NOTE 3 – DISCONTINUED OPERATIONS

Pursuant to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold the stock of Fulland Wind to a third party for a sales price of RMB 48 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) was due 25 working days after the expiration of such period. Pursuant to extension agreement dated December 31, 2017, the Company agreed the above third party buyer could paid off the final payment of RMB 19,200,000 (approximately $2.7 million) by December 31, 2018. 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 customers. 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.

As of December 31, 2016, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967) which was guaranteed by Dyeing and the Company’s chief executive officer and his wife. In May 2017, the loan was repaid.

The sale of Fulland Wind resulted in a loss on disposal of discontinued operations of $6,459,407 in 2016. This loss plus the results of operations from Fulland Wind and petroleum and chemical equipment segment for the years ended December 31, 2017 and 2016 have been classified to the loss from discontinued operations line on the accompanying consolidated statements of operations and comprehensive loss presented herein. In addition, the historical consolidated balance sheet and consolidated statement of cash flow amounts have also been reclassified to reflect the forging and related components segment and petroleum and chemical equipment segment businesses as discontinued operations.

Contemporaneously with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industry entered into a lease with Wang Jiahong for a factory building owned by Heavy Industry at an annual rental of RMB 680,566 (approximately $98,000). The lease had a ten-year term, commencing January 1, 2017. During 2017, the Company received RMB 324,078 (approximately $49,800) in lease payments from the tenant. During the fourth quarter of 2017, Wang Jiahong orally terminated the above lease agreement and the Company is no longer received rental income.

The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2017 and 2016 is set forth below.

	December 31, 2017		December 31, 2016
Assets:
Current assets:
Accounts receivable, net	$	33,646	$	78,407
Inventories, net of reserve for obsolete inventories		-		31,019
Advances to suppliers		144,583		200,275
Equipment held for sale		-		1,147,035
Prepaid expenses and other		229,281		302,250
Total current assets		407,510		1,758,986
Total assets	$	407,510	$	1,758,986
Liabilities:
Current liabilities:
Accounts payable	$	387,887	$	458,433
Accrued expenses and other liabilities		1,746		45,280
Accrues from customers		-		54,948
Total current liabilities		389,633		558,661
Total liabilities	$	389,633	$	558,661

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

	Years Ended December 31,
	2017			2016
Revenues	$	-		$	595,855
Cost of revenues		31,872			1,562,774
Gross (loss) profit		(31,872	)		(966,919	)
Operating expenses:
Impairment losses		-			1,660,305
Other operating expenses		66,085			1,124,304
Total operating expenses		66,085			2,784,609
Loss from operations		(97,957	)		(3,751,528	)
Other expense, net		-			(74,997	)
Loss from discontinued operations before income taxes		(97,957	)		(3,826,525	)
Income taxes		-			-
Loss from discontinued operations, net of income taxes		(97,957	)		(3,826,525	)
Loss on sale / disposal of discontinued operations, net of income taxes		-			(6,459,407	)
Loss from discontinued operations, net of income taxes	$	(97,957	)	$	(10,285,932	)