DD's Deluxe Rod Holder Earnings 2019-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

For the quarterly period ended: March 31, 2019

For the transition period from ____________ to _____________

Commission File Number: 333-204518

DD’s Deluxe Rod Holder Inc.

(Exact Name of Registrant as Specified in Its Charter)

3^rd Floor, Golden Sunset Community, Wencang Village, Yueping Township, Yan Feng District,

Hengyang City, Hunan Province, China 421000

(Address of principal executive offices, Zip Code)

+86 734-847-6607

(Registrant’s telephone number, including area code)

(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 every Interactive Data File required to be submitted 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 such files).. Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if 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 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Securities registered pursuant to Section 12(b) of the Act:

The number of shares outstanding of each of the issuer’s classes of common stock, as of May 10, 2019 is as follows:

DD’S DELUXE ROD HOLDER INC.

TABLE OF CONTENTS

FINANCIAL INFORMATION

DD’S DELUXE ROD HOLDER INC.

CONDENSED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(Stated in US Dollars)

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Balance Sheets

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

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

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

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Statements of Stockholders’ Equity

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

DD’s Deluxe Rod Holder Inc.

Interim Condensed Consolidated Statements of Cash Flows

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

DD’s Deluxe Rod Holder Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

DD’s Deluxe Rod Holder Inc. (“Deluxe” or the “Company”) was incorporated on September 26, 2014 under the laws of the State of Nevada. On June 15, 2018, DD’s Deluxe Rod Holder Inc. (“DDLX”) entered into a definitive Share Exchange Agreement (the “Share Exchange Agreement”) with Golden Sunset Group Limited (“GS Group”), a Seychelles International Business Company, and the shareholders of GS Group (the “Shareholders”). The Share Exchange Agreement is effective on November 13, 2018. Golden Sunset has 460,000,000 shares (“Ordinary Shares”), $0.00025 par value per share outstanding (the “Golden Sunset Shares”), all of which are held by the Shareholders. Each Shareholder has agreed to transfer all of his, her or its (hereinafter “its”) Golden Sunset Shares in exchange for an aggregate, collectively for all Shareholders, of 230,000,000 newly issued shares of the common stock, $0.001 par value per share, of DDLX (the “Common Stock”) that will, in the aggregate, constitute approximately 98.3% of the issued and outstanding capital stock of DDLX on a fully diluted basis as of and immediately after the closing of the share exchange transaction. .

The share exchange transaction was accounted for as a “reverse merger” because the original stockholders of GS Group own a majority of the outstanding shares of DDLX’s common stock immediately following the completion of the transaction. GS Group was the legal acquiree but deemed to be the accounting acquirer; DDLX was the legal acquirer but deemed to be the accounting acquiree in the reverse merger. The historical financial statements prior to the acquisition are those of the accounting acquirer (GS Group). Historical stockholder’s equity of the accounting acquirer prior to the merger are retroactively restated (a recapitalization) for the equivalent number of shares received in the merger. After the completion of the transaction, the Company’s consolidated financial statements include the assets and liabilities operations and cash flow of the Company and its subsidiaries.

Golden Sunset Group Limited (“GS Group”) is an international business company formed under the laws of Republic of Seychelles (“Seychelles”) on June 28, 2017 as a holding company for Golden Sunset International Management Limited (“GS International”), a Seychelles International Business company formed on the same day. GS International is a wholly-owned subsidiary of GS Group.

Golden Sunset (Hongkong) Lodging Limited (“GS Hong Kong”), a holding company incorporated under the laws of Hong Kong Special Administrative Region on July 18, 2017. It was wholly owned by Ms. Quan, Jun until March 9, 2018 on which the entire equity interests was transferred to GS International.

GS Hong Kong owns 100% of the issued and outstanding equity interest in Xiao De Tian Xia (Shenzhen) Senior Care Management Services Limited, a People’s Republic of China company (“Xiao De Shenzhen”) incorporated on November 3, 2017. On March 13, 2018, Xiao De Shenzhen acquired 100% ownership interest of Shenzhen Golden Sunset Technology Limited (“GS Technology”), a PRC company incorporated on January 20, 2016. On November 6, 2017, Xiao De Shenzhen also contractually controlled and managed an operating company, Hunan Xiao De Tian Xia Senior Care Industry Management Limited., a People’s Republic of China company (“Xiao De Hunan”), which provides senior care management services.

Xiao De Hunan was incorporated in the People’s Republic of China on March 22, 2017. Its principal office is located in Yueping Retirement Home (Red Sunset Apartments), Yueping Town, Yangfeng District, Hengyang City. Xiao De Hunan provides a variety of services which include, but not limited to, service management, lodging management, training management and property management. It provides senior community care services such as preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities through its branch, Hunan Xiao De Tian Xia Senior Care Industry Management Co. Ltd Community Senior Care Service Center (“the Branch”). The Branch was formed on December 20, 2017.

Hunan Guanzizai Senior Care Services Co. Ltd. (“Hunan Guanzizai”) was formed in the People’s Republic of China on September 27, 2017 and is a wholly-owned subsidiary of Xiao De Hunan. This entity provides senior care personal services and recreational activities for the elderly communities in Hengyang City in Hunan Province, China.

