehensive income (loss)
Exchange difference on translating foreign operations			1,997				(1,664	)			1,727				116
Comprehensive loss for the period			(416,707	)			(72,853	)			(835,458	)			(99,887	)
Basic and diluted weighted average number of common shares outstanding			45,585,000				42,915,315				44,034,451				42,630,055
Net loss per share from continuing operations			(0.00	)			(0.00	)			(0.01	)			(0.00	)
Net income per share from discontinued operations			0.00				0.00				0.00				0.00
Net loss per share, basic and diluted			(0.01	)			(0.00	)			(0.02	)			(0.00	)

 

The notes are an integral part of these condensed consolidated interim financial statements.

 

GLOBALINK, LTD.

Condensed Consolidated Statements of Changes in Equity

(Expressed in U.S. Dollars)

(Unaudited)

 

		Common shares								Additional paid-in-capital				Accumulated other comprehensive income (loss)				Deficit				Total
			Number				$				$				$				$				$
December 31, 2014			42,485,000				8,497				1,459,703				(7,691	)			(289,066	)			1,171,443
Private placements			1,100,000				220				109,780				—				—				110,000
Stock-based compensation							—				90,932				—				—				90,932
Net loss for the year							—				—				—				(278,290	)			(278,290	)
Foreign currency translation difference							—				—				(12,322	)			—				(12,322	)
December 31, 2015			43,585,000				8,717				1,660,415				(20,013	)			(567,356	)			1,081,763
Shares issued for investor relations fee			2,000,000				400				79,600				—				—				80,000
Stock-based compensation							—				115,504				—				—				115,504
Net loss for the period							—				—				—				(837,185	)			(837,185	)
Foreign currency translation difference							—				—				1,727				—				1,727
September 30, 2016			45,585,000				9,117				1,855,519				(18,286	)			(1,404,541	)			441,809

 

The notes are an integral part of these condensed consolidated interim financial statements.

GLOBALINK, LTD.

Condensed Consolidated Statements of Cash Flows

(Expressed in U.S. Dollars)

(Unaudited)

For the nine months ended September 30,

		2016				2015
		$				$
Cash provided by (used in):
Operating activities
Net loss for the period			(837,185	)			(100,003	)
Non-cash items:
Amortization			2,188				—
Stock-based compensation			115,504				35,761
Shares issued for investor relations fee			60,000				—
Write-off of growing crops			2,071				—
Loss on disposal of Oneworld			289,873				—
Changes in non-cash working capital items:
(Increase) in accounts payable			—				(45,711	)
(Increase) Decrease in other current assets			9,399				(64,813	)
Increase in accounts payable and accrued liabilities			120,510				148,576
Increase in other current liabilities			—				24,960
Increase in amounts due to related parties			30,030				—
Total cash used in operating activities			(207,608	)			(1,230	)
Investing activities
Acquisition of fixed assets			(5,350	)			(6,915	)
Proceeds on disposal of fixed assets			15,293				—
Inventories			(1,295	)			—
Construction in progress			(300,898	)			—
Growing crops			(224,630	)			—
Total cash used in investing activities			(516,880	)			(6,915	)
Financing activities
Proceeds from share issuance			—				110,000
Loan proceeds from related party			285,000				—
Total cash provided by financing activities			285,000				110,000
Increase (Decrease) in cash			(439,488	)			101,855
Effect of exchange rate changes on balance of cash held in foreign currencies			(51,536	)			19,480
Cash, beginning of the period			523,032				1,236,137
Cash, end of the period – continuing operations			32,008				860,939
Cash, end of the period – discontinued operations			—				496,533

Supplemental disclosure with respect to cash flows (note 14)

 

The notes are an integral part of these condensed consolidated interim financial statements.

GLOBALINK LTD.

Notes to Condensed Consolidated Financial Statements

For the three months ended September 30, 2016

(Expressed in U.S. Dollars)

(Unaudited)

 

1.    NATURE OF OPERATIONS

 

Globalink, Ltd. (the “Company”) was incorporated in the State of Nevada on February 3, 2006.

 

Before September 2016, the Company focused its efforts on internet hotel booking services and had developed a proprietary online hotel booking program for connecting users with available rooms in hotels across the world. In order to gain access to hotels, the Company acquired OneWorld Hotel Destination Service Inc. (“OneWorld”) in Vancouver, British Columbia, Canada on October 31, 2008. OneWorld is a hotel booking company which has established relationships with major hotel chains. Effective September 30, 2016, the Company sold its 100% interest in Oneworld back to its original owner (note 3).

 

On May 4, 2014, the Company entered into a joint venture agreement (the “Agreement”) with Shizhen Bio-Technology Co., Ltd. (“Shizhen Biotech”) in Jiangsu Province, China. On May 22, 2014, Globalink (Xuzhou) Bio-Technology Co., Ltd. (“Globalink Xuzhou”) was incorporated in Pizhou City, Jiangsu Province, China pursuant to the Agreement. Globalink Xuzhou will have total registered capital of $10,000,000, $8,000,000 of which will be invested by the Company to earn an 80% interest, with the remaining $2,000,000 being invested by Shizhen Biotech to earn the remaining 20%. Globalink Xuzhou will be involved in the business of biological sciences and technology research, biological technology popularization services, and fruit and vegetable distribution. Currently, Globalink Xuzhou will continue to focus on gingko cultivation and extraction. In August 2015, the Company transferred $500,000 to Globalink Xuzhou to start developing a gingko plantation in Pizhou City, Jiangsu Province. The Company transferred an additional $300,000 in October 2015. As at September 30, 2016 and December 31, 2015, the Company owns 100% of Globalink Xuzhou.

 

On October 13, 2015, the Company incorporated a wholly-owned subsidiary, Globalink (Zhejiang) Bio-Technology Co. Ltd. (“Globalink Zhejiang”) in Ningbo City, Jiangsu Province, China. Globalink Zhejiang will be involved in the research and development, cultivation, extraction, and application of gingko trees and other economic plants. Globalink Xuzhou transferred RMB800,000 ($123,200) to Globalink Zhejiang in October 2015 to start its operations.

