Attached files
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| EX-32.1 - CERTIFICATION - AXIOM HOLDINGS, INC. | axiom_ex321.htm |
| EX-31.1 - CERTIFICATION - AXIOM HOLDINGS, INC. | axiom_ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED MARCH 31, 2017
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-195950
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AXIOM HOLDINGS, INC. |
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(Exact Name of Registrant as Specified in Its Charter) |
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Nevada |
46-3389613 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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Room C, 15/F., Ritz Plaza, 122 Austin Road, Tsimshatsui, Kowloon, Hong Kong |
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(Address of Principal Executive Offices) |
(Zip Code) |
852 3798 3736
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, former address and former fiscal year, if changed since last report)
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 x No ¨
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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one).
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Large accelerated filer |
¨ |
Accelerated filer |
x |
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Non-accelerated filer |
¨ |
Smaller reporting company |
¨ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 12, 2017, there were 340,000,000 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.
Indicate by check mark whether the registrant is an “emerging growth company” as defined in Section 2(a) of the Securities Act and Section 3(a) of the Exchange Act. Yes x No ¨
Indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act. ___
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2017
TABLE OF CONTENTS
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F-1 |
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3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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- 2 - |
PART I - FINANCIAL INFORMATION
AXIOM HOLDINGS, INC.
INDEX TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017
UNAUDITED
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F-2 |
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Consolidated Statements of Operations and Other Comprehensive Loss |
F-3 |
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F-4 |
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F-5 |
| F-1 |
Consolidated Balance Sheets
(Unaudited)
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As of |
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As of |
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March 31, |
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December 31, |
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2017 |
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2016 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ | 224,550 |
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$ | 52,159 |
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Accounts receivable |
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258,330 |
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13,986 |
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Prepaid expenses |
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12,476,181 |
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10,167,037 |
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Due from related parties |
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893,361 |
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855,391 |
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Tax receivable |
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31,097 |
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- |
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Total Current Assets |
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13,883,519 |
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11,088,573 |
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Property and equipment, net |
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70,645,530 |
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70,197,828 |
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Intangible assets, net |
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201,683 |
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199,599 |
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Long-term deposits |
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69,696 |
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68,976 |
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TOTAL ASSETS |
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84,800,428 |
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81,554,976 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ | 1,252,029 |
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$ | 1,507,063 |
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Accrued interest |
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2,004,925 |
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2,147,424 |
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Current portion of loans payable |
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3,208,920 |
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3,175,770 |
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Deposit received |
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1,444,535 |
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1,557,372 |
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Due to related parties |
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31,645,940 |
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29,271,765 |
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Tax payable |
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- |
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654,730 |
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Dividend payable |
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64,186 |
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49,578 |
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Other current liabilities |
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238,662 |
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114,960 |
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Total Current Liabilities |
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39,859,197 |
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38,478,662 |
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Long-term loans payable |
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36,554,100 |
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33,877,275 |
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TOTAL LIABILITIES |
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76,413,297 |
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72,355,937 |
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Stockholders' Equity |
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Preferred stock: 50,000,000 authorized; $0.001 par value no shares issued and outstanding |
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- |
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- |
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Common stock: 3,000,000,000 authorized; $0.001 par value 340,000,000 shares issued and outstanding, respectively |
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340,000 |
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340,000 |
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Capital reserve |
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34,287 |
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34,287 |
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Additional paid in capital |
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9,356,929 |
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9,625,791 |
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Accumulated other comprehensive income |
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2,178,177 |
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2,080,980 |
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Accumulated deficit |
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(3,522,262 | ) |
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(2,882,019 | ) |
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Total Stockholders' Equity |
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8,387,131 |
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9,199,039 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ | 84,800,428 |
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$ | 81,554,976 |
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The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations and Other Comprehensive Loss
(Unaudited)
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Three months ended |
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March 31, |
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2017 |
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2016 |
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Revenues |
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$ | 446,572 |
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$ | 319,456 |
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Cost of goods sold |
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(464,024 | ) |
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(251,069 | ) |
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Gross Profit (Loss) |
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(17,452 | ) |
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68,387 |
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Operating Expenses |
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General and administrative |
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44,799 |
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36,842 |
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Professional fees |
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111,789 |
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- |
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Total operating expenses |
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156,588 |
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36,842 |
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Operating Profit (Loss) |
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(174,040 | ) |
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31,545 |
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Other income (expense) |
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Interest expense, net |
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(466,203 | ) |
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(295,360 | ) |
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Net loss before income taxes |
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(640,243 | ) |
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(263,815 | ) |
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Provision for income taxes |
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- |
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- |
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Net Loss |
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$ | (640,243 | ) |
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$ | (263,815 | ) |
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Other Comprehensive Income (Loss) |
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Foreign currency translation adjustments |
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97,197 |
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65,176 |
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Total Comprehensive Loss |
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$ | (543,046 | ) |
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$ | (198,639 | ) |
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Basic and Diluted Loss per Common Share |
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$ | (0.00 | ) |
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$ | (0.00 | ) |
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Basic and Diluted Weighted Average Common Shares Outstanding |
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340,000,000 |
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340,000,000 |
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The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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2017 |
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2016 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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$ | (640,243 | ) |
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$ | (263,815 | ) |
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Adjustments to reconcile net loss to net cash from operating activities: |
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Depreciation and amortization |
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453,971 |
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255,270 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(244,131 | ) |
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(125,468 | ) |
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Prepaid expenses |
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(2,202,464 | ) |
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- |
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Accounts payable and accrued liabilities |
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(269,218 | ) |
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(222,900 | ) |
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Accrued interest |
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(164,870 | ) |
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176,588 |
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Deposit receivable |
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(129,058 | ) |
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(476,273 | ) |
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Tax payable |
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(692,471 | ) |
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(37,586 | ) |
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Other liabilities |
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136,555 |
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128,352 |
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Net cash used in operating activities |
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(3,751,929 | ) |
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(565,832 | ) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of property and equipment |
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(168,997 | ) |
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(1,874,194 | ) |
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Payments of due from related party |
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(327,032 | ) |
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- |
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Collection of due from related party |
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298,000 |
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- |
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Net cash used in investing activities |
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(198,029 | ) |
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(1,874,194 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from loans |
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2,322,560 |
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- |
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Proceeds from related parties |
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1,803,078 |
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2,916,242 |
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Payments to related parties |
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(3,774 | ) |
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(397,409 | ) |
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Net cash provided by financing activities |
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4,121,864 |
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2,518,833 |
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Effects on changes in foreign exchange rate |
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485 |
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1,666 |
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Net increase in cash and cash equivalents |
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172,391 |
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80,473 |
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Cash and cash equivalents - beginning of period |
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52,159 |
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140,438 |
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Cash and cash equivalents - end of period |
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$ | 224,550 |
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$ | 220,911 |
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Supplemental Cash Flow Disclosures |
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Cash paid for interest |
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$ | 631,073 |
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$ | 118,772 |
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Cash paid for income taxes |
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$ | - |
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$ | - |
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Non-Cash Investing and Financing Activity: |
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Related party debt forgiven |
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$ | 16,680 |
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$ | - |
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The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
March 31, 2017
(Unaudited)
(Except Axiom Holdings, Inc., Horizon Resources Co. Limited and CJC (Hong Kong) Limited, all English names of the companies and natural persons in this report are not their official English names but are stated here for identification purpose only.)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Axiom Holdings, Inc. (the “Company” or “Axiom”) is a Nevada corporation incorporated on August 7, 2013, as At Play Vacations, Inc. It is based in Kowloon, Hong Kong. The Company incorporated wholly-owned subsidiaries, Quality Resort Hotels, Inc. (“QRH”) in Florida on August 8, 2013 and Horizon Resources Co. Ltd (“Horizon”) in the Cayman Islands on September 7, 2015. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America, and the Company’s fiscal year end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2016 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2016 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on March 31, 2017.