On July 30, 2018, Xiao De Tian Xia (Beijing) Senior Care Industry Management Co. Ltd (“Xiao De Beijing”) was incorporated in the People’s Republic of China on July 30, 2018. The ownership interest of Xiao De Hunan in this entity is 70%. The remaining ownership interest, 30%, is held by a non-related third party. This entity provides senior care personal services and recreational activities for an elderly community center in Beijing city in China.

Xiao De Tian Xia (Tangshan) Senior Care Management Services Co. Ltd. (“Xiao De Tangshan”) was incorporated in the PRC on September 3, 2018. The ownership interest of Xiao De Shenzhen in this entity is 60% while the remaining ownership interest, 40%, is held by a non-related third party. This entity provides senior care personal services and recreational activities for six elderly community centers in Tangshan city in Hebei Province, China.

Xiao De Tian Xia (Hubei) Senior Care Management Services Co. Ltd. (“Xiao De Hubei”) was incorporated in the PRC on September 30, 2018. The ownership interest of Xiao De Shenzhen in this entity is 67% while the remaining ownership interest, 33%, is held by a non-related third party. This entity provides senior care personal services and recreational activities for an elderly community center in Wuhan city in Hubei Province, China.

On December 10, 2018, Xiao De Hunan acquired Hengyang City Red Sunset Tourism Development Co. Ltd. (“Red Sunset Tourism”) for a cash consideration of approximately $74,257 (RMB 510,000). Red Sunset Tourism was incorporated in Hengyang City, Hunan Province of the People’s Republic of China under the law of the People’s Republic of China (“PRC”) on January 8, 2008 and its office is located in High-Technology Zone of Hengyang City, Henan Province. Red Sunset Tourism primarily engages in organizing and coordinating domestic travel tours within the territory of PRC for the senior elderly in Henan Province and elderly residents of Hengyang City Yueping Retirement Home (Red Sunset Apartment). Red Sunset Tourism generates revenue through the group tour fee earned from organizing and coordinating travel tours for its tour participants. After the completion of the acquisition, the Company’s controlled Red Sunset Tourism through the subsidiaries of GS Group. The consolidated financial statements include the assets and liabilities, operations and cash flow of the Company and its entire subsidiaries of GS Group and Red Sunset Tourism.

Contractual Arrangements

Although current PRC regulations do not restrict or prohibit foreign investment in domestic Chinese companies that engage in businesses such as those of Xiao De Hunan and its subsidiaries, there is substantial uncertainty regarding the interpretation and application of such regulations. As such, Xiao De Hunan and its subsidiaries are controlled through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements are comprised of a series of four agreements (collectively the “Contractual Arrangements”) which significant terms are shown as follows:

Exclusive Service Agreement

Pursuant to the exclusive service agreement among Xiao De Shenzhen, Xiao De Hunan and its subsidiaries and its shareholders, Xiao De Shenzhen is engaged as exclusive provider of management consulting services to Xiao De Hunan and its subsidiaries. For such services, Xiao De Hunan and its subsidiaries agree to pay service fees determined based on their actual monthly incomes from major business to Xiao De Shenzhen. The amount of service fee from the year 2019 onward will be negotiated on January 1 each year. Xiao De Shenzhen is entitled to the rights and responsibilities of Xiao De Hunan and its subsidiaries as set forth under the articles of association of Xiao De Hunan. The agreement provides that Xiao De Shenzhen is authorized to, but not limited to, manage and control the daily operation and internal management structure, manage financial management, enter and execute external contracts, handle tax filings and payments, direct and supervise human resources including board of directors nomination, appointment of directors and officers, approve budgets and compensation plans, resolve capital structure, acquisitions and dissolutions

The agreement remains in effect for 20 years until November 6, 2037 unless terminated by either party in writing. Until such termination, Xiao De Hunan and its subsidiaries may not enter into another agreement for the provision of management consulting services without the prior consent of Xiao De Shenzhen.

Call Option Agreements

Pursuant to the call option agreement between the shareholders of Xiao De Hunan and its subsidiaries and Xiao De Shenzhen, such shareholders jointly and severally grant Xiao De Shenzhen an option to purchase their equity interests in Xiao De Hunan and its subsidiaries. Xiao De Shenzhen has the right to determine the purchase price within the extent not exceeding the upper limit of shareholding ratio set forth under the PRC Law. Xiao De Shenzhen may exercise such option at any time until it has acquired all equity interests of such Xiao De Hunan and its subsidiaries, and freely transfer the option to any third party. The agreement will terminate on the date on which all of the equity interests of such Xiao De Hunan and its subsidiaries has been transferred to Xiao De Shenzhen or its designee.

