NOTE 3 – DISCONTINUED OPERATIONS

Pursuant to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold 100% of the stock of Fulland Wind to a third party for a sales price of RMB48 million (approximately $6.9 million). The Company’s forging and related components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment of RMB14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license, seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) is due 25 working days after the expiration of such period. The Company expects the final payment to be received within one year. As a result of the sale, the forged rolled rings and related components business is treated as a discontinued operation.

Additionally, in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant decline in revenues and the loss of its major customer. Accordingly, the petroleum and chemical equipment segment business is treated as a discontinued operation.

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the forging and related components segment and petroleum and chemical equipment segment are considered discontinued operations because: (a) the operations and cash flows of the forging and related components segment and petroleum and chemical equipment segment were eliminated from the Company’s operations; and (b) the Company has no interest in the divested operations.

Contemporaneously with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industries entered into a lease with the buyer for a factory building owned by Heavy Industries at an annual rental of RMB 680,566 (approximately $98,000). The lease has a ten-year term, commencing January 1, 2017. The first year’s rent is payable in two installments, the first installment, equals to 30% of the annual rental, being due on signing the lease, which has been paid as of June 30, 2017.

The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016 are set forth below.

	June 30, 2017		December 31, 2016
Assets:
Current assets:
Accounts receivable, net	$	383,118	$	78,407
Inventories, net of reserve for obsolete inventories		31,768		31,019
Advances to suppliers		141,049		200,275
Equipment held for sale		-		1,147,035
Prepaid expenses and other		201,211		302,250
Total current assets		757,146		1,758,986
Total assets	$	757,146	$	1,758,986
Liabilities:
Current liabilities:
Accounts payable	$	410,067	$	458,433
Accrued expenses and other liabilities		1.214		45,280
Advances from customers		-		54,948
Total current liabilities		411,281		558,661
Total liabilities	$	411,281	$	558,661

The summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements of operations is as follows:

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016

Revenues	$	-	$	143,475		$	-	$	536,266
Cost of revenues		-		528,310			-		1,529,442
Gross loss		-		(384,835	)		-		(993,176	)
Operating expenses		-		345,682			-		458,367
Loss from operations		-		(730,517	)		-		(1,451,543	)

Other expense, net		-		(18,845	)		-		(38,397	)
Loss from discontinued operations before income taxes		-		(749,362	)		-		(1,489,940	)
Income taxes		-		-			-		-
Loss from discontinued operations, net of income taxes	$	-	$	(749,362	)	$	-	$	(1,489,940	)