Basis of Consolidation
At March 31, 2017, the Company, through its wholly owned direct and indirect subsidiaries listed below, operates in two industry segments, namely hospitality and power production, and one geographic segment, the People’s Republic of China (“China” or the “PRC”).
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Entity Name |
Entity Owned By |
Nature of Operation |
Country of Incorporation | |||
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Horizon Resources Co. Ltd |
Axiom |
Investment holding |
Cayman Islands | |||
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CJC (Hong Kong) Limited |
Horizon |
Investment holding |
Hong Kong, China | |||
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Jin Tai Hong (Shenzhen) Hotel Management Services Company Limited (“Jin Tai Hong”) |
CJC |
Investment holding |
China | |||
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Jin Bai Xing (Shenzhen) Clean Energy Technology Services Company Limited (“Jin Bai Xing”) |
CJC |
Investment holding |
China | |||
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Xiao Jin County En Ze Hotel Management Company Limited ("En Ze") |
Jin Tai Hong |
Hotel management |
China | |||
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Xiao Jin County Si Gu Niang Mountain Hotel Management Company Limited ("Si Gu Niang") |
Jin Tai Hong |
Hotel operation (under construction) |
China | |||
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Xiaojin County Jitai Power Investment Company Limited (“Jitai”) |
Jin Bai Xing |
Hydroelectric power station operation |
China | |||
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Xiaojin County Xin Hong Electric Power Development Company Limited (“Xin Hong”) |
Jin Bai Xing |
Hydroelectric power station operation (under construction) |
China | |||
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Sichuan Xing Tie Electric Power Company Limited (“Xing Tie”) |
Jin Bai Xing |
Manufacturing and trading of mechanical and electrical equipment |
China |
These consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.
| F-5 |
| Table of Contents |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
Foreign Currency Translation and Re-measurement
The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.
The Company’s functional currency and reporting currency is the U.S. dollar, subsidiaries’ functional currency is the Chinese Yuan Renminbi (“CNY”) and Hong Kong Dollar (“HKD”).
The Company's subsidiaries, whose records are not maintained in that company's functional currency, re-measure their records into their functional currency as follows:
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Monetary assets and liabilities at exchange rates in effect at the end of each period | |
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Nonmonetary assets and liabilities at historical rates | |
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Revenue and expense items at the average rate of exchange prevailing during the period |
Gains and losses from these re-measurements were not significant and have been included in the Company's results of operations.
The Company's subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as follows:
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Assets and liabilities at the rate of exchange in effect at the balance sheet date | |
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Equities at the historical rate | |
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Revenue and expense items at the average rate of exchange prevailing during the period |
Adjustments arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
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March 31, |
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December 31, |
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March 31, |
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2017 |
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2016 |
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2016 |
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Spot CNY: USD exchange rate |
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$ | 0.145 |
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$ | 0.144 |
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$ | 0.155 |
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Average CNY: USD exchange rate |
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$ | 0.145 |
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$ | 0.151 |
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$ | 0.153 |
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Spot HKD: USD exchange rate |
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$ | 0.129 |
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$ | 0.129 |
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$ | 0.129 |
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Average HKD: USD exchange rate |
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$ | 0.129 |
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$ | 0.129 |
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$ | 0.129 |
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Financial Instruments
The Company follows ASC 820,"Fair Value Measurements and Disclosures," which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
| F-6 |
| Table of Contents |
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash and cash equivalents, accounts receivable, prepaid expense, due from related parties, accounts payable and accrued liabilities, accrued interest, deposit received, and amounts due to related parties. Pursuant to ASC 820, the fair value of the Company's cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the Company's other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Revenue Recognition
The Company pursues opportunities to realize revenues from the provision of electricity by Jitai, to one customer. It is the Company’s policy that revenues will be recognized in accordance with ASC 605, “Revenue Recognition.” The Company recognizes revenue only when all of the following criteria have been met:
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i) |
power is generated and sold to our customer, | |
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ii) |
the customer signs back confirmation on quantity of power generated, | |
|
iii) |
the unit charge of power is fixed or determinable; and, | |
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iv) |
collection is reasonably assured. |
On the 24th of every month, the Company will check the power meter together with our client, and obtain a signed confirmation on power consumption for the prior month. Based on contracted unit pricing, the Company will invoice the customer.
Concentration of Revenue
All revenue of the Company during the periods was earned from provision of electricity to a single customer which was unrelated to the Company.
Commitments and Contingencies
The Company follows ASC 450-20, "Loss Contingencies," to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
An unrelated company (the “Guarantor”) has provided a guarantee for a related company of CJC (the “Related Company”) to secure a bank loan of $1,449,900 which matured in 2014. Jitai has in turn provided a guarantee to the Guarantor. Upon maturity of the loan, the Related Company failed to repay the loan. Hence, the Guarantor repaid the amount to the bank for the Related Company, but Jitai failed to fulfill its obligation for the guarantee to the Guarantor. By a court order, an agreement (the “Jitai Agreement”) between the Guarantor and Jitai was reached whereby the revenue of Jitai from June 2016 will be paid directly from the customer of Jitai to the Guarantor until a total of $1,364,620 has been repaid to the Guarantor.
