Note B. SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2016

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain amounts reported in the financial statements and disclosures. Accordingly, actual results could differ from those estimates.

Basis of accounting

The financial statements reflect the assets, revenues and expenditures of the Company on the accrued basis of accounting.

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.

Foreign Currency Translation

The Company has determined the United States dollars to be its functional currency for Flurida Group USA and European Euro to be its functional currency in European business. Assets and liabilities were translated to U.S. dollars at monthly average exchange rate. Statement of operations amounts were translated to U.S. dollars using the first date of each month during the year. Gains and losses resulting from translating foreign currency financial statements are accumulated in other comprehensive income (loss), a separate component of shareholders' equity.

Property, Plant, and Equipment Depreciation

Property, plant, and equipment are stated at cost. Depreciation is being provided principally by straight line methods over the estimated useful lives of the assets. Expenditures for maintenance and repairs, which do not improve or extend the expected useful lives of the assets, are expensed to operations while major repairs are capitalized.

The equipment were recorded as fixed asset to depreciate over 7 years and the electronic data processing equipment and furniture were recorded as fixed asset to depreciate over 5 years with straight line method.

For the six months period ended June 30, 2016, the Company purchased $ 40,019 Furniture and equipment, and $ 444 Computer and data process equipment.

As of June 30, 2016, the company has furniture, Computer and data processing equipment, and equipment at a purchase cost of $ 235,583, and $ 140,623 of accumulated depreciation expense was recorded.

Concentration of credit risk

The Company maintains its cash in bank accounts which, at times, may exceed the federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

Basics and Diluted Net Loss Per Common Share

Basic earnings per share is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. Diluted earnings per share assume that any dilutive convertible securities outstanding were converted, with related preferred stock dividend requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options for which market price exceeds the exercise price, less shares which could have been purchased by us with the related proceeds. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

The Company only issued one type of shares, i.e., common shares only. There are no other types securities were issued. Accordingly, the diluted and basics net loss per common share are the same.

Security Deposit

The Company started having an office in California State from September 2010, which is located at 24412 S Main ST, STE 105, Carson CA 90745. Flurida Group USA Inc made $ 6,264 security deposit for leasing the property.

Account Receivable

As of June 30, 2016, the company had a total of $ 3,727,351 account receivable from it major customers, which included $ 162,928 of ChuZhou Fuda, $ 3,017,055 of Electrolux North America, $ 377,713 Electrolux Europe and its other subsidiaries, and $ 169,655 other America corporations.

Loans from Bank

The Company entered into a promissory note secured renewal business loan agreement in the principal amount of $ 6,000,000 with East West Bank located in El Monte, CA. And the maturity date of the Note is from July 10, 2014 to July 31, 2015. On September 25, 2015, the loan was extended from September, 2015 to September 30, 2016. The principal amount of the Note is increased to $8,000,000. The maximum aggregate amount that may be outstanding under all sub-limits (items 1 through 4) shall be the lesser of $ 8,000,000 or 80% of eligible accounts receivable and 50% of inventory. The loan is secured by all company inventories, account receivable, and other assets of the Company.

Effective August 25, 2015, the interest rate on the Notes is amended and restated as "Variable Interest Rate". Interest in this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.

The Company may only draw up to:

	·	$ 3,000,000 for issuance of Sight Letters of Credit (LC)

	·	$ 3,000,000 for issuance of Standby Letters of Credit (SBLC)

	·	$ 6,000,000 for Clean Advance of up to maturity of the line

	·	$ 4,000,000 for FX Pre-Settlement Risk allowing customer to purchase forward contracts to hedge against FX current risk.

The note is allowed to issue letter of credit up to 120 days past loan maturity.

Interest accrued on amounts advanced shall be due and payable on the 25^th day of each month commending with the first month after the date of advance. The outstanding principal balance of this note together with all accrued and unpaid interest and all other amount due hereunder, shall be due and payable on June 30, 2016.

Account Payable

The Company incurred accounts payable including professional fees, purchases, payroll and payroll tax liability, and other service fee payables.