 

 

2.    SIGNIFICANT ACCOUNTING POLICIES

 

Statement of presentation

 

These unaudited condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q. Certain information and footnote disclosures normally present in annual financial statements have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended December 31, 2015 as disclosed in the Company’s  Form 10-K as filed with the Securities and Exchange Commission on April 4, 2016. Operating results for the nine month period ended September 30, 2016 may not necessarily be indicative of the results for the year ending December 31, 2016.

 

Continuance of operation

 

These consolidated financial statements prepared in conformity with US GAAP contemplate continuation of the Company as a going concern. As of September 30, 2016, the Company has an accumulated deficit of $1,404,541 since inception. Its ability to continue as a going concern is dependent upon it ability to attain profitable operations, and to continue to raise funds or obtain borrowing from third parties sufficient to meet current and future obligations.  Due to the seasonal nature of agricultural businesses, the revenue from sales of gingko leaves will be concentrated in last quarter instead of spreading evenly across a year. Management believes that the Company will have sufficient working capital to meet its projected minimum financial obligations for the next fiscal year. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

Consolidation

 

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. Subsidiaries are the entities controlled by the Company. All inter-company transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.

 

The subsidiaries are consolidated from the date on which control is transferred to the Company and will cease to be consolidated from the date on which control is transferred out of the Company.

 

 

Details of the Company’s subsidiaries and former subsidiaries are as follows:

 

Name		Date of incorporation or acquisition		Location		Ownership				Principal activities
OneWorld Hotel Destination Service Inc. (“OneWorld”)		October 31, 2008		Vancouver, Canada			100	%		Hotel booking
Globalink (Xuzhou) Bio-Technology Co., Ltd. (“Globalink Xuzhou”)		May 22, 2014		Pizhou City, Jiangsu Province, China			100	%		Gingko cultivation
Globalink (Zhejiang) Bio-Technology Co. Ltd. (“Globalink Zhejiang”)		October 13, 2015		Ningbo City, Jiangsu Province, China			100	%		Bio-technology research and development

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities and provisions, income and expenses and the disclosure of contingent assets and liabilities at the date of these financial statements.  Estimates are used for, but not limited to, the selection of the useful lives of fixed assets, allowance for doubtful debt associated with accounts receivable, fair values, revenue recognition, and taxes. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results may differ from these estimates.  

 

Foreign currency translation

 

Functional and presentation currency

 

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (“the functional currency”), which is the Chinese Renminbi (“RMB”) for Globalink Xuzhou and Globalink Zhejiang, and the Canadian dollar (“CAD”) for the Company’s former subsidiary, Oneworld. The consolidated financial statements are presented in United States dollar (“USD”), which is the functional currency of the parent company. The subsidiaries’ financial statements are prepared in its respective functional currencies before translating to the presentation currency which is the USD. The Company translates items in the statement of operations and comprehensive loss using the average exchange rate for the year. Assets and liabilities are translated at the year-end rate. All resulting exchange differences are reported as a separate component of other comprehensive income (loss).

 

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations where items are re-measured. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss as a “foreign exchange (gain) loss”.

 

Growing crops

 

Gingko trees are valued at historical cost, which include all cultivation costs incurred for planting, growing and maintaining the gingko trees during a year other than the harvest season that lasts about 2 months. The cultivation costs include costs of land lease, equipment lease, equipment amortization, labour, consulting, fertilizer, materials and supplies, and other direct growing costs.

 

At the end of each reporting period, the Company reviews the carrying amounts of the growing crops to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). A reliable market price is usually available for mature gingko trees in China.  Under certain circumstances, when a reliable market price is not available, the fair value of the growing crops is measured using the discounted expected future cash flow method. Under this method, expected future revenues less costs to complete and harvest is discounted to present value.

 

The growing crops will be amortized using the straight-line method over an estimated useful life of 5 years. The Company intends to sell all of the gingko trees after 5 years and replant seedlings in order to optimize the effective ingredients in leaves harvested from younger trees.

 

Inventories

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and market value. Inventories as of September 30, 2016 consist of supplies and fertilizers. Inventories as of December 31, 2015 mainly consisted of gingko seeds which were planted in March 2016. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.

 

 

Accounts receivable

 

Trade receivables are carried at original invoice amount. Accounts receivable are written off to bad debt expense using the direct write-off method. Receivables past due for more than 120 days are considered delinquent. Management determines uncollectible accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions and by using historical experience applied to an aging of accounts. Recoveries of trade receivables previously written off are recorded when received.

 

Fixed assets

 

Fixed assets are recorded at cost less accumulated amortization. Amortization of fixed assets is calculated using the straight-line method over the estimated useful lives of the assets as follows:

 

Computer equipment	3 years
Lab equipment	3 years
Office furniture and fixtures	5 years
Storage	5 years
Agricultural machinery	4 years
Infrastructure	10 years

 

 

Fair value

 

The Company measures fair value in accordance with accounting guidance that defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance also discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

-    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

-    Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

-    Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

 

 

The inputs used in the fair value measurement should be from the highest level available. In instances where the measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety.

 

As at September 30, 2016, the Company’s financial instruments are comprised of cash, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties, loan payable to related party and other current liabilities. Cash is measured at fair value using Level 1 inputs. With the exception of cash, all financial instruments held by the Company are measured at amortized cost. The fair values of these financial instruments approximate their carrying value due to their short-term maturities.

 

Goodwill

 

The Company recognizes goodwill in accordance with ASC 805 “Business Combinations”. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit's goodwill is compared to the carrying amount of that goodwill. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is indicated. The Company derecognized the goodwill at the disposal of Oneworld as of September 30, 2016.

 

Impairment reviews for long-lived assets

 

Long-lived assets such as property, equipment and goodwill are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.  The Company did not recognize any impairment losses for any periods presented.

 

 

Revenue recognition

 

Oneworld recognizes revenue from its hotel booking services once the service is rendered and all the significant risks and rewards of the service have been transferred to the customer. As a result, revenue from hotel booking services are recognized when customers check in to the hotels. Amounts received from customers for services not yet rendered are included in other current liabilities as unearned revenue.