Except for this commitment, there were no other commitments or contingencies at March 31, 2017 and December 31, 2016.
Recent Accounting Pronouncements
Management has considered all other recent accounting pronouncements issued since the last audit of our financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company's financial statements.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has a net loss from operations of $174,040 and a net cash used in operating activities of $3,751,929 for the three months ended March 31, 2017, and an accumulated deficit of $3,522,262 as of March 31, 2017. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ended December 31, 2017.
| F-7 |
| Table of Contents |
The ability of the Company to emerge from the development stage is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.
These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 - PREPAID EXPENSES
The Company's prepaid expenses consist of the followings:
|
|
|
March 31, |
|
|
December 31, |
| ||
|
|
|
2017 |
|
|
2016 |
| ||
|
Prepaid expenses: |
|
|
|
|
|
| ||
|
Third party suppliers for construction materials |
|
$ | 261,376 |
|
|
$ | 258,676 |
|
|
Third party service providers for construction services |
|
|
12,084,206 |
|
|
|
9,776,582 |
|
|
Third party suppliers for construction equipment |
|
|
127,776 |
|
|
|
126,456 |
|
|
Other prepaid |
|
|
2,823 |
|
|
|
5,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ | 12,476,181 |
|
|
$ | 10,167,037 |
|
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2017 and December 31, 2016 consist of the following:
|
|
|
March 31, |
|
|
December 31, |
| ||
|
|
|
2017 |
|
|
2016 |
| ||
|
Cost: |
|
|
|
|
|
| ||
|
Power station |
|
$ | 71,710,710 |
|
|
$ | 34,356,510 |
|
|
Office equipment |
|
|
17,986 |
|
|
|
17,800 |
|
|
Mechanical equipment |
|
|
12,399 |
|
|
|
12,271 |
|
|
Transportation |
|
|
92,241 |
|
|
|
91,288 |
|
|
Construction in progress |
|
|
4,707,038 |
|
|
|
41,104,502 |
|
|
|
|
|
76,540,374 |
|
|
|
75,582,371 |
|
|
Less: accumulated depreciation |
|
|
(5,894,844 | ) |
|
|
(5,384,543 | ) |
|
Property and Equipment, net |
|
$ | 70,645,530 |
|
|
$ | 70,197,828 |
|
Depreciation expense, included in cost of goods sold, for the three months ended March 31, 2017 and 2016 amounted to $453,971 and $255,270, respectively.
Part of power station and construction in progress has been pledged to banks to secure the bank loans (Note 6) provided to the Company.
During the three months ended March 31, 2017 and 2016, construction in progress of $36,985,391 and $0, respectively, had been re-classified to power station upon completion of construction when the facility reached the stage of completion for its intended use.
| F-8 |
| Table of Contents |
NOTE 6- LOANS PAYABLE AND ACCRUED INTEREST
The components of our long-term debt from Bank and Credit Union, including the current portion, and the associated interest rates, were as follows as of March 31, 2017 and December 31, 2016:
|
|
|
March 31, |
|
|
December 31, |
|
|
Interest |
|||
|
|
|
2017 |
|
|
2016 |
|
|
rate |
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Note payable - December 29, 2011 - December 28, 2017 |
|
$ | 333,960 |
|
|
$ | 330,510 |
|
|
0.94% per month |
|
|
Note payable - November 23, 2011 - November 23, 2017 |
|
|
798,600 |
|
|
|
790,350 |
|
|
0.94% per month |
|
|
Note payable - August 31, 2011 - August 30, 2017 |
|
|
624,360 |
|
|
|
617,910 |
|
|
0.94% per month |
|
|
Note payable - June 16, 2014 - June 15, 2020 |
|
|
7,260,000 |
|
|
|
7,185,000 |
|
|
Best lending interest rate of the People's Bank of China plus 20% per annum |
|
|
Note payable - January 22, 2015 - January 21, 2020 |
|
|
2,432,100 |
|
|
|
2,406,975 |
|
|
11.40% per annum |
|
|
Note payable - November 24, 2014 - November 25, 2024 |
|
|
4,791,600 |
|
|
|
4,742,100 |
|
|
9.23% per annum |
|
|
Note payable - January 10, 2014 - December 20, 2032 |
|
|
16,843,200 |
|
|
|
16,669,200 |
|
|
Best lending interest rate of the People's Bank of China plus 4% per annum |
|
|
Note payable - June 27, 2016 - June 28, 2021 |
|
|
4,356,000 |
|
|
|
4,311,000 |
|
|
7.6% per annum |
|
|
Note payable - January 22, 2017 - January 21, 2019 |
|
|
2,323,200 |
|
|
|
- |
|
|
8.04% annum |
|
|
|
|
$ | 39,763,020 |
|
|
$ | 37,053,045 |
|
|
|
|
|
Current portion of loans payable |
|
|
3,208,920 |
|
|
|
3,175,770 |
|
|
|
|
|
Long-term loans payable |
|
$ | 36,554,100 |
|
|
$ | 33,877,275 |
|
|
|
|
Interest expenses for the three months ended March 31, 2017, and 2016 amounted to $466,203 and $295,360, respectively. As of March 31, 2017, and December 31, 2016, the Company recorded accrued interest related to the loans of $2,004,925 and $2,147,424, respectively.
The bank loans are secured by construction in progress (March 31, 2017: $4,707,038; December 31, 2016: $4,579,467; Note 5), power station (March 31, 2017: $29,093,287; December 31, 2016: $29,028,673; Note 5) and intangible assets (March 31, 2017: $126,179; December 31, 2016: $124,875) from part of the balances of those items shown in the balance sheet.