Equity Pledge Agreements

Pursuant to the equity interest pledge agreement between the shareholders of each Xiao De Hunan and its subsidiaries and Xiao De Shenzhen, such shareholders pledge all of their equity interests in such Xiao De Hunan and its subsidiaries to Xiao De Shenzhen as collateral to secure the obligations of such Xiao De Hunan and its subsidiaries under the exclusive service agreement. The shareholders may not transfer or assign transfer or assign the pledged equity interests, or incur or allow any encumbrance that would jeopardize Xiao De Shenzhen’s interests, without Xiao De Shenzhen’s prior approval. In the event of default, Xiao De Shenzhen as the pledgee will be entitled to certain rights and entitlements, including the priority in receiving payments by the evaluation or proceeds from the auction or sale of whole or part of the pledged equity interests of such Xiao De Hunan and its subsidiaries. The agreement will terminate on the date the shareholders have transferred all of their pledged equity interests pursuant to the option agreement

Shareholders’ Voting Rights Proxy Agreements

Pursuant to the shareholders’ voting rights proxy agreement between the shareholders of each Xiao De Hunan and its subsidiaries and Xiao De Shenzhen, such shareholders have given Xiao De Shenzhen an irrevocable proxy to act on their behalf on all matters pertaining to such Xiao De Hunan and its subsidiaries and to exercise all of their rights as shareholders of such Xiao De Hunan and its subsidiaries, including the right to attend shareholders meeting, to exercise voting rights and to appoint and elect officers in such Xiao De Hunan and its subsidiaries. The agreement will be valid for 20 years from the date of execution and automatically renew for another one year when the original or extended term of this agreement is due. It will terminate at the earlier of (i) the date on which all of the equity interests of such Xiao De Hunan and its subsidiaries have been transferred to Xiao De Shenzhen or (ii) on the date Xiao De Shenzhen gives a thirty-day notice in writing of the cancellation of the renewal after the agreement is due.

As a result of the foregoing contractual arrangements, which give Xiao De Shenzhen effective control of Xiao De Hunan and its subsidiaries with an exclusive power to direct their operating and internal management activities that significantly impact their economic performance, obligate Xiao De Shenzhen to absorb all of the risk of loss from their activities, and enable Xiao De Shenzhen to receive all of their expected residual returns, the Company accounts for each Xiao De Hunan Tian Xia and its subsidiaries as a variable interest entity (“VIE”). Additionally, as the parent company of Xiao De Shenzhen, the Company is considered the primary beneficiary of Xiao De Hunan and its subsidiaries. Accordingly, the Company consolidates the accounts of Xiao De Hunan and its subsidiaries for the period ended December 31, 2017, in accordance with Regulation S-X-3A-02 promulgated by the Securities Exchange Commission, and Accounting Standards Codification (“ASC”) 810-10, Consolidation.

We refer to DD’s Deluxe Rod Holder Inc, its consolidated subsidiaries and variable interest entities collectively as “we”, “us” and “our”.

Basis of Presentation

The financial statements included in this report have been prepared in accordance with generally accepted accounting principles in the United States of America. This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. Our financial statements are expressed in U.S. dollars.

Principles of Consolidation

Our consolidated combined financial statements include the accounts of Deluxe, GS Group, its subsidiaries and its Variable Interest Entities (VIEs). All significant intercompany transactions balances among Deluxe, GS Group, its subsidiaries and its VIEs are eliminated upon consolidation. Since Xiao De Shenzhen and its VIEs are under common control, the contractual arrangements among Xiao De Shenzhen, its VIEs and their shareholders have been accounted for as a reorganization of entities, and the consolidation of its VIEs through the contractual arrangements has been accounted for at historical cost and prepared on the basis as if these agreements became effective as of the beginning of the first period presented in our consolidated financial statements.

Consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (accounting acquiree, i.e. DDLX) but as a continuation of the financial statements of the legal subsidiary (accounting acquirer, i.e. GS Group) with an adjustment of retroactively restate on the stockholder’s equity to reflect the legal capital of the legal acquiree under the name of legal parent. This adjustment is required to reflect the capital of legal parent (the legal acquirer or accounting acquiree) in the stockholder’s equity item after the reverse acquisition. Comparative information presented in these financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (legal acquirer or accounting acquiree).

The interim condensed consolidated financial statements include the accounts of DD’s Deluxe Rod Holder Inc. and the following subsidiaries:

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimate and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may differ from those estimates. Significant estimates for the periods ended March 31, 2019 and December 31, 2018 include the collectability of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived assets, valuation of accruals for expenses and tax due.

Reclassifications

We have reclassified certain prior period amounts within our consolidated financial statements and accompanying notes to conform to our current period presentation. These reclassifications did not affect total revenue, operating income, or net income.

Going Concern Consideration

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements. The Company’s ability to continue as a going concern depends on the liquidation of its current assets and business developments. As of March 31, 2019, the Company incurred working capital deficit of $347,240, a comprehensive loss of $835,701 and incurred a negative operating cash flow of $247,616. As of March 31, 2018, the Company also incurred a comprehensive loss of $596,033 and a negative cash flow from its operating activities of $314,514. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included borrowings from our stockholders and related parties. While we believe that our existing shareholders and related parties will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms.

We, through our PRC subsidiaries, continued to explore business opportunities with the local government agencies and senior care communities. By the end of 2018, Our VIE, Xiao De Hunan acquired Red Sunset Tourism in order to expand our senior community care services by coordinating group tour services to the elderly. Moreover, Xiao De Shenzhen also launched a community care prepaid card program and contracted a third party to promote the prepaid card program among the senior communities. As of March 31, 2019, there were approximately 69 participants and approximately $509,208 has been received. To strive to increase our revenue, in the first quarter of 2019, we obtained a government contract that allowed us to provide community care services to a community care center in Hubei. We continued our efforts in obtaining additional government contracts in other provinces. Moreover, GS Hong Kong is still negotiating with Sing Ho Trading Company to explore business opportunities and has remitted $731,336 for deposit. This amount is refundable by Sing Ho Trading Company if new business is not established.