 

In accordance with the ASC 605 “Revenue Recognition”, Oneworld reports its revenue as an agent, on the net amount retained, which is the amount billed to a customer less the amount paid to a hotel.

 

Research and development

 

Research and development costs are expensed as incurred. The costs primarily consist of consulting fees paid to the technical team for development and improvement of gingko cultivation methods. Research and development costs for the nine months ended September 30, 2016 and 2015 were $31,420 and $Nil, respectively, and are included in general and administrative expenses.

 

Income taxes

 

The Company accounts for income taxes following the asset and liability method in accordance with ASC 740 “Income Taxes.” Under such method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company applies the accounting guidance issued to address the accounting for uncertain tax positions. This guidance clarifies the accounting for income taxes, by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements as well as provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years that the asset is expected to be recovered or the liability settled.

 

Earnings (loss) per common share

 

Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share is determined by dividing earnings (loss) by the diluted weighted average number of shares outstanding. Diluted weighted average number of shares reflects the dilutive equity instruments, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods with reported net operating losses, all common stock options and warrants are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal. The 6,000,000 stock options outstanding as of September 30, 2016 were excluded from the calculation of diluted loss per common share for the three and nine months ended September 30, 2016.

 

 

Stock-based compensation

 

The Company accounts for stock compensation with employees in accordance with ASC 718 “Compensation – Stock Compensation”, which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest.  The fair value of stock options is determined using the Black-Scholes Option Pricing Model.

 

The Company accounts for stock compensation arrangements with non-employees in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees””, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.

 

Segment reporting

 

ASC 280 “Segment Reporting” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

 

As of September 30, 2016, the Company is organized into two main business segments: gingko plantation cultivation and bio-technology research and development.

 

 

Recent accounting pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of this standard 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 this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is prohibited. The standard permits the use of either the retrospective or cumulative effect transition method. This guidance will be applicable to the Company at the beginning of its first quarter of fiscal year 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessment of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern. The requirement is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

3.    DISCONTINUED OPERATIONS

 

Oneworld, a former subsidiary of the Company carrying on the business of internet hotel booking services, was experiencing declining revenue.  In September 2016, the board of directors of the Company determined that the costs and expenses required to rebuild OneWorld’s online booking platform and undertake the marketing efforts it believed were necessary to increase revenue did not warrant the investment. As a result, the Company decided to dispose of this section of business and focus on its gingko plantation business in China.

 

 

The Company entered into an agreement (the “Agreement”) with Vincent Au, the former owner of Oneworld, to sell 100% of Oneworld back to him for a consideration of $16,700 (C$22,000). The sale was effective as of September 30, 2016 (the “Effective Date”). Pursuant to the Agreement, all revenues generated from the operations of OneWorld, whether prior to or after the Effective Date will be retained by OneWorld, and all liabilities and obligations of OneWorld incurred prior to the Effective Date are the responsibility of OneWorld.

 

ASC 360-10-45-9 requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. This criteria was achieved on September 30, 2016. Additionally, the discontinued operations are comprised of the entirety of the hotel booking service segment. Lastly, for comparability purposes certain prior period line items relating to the assets held for sale have been reclassified and presented as discontinued operations for all periods presented in the accompanying consolidated statements of net loss and comprehensive operations and the consolidated balance sheets.

 

At the date of disposal, the Company recognized a loss on disposal of Oneworld as follows:

Net assets of Oneworld as at September 30, 2016		$	(299,678	)
Consideration received			16,700
Cumulative translation adjustment			(6,895	)
Loss on disposal of Oneworld		$	(289,873	)

 

Below are the major assets and liabilities included as part of the discontinued operations on the consolidated balance sheets:

 

 

As at		September 30, 2016				December 31, 2015
		$				$
Assets
Current assets
Cash			100,788				235,323
Other current assets			43,976				118,017
Goodwill			274,449				274,449
Total assets			419,213				627,789
Liabilities
Current liabilities
Accounts payable and accrued liabilities			119,535				333,418
Total liabilities			119,535				333,418

 

The major classes of line items constituting the after-tax income from discontinued operations on the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015 are as folllows:

		Three months ended September 30, 2016				Three months ended September 30, 2015				Nine months ended September 30, 2016				Nine months ended September 30, 2015
		$				$				$				$
Revenue			34,460				102,790				127,089				259,534
General and administration expenses
Rent			2,552				5,419				11,821				13,110
Salaries and benefits			16,716				59,290				105,698				169,872
Other general and administration expenses(recoveries)			(13,065	)			(1,505	)			5,525				6,393
			6,203				(63,204	)			(123,044	)			(189,375	)
Net income for the period			40,663				39,586				4,045				70,159

 

The following information presents the major classes of line items constituting significant operating cash flow activities on the consolidated statements of cash flows relating to discontinued operations for the nine months ended September 30, 2016 and 2015:

 

		Nine months ended September 30, 2016				Nine months ended September 30, 2015
Cash provided by (used in):		$				$
Operating activities
Net income for the period			4,045				70,159
Changes in non-cash working capital items:
Decrease (increase) in accounts receivables			81,053				(26,869	)
(Increase) decrease in other current assets			(7,012	)			301
(Decrease) increase in accounts payable and accrued liabilities			(206,042	)			115,489
(Decrease) increase in other current liabilities			(7,841	)			22,328
Net cash provided by (used in) operating activities			(135,797	)			181,407

 

There were no investing or financing activities associated with discontinued operations during the nine month periods ended September 30, 2016 and 2015.

 

4.    CASH

 

Cash of $24,847 (December 31, 2015 - $442,542) is held in China and is subject to local exchange control regulations. Chinese exchange control regulations provide for restrictions on exporting capital from China, other than through normal dividends.