NOTE 7 - RELATED PARTY TRANSACTIONS
Due from Related Parties
Due from related parties at March 31, 2017 and December 31, 2016 consist of as follows:
|
|
|
March 31, |
|
|
December 31, |
|
|
Relationship with |
|||
|
Related Party Name |
|
2017 |
|
|
2016 |
|
|
the Company |
|||
|
Due from related parties |
|
|
|
|
|
|
|
|
|||
|
Sichuan Jiuyuen Property Development Company Limited |
|
$ | 489,239 |
|
|
$ | 484,184 |
|
|
Under the same ultimate common control with CJC |
|
|
Chengdu Yongtian Machinery Company Limited |
|
|
375,082 |
|
|
|
371,207 |
|
|
Under the same ultimate common control with CJC |
|
|
Chengdu Weijing Liquor Store Management Co., Ltd. |
|
|
29,040 |
|
|
|
- |
|
|
Under the same ultimate common control with CJC |
|
|
|
|
$ | 893,361 |
|
|
$ | 855,391 |
|
|
|
|
The amounts were non-interest bearing, unsecured and had no fixed terms of repayment.
| F-9 |
| Table of Contents |
Due to Related Parties
As of March 31, 2017, and December 31, 2016, the Company was obligated to the following related parties:
|
|
|
March 31, |
|
|
December 31, |
|
|
Relationship with |
|||
|
Related Party Name |
|
2017 |
|
|
2016 |
|
|
the Company |
|||
|
Due to related parties |
|
|
|
|
|
|
|
|
|||
|
Yeung Baigui |
|
$ | 3,212,866 |
|
|
$ | 3,179,676 |
|
|
Current director and former stockholder of Si Gu Niang |
|
|
Wu Hongguang |
|
|
7,572,781 |
|
|
|
7,423,561 |
|
|
Current director of Jitai and former stockholder of Jitai and Xing Tie |
|
|
Chen Juan |
|
|
1,217,066 |
|
|
|
1,204,493 |
|
|
Current director of and former stockholder of En Ze |
|
|
Hu Dengyang |
|
|
1,137,352 |
|
|
|
1,125,602 |
|
|
Current director of Jin Bai Xing and former stockholder of En Ze |
|
|
Wu Ling Electrical Engineering Company Limited |
|
|
3,583,536 |
|
|
|
3,550,252 |
|
|
Former stockholder of Xing Tie, currently under the same ultimate common control with CJC |
|
|
Sichuan Jiuyuen Electrical Engineering Company Limited |
|
|
10,292,338 |
|
|
|
9,754,913 |
|
|
Under the same ultimate common control with CJC |
|
|
Xinlong Xi Da Electrical Engineering Company Limited |
|
|
272,898 |
|
|
|
270,078 |
|
|
Under the same ultimate common control with CJC |
|
|
Li Yuen Huacheng Electrical Engineering Company Limited |
|
|
2,999,211 |
|
|
|
2,375,344 |
|
|
Under the same ultimate common control with CJC |
|
|
Sichuan Red Leaf Electrical Engineering Company Limited |
|
|
391,895 |
|
|
|
387,846 |
|
|
Under the same ultimate common control with CJC |
|
|
Xiaojin County Hongtai Leasing Co., Ltd |
|
|
560,983 |
|
|
|
- |
|
|
Under the same ultimate common control with CJC |
|
|
Chengdu Jinyan Investment Management Co., Ltd |
|
|
502 |
|
|
|
- |
|
|
Under the same ultimate common control with CJC |
|
|
NYJJ Investments Ltd |
|
|
404,512 |
|
|
|
- |
|
|
Shareholder of Axiom |
|
|
|
|
$ | 31,645,940 |
|
|
$ | 29,271,765 |
|
|
|
|
Debt Forgiveness
During the three months ended March 31, 2017, related parties, who are shareholders of the Company, forgave debt, in the amount of $16,680 for payments made on behalf of the Company for operating expenses. The amount has been recognized as a contribution to capital.
During the three months ended March 31, 2017, the Company agreed with a related party, who is a shareholder of the Company, that $285,542 advanced and forgiven by the related party during the year ended December 31, 2016, would now be owed by the Company. As a result, the Company reclassified the amount of $285,542 from additional paid in capital to amount due to related parties during the period ended March 31, 2017.
Directors Compensation
During the three months ended March 31, 2017 and 2016, directors of our subsidiaries were paid salaries totaling $41,582 and $43,125, respectively.
NOTE 8 - INDUSTRY SEGMENTS
At March 31, 2017 and December 31, 2016, the Company operates in two industry segments, namely hospitality and power production, and in one geographic segment, China, where all assets and liabilities were located.
Hospitality
The Company provides catering and hospitality services.
Power production
The Company produces hydroelectric power.
| F-10 |
| Table of Contents |
Segment revenue and net loss for the three months ended March 31, 2017 and 2016 were as follows:
|
March 31, 2017 |
|
Holding Company |
|
|
Hospitality |
|
|
Power production |
|
|
Total Consolidated |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Current assets |
|
$ | 13,802 |
|
|
$ | 9,598,117 |
|
|
$ | 4,271,600 |
|
|
$ | 13,883,519 |
|
|
Property and Equipment |
|
|
- |
|
|
|
4,707,038 |
|
|
|
65,938,492 |
|
|
|
70,645,530 |
|
|
Other non-current assets |
|
|
- |
|
|
|
126,179 |
|
|
|
145,200 |
|
|
|
271,379 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
523,253 |
|
|
|
9,152,155 |
|
|
|
30,183,789 |
|
|
|
39,859,197 |
|
|
Long term liabilities |
|
|
- |
|
|
|
5,227,200 |
|
|
|
31,326,900 |
|
|
|
36,554,100 |
|
|
Net assets (liabilities) |
|
$ | (509,451 | ) |
|
$ | 51,979 |
|
|
$ | 8,844,603 |
|
|
$ | 8,387,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
December 31, 2016 |
|
Holding Company |
|
|
Hospitality |
|
|
Power production |
|
|
Total Consolidated |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ | 15,408 |
|
|
$ | 7,117,791 |
|
|
$ | 3,955,374 |
|
|
$ | 11,088,573 |
|
|
Property and Equipment |
|
|
- |
|
|
|
4,579,467 |
|
|
|
65,618,361 |
|
|
|
70,197,828 |
|
|
Other non-current assets |
|
|
- |
|
|
|
124,875 |
|
|
|
143,700 |
|
|
|
268,575 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
141,796 |
|
|
|
7,459,691 |
|
|
|
30,877,175 |
|
|
|
38,478,662 |
|
|
Long term liabilities |
|
|
- |
|
|
|
4,311,000 |
|
|
|
29,566,275 |
|
|
|
33,877,275 |
|
|
Net assets (liabilities) |
|
$ | (126,388 | ) |
|
$ | 51,442 |
|
|
$ | 9,273,985 |
|
|
$ | 9,199,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Three Months Ended March 31, 2017 |
|
Holding Company |
|
|
Hospitality |
|
|
Power production |
|
|
Total Consolidated |
| ||||
|
Revenue |
|
$ | - |
|
|
$ | - |
|
|
$ | 446,572 |
|
|
$ | 446,572 |
|
|
Cost of goods sold |
|
|
- |
|
|
|
- |
|
|
|
(464,024 | ) |
|
|
(464,024 | ) |
|
Operating expenses |
|
|
(114,201 | ) |
|
|
- |
|
|
|
(42,387 | ) |
|
|
(156,588 | ) |
|
Other expenses, net |
|
|
- |
|
|
|
- |
|
|
|
(466,203 | ) |
|
|
(466,203 | ) |
|
Net loss |
|
$ | (114,201 | ) |
|
$ | - |
|
|
$ | (526,042 | ) |
|
$ | (640,243 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Three Months Ended March 31, 2016 |
|
Holding Company |
|
|
Hospitality |
|
|
Power production |
|
|
Total Consolidated |
| ||||
|
Revenue |
|
$ | - |
|
|
$ | - |
|
|
$ | 319,456 |
|
|
$ | 319,456 |
|
|
Cost of goods sold |
|
|
- |
|
|
|
- |
|
|
|
(251,069 | ) |
|
|
(251,069 | ) |
|
Operating expenses |
|
|
(2,387 | ) |
|
|
- |
|
|
|
(34,455 | ) |
|
|
(36,842 | ) |
|
Other expenses, net |
|
|
- |
|
|
|
- |
|
|
|
(295,360 | ) |
|
|
(295,360 | ) |
|
Net loss |
|
$ | (2,387 | ) |
|
$ | - |
|
|
$ | (261,428 | ) |
|
$ | (263,815 | ) |
NOTE 9 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation no other events have occurred that require disclosure.