We believe that our current cash and financing from our existing stockholders are adequate to support operations for at least the next 12 months.

Foreign Currency Translation

Our reporting currency is the U.S. dollar. Our subsidiaries in the PRC and Hong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollars (HKD) as their functional currencies as determined based on the criteria of ASC 830, “Foreign Currency Translation”. Assets and liabilities are translated at the unified exchange rate as quoted by the U.S. Federal Reserve at the end of the period. Income and expense accounts are translated at the average translation rates the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The resulting translation adjustments are reported under accumulated other comprehensive loss in the stockholders’ equity section of the balance sheets.

Below is a table with foreign exchange rates used for translation for the periods indicated:

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains its deposits in financial institutions in the PRC and Hong Kong. Deposit accounts at insured banks and financial institutions in Hong Kong will be covered up to a limit of HKD500,000 (approximately US$ 63,696) by Hong Kong Deposit Protection Board in an event of bank failure. As of March 31, 2019 and December 31, 2018, cash balances, $117,319 and $305,416, respectively, held in the PRC banks are uninsured. Our subsidiaries in Hong Kong and PRC have not experienced any losses in bank accounts and believe they are not exposed to any risks on our cash in bank accounts.

Financial Instrument

The carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value because of the immediate or short-term maturity of these financial instruments.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and equipment are included in operating income (loss). Repairs and maintenance are expensed as incurred.

Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the useful lives of the assets are as follows:

Capitalization of Software Costs

For costs incurred in the acquisition of internal use software, the Company capitalizes costs incurred upon purchase. Internal use software is amortized on a straight-line basis over its estimated useful life.

Impairment of Long-lived Assets

Long-lived assets, including buildings and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, it reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of March 31, 2019 and December 31, 2018, management determined that there was no impairment.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed as a result of the Company’s acquisitions of interests in Red Sunset Tourism by our VIE, Xiao De Hunan, in the fourth quarter in 2018.

Goodwill is not depreciated or amortized but is tested for impairment at the reporting unit level at least on an annual basis, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. The test consists of two steps. First, identify potential impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired. Second, if there is impairment identified in the first step, an impairment loss is recognized for any excess of the carrying amount of the reporting units’ goodwill over the implied fair value of goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC Topic 805 “Business Combinations.”

Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired. The Company performs its annual impairment test of goodwill on December 31 of each fiscal year or whenever events of circumstances change or occur that would indicate that goodwill might be impaired. When assessing goodwill for impairment, the Company uses qualitative and if necessary, quantitative methods in accordance with FASB ASC Topic 350, “Goodwill”.

The Company’s goodwill is attributable to its reporting unit of VIEs within which Xiao De Hunan acquired Red Sunset Tourism on December 11, 2018. The Company performed the annual test on goodwill impairment for this reporting unit on December 31, 2018. See Note 9 for detailed disclosures about the impairment of goodwill and the related valuation technique(s) and inputs used in the fair value measurement for the Company’s goodwill.

For the year ended December 31, 2018, the Company recorded an impairment of goodwill in an amount of $177,954.

Noncontrolling Interest

Noncontrolling interest is accounted for in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheet and the consolidated net income/(loss) attributable to the parent and the noncontrolling interest identified and presented on the face of the consolidated statement of operations an comprehensive loss. ASC Topic 810-10-45 also requires that losses attributable to the parent and the noncontrolling interest in a subsidiary be attributed to those interests even if it results in a deficit noncontrolling interest balance.

Fair Values of Financial Instruments

ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all non-financial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.

Disclosure requirements for fair value measures. The three levels are defined as follows:

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

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

The Company considers the carrying amount of cash, other receivables and other short-term payables, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

Comprehensive Income (Loss)

Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. The Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments.

Revenue Recognition

We adopted FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, under the full retrospective approach applied to its contracts entered since its inception date in March 2017. Since the Company adopted ASC Topic 606 since its inception date, the adoption of ASC 606 did not have a material impact on the measurement nor on the recognition of contracts as if it would have adopted ASC Topic 605 prior to January 1, 2018. The early adoption did not result in an adjustment to our retained earnings.

The five-step model defined by ASC Topic 606 requires us to (1) identify our contracts with customers, (2) identify our performance obligations under those contracts, (3) determine the transaction prices of those contracts, (4) allocate the transaction prices to our performance obligations in those contracts and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

Service management revenue – Service management relates to a service management agreement between Xiao De Hunan and Red Sunset Apartment. Pursuant to the agreement, Xiao De Hunan provides advisory and administrative services to Red Sunset Apartment.

Leasing revenue – This portion of our revenue relates to contracts with residents for leasing services at Red Sunset Apartment that are generally short term in nature with approximately from three months through one year and fall under FASB ASC Topic 842, Leases, which are specifically accounted outside the scope of ASC Topic 606.