 

5.     OTHER CURRENT ASSETS

 

The items comprising the Company’s other current assets are summarized below:

 

		September 30, 2016				December 31, 2015
		$				$
Prepaid investor relations fees			24,467				—
Deposits for lab equipment			25,275				25,949
Deposits for construction work			1,440				—
Other deposits and receivables			30,649				27,704
Total other current assets			81,831				53,653

 

6.     INVENTORIES

 

The items comprising the Company’s inventories are summarized below:

		September 30, 2016				December 31, 2015
		$				$
Gingko seeds			—				24,658
Fertilizer and supplies			1,651				555
Total inventories			1,651				25,213

 

 

7.     FIXED ASSETS

 

The items comprising the Company’s fixed assets are summarized below:

 

		September 30, 2016				December 31, 2015
		$				$
Computer equipment			7,230				26,903
Office furniture and fixtures			1,663				16,080
Agricultural machinery			34,935				44,879
Infrastructure			121,573				—
Lab equipment			1,109				1,109
Storage			1,102				1,102
			167,612				90,073
Less: accumulated amortization			(12,958	)			(35,671	)
			154,654				54,402

 

During the nine months ended September 30, 2016, amortization expense of $10,770 (2015 - $Nil) was recognized and capitalized as costs associated with the Company’s growing crops and $2,188 (2015 - $Nil) was recorded in the statement of operations and comprehensive loss.

 

8.     CONSTRUCTION IN PROGRESS

 

Construction in progress consists of direct costs of infrastructure construction at the Company’s gingko plantation including roads, fencing, security, electricity and an irrigation system. Capitalization of these costs will cease and the construction in progress will be transferred to fixed assets when all the activities necessary to prepare the assets for their intended use are substantially completed. No amortization will be recorded until construction is completed and the facilities are put into use.

 

 

9.     GROWING CROPS

 

Growing crops consist of direct cultivation costs incurred for planting, growing and maintaining the gingko trees.

 

		Gingko trees				Grape vines				Total
		$				$				$
Balance, December 31, 2014		-				-				-
Acquisition of seeds or seedlings			—				1,078				1,078
Amortization of agricultural machinery			1,040				—				1,040
Land lease			113,931				—				113,931
Labour			804				—				804
Materials			2,945				—				2,945
Machine operation			3,879				—				3,879
Miscellaneous			3,178				—				3,178
Technical consultants			5,313				—				5,313
Balance, December 31, 2015			131,090				1,078				132,168
Acquisition of seeds or seedlings			21,809				—				21,809
Amortization of agricultural machinery			10,770				—				10,770
Electricity			2,209				—				2,209
Fertilizer			88,327				94				88,421
Irrigation			2,413				—				2,413
Labour			70,215				544				70,759
Land use			4,560				—				4,560
Materials			10,299				202				10,501
Machine operation			15,186				—				15,186
Miscellaneous			15,953				—				15,953
Technical consultants			17,523				153				17,676
Write-off of growing corps			—				(2,071	)			(2,071	)
Balance, September 30, 2016			390,354				—				390,354

 

10.     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

As of September 30, 2016 and December 31, 2015, accounts payable and accrued liabilities consist of payables to service suppliers.

 

11.     TRANSACTIONS WITH RELATED PARTIES

 

During the nine months ended September 30, 2016, the Company paid or accrued management fees of $27,000 (2015 - $27,000) to a company controlled by a director and Corporate Secretary. As of September 30, 2016, $12,000 of accrued management fees was owing to the company.

 

During the nine months ended September 30, 2016, the Company paid or accrued management fees of $18,000 (2015 - $18,000) to a company controlled by a director and Chief Financial Officer. As of September 30, 2016, $8,000 of accrued management fees and $10,030 in expenses was owing to the company.

 

In January 2016, the Chief Executive Officer of the Company loaned an amount of $210,000 to Globalink Xuzhou. The loan is non-interest bearing, unsecured, and has no fixed terms of repayment.

 

In August 2016, a director of the Company loaned an amount of $75,000 to Globalink Xuzhou. The loan is non-interest bearing, unsecured, and has no fixed terms of repayment.

 

On September 16, 2015, 5,250,000 stock options were granted to directors and officers with a total fair value of $260,439 at the date of grant, $101,065 of which was amortized and recorded in the statement of loss and comprehensive loss during the nine months ended September 30, 2016 (2015 - $31,291).

 

12.     SHAREHOLDERS’ EQUITY

 

Share capital

 

Authorized

 

- 500,000,000 common voting shares with a par value of $0.0002 per share.

 

Issued and outstanding

 

As of September 30, 2016, the Company has 45,585,000 shares (December 31, 2015 – 43,585,000) issued and outstanding.

 

During the nine months ended September 30, 2016:

 

In February 2016, the Company issued 2,000,000 common shares (valued at $80,000) pursuant to an investor relations contract with a defined term to December 31, 2016.

 

 

During the year ended December 31, 2015:

 

In September 2015, the Company issued 1,100,000 common shares to an arm’s length party for total proceeds of $110,000 ($0.10 per share).

 

Proposed financing

 

On May 12, 2016, the Company filed a Form S-1 with the Securities and Exchange Commission (“SEC”), pursuant to which the Company intends to offer a maximum of 20,000,000 common shares at a price of $0.25 per share for a maximum gross proceeds of $5,000,000 on a best efforts basis.

 

Stock options

 

The Company adopted a Stock Awards Plan under which it is authorized to grant options to directors, employees and consultants, to acquire up to 6,000,000 common shares.  The exercise price of each option is based on the market price of the Company's stock for a period preceding the date of grant.  The options can be granted for a maximum term of 5 years and the vesting terms of the options are determined by the board of directors at the time of grant.

 

On September 16, 2015, 6,000,000 stock options were granted to directors, officers and consultants with an exercise price of $0.075 expiring on September 16, 2020, 10% of the options vest as of the grant date, with the remaining 90% vesting at a rate of 15% every six months thereafter. The Company uses the Black-Scholes Option Pricing Model to determine the fair value of options granted. The fair value of the stock options granted was $297,645 ($0.0496 per option), of which $115,504 (2015 - $35,761) was amortized and recorded and expensed during the nine months ended September 30, 2016.