|
F-11 |
| Table of Contents |
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Axiom Holdings, Inc. (the “Company” or “Axiom”) is a Nevada corporation incorporated on August 7, 2013, as At Play Vacations, Inc. It is based in Kowloon, Hong Kong. The Company incorporated wholly-owned subsidiaries, Quality Resort Hotels, Inc. (“QRH”) in Florida on August 8, 2013 and Horizon Resources Co. Ltd (“Horizon”) in the Cayman Islands on September 7, 2015. On June 23, 2016, QRH was legally dissolved with the state of Florida. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America, and the Company’s fiscal year end is December 31.
Acquisition of CJC Holdings, Ltd.
Pursuant to the terms of a Share Exchange Agreement dated October 10, 2016 and amended on December 21, 2016, the Company, Horizon Resources Co. Ltd., a Cayman Islands company and a wholly owned subsidiary of the Company (“Horizon”) acquired all of the issued and outstanding capital stock (the “CJC Shares”) of CJC Holdings, Ltd., a Hong Kong corporation (together with its subsidiaries, “CJC”) through the exchange of 200,000,000 shares of the Company’s common stock for the CJC Shares held by the two sole shareholders of CJC, Hu Dengyang and Yang Chuan (the “CJC Shareholders”). The acquisition of the CJC Shares was completed on December 21, 2016. Pursuant to terms of the Share Exchange Agreement and immediately prior to the completion of the acquisition of the CJC Shares, Low Tuan Lee, Lim Wei and Chua Seong cancelled an aggregate of 200,000,000 shares of our common stock. Upon completion of the closing, CJC became a subsidiary of our company and the CJC Shareholders as a group held approximately 58.8% of the Company’s shares of Common Stock outstanding of approximately 340,000,000 shares giving effect to the issuance of the shares to acquire the CJC Shares and the share cancellation.
Operations of CJC and its Subsidiaries
Following the acquisition of the CJC Shares, through the Company’s subsidiaries, the Company operates within the Power Production Segment and the Hospitality Segment.
Power Production Segment
Overview. We are engaged in operating, developing and seek to acquire electric generating facilities in China. We currently operate two hydro-electric generating plants each of which have average annual output capacity of 112.5548 million kWh. In addition, two hydro-electric generating plants are under construction as discussed below. In addition, we are seeking to acquire other electric generating plants in China.
Jitai Power Investment. Jitai Power Investment operates a hydropower electric generation station located in Xiaojin, Sichuan, China, which commenced operations in September 2009. The station has an annual average output of 125.664 million kilowatt hours (“kWh”).
Xin Hong Power Development. Xin Hong Power Development operates, or is completing, the Jiesigou I, II and III hydropower stations located in Xiaojin, Sichuan, China. The Jiesigou II hydropower station began operations in September, 2016 with an installed electricity capacity of 24,000 kWh, and an average annual output of 112.5548 million kWh. The Jiesigou I and Jiesigou III hydropower stations are currently expected to come on-line in 2019.
Xing Tie Electric. Xing Tie Electric is engaged in the purchase and sale of power generating equipment, primarily to Xin Hong Power Development.
Hospitality Segment
EnZe Hotel Management. EnZe Hotel Management owns and is nearing completion of construction of the Enze Hotel located at 47 Government Street, Mei Xin Town, Xiaojin County, China upon. The hotel is expected to be completed and open for business in June 2017. This hotel is located across the street from the HongjunHuishi Square. The Enze Hotel will have 190 guest rooms, including 178 luxury guest rooms, and 12 deluxe suites, and will cover a total of over 114,000 square feet. The hotel will include a shopping area, business center, the 600-seatEnZe Restaurant, a tea house in the lobby, a KTV (karaoke) house with ten private rooms, a seven room spa, five conference rooms, three large meeting rooms, and two multi-function halls which will accommodate up to 800 people. We intend to sell bookings for the hotel, the public meeting halls, the restaurant and the spa directly in person, over the phone, through our website, and through third party service providers including internet- and mobile-based third party service providers. We will lease space in our shopping area to premium brand retailers.
| - 3 - |
| Table of Contents |
SiGuNiang Mountain Hotel Management. SiGuNiang Mountain Hotel Management owns and is nearing completion of construction of the Mt. Four Sisters Hotel, located in SiGuNiang Mountain Town, Xiaojin County, Sichuan Province, China. The hotel is expected to be completed and open for business in June 2017. The hotel is adjacent to the provincial highway S303, and its rear faces the Siguniang Mountain town government center. This area is the center of tourism, entertainment and catering services in SiGuNiang Mountain Town, and is approximately 143 miles from Chengdu, the capital city of Sichuan and approximately 112 miles from Maerkang, the capital of Aba Autonomous Region. The hotel will have 90 guest rooms on six floors, will cover a total of over 71,000 square feet, and is mainly in the Jiarong Tibetan style. The hotel will include a 120 seat restaurant, tea house, meeting rooms, and 13 street level shops. The hotel will also offer a catering department. We intend to sell bookings for the hotel, meeting rooms and the restaurant directly in person, over the phone, through our website, and through third party service providers including internet- and mobile-based third party service providers. We plan to lease space in our shopping area to premium brand retailers.