Lodging management revenue – We provide referral service of senior residents of Hengyang City Yueping Retirement Home (Red Sunset Apartment) and lodging management to Red Sunset Tourism Development Co. Ltd.

Community care revenue – Our PRC entities and VIEs provide senior community care services such as preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities. We charge the senior residents after we have provided such services. During 2018, we offered a prepayment options for those services. Beginning the first quarter of 2019, we entered into service agreements with municipal offices that we were permitted to provide community care services to the local senior community care centers. The agreements provide that we receive government subsidies to support our operational costs as we incur in those community care centers.

Group tour revenue-Through Red Sunset Tourism which we acquired on December 11, 2018, we generate group tour revenue through organizing and coordinating travel tours for our elderly participants. 

Operating revenue of the Company represents the selling price of services provided on invoice, net of a value-added tax (“VAT”).

Leases

On the inception date of a lease and upon any relevant amendments to such lease, we test the classification of such lease as either a direct financing lease or an operating lease. None of our leases have met any of the criteria to be classified as a direct financing lease under FASB ASC Topic 842, Leases, and, therefore, we have accounted for all of our leases as operating leases and recognized a right-of-use (ROU) in non-current assets and an operating lease liability in current and non-current liabilities on the consolidated balance sheet. ASC Topic 842 provides a practical expedient election that unless a practical expedient is available and elected, utilities reflect a nonlease component that both lessor and lessee must separate from the lease components and to which consideration in the contract must be allocated. We did not elect the practical expedient and accounted for utilities as a nonlease component.

Income Taxes

The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company applies ASC 740, Accounting for Income Taxes , to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction with majority of the tax provision effective after December 31, 2017.

Certain activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on DDLX when its subsidiaries, controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal Revenue Code beginning after December 31, 2017.

The Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations for the three-month period ended March 31, 2019 and the year ended December 31, 2018. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.

Earnings per share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the year.

Recent Accounting Pronouncement

Recently adopted accounting pronouncements

Revenue Recognition: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 provides two application methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method). The Company elected to apply the ASC Topic 606 by using full retrospective approach since its inception date in the current fiscal year.

Disclosure of Going Concern Uncertainties: In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. We adopted this amendment since our inception date in the current fiscal year. The adoption of ASU 2014-15 did not have a material impact on the Company’s financial statements.

Balance Sheet Classification of Deferred Taxes : In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent on the consolidated balance sheet. The Company adopted this guidance since its inception date in the current fiscal year. The Company also adopted this guidance to present the deferred tax assets and deferred tax liabilities with a netted off amount in all period presented

Leases : In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which provides guidance on lease amendments to the FASB Accounting Standard Codification. Topic 842 changes how the definition of a lease is applied and judgment may be required in applying the definition of a lease to certain arrangements. The Company elected to early adopt the standard effective its inception date in the current fiscal year concurrent with the adoption of Topic 606 related to revenue recognition, using the full retrospective approach. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. These amendments have the same effective date and transition requirements as the new leases standard, as such the Company adopted the new ASU.

Stock-based Compensation: In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Current GAAP provides that excess tax benefits are recognized in additional paid-in capital whereas tax deficiencies are recognized either as an offset to accumulated excess tax benefit, if any, or in the income statement. Excess tax benefits are not recognized until the deduction reduces tax payable. Excess tax benefits must be separate from other income tax cash flows and classified as a financing activity. Under this amendment, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they incur. Excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period and classified along with other income tax cash flows as an operating activity. The Company has made an accounting policy election to account for forfeitures when they occur. The Company adopted this amendments since its inception date in the current fiscal year. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

Statement of Cash Flows: In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes in restricted cash activity, which are currently recognized in other financing activities, on the Statements of Consolidated Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated Cash Flows. The Company has elected to adopt this update since its inception date in the current fiscal year. The adoption of this update does not have material impact to its consolidated financial statements.

Income Taxes : On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As of December 31, 2017, the Company has completed most of its accounting for the effects of the Tax Act based on the currently available information. The Company will monitor future guidance set forth by the Department of Treasury with regard to the Transition Tax provisions under the Act, and true up this estimate as appropriate within the one year measurement period. If revisions are needed as new information becomes available, the final determination of the deemed incremental income tax expense, deemed re-measurement of the deferred assets and liabilities or other applicable provisions of the Tax Act will be completed as additional information becomes available within the 12 months re-measurement period.

Business Combination: In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. The amendments in this ASU provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this ASU (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the Board has developed more stringent criteria for sets without outputs. Lastly, the amendments in this ASU narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. Public business entities should apply the amendments in this ASU to annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. Based on the Company’s evaluation, the Company does not expect the adoption of these amendments to have a material impact on its consolidated financial position and results of operations.

Compensation - Stock Compensation: In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , which is intended to align the accounting for share-based payment awards issued to employees and nonemployees, however, this amendment does not apply to instruments issued in a financing transaction nor to equity instruments granted to a customer under a contract in the scope of Topic 606. Currently, performance conditions are recognized once the performance conditions are met. Under this new amendment, equity-classified nonemployee share-based payments will be measured at the grant-date fair value and will be recognized based on the probable outcome of the performance conditions. This ASU is effective for fiscal periods beginning after December 15, 2018. The current stock-based compensation is granted to employees only when employees have subscribed the stock purchase plan and fulfilled their employment terms. Therefore, the impact of the adoption of this update on our consolidated financial statements is not significant.