 

The fair value of the stock options granted was determined using the following assumptions:

 

		Year ended December 31, 2015
Risk free interest rate			1.44	%
Volatility			242.72	%
Expected life of options			5 years
Dividend rate			0	%
Expected forfeiture rate			0	%

 

Stock option transactions are summarized as follows:

 

				Number of Options				Weighted Average Exercise Price				Aggregate Intrinsic Values
	Balance, December 31, 2014				—			$	—			$	—
	Granted				6,000,000				0.075
	Balance, at December 31, 2015 and September 30, 2016				6,000,000			$	0.075			$	—
	Exercisable, at December 31, 2015 and September 30, 2016				2,400,000			$	0.075			$	—

 

 

As at September 30, 2016, the following incentive stock options are outstanding:

 

Number of Options				Exercise Price				Expiry Date
	6,000,000			$	0.075			September 16, 2020

 

13.     COMMITMENT

 

Research and development agreement

 

The Company entered into a Technology Development Service Agreement (the “Technology Agreement”) in January 2016 with Zhejiang Pharmaceutical College (the “College”) with a term of 3 years. Pursuant to the Technology Agreement, the College will conduct research and development on induction of callus of gingko leaves and extraction, and identification of flavone and  lactone therefrom on the Company’s behalf. As consideration, the Company paid the College an annual research fee of RMB100,000 ($15,400) (RMB100,000 paid in March 2016) and monthly consulting fees to professors and staff. As at September 30, 2016, a total of RMB25,000 ($3,750) was included as a prepayment in other current assets.

 

Farmland lease agreements

 

The Company leased approximately 100 acres of farmland in Pizhou City, Jiangsu Province, China from local individual farmers for a period from October 2015 to August 2027. The lease fees may be renegotiated.

 

Year				2016				2017				2018				2019				2020-2027
	Amount			$	114,000			$	114,000			$	114,000			$	114,000			$	912,000

 

14.     SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

 

During the nine months ended September 30, 2016, the Company had the following non-cash transactions:

 

a) transferred $119,989 of completed work from construction in progress to fixed assets;

b) included $32,715 of accounts payable and accrued liabilities in construction in progress;

c) transferred $24,857 of gingko seeds from inventories to growing crops after completing seeding in the nine months ended September 30, 2016;

d) included $10,770 of amortization of agricultural machinery into growing crops;

e) issued 2,000,000 common shares (valued at $80,000) pursuant to an investor relations contract.

 

There were no significant non-cash transaction during the nine months ended September 30, 2015.

 

15.     SEGMENTED INFORMATION

 

The Company formerly operated in one business segment: hotel booking services. Accordingly, the Company did not have separately reportable segments in previous periods. In September 2015, the Company started to develop a gingko plantation cultivation business in China. In October 2015, the Company incorporated Globalink Zhejiang, whose business is to research and develop technologies in relation to gingko trees and other economic plants.

 

Effective September 30, 2016, the Company disposed of Oneworld, the subsidiary providing hotel booking services (note 3).

 

As of September 30, 2016, management of the Company has determined that the Company is organized into two main business segments: gingko plantation cultivation and bio-technology research and development.

 

The table below provides information regarding the Company’s identified segments for the nine months ended September 30, 2016:

 

		Gingko plantation				Research and development				Totals
Loss from continuing operations		$	(436,364	)		$	(114,993	)		$	(551,357	)
Fixed assets		$	153,100			$	1,554			$	154,654
Construction in progress		$	226,508			$	—			$	226,508
Growing crops		$	390,354			$	—			$	390,354

 

 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Introduction

 

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto, for the fiscal years ended December 31, 2015 and 2014 included elsewhere herein.

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.

 

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 were translated into U.S. Dollars at various pertinent dates and for pertinent periods.

 

Business Overview

 

Globalink, Ltd. conducts business through its two wholly owned subsidiaries Globalink (Xuzhou) Bio-Technology Co., Ltd. (“Globalink Xuzhou”) and Globalink (Zhejiang) Bio-Technology Co. Ltd. (“Globalink Zhejiang” and, together with Globalink Xuzhou, our “PRC Subsidiaries”), which are incorporated in the PRC. Our business is involved in agriculture, which includes (i) the development and operation of a ginkgo tree plantation in the PRC, the business of which is the cultivation and sale of dried ginkgo leaves to manufacturers of ginkgo extract, the principal ingredient of ginkgo-based herbal supplement products that have gained popularity around the world, and (ii) research and development, cultivation, extraction, and application of gingko trees and other economic plants.

 

We are developing a ginkgo tree plantation (“Plantation”) through our Globalink Xuzhou subsidiary that will comprise approximately 1,553 acres over the next five years. As of September 30, 2016, our Plantation had 100 acres of land under cultivation that it leased from local farmers pursuant to land leases that extend through 2027. Since we proposed the project in 2015, we have developed a comprehensive business plan that projects approximate costs, output and revenues over the next five years. As of the date of this Form 10-Q, we have invested a total of $800,000 in Globalink Xuzhou, comprising $500,000 invested in August 2015, and $300,000 invested in October 2015. During January 2016, Hin Kwok Sheung, our principal stockholder and the president and chief executive officer and a director of the Company, loaned the sum of $225,000 (RMB1,500,000) to Globalink Xuzhou, of which $15,000 (RMB100,000) was repaid to him in June 2016. In August 2016, Jia Yao, a director of the Company loaned the sum of $75,000 (RMB500,000) to Globalink Xuzhou. Those loans bear no interest and has no fixed term of repayment.

 

 

During the winter of 2015, we began purchasing equipment and other materials required to commence agricultural operations. We are planting our first crop of seeds this spring and, assuming typical growing conditions, we expect to harvest approximately 60 tons of dried ginkgo leaves for sale during the fall of 2016. Our Plantation brings modern scientific and technical practices to China’s archaic agricultural industry and we expect to become one of the largest independent producers of ginkgo leaves in the PRC.

 

We expect to sell our output of ginkgo leaves to ginkgo extract manufacturers that will use the finished product in a variety of health and herbal supplement products. Initially, we expect to sell our entire output in China and eventually expand our marketing efforts to Europe and North America. Sales are recorded on a per kilo or per ton of dried leaf basis. In addition, as our trees reach six years of age and the content of the active beneficial ingredients in the ginkgo leaves declines, rendering the leaves of no value to extract manufacturers, we will seek to sell trees to local consumers who use them for ornamental or landscaping purposes. To the extent we are able to sell trees, the price typically is based upon the circumference of the trunk.