Results of Operations
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
The following table provides selected financial data about our company as of March 31, 2017, and December 31, 2016.
|
Balance Sheet Date |
|
March 31, |
|
|
December 31, |
| ||
|
Cash and cash equivalents |
|
$ | 224,550 |
|
|
$ | 52,159 |
|
|
Total Assets |
|
$ | 84,800,428 |
|
|
$ | 81,554,976 |
|
|
Total Liabilities |
|
$ | 76,413,297 |
|
|
$ | 72,355,937 |
|
|
Stockholders’ Equity |
|
$ | 8,387,131 |
|
|
$ | 9,199,039 |
|
The Company had a cash balance of $224,550 and $52,159 at March 31, 2017 and December 31, 2016, respectively. For the three months ended March 31, 2017, total assets increased by 4% or $3,245,452, due to increased prepaid expenses. Our total liabilities increased $4,057,360 or 6% due to an increase in loans payable by $2,709,975 and increase in amount due to related parties of $2,374,175, for expenses paid on behalf of the Company.
The following table provides the results of operations for the three months ended March 31, 2017 and 2016:
|
|
|
Three Months Ended March 31, |
| |||||
|
|
|
2017 |
|
|
2016 |
| ||
|
Revenues |
|
$ | 446,572 |
|
|
$ | 319,456 |
|
|
Cost of revenue |
|
|
(464,024 | ) |
|
|
(251,069 | ) |
|
Gross profit (loss) |
|
|
(17,452 | ) |
|
|
68,387 |
|
|
Gross profit percentage |
|
|
(4 | )% |
|
|
21 | % |
|
Operating expense |
|
|
156,588 |
|
|
|
36,842 |
|
|
Other expense |
|
|
466,203 |
|
|
|
295,360 |
|
|
Net Loss |
|
$ | 640,243 |
|
|
$ | 263,815 |
|
Industry Segments. Since we have not commenced operations in our hospitality segment, the Company does not believe a comparative analysis of the results of operations by segment would be meaningful to investors. Note 8 – Industry Segments to our consolidated financial statements included elsewhere in this report, includes a breakdown of assets, liabilities and revenues by segment.
| - 4 - |
| Table of Contents |
Three Months Ended March 31, 2017 compared to the Three Months Ended March 31, 2016
Revenue
For the three months ended March 31, 2017 our revenue increased $127,116 or 40% due to increased demand for electricity, as compared to the same period in 2016.
Cost of revenue
For the three months ended March 31, 2017 our cost of revenues increased $212,955 or 85% due to increases in facility maintenance during 2017, as compared to the same period in 2016.
Operating Expense
The following table presents operating expenses for the three months ended March 31, 2017 and 2016:
|
|
|
Three Months Ended March 31, |
|
|
Change 2017 Versus 2016 |
| ||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
Amount |
|
|
% |
| ||||
|
General and administrative |
|
$ | 44,799 |
|
|
$ | 36,842 |
|
|
$ | 7,957 |
|
|
|
22 | % |
|
Professional fees |
|
|
111,789 |
|
|
|
- |
|
|
|
111,789 |
|
|
|
- |
|
|
Total Operation expense |
|
$ | 156,588 |
|
|
$ | 36,842 |
|
|
$ | 119,746 |
|
|
|
325 | % |
The increase in professional fees for the three months ended March 31, 2017 was primarily due to legal and accounting fees for SEC filings and compliance.
Other expenses
The following table presents other expenses for the three months ended March 31, 2017 and 2016:
|
|
|
Three Months Ended March 31, |
|
|
Change 2017 Versus 2016 |
| ||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
Amount |
|
|
% |
| ||||
|
Interest expense, net |
|
$ | 466,203 |
|
|
$ | 295,360 |
|
|
$ | 170,843 |
|
|
|
58 | % |
|
Total other expenses |
|
$ | 466,203 |
|
|
$ | 295,360 |
|
|
$ | 170,843 |
|
|
|
58 | % |
We realized an increase of $170,843 in interest expense during the three months ended March 31, 2017 as compared to the same period in 2016, due to an increase in loans payable.
Net loss
Net loss increased to $640,243 or by 143% during the three months ended March 31, 2017, from $263,815 in the same period in 2016, primarily due to the increase in cost of revenue, operating expense and interest expenses, partially offset by the increase in revenues discussed above.
Liquidity and Financial Condition
Working Capital (Deficiency)
The following table provides selected financial data about our company as of March 31, 2017 and December 31, 2016.
|
|
|
March 31, 2017 |
|
|
December 31, 2016 |
| ||
|
Current Assets |
|
$ | 13,883,519 |
|
|
$ | 11,088,573 |
|
|
Current Liabilities |
|
|
(39,859,197 | ) |
|
|
(38,478,662 | ) |
|
Working Deficiency |
|
$ | (25,975,678 | ) |
|
$ | (27,390,089 | ) |
The change in working capital deficiency during the three months ended March 31, 2017 was primarily due to an increase in prepaid expenses of $2,309,144, cash and cash equivalent of $172,391, accounts receivable of $244,344 and due to related party of $2,374,175 and a decrease in tax payable of $654,730, accounts payable and accrued liabilities of $255,034.
| - 5 - |
| Table of Contents |
Cash Flows
The following tables presents our cash flow for the three months ended March 31, 2017 and 2016:
|
|
|
For the Three Months Ended March 31, |
| |||||
|
|
|
2017 |
|
|
2016 |
| ||
|
Cash Flows Used in Operating Activities |
|
$ | (3,751,929 | ) |
|
$ | (565,832 | ) |
|
Cash Flows Used in Investing Activities |
|
|
(198,029 | ) |
|
|
(1,874,194 | ) |
|
Cash Flows Provided by Financing Activities |
|
|
4,121,864 |
|
|
|
2,518,833 |
|
|
Effects on changes in foreign exchange rate |
|
|
485 |
|
|
|
1,666 |
|
|
Net increase in Cash During Period |
|
$ | 172,391 |
|
|
$ | 80,473 |
|
Cash Flows from Operating Activities
We have not generated positive cash flow from operating activities. For the three months ended March 31, 2017, cash used in operating activities was $3,751,929, consisting of a net loss of $640,243, less $453,971 for depreciation and amortization, and a net change in working capital of $3,565,657.
For the three months ended March 31, 2016, cash used in operating activities was $565,832; consisting of a net loss of $263,815, which was reduced by $255,270 for depreciation and amortization, and a net change in working capital of $557,287.