As of June 30, 2016, the company had a total of $ 6,557,731 account payable, which was included $ 4,655,803 for Chu Zhou Fu Da, $ 1,666,264 for Fulu Finance Management Limited, $ 136,695 for US suppliers, $ 71,603 for salary and payroll tax payable, and $ 27,366 for all other account payable.

Income Tax Payable

For the fiscal quarter ended June 30, 2016 and 2015, the Company incurred income tax expense of $ 275,577 and $ 280,150 respectively. As of June 30, 2016, the income taxes payable of the Company was $ 455,997.

Inventory

The inventory was valued at cost of purchase from suppliers.

On July, 2012, Flurida Group, Inc signed deposit inventory agreements with Electrolux Italia S.p.A., which was effective in January 2013. under the term of the agreements, the supplier, Flurida Group, Inc, agreed to produce, to maintain the transit the customized products per Electrolux's specification. Electrolux maintain a storage location within Electrolux's Italia site for consigned inventory. And Flurida Group, Inc is facilitated to use of Electrolux's storage site located at Treviso, Italy to deposit the products to selling Electrolux; Electrolux will provide labor resources for receipt, stock up, and pulls of consigned products. Flurida Group, Inc., retains title and ownership of products while in transit to Electrolux's site and while stored in the consigned inventory location. Title and ownership will pass to Electrolux when they withdraw products from the consigned inventory location. Upon withdrawal, Electrolux will pay for it under the 60 days payment term stated in the Frame Agreement. Products residing in the consigned inventory for 30 days with no activity due to non communicated demand change will no longer qualify for consignment, and will be considered as withdrawn product after 30 days. Accordingly, title passage and invoicing shall occur on such product per the term.

On June 25, 2013, Flurida Group, Inc signed consignment inventory agreements with Electrolux Hungary S.p.A., which was effective in September 2013. Under the term of the agreements, the supplier, Flurida Group, Inc, agreed to produce, to maintain the transit the customized products per Electrolux's specification. Electrolux maintain a storage location within Electrolux's Hungary site for consigned inventory. Electrolux is responsible, at its own cost, for the suitable storage and administration of the consignment stock. Flurida Group, Inc., retains title and ownership of products while in transit to Electrolux's site and while stored in the consigned inventory location. Title and ownership will pass to Electrolux when they withdraw products from the consigned inventory location.

Products not drawn from the consignment stock within 30 days of delivery shall be deemed to be withdrawn on the 31^st day after delivery to the warehouse. Accordingly, title passage and invoicing shall occur on such product per the term.

On July, 2013, Flurida Group, Inc. entered into a managed inventory program agreement with Electrolux Australia, which was effective in September 2013.

Under the term of the agreements, the supplier, Flurida Group, Inc, agreed to produce, to maintain and transit the customized products per Electrolux's specification. Electrolux has appointed a third party to manage its warehousing ("Distribution Centre") who will maintain and operate the inventories. Flurida Group, Inc., retains title and ownership of products while in transit and while stored in Distribution Centre. Title and ownership will pass to Electrolux when they withdraw products from the Distribution Centre. Upon withdrawal, Electrolux will pay for it under the 90 days payment term stated in the Purchase Agreement.

Stated January 2016, the Company uses Derby Industries LLC to storing the consignment inventory for General Electric Company (GE). Derby Industries LLC, doing business as Derby Supply Chain Solutions, located in Building 6 at General Electric Company Appliance Park in KY, USA. Flurida Group is paid for the warehousing service of the storage of the products. Derby charges the Company monthly for the use of the square footage; meanwhile, provide inbound receipt of goods with proper documentation, on pallets, in containers or boxes; receipt and execution of daily outbound orders to GE; daily transaction and inventory status information available on Derby industries, LLC website.

As of June 30, 2016, there were 39,744 pieces freezer motor in Electrolux St. Cloud warehouse. And there were 4,032 pieces icemaker stored in the warehouse, Derby Industries LLC, as of consignment inventory for General Electric Company. And 2,520 pieces icemakers were shipped out at FOB shipping point Nanjing, China to Derby Industries LLC. The Company has 26,880 pieces motors and 2,088 pieces Dac boxes been shipped out at FOB shipping point Nanjing, China to Electrolux Hungary warehouse. Those purchases haven't considered as a sale or a consignment inventory at the period ended June 30, 2016. However, it's the in transit inventories of Flurida Group, Inc.