 

As of the date of this Form 10-Q, we own all of the outstanding capital of Globalink Xuzhou, our PRC subsidiary that is developing our Plantation, equal to RMB 5,099,000 ($800,000) of Globalink Xuzhou’s total registered capital of RMB 60 million. Globalink Xuzhou was organized pursuant to a joint venture agreement (the “JV Agreement”) with Shizhen Bio-Technology Co., Ltd. (“Shizhen Biotech”) which provides, among other things, that we have the right to own 80% of Globalink Xuzhou’s registered capital for a total investment of RMB 48 million ($8 million) and Shizhen Biotech has the right to own 20% of Globalink Xuzhou’s registered capital for a total investment of RMB 12 million ($2 million). As of the date of this Form 10-Q, Shizhen Biotech has not invested any funds into Globalink Xuzhou and does not own any of that company’s registered capital. To the extent that Shizhen Biotech makes its investment in Globalink Xuzhou, our percentage of the profits of that company will be reduced by a corresponding amount up to 20%.

 

Globalink Zhejiang engages in research and development, cultivation, extraction, and application of gingko trees and other economic plants. In January 2016, Globalink Zhejiang entered into a Technology Development Service Agreement with Zhejiang Pharmaceutical College, or the College, under which the College has agreed to perform research with respect to accelerating the development of the active ingredients within the ginkgo tree and optimizing the processes of extracting flavone and lactone in order to enhance yield. We expect to receive a summary of the research project by the end of 2016, which may lead to a conclusion as to whether we can apply the technology to commercial production of gingko trees in a controlled laboratory environment.

 

We currently derive all of our revenues from our online hotel booking business; however, we expect that over the next three years, sales of ginkgo leaves by our Plantation operations will become our principal source of revenue. For the foreseeable future, we expect to reinvest any net profits into the development of our Plantation.

 

Effective September 30, 2016, we sold all of the outstanding common shares of OneWorld Hotel Destination Services, Inc. to Vincent Au, a former employee of the Company and the founder of OneWorld in 1999.  OneWorld provides hotel booking to travel agents in Canada.

 

 

Growth Strategies and Outlook

 

The business plan we have prepared for our Plantation contemplates that we will have over 1,500 acres under cultivation over the next five years. After the first year, we expect to increase our land under cultivation by leasing additional lands from individual farmers on terms that we believe will be comparable to those currently in place. In our second, third, fourth and fifth years of operations, we expect to have approximately 600 acres, 750 acres, and 800 acres, respectively, of land under cultivation and that by the fifth year of operations we could be producing up to 5,500 metric tons of dried ginkgo leaves that conform to GAP standards and that contain the optimum levels of the active ingredients. We believe that from a cost and operations perspective, as we add lands and the labor, equipment, management, utilities and other input required to produce the output of leaves we project, our project scales up proportionately. We expect to harvest ginkgo leaves at the end of our first season, the fall of 2016, and that output production will increase in each of our first five years as we add additional lands under cultivation and our trees continue to grow to maturity. We currently are marketing our anticipated product to ginkgo extract manufacturers and expect to have the entire output pre-sold prior to the harvest. As of the fall of 2015, high quality dried ginkgo leaves were being sold to pharmaceutical companies at prices ranging from RMB 18 – RMB 22 ($3.00 - $3.60) per kilogram. We believe that we have an experienced and deep team to execute our business plan, however, agricultural operations are subject to significant risks beyond our control. Moreover, our Plantation will be subject to all of the risks of doing business in the PRC.

 

We believe that ginkgo cultivation represents a favorable opportunity for our Company both because (i) ginkgo is a key ingredient in TCM and is widely used in the PRC, (ii) the ginkgo growing industry is fragmented among large number of small producers who continue to utilize archaic farming techniques and a small number of agribusinesses that are subsidiaries of or otherwise connected with ginkgo extract manufacturers and (iii) ginkgo and other TCM ingredients enjoy increasing usage among consumers worldwide and are currently accepted under U.S. and EU regulations with only minimal government intervention.

 

TCM is widely practiced among PRC residents and is considered to be an integral part of the health care system. Ginkgo is a fundamental ingredient in TCM which posits that ginkgo is imbued with healing qualities and is prescribed by TCM practitioners to address a wide range of ailments. China’s National Bureau of Statistics estimates that the TCM market in China totaled more than RMB 515 billion in 2012, accounting for 31.24% of China’s total medicine industry. We believe that ginkgo will continue to be a staple of TCM and that there will be an active market for our output.

 

In China, TCM products are regulated by the China FDA and typically are produced by pharmaceutical companies. In many instances, these companies grow the preponderance of the raw materials, such as ginkgo, that they use in their products at company-operated farms. Those PRC companies that do not control their own production, as well as international manufacturers of herbal supplements and other related products, must purchase TCM raw materials from independent farmers. Our internal investigation and research demonstrates that ginkgo continues to be grown by a diverse group of small farmers that rely on antiquated agricultural practices. Our Plantation will incorporate modern GAP practices to maximize output and ensure the highest content of the active ingredients in our leaves. Leaves will be packaged in parcels to which we will affix pertinent information, such as the growth records of the specific product and the flavone and lactone content of the leaves, as a means of exhibiting our transparency and to assure customers that our product meets their quality specifications. We believe these features will distinguish us from other independent growers of ginkgo and attract domestic and international customers.

 

China’s National Bureau of Statistics estimates that the worldwide TCM market is increasing by between 10% to 20% each year. Over the last several decades, the usage of ginkgo-based products have proliferated across Europe and North America where ginkgo is becoming widely accepted as an herbal remedy for a variety of health conditions, principally memory loss and dementia. Sales of ginkgo-based products are difficult to estimate but in 2012 worldwide sales were believed to be worth approximately $500 million. In Europe and the United States, products incorporating ginkgo are among the five top-selling herbal supplements. In 2002, ginkgo was the number one selling herbal supplement in the United States. We believe that the market for TCM products will continue to grow as Western consumers, particularly an aging population, look for products that they believe to be safe and inexpensive alternatives to modern pharmaceutical preparations, as a treatment to mitigate the effects of cognitive decline, such as dementia, which is one of the principal uses for ginkgo.