Cash Flows from Investing Activities
For the three months ended March 31, 2017, cash used in investing activities was $198,029, consisting of purchase of property and equipment of $168,997and payments of due from related party of $327,032, partially offset by collection of due from related party of $298,000.
For the three months ended March 31, 2016, cash used in investing activities was $1,874,194, consisting of purchase of property and equipment of $1,874,194.
Cash Flows from Financing Activities
For the three months ended March 31, 2017, cash provided by financing activities was $4,121,864, consisting of proceeds from loans of $2,322,560 and proceeds from related parties of $1,803,078, partially offset by payment to related parties of $3,774.
For the three months ended March 31, 2016, cash provided by financing activities was $2,518,833, consisting of proceeds from related parties of $2,916,242 partially offset by payment to related parties of $397,409.
We do not have sufficient resources to effectuate all aspects of our business plan. We expect to incur a minimum of $4.2 million in expenses during the next twelve months of operations if we continue to pursue our current plans. We estimate that this will be approximately $3.8 million for our operations in China, comprised of approximately $2.0 million towards cost of revenue, $1.3 million towards financing costs, and $500,000 for general and administrative fees. Additionally, approximately $400,000 will be needed for general overhead expenses such as for corporate legal and accounting fees, and head office fees for our external reporting requirements as a public company. We will have to raise additional funds to pay for all of our planned expenses. We potentially will have to issue additional debt or equity, or enter into a strategic arrangement with a third party to carry out some aspects of our business plan. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable company.
Going Concern
Our auditors have issued a going concern opinion on our year-end financial statements ended December 31, 2016. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay for our expenses. This is because we have generated limited revenues and have limited operating history. There are no assurances that we will be able to obtain additional financing through either private placements, bank financing or other loans necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us.
| - 6 - |
| Table of Contents |
Contractual Obligations
The following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of March 31, 2017:
|
|
|
Payment Due by Period |
| |||||||||||||||||
|
|
|
Total |
|
|
2017 |
|
|
2018 - 2019 |
|
|
2020 - 2021 |
|
|
2022 and hereafter |
| |||||
|
Long-Term Debt |
|
$ | 39,763,020 |
|
|
|
3,208,920 |
|
|
|
2,904,000 |
|
|
|
16,952,100 |
|
|
|
16,698,000 |
|
Indebtedness
The Company has significant indebtedness as follows:
Long-term Debt. The components of our long-term debt from Bank and Credit Union, including the current portion, and the associated interest rates, were as follows as of March 31, 2017 and December 31, 2016:
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|||
|
|
|
2017 |
|
|
2016 |
|
|
Interest rate |
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Note payable - December 29, 2011 - December 28, 2017 |
|
$ | 333,960 |
|
|
$ | 330,510 |
|
|
0.94% per month |
|
|
Note payable - November 23, 2011 - November 23, 2017 |
|
|
798,600 |
|
|
|
790,350 |
|
|
0.94% per month |
|
|
Note payable - August 31, 2011 - August 30, 2017 |
|
|
624,360 |
|
|
|
617,910 |
|
|
0.94% per month |
|
|
Note payable - June 16, 2014 - June 15, 2020 |
|
|
7,260,000 |
|
|
|
7,185,000 |
|
|
Best lending interest rate of the People's Bank of China plus 20% per annum |
|
|
Note payable - January 22, 2015 - January 21, 2020 |
|
|
2,432,100 |
|
|
|
2,406,975 |
|
|
11.40% per annum |
|
|
Note payable - November 24, 2014 - November 25, 2024 |
|
|
4,791,600 |
|
|
|
4,742,100 |
|
|
9.23% per annum |
|
|
Note payable - January 10, 2014 - December 20, 2032 |
|
|
16,843,200 |
|
|
|
16,669,200 |
|
|
Best lending interest rate of the People's Bank of China plus 4% per annum |
|
|
Note payable - June 27, 2016 - June 28, 2021 |
|
|
4,356,000 |
|
|
|
4,311,000 |
|
|
7.6% per annum |
|
|
Note payable - January 22, 2017 - January 21, 2019 |
|
|
2,323,200 |
|
|
|
- |
|
|
8.04% annum |
|
|
|
|
$ | 39,763,020 |
|
|
$ | 37,053,045 |
|
|
|
|
|
Current portion of loans payable |
|
|
3,208,920 |
|
|
|
3,175,770 |
|
|
|
|
|
Long-term loans payable |
|
$ | 36,554,100 |
|
|
$ | 33,877,275 |
|
|
|
|
The bank loans are secured by construction in progress (March 31, 2017: $4,707,038; December 31, 2016: $4,579,467; Note 5), power station (March 31, 2017: $29,093,287; December 31, 2016: $29,028,673; Note 5) and intangible assets (March 31, 2017: $126,179; December 31, 2016: $124,875) from part of the balances of those items shown in the balance sheet.
| - 7 - |
| Table of Contents |
Related Party Debt. As of March 31, 2017 and December 31, 2016, the Company was obligated to the following related parties:
|
|
|
March 31, |
|
|
December 31, |
|
|
Relationship with |
|||
|
Related Party Name |
|
2017 |
|
|
2016 |
|
|
the Company |
|||
|
Due to related parties |
|
|
|
|
|
|
|
|
|||
|
Yeung Baigui |
|
$ | 3,212,866 |
|
|
$ | 3,179,676 |
|
|
Current director and former stockholder of Si Gu Niang |
|
|
Wu Hongguang |
|
|
7,572,781 |
|
|
|
7,423,561 |
|
|
Current director of Jitai and former stockholder of Jitai and Xing Tie |
|
|
Chen Juan |
|
|
1,217,066 |
|
|
|
1,204,493 |
|
|
Current director of and former stockholder of En Ze |
|
|
Hu Dengyang |
|
|
1,137,352 |
|
|
|
1,125,602 |
|
|
Current director of Jin Bai Xing and former stockholder of En Ze |
|
|
Wu Ling Electrical Engineering Company Limited |
|
|
3,583,536 |
|
|
|
3,550,252 |
|
|
Former stockholder of Xing Tie, currently under the same ultimate common control with CJC |
|
|
Sichuan Jiuyuen Electrical Engineering Company Limited |
|
|
10,292,338 |
|
|
|
9,754,913 |
|
|
Under the same ultimate common control with CJC |
|
|
Xinlong Xi Da Electrical Engineering Company Limited |
|
|
272,898 |
|
|
|
270,078 |
|
|
Under the same ultimate common control with CJC |
|
|
Li Yuen Huacheng Electrical Engineering Company Limited |
|
|
2,999,211 |
|
|
|
2,375,344 |
|
|
Under the same ultimate common control with CJC |
|
|
Sichuan Red Leaf Electrical Engineering Company Limited |
|
|
391,895 |
|
|
|
387,846 |
|
|
Under the same ultimate common control with CJC |
|
|
Xiaojin County Hongtai Leasing Co., Ltd |
|
|
560,983 |
|
|
|
- |
|
|
Under the same ultimate common control with CJC |
|
|
Chengdu Jinyan Investment Management Co., Ltd |
|
|
502 |
|
|
|
- |
|
|
Under the same ultimate common control with CJC |
|
|
NYJJ Investments Ltd |
|
|
404,512 |
|
|
|
- |
|
|
Shareholder of Axiom |
|
|
|
|
$ | 31,645,940 |
|
|
$ | 29,271,765 |
|
|
|
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Seasonality
Our power production operations have historically been seasonal based on requirements for energy, with higher revenues generally occurring in the winter and summer as heating and cooling needs increase and then declining in the spring and fall as the weather becomes milder.