Income Statement-Reporting Comprehensive Income: In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

The ASU requires financial statement preparers to disclose:

The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

Codification Improvements: In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements . This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. The majority of the amendments in ASU 2018-09 are effective for periods beginning after December 15, 2018. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

Fair Value Measurement: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) . This update changes the fair value measurement disclosure requirements of ASC 820. The ASU modifies the disclosure objective paragraphs of ASC 820 to eliminate (1) “at a minimum” from the phrase “an entity shall disclose at a minimum” and (2) other similar “open-ended” disclosure requirements to promote the appropriate exercise of discretion by entities. The ASU also added new disclosure requirements for level 3 – changes in unrealized gains or losses. Entities are required to disclose the amount of total gains or losses for the period recognized in OCI that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy (see ASC 820-10-50-2(d)). This disclosure requirement is incremental to the existing requirement to disclose such total unrealized gains or losses for the period recognized in earnings (or changes in net assets) under ASC 820-10-50-2(d). This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosure upon issuance of this ASU. The Company is evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

Acquisition of Tourism Business

On November 23, 2018, Xiao De Hunan entered into an equity transfer agreement with Xinhui Li, a Chinese citizen and the sole shareholder of Hengyang City Red Sunset Tourism Development Co., Ltd. (“Red Sunset Tourism”), pursuant to which Xiao De Hunan agreed to acquire 100% equity interest in Red Sunset Tourism from Mr. Li at the purchase price of RMB 510,000 (approximately $73,831, converted based on the spot rate of US dollar to Chinese Renminbi, $1 to RMB 6.9077, on December 10, 2018).

On December 10, 2018, Xiao De Hunan completed all the legitimate registration with related government authorities to update Red Sunset Tourism’s business license reflecting the change of its shareholder name to Xiao De Hunan. As a result, the equity transfer was consummated and completed.

The Company has included the results of operations of the acquired business in the consolidated statements of operations from the acquisition date. The assets acquired and liabilities assumed in Red Sunset Tourism have been recorded based on the fair value at the acquisition date. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired and is not deductible for tax purposes.

The following table summarizes the fair value of assets acquired and liabilities assumed:

Acquisition of the Operational Rights of the “Tangshan City 12349 Senior Care Service Center”

On November 21, 2018, our subsidiary, Xiao De Tangshan entered into an agreement with Tangshan City Civil Administration Bureau which approved the transfer of an operational right of the Tangshan City 12349 Senior Care Service Center (“12349 Center”) to Xiao De Tangshan. The operational right of 12349 Center was originally granted to Tangshan Qicheng Technology Co Ltd., which is a noncontrolling interest of Xiao De Tangshan on August 1, 2016. The ownership of 12349 Center still remains under Tangshan City Civil Administration Bureau. There was no cash consideration pursuant to the transfer and no goodwill was recognized.

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”.

Upon inception date in March 2017, we adopted ASC Topic 606, Revenue from Contracts with Customers, using the full retrospective method.

The five-step model defined by ASC Topic 606 requires us to (1) identify our contracts with customers, (2) identify our performance obligations under those contracts, (3) determine the transaction prices of those contracts, (4) allocate the transaction prices to our performance obligations in those contracts and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

Service management revenue – Service management relates to a service management agreement between Xiao De Hunan and Red Sunset Apartment. Pursuant to the agreement, Xiao De Hunan provides advisory and administrative services to Red Sunset Apartment.

Leasing revenue – This portion of our revenue relates to contracts with residents for leasing services at Red Sunset Apartment that are generally short term in nature with approximately from three months through one year and fall under FASB ASC Topic 842, Leases, which are specifically accounted outside the scope of ASC Topic 606.

Lodging management revenue – We provide referral service of senior residents of Red Sunset Apartment and lodging management to Red Sunset Tourism.

Community care revenue – Our PRC entities and VIEs provide senior community care services such as preventive health check, rehabilitation support, transportation, housekeeping, laundry, wellness program, interactive classes and recreational activities. We charge the senior residents after we have provided such services. During 2018, we offered a prepayment options for those services. Starting the first quarter of 2019, we entered into service agreements with municipal offices that we were permitted to provide community care services to the local senior community care centers. The agreements provide that we receive government subsidies to support our operational costs as we incur in those community care centers. For the three-month period ended March 31, 2019, we earned approximately $2,965 (RMB20,000) government subsidy for the community care services provided in Hubei province Wuhan City Hangyang District Senior Community Center. The agreement provides that the final 20% of the subsidy amount is contingent upon the evaluation of our services by the municipal office.

Group tour revenue-Through Red Sunset Tourism which we acquired on December 11, 2018, we generate group tour revenue through organizing and coordinating travel tours for our elderly participants.

Operating revenue of the Company represents the selling price of services provided on invoice, net of a value-added tax (“VAT”).