 

 

Government regulation of ginkgo-based products in North America and the EU has been relatively benign. In the U.S. gingko is regulated as a category of food known as “dietary supplements” under the Dietary Supplement Health and Education Act of 1994 and not as a drug. Ginkgo and other herbal supplements may be sold in the U.S. without regulation, provided that manufacturers do not make health claims on the labels or in advertising. Moreover, there are no regulations specific to the manufacturing of individual dietary supplements, though there are general safety rules on manufacturing, packaging, labeling, and storage. In the EU, “traditional herbal medicinal products” which meet certain criteria, including ginkgo-based products, may be manufactured and sold within European Union, or EU, member states without authorization or registration. In view of these conditions, we believe that Western markets represent a receptive and growing market for our product.

 

We believe that we have developed a business plan that presents a reasonable and rational path to success and that our current management possesses the skills and experience to achieve all of the goals we have set over the next five years and beyond.

 

Critical Accounting Policies and Use of Estimates

 

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. Management believes that the critical accounting policies and estimates discussed below involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used. Our significant accounting policies are described in Note 2 to our condensed consolidated financial statements included elsewhere in this report.

 

While our significant accounting policies are fully described in Note 2, we believe the following accounting policies and estimates are the most critical to aid you in fully understanding and evaluating this management’s discussion and analysis. Some of them involve significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities and provisions, income and expenses and the disclosure of contingent assets and liabilities at the date of these financial statements. Estimates are used for, but not limited to, the selection of the useful lives of fixed assets, allowance for doubtful debt associated with accounts receivable, fair values, revenue recognition, and taxes. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results may differ from these estimates.

 

Growing crops

 

Gingko trees are valued at historical cost, which include all cultivation costs incurred for planting, growing and maintaining the gingko trees during a year other than the harvest season that lasts about two months. The cultivation costs include costs of land lease, equipment lease, equipment amortization, labor, consulting, fertilizer, materials and supplies, and other direct growing costs.

 

 

At the end of each reporting period, the Company reviews the carrying amounts of the growing crops to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). A reliable market price is usually available for mature gingko trees in China. Under certain circumstances, when a reliable market price is not available, the fair value of the growing crops is measured using the discounted expected future cash flow method. Under this method, expected future revenues less costs to complete and harvest is discounted to present value.

 

The growing crops will be amortized using the straight-line method over an estimated useful life of 5 years. The Company intends to sell all of the gingko trees after 5 years and replant seedlings in order to optimize the effective ingredients in leaves harvested from younger trees.

 

Inventories

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and market value. Inventories as of September 30, 2016 consist of supplies and fertilizers. Inventories as of December 31, 2015 mainly consisted of gingko seeds which were planted in March 2016. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.

 

Stock-based compensation

 

The Company accounts for stock compensation with employees in accordance with ASC 718 “Compensation – Stock Compensation”, which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes Option Pricing Model.

 

The Company accounts for stock compensation arrangements with non-employees in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.

Foreign currency translation

 

Functional and presentation currency

 

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (“the functional currency”), which is the Chinese Renminbi (“RMB”) for Globalink Xuzhou and Globalink Zhejiang, and the Canadian dollar (“CAD”) for the Company’s former subsidiary, Oneworld. The consolidated financial statements are presented in United States dollar (“USD”), which is the functional currency of the parent company. The subsidiaries’ financial statements are prepared in its respective functional currencies before translating to the presentation currency which is the USD. The Company translates items in the statement of operations and comprehensive loss using the average exchange rate for the year. Assets and liabilities are translated at the year-end rate. All resulting exchange differences are reported as a separate component of other comprehensive income (loss).

 

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations where items are re-measured. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss as a “foreign exchange (gain) loss”.

 

Impairment reviews for long-lived assets

 

Long-lived assets such as property, equipment and goodwill are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The Company did not recognize any impairment losses for any periods presented.

 

Capital and Sources of Liquidity

 

For the nine months ended September 30, 2016, we incurred a net loss of $837,185.  We had the following adjustments for non-cash items: $2,188 for amortization, $115,504 for stock-based compensation, $60,000 as a result of shares issued for investor relations fees, $2,071 as a write-off of growing crops, $289,873 as a loss on the disposal of OneWorld.  We had the following changes in non-cash working capital: We had a decrease in other current assets of $9,399, an increase in accounts payable and accrued liabilities of $120,510, and an increase in amounts due to related parties of $30,030.  As a result, we had total cash used in operating activities of $207,608 for the nine months ended September 30, 2016.

 

For the nine months ended September 30, 2015, we incurred a net loss of $100,003.  We had the following adjustments for non-cash items: $35,761 for stock-based compensation.  We had the following changes in non-cash working capital: We had an increase in accounts receivable of $45,711, an increase in other current assets of $64,813 and an increase in accounts payable and accrued liabilities of $148,576, and an increase in other current liabilities of $24,960.  As a result, we had total cash used in operating activities of $1,230 for the nine months ended September 30, 2015.

 

For the nine months ended September 30, 2016, we spent $5,350 on the acquisition of fixed assets.  We received $15,293 as proceeds on disposal of fixed assets and spent $1,295 on inventories.  We spent $300,898 on construction in progress and $224,630 on growing crops.  As a result, we had total cash used in investing activities of $516,880 for the period.

 

For the nine months ended September 30, 2015, we spent $6,915 on the acquisition of fixed assets, resulting in total cash used in investing activities of $6,915 for the period.

 

For the nine months ended September 30, 2016, we received $285,000 as loan proceeds from a related party, resulting in net cash provided by financing activities of $285,000 for the period.

 

For the nine months ended September 30, 2015, we received $110,000 as proceeds from the issuance of shares, resulting in net cash provided by financing activities of $110,000 for the period.