Critical Accounting Policies and Estimates
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
We believe the critical assumptions and estimates are those applied to revenue recognition.
Revenue Recognition
The Company pursues opportunities to realize revenues from the provision of electricity by Jitai, to one customer. It is the Company’s policy that revenues will be recognized in accordance with ASC 605, “Revenue Recognition.” The Company recognizes revenue only when all of the following criteria have been met:
|
|
i) |
power is generated and sold to our customer, |
|
|
ii) |
the customer signs back confirmation on quantity of power generated, |
|
|
iii) |
the unit charge of power is fixed or determinable; and, |
|
|
iv) |
collection is reasonably assured. |
On the 24th of every month, the Company will check the power meter together with our client, and obtain a signed confirmation on power consumption for the prior month. Based on contracted unit pricing, the Company will invoice the customer.
| - 8 - |
| Table of Contents |
Recent Accounting Pronouncements
See Footnote NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to the Company’s Consolidated Financial Statements that appear elsewhere in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
As of March 31, 2017, we had approximately $39 million in short and long term loans payable. Some of the debts are subject to variable rates and, accordingly, our earnings and cash flow will be affected by changes in interest rates. Based upon our December 31, 2017 borrowings, and assuming there had been a two percentage point change in the average interest rate for these borrowings, it is estimated that our interest expense for the three months ended March 31, 2017 would have increased or decreased by approximately $100,000.
We do not utilize interest rate swap transactions or engage in any interest rate hedging operations, that could eliminate or substantially reduce risks associated with fluctuating interest rates.
Foreign Currency Risk
We have 100% of our revenue and cost of sales generated in the PRC. We conduct our PRC operations in the Chinese Yuan Renmibi (“CNY”), the main currency used in the PRC. Our assets and liabilities and results of operations are reported in U.S. dollars. Fluctuations in currency rates can affect our reported assets, liabilities, sales, margins, operating costs and the anticipated settlement of our CNY denominated receivables and payables. A weakening of the foreign currencies in which we generate revenues relative to the currencies in which our financial statements are denominated, which is the U.S. dollar, may increase our reported total comprehensive loss. As of March 31, 2017, our subsidiaries outside the United States held approximately 100% of our total assets and liabilities and generated 100% of our revenues. The effect of translating balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates is included in “Other comprehensive loss” in our consolidated statements of operations and other comprehensive loss. Other comprehensive loss includes a foreign currency translation adjustment of $97,197 for the three months ended March 31, 2017. We do not utilize foreign exchange contracts nor ae we engaged in any hedging operations or other exchange rate practices, that could eliminate or substantially reduce risks associated with fluctuating exchange rates.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation and for the reasons discussed below, our chief executive officer and chief financial officer concluded that, as of March 31, 2017, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and (ii) that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of disclosure controls and procedures as of March 31, 2017:
|
|
· | Material Weaknesses - The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements; and |
|
|
|
|
|
|
· | Significant Deficiencies – Inadequate segregation of duties. |
We expect to be materially dependent upon third parties to provide us with accounting consulting services for the foreseeable future. We believe this will be sufficient to remediate the lack of sufficient accounting personnel. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures will not result in errors in our financial statements which could lead to a restatement of those financial statements.
Changes in Internal Controls Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| - 9 - |
| Table of Contents |
We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Risk factors describing the major risks to our business can be found under Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on March 31, 2017 (the “Annual Report”). There has been no material change in our risk factors from those previously discussed in the Annual Report.
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.
None.
| - 10 - |
| Table of Contents |
|
Exhibit No. |
DESCRIPTION | |
|
| ||
|
3.1(a) |
Articles of Incorporation, as filed with the Nevada Secretary of State (incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 (SEC File No. 333-195950) filed with the Commission on May 14, 2014). | |
|
3.1(b) |
|
Certificate of Amendment to its Articles of Incorporation as filed with the Secretary of State of Nevada on September 16, 2015 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed with the Commission on March 30, 2017). |
|
3.1(c) |
|
Certificate of Correction to Certificate of Amendment to its Articles of Incorporation as filed with the Secretary of State of Nevada on March 29, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K/A filed with the Commission on March 30, 2017). |
|
3.2 |
Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 (SEC File No. 333-195950) filed with the Commission on May 14, 2014). | |
|
10.1 |
Share Exchange Agreement, dated as of October 10, 2016, by and between Axiom Holdings, Inc., CJC Holdings, Ltd., Hu Dengyang and Yang Chuan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on October 14, 2016). | |
|
10.2 |
Amendment to Share Exchange Agreement, dated as of December 21, 2016, by and between Axiom Holdings, Inc., CJC(Hong Kong), Ltd., Hu Dengyang and Yang Chuan (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on December 23, 2016). | |
|
21.1* |
Subsidiaries of the Registrant. | |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
|
31.2* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
|
101.INS* |
|
101.INS* XBRL INSTANCE DOCUMENT |
|
101.SCH* |
|
XBRL TAXONOMY EXTENSION SCHEMA |
|
101.CAL* |
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
|
101.DEF* |
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
|
101.LAB* |
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE |
|
101.PRE* |
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
__________
* Filed herewith.
| - 11 - |
| Table of Contents |
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.
|
|
Axiom Holdings, Inc. | ||
|
| |||
|
Date: May 15, 2017 |
By: |
/s/ Curtis Riley |
|
|
|
Curtis Riley |
||
|
|
Chief Executive Officer and Chief Financial Officer |
||
|
|
(Principal Executive Officer and Principal Financial and Accounting Officer) |
||
|
- 12 - |