The following table presents our revenue disaggregated by revenue source and timing of recognition. Value-added tax is excluded from revenues:

Costs of revenue primarily include the following:

These costs of revenue have been included in the various streams of services provided: service management, leasing, lodging management, community care and group tour:

On November 6, 2017, Xiao De Shenzhen entered into contractual agreements with Xiao De Hunan and its subsidiaries and its shareholders. The significant terms of the contractual agreements were summarized in “Note 1-Organization and Description of Business” above. As a result of the contractual agreements, we classify Xiao De Hunan and its subsidiaries as a variable interest entity (VIE).

VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, exclusive power to direct operating and internal management activities that significantly impact economic performance, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Xiao De Shenzhen is deemed to have a controlling financial interest and be the primary beneficiary of Xiao De Hunan and its subsidiaries because it has all of the following characteristics:

Pursuant to the contractual agreements, Xiao De Hunan and its subsidiaries agree to pay service fees based on their actual monthly incomes from major business to Xiao De Shenzhen. Xiao De Shenzhen is authorized to, but not limited to, manage and control the daily operation and internal management structure, manage financial management, enter and execute external contracts, handle tax filings and payments, direct and supervise human resources including board of directors nomination, appointment of directors and officers, approve budgets and compensation plans, resolve capital structure, acquisitions and dissolutions. The contractual agreements were designed so that Xiao De Hunan and its subsidiaries operate for the benefit of Xiao De Shenzhen and ultimately the Company.

Accordingly, the accounts of Xiao De Hunan and its subsidiaries are consolidated in the accompanying financial statements as provided under ASC 810-10, Consolidation. Their financial positions and results of operations are also included in the Company’s financial statements.

The carrying amount of the VIE’s consolidated assets and liabilities as of March 31, 2019 and December 31, 2018 was as follows:

The VIEs’ liabilities consisted of the following for the years ended March 31, 2019 and December 31, 2018:

The operating results of the VIEs are as follows:

Prepayments and other current assets consisted of the following:

Deposits mainly included $110,485 refundable security deposit of our operating leases of our administrative offices and community care centers in PRC and $731,336 to Sing Ho Trading Company, incorporated in Hong Kong, by GS Hong Kong for exploring potential new business opportunities. GS Hong Kong is still in the progress of negotiating with Sing Ho Trading Company for business opportunities. This deposit amount is refundable to GS Hong Kong if a new business is not established.

Prepayments, net of current portion and other assets consisted of the following:

Property, plant and equipment consisted of the following:

The depreciation expense for three-month periods ended March 31, 2019 and 2018 was $51,288 and $2,485, respectively.

The Company’s goodwill, $177,954, was attributable to the acquisition of Red Sunset Tourism by our VIE, Xiao De Hunan as discussed in Note 3.

The change in the carrying value of goodwill is as follows:

In accordance with FASB ASC 350, “Intangibles – Goodwill and Other,” we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, each of our operation constitutes a reporting unit and we must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the reporting unit. We perform an annual impairment review as of December 31, 2018.

On December 31, 2018, we performed our annual goodwill impairment test and estimated the fair value of our tourism reporting unit based on the income approach (also known as the discounted cash flow (“DCF”) method, which utilizes the present value of cash flows to estimate fair value). The future cash flows for our tourism operation (which we acquired on December 10, 2018) were projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital). We took into account expected competitive tourism industry and market conditions, including expected local government subsidies for the elderly. Due to the uncertainty of the tourism development particularly in senior communities, we assumed growth rate estimates in our projections that were approximates to the estimated inflationary rate in the local area that we provide senior care and tourism services. The discount rates used in our DCF method were based on a weighted-average cost of capital (“WACC”) (borrowing rate for loans over 5 years provided by Bank of China) determined from relevant market comparisons (primarily the uncertainty of achieving projected operating cash flows). We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach. Under the income approach, we estimated a fair value based on comparable companies’ market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. Based on the aforementioned, we concluded that the estimated fair value, below the respective carrying value, determined under the income approach for our tourism reporting unit, as of December 31, 2018, was fairly conservative and reasonable. We concluded that the goodwill assigned to our tourism reporting unit, as of December 31, 2018, was impaired.

Intangible assets consisted of the following:

The amortization expense of the use of software acquired for the three-month periods ended March 31, 2019 and 2018 was $697 and $42, respectively.

The estimated amortization expense for each of the five succeeding years is as follows:

Accrued expenses and other payables as of March 31, 2019 and December 31, 2018 consisted of:

The following is a list of related parties to which the Company has transactions with:

Amounts due from related parties

Amounts due from related parties consisted of the following as of the periods indicated:

Amounts due to related parties

Amounts due to related parties consisted of the following as of the periods indicated:

Non-cash transactions-related parties

There was no non-cash transaction between related parties for the three-month periods ended March 31, 2019 and 2018.

We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgements and estimates are required in evaluating our uncertain tax positions and provision for income taxes.

Tax Cuts and Jobs Act Enacted in 2017

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) providing modification to subpart F provisions and new taxes on certain foreign earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions go into effect starting January 1, 2018.

