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.

The results of operations from Fulland Wind and petroleum and chemical equipment segment for the three and nine months ended September 30, 2018 and 2017 have been classified to the loss from discontinued operations line on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss presented herein.

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 RMB680,566 (approximately $98,000). The lease had a ten-year term, commencing January 1, 2017. During 2017, the Company received RMB324,078 (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 September 30, 2018 and December 31, 2017, and for the three and nine months ended September 30, 2018 and 2017 is set forth below.

	September 30, 2018		December 31, 2017
Assets:
Current assets:
Accounts receivable, net	$	12,785	$	33,646
Advances to suppliers		-		144,583
Prepaid expenses and other		198,937		229,281
Total current assets		211,722		407,510
Total assets	$	211,722	$	407,510
Liabilities:
Current liabilities:
Accounts payable	$	242,542	$	387,887
Accrued expenses and other liabilities		-		1,746
Total current liabilities		242,542		389,633
Total liabilities	$	242,542	$	389,633

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

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018		2017
Revenues	$	-		$	-		$	-	$	-
Cost of revenues					31,652					31,652
Gross loss					(31,652	)				(31,652	)
Operating (expenses) income		(385	)		(39,687	)		16,486		(39,687	)
(Loss) income from operations		(385	)		(71,339	)		16,486		(71,339	)
Other income, net		-			-			-		-
(Loss) gain from discontinued operations, net of income taxes	$	(385	)	$	(71,339	)	$	16,486	$	(71,339	)