LITMIR.BIZ

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beneficiary. The Company, through Guangzhou Seaway, entered into certain agreements with Global, pursuant to which the Company receives 90% of Global's net income. The Company does not receive any payments from Global unless Global recognizes net income during its fiscal year. These agreements do not entitle the Company to any consideration if Global incurs a net loss during its fiscal year. If Global incurs a net loss during its fiscal year, the Company is not required to absorb such net loss.

      As a VIE, Global's revenues are included in the Company's total revenues, and any loss from operations is consolidated with that of the Company. Because of contractual arrangements between the Company and Global, the Company has a pecuniary interest in Global that requires consolidation of the financial statements of the Company and Global.

      The Company has consolidated Global's operating results because the entities are under common control in accordance with ASC 805‐10, Business Combinations. The agency relationship between the Company and Global and its branches is governed by a series of contractual arrangements pursuant to which the Company has substantial control over Global. Management makes ongoing reassessments of whether the Company remains the primary beneficiary of Global.

Example 7.15: Noncontrolling Interest The Company follows FASB ASC Topic 810, Consolidation, which governs the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent's ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.

      The net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and other comprehensive income (loss).

Contingencies

Example 7.16: Contingencies In the ordinary course of business, the Company is involved in legal proceedings regarding contractual and employment relationships and a variety of other matters. The Company records contingent liabilities resulting from claims against us, when a loss is assessed to be probable and the amount of the loss is reasonably estimable.

Derivatives

Example 7.17: Convertible Notes Payable and Derivative Instruments The Company has adopted the provisions of ASU 2017‐11 to account for the down‐round features of warrants issued with private placements effective as of January 1, 2017. In doing so, warrants with a down‐round feature previously treated as derivative liabilities in the consolidated balance sheet and measured at fair value are henceforth treated as equity, with no adjustment for changes in fair value at each reporting period. The Company accounted for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free‐standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815‐40. The Company accounts for convertible notes deemed conventional and conversion options embedded in nonconventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470‐20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.

Earnings Per Share

Example 7.18: Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by the weighted average number of common shares of the Company outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares of the Company were exercised or converted into common shares of the Company. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti‐dilutive.

For the year ended June 30, 20X2 and 20X1, the effect of potential shares of common stock of the Company was dilutive since the exercise prices for options and warrants were lower than the average market price for the related periods. As a result, a total of 321,231 and 18,200 of unexercised options and warrants were dilutive for the year ended June 30, 20X2 and 20X1, respectively, and were included in the computation of diluted EPS.

Example 7.19: Loss per Common Share Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. Convertible promissory notes as at December 31, 20X2 are likely to be converted into shares, however, due to losses, their effect would be antidilutive. As of December 31, 20X2, convertible notes outstanding could be converted into 91,250 shares of common stock.

Use of Estimates

Example 7.20: Use of Estimates and Assumptions The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Financial Instruments

Example 7.21: Fair Value of Financial Instruments For certain of the Company's financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short‐term debt, the carrying amounts approximate their fair values due to their short maturities.

      FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three‐level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

       Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

       Level 2 inputs to the

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