The Global Intangible Low-taxed Income (GILTI) is a new provision introduced by the Tax Cuts and Jobs Act. U.S. shareholders, who are domestic corporations, of controlled foreign corporations (CFCs) are eligible for up to an 80% deemed paid foreign tax credit (FTC) and a 50% deduction of the current year inclusion with the full amount of the Section 78 gross-up subject to limitation. This new provision is effective for tax years of foreign corporations beginning after December 31, 2017. The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its foreign controlled corporations. The Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable amount related to GILTI as a current period expense when incurred. As of March 31, 2019, the Company does not have any aggregated positive tested income; and as such, does not have additional provision amount recorded for GILTI tax

Our effective rate for the three-month periods ended March 31, 2019 and 2018 was 0% and 0%, respectively. Our effective tax rate for the three-month period ended March 31, 2019 was lower than the U.S. federal statutory rate, primarily due to the fact that our subsidiaries and VIEs incurred book and tax losses. Our effective tax rate for the three-month period ended March 31, 2018 was lower than the U.S. federal statutory rate, primarily due to the fact that our subsidiaries and VIEs incurred book and tax losses.

The Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations for the three-month period ended March 31, 2019 and the year ended December 31, 2018. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months

Basic earnings/(loss) per share is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Diluted loss per share will not be computed because of the anti-dilutive effect.

Purchase Commitments

The Company entered into service commitments, which are cancellable without significant penalties, with multiple service providers which will render the following services: legal and professional services approximately $129,183, telecommunication services approximately $1,129, advertising services approximately $60,042 and marketing services approximately $203,683 in 2019 and 2020.

Operating Leases

The Company entered into various operating leases for its office and community care centers in Hengyang city, Hunan Province, Beijing and Tangshan City, Hebei Province, Wuhan City, Hubei Province as well as an office in Shenzhen City, Guangdong Province, PRC since 2017.

Related party leases

On May 1, 2017, a lease arrangement for our office in Hengyang city, Hunan Province was entered into between Xiao De Hunan and Red Sunset Apartment which is formed in the Hengyang city, Hunan Province, PRC and owned by Mr. Xinhui Li who is also the consultant of Xiao De Hunan. The lease with the related party is classified in accordance with the lease classification criteria applicable to all other leases on the basis of the legally enforceable terms and conditions. Xiao De Hunan leased 6 units from Red Sunset Apartment for our administrative office. Our annual rent payments for this lease RMB12,000 (approximately US$1,779). The lease term is five years and will expire on April 30, 2022.

ASC Topic 842 provides a practical expedient election that unless a practical expedient is available and elected, utilities reflect a nonlease component that both lessor and lessee must separate from the lease components and to which consideration in the contract must be allocated. We did not elect the practical expedient; accordingly, we separately accounted for utilities as a nonlease component.

The lease expense for this lease arrangement for the three-month periods ended March 31, 2019 and 2018 was RMB3,000 (approximately US$445) and RMB3,000 (approximately US$472), respectively. The right-of-use balance of this lease as of March 31, 2019 and December 31, 2018 was RMB34,276 (approximately US$5,107) and RMB36,835 (approximately US$5,362), respectively. The lease liability as of March 31, 2019 and December 31, 2018 was RMB34,276 (approximately US$5,107) and RMB 36,835 (approximately US$5,362), respectively.

The Company leases real estate under non-cancellable operating leases.

The components of lease expense were as follows:

Other information related to leases was as follows:

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

On April 23, 2019, Xiao De Hubei entered into an agreement with Wuhan City Han Xing Street Municipal Office that Xiao De Hubei was permitted to provide community care services to Han Xing Street Elderly Community Care Service Center from April 24, 2019 through April 23, 2020. Xiao De Hubei will be granted government subsidy in an annual amount of approximately $28,170 (RMB190,000) to support its operational cost incurred for the Han Xing Street Elderly Community Care Service Center. The municipal office will offer 60% of the subsidy amount, approximately $16,900, (RMB114,000), to Xiao De Hubei in 30 days after the agreement was signed. The remaining subsidy amount, RMB76,000, is subject to the evaluation by the municipal office after one year. Xiao De Hubei will be entitled to the full remaining subsidy amount if it earns 90 points (out of 100 points) in the evaluation. Approximately $148 (RMB1,000) will be reduced for each point discounted.

On April 23, 2019, Xiao De Hubei entered into agreement with Hubei Hubei Yangtze Long Shang Media Group Co. Ltd. for producing the content of the promotional and marketing television series to be broadcasted on Hubei Long Shang Television Channel Network from April 23, 2019 through April 22, 2020. The broadcasting promotes the senior community care services to be provided by Xiao De Hubei. The estimated fee for the production is approximately $74,130 (RMB500,000) which will be settled in four installments.

On May 5, 2019, Xiao De Shenzhen entered into an agreement with Tangshan Yicheng Construction and Design Co., Limited for the leasehold improvement project of Luanjie Hotel in Tangshan City. The project is expected to start in May 2019 and completed in 30 days. The total estimate budget of the project is approximately $32,370 (RMB218,345). The agreement is cancellable with early termination fee.

Other than the aforementioned, the Company evaluated and concluded that no other significant subsequent events have occurred that would require recognition or disclosure in the interim condensed consolidated financial statements.

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth; any projections of earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in this annual report, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Overview