 

 

Results of Operations

 

For the three months ended September 30, 2016, we paid accounting and legal expenses of $31,523, amortization expenses of $719, and director and management fees of $15,000.  We had a foreign exchange loss of $121, paid investor relations expenses of $26,766, and paid research and development expenses of $10,778.  We paid rent expenses of $5,157, salaries and benefits of $26,711, and stock-based compensation of $31,383.  We paid telephone expenses of $700, travel expenses of $9,102, transfer agent and filing fees of $1,340, other general and administrative expenses of $8,123, and had a write-off of growing crops of $2,071, resulting in total general and administrative expenses of $169,494.  We recorded a loss on the disposal of OneWorld of $289,873 and recorded income from discontinued operations of $40,663.  We had an exchange difference on translating foreign operations of $1,997, resulting in a comprehensive loss of $416,707 for the three months ended September 30, 2016.

 

Comparatively, for the three months ended September 30, 2015, we paid accounting and legal expenses of $36,735, director and management fees of $15,000, and had a foreign exchange loss of $171.  We paid rent expenses of $499, stock-based compensation of $35,761, and telephone expenses of $571.  We paid travel expenses of $1,025, transfer agent and filing fees of $6,797, and other general and administrative expenses of $14,216, resulting in total general and administrative expenses of $110,775.  We recorded income from discontinued operations of $39,586.  We had an exchange difference on translating foreign operations of $1,664, resulting in a comprehensive loss of $72,853 for the three months ended September 30, 2015.

 

Our net loss increased by $347,515 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015.  This is due to our general and administrative expenses increasing by $58,719, or 34.6%.  We had a loss of $289,873 as a result of our disposal of OneWorld.  We spent $26,766 on investor relations, $10,778 on research and development, and $26,711 on salaries and benefits during the three months ended September 30, 2016, and we did not have corresponding expenses during the three months ended September 30, 2015.  These factors all contributed to the increased net loss.

 

For the nine months ended September 30, 2016, we paid accounting and legal expenses of $95,231, amortization expenses of $2,188, and director and management fees of $45,000.  We had a foreign exchange loss of $246, paid investor relations expenses of $65,533, and paid research and development expenses of $31,420.  We paid rent expenses of $14,552, salaries and benefits of $100,144, and stock-based compensation of $115,504.  We paid telephone expenses of $1,639, travel expenses of $19,565, transfer agent and filing fees of $36,373, other general and administrative expenses of $21,891, and had a write-off of growing crops of $2,071, resulting in total general and administrative expenses of $551,357.  We recorded a loss on the disposal of OneWorld of $289,873 and recorded income from discontinued operations of $4,045.  We had an exchange difference on translating foreign operations of $1,727, resulting in a comprehensive loss of $835,458 for the nine months ended September 30, 2016.

 

Comparatively, for the nine months ended September 30, 2015, we paid accounting and legal expenses of $37,309, director and management fees of $45,000, and had a foreign exchange loss of $925.  We paid rent expenses of $3,945, stock-based compensation of $35,761, and telephone expenses of $1,256.  We paid travel expenses of $17,875, transfer agent and filing fees of $13,218, and other general and administrative expenses of $14,873, resulting in total general and administrative expenses of $170,162.  We recorded income from discontinued operations of $70,159.  We had an exchange difference on translating foreign operations of $116, resulting in a comprehensive loss of $99,887 for the nine months ended September 30, 2015.

 

 

Our net loss increased by $737,182 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  This is due to greatly increased general and administrative expenses Our accounting and legal fees increased by $57,922 as a result of preparing and filing a registration statement on Form S-1, and we spent a total of $199,285 for amortization, investor relations, research and development, and salaries and benefits that we did not incur during the nine months ended September 30, 2015.  These factors all contributed to the increased net loss.

 

Off-Balance Sheet Arrangements

 

The Company had no material off-balance sheet arrangements as of September 30, 2016.

 

Contractual Obligations

 

Research and development agreement

 

The Company entered into a Technology Development Service Agreement (the “Technology Agreement”) in January 2016 with Zhejiang Pharmaceutical College (the “College”) with a term of 3 years. Pursuant to the Technology Agreement, the College will conduct research and development on induction of callus of gingko leaves and extraction, and identification of flavone and lactone therefrom on the Company’s behalf. As consideration, the Company shall pay the College an annual research fee of RMB100,000 ($15,400) (RMB100,000 paid in March 2016) and monthly consulting fees to professors and staff.

 

Farmland lease agreements

The Company leased about 100 acres of farmland in Pizhou City, Jiangsu Province, China from local individual farmers for a period from October 2015 to August 2027. The lease fees may be renegotiated.

Year				2016				2017				2018				2019				2020-2027
	Amount			$	114,000			$	114,000			$	114,000			$	114,000			$	912,000

 

New Accounting Pronouncements

 

The Company has adopted all recently issued accounting pronouncements.  The adoption of the accounting pronouncements, including those not yet effective, are not anticipated to have a material effect on the financial position or results of operations of the Company.

 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable for smaller reporting companies.

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures:

 

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to insure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, or the persons performing similar functions, to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our CEO and CFO, or the persons performing similar functions, our management has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report.  Based on that evaluation, our CEO and CFO, or the persons performing similar functions, concluded that our disclosure controls and procedures were not effective as of September 30, 2016.

 

Evaluation of Changes in Internal Control over Financial Reporting:

 

Under the supervision and with the participation of our CEO and CFO, or those persons performing similar functions, our management has evaluated changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2016.  Based on that evaluation, our CEO and CFO, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.   Legal Proceedings

 

None

 

Item 1A.  Risk Factors

 

Not applicable for smaller reporting companies

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3.   Defaults Upon Senior Securities.

 

None

 

Item 4.   Mine Safety Disclosures

   

Not applicable

 

Item 5.   Other Information

 

None

 

Item 6. Exhibits

 

Exhibit 31*	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32*	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith
**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
*Filed herewith

 

SIGNATURES

 

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

 

Dated:  November 14, 2016

 

GLOBALINK, LTD.

 

By: /s/ Hin Kwok Sheung

Hin Kwok Sheung

Chief Executive Officer

 

By:  /s/ Ke Feng (Andrea) Yuan

Ke Feng (Andrea) Yean

Chief Financial Officer