Moreover, Flurida Appliance had total of 290 pieces ice water dispenser in Carson center and 98 pieces ice water dispenser El Paso warehouse.

As a result, as of June 30, 2016, the Company had total inventory at a value $ 428,502.

Revenues Recognition

Revenues include sales of appliance parts in North America, Australia, South America, Europe, and Asia.

Revenues are recognized from product sales upon shipment, which is the point in time when risk of loss is transferred to the customer, net of estimated returns and allowances.

For the fiscal quarter ended June 30, 2016, the Company had total net revenue of $ 9,705,705.

For the period April 1 to June 30, 2016, the Company sold icemakers, high efficiency motor, module assembly, wire harness, motors, thermostats, ice and water dispenser, vegetable dryer, and other related refrigerator appliance to North America, which included Electrolux North America, General Electric Company, Exact Replacement Parts, HKF Industries Inc, and others America corporation, for total sales of $ 8,924,672. The icemakers, assembly, motors, wire harness, vegetable dryer, ice and water dispenser, and related parts were manufactured and supplied by ChuZhou FuDa Mechanical and Electronics Co., Ltd; all the icemakers, motors, assembly, wire harness, vegetable dryer, ice and water dispenser, and related parts were shipped out at FOB shipping point Nanjing, China.

For the fiscal quarter ended June 30, 2016, the Company sold components and appliance parts to Electrolux –Australia for $ 8,504. The components were manufactured and supplied by Chu Zhou Fu Da Mechanical and Electronics; all the icemakers and components were shipped out at FOB shipping point Nanjing, China.

The Company sold Motors and other parts to Electrolux Do Brasil for $ 185,835. The motors were manufactured and supplied by ChuZhou FuDa Mechanical and Electronics Co., Ltd, and were shipped out at FOB shipping point Nanjing, China.

For the period April 1 to June 30, 2016, the Company sold motors, DAC Boxes, Deflector, and related refrigerator appliance to Europe, which included Electrolux Hungry, Electrolux Sweden, and Gotene Plast AB, for total sales of $118,270. The DAC Boxes, Deflector, Motors, and other related parts were manufactured and supplied by Chu Zhou Fuda; all the DAC Boxes magnets, and motors were shipped out at FOB shipping point Nanjing, China.

The Company also sold icemakers and related parts to Asia for $ 4,991. The icemakers and parts were manufactured and supplied by Chu Zhou Fuda; all the icemakers were shipped out at FOB shipping point Nanjing, China.

For the period of April 1 to June 30, 2016, the Company sold thermostats and other related key parts for icemakers and motors, and sold dampers to ChuZhouFuDa. Flurida Group purchased some of the parts from Wako Electronics, Inc., an US Company located at Louisville, KY 40299. Flurida Group also purchased dampers from ITW Motion, an US company located in Illinois, and then sold to ChuZhouFuDa. Flurida Group, Inc. addsaveraged 5% - 10% margin based on the cost of purchase, then sold to them, so, $ 463,433 were sold and invoiced to ChuZhouFuDa for the fiscal quarter ended June 30, 2016.

In summary, for the period of April 1 to June 30, 2016, the Company incurred the total gross sales of $ 9,075,705. And the Company had sales return and allowance and sales discount of $ 0.00, so, a total of $ 9,075,705 net sales were recorded. The cost of goods sold is discussed in details in Note C, Related Party Transactions.

Operating Expense

Operating Expenses includes research and development expense, all selling, general and administrative expenses, and depreciation expenses for Flurida Group Inc. For the fiscal quarter ended June 30, 2016 and 2015, the Company had total operating expenses of $ 547,374 and $ 646,315 respectively, which include the research and development expense of $ 16,963 and $ 81,251, and depreciation expenses of $ 2,550 and $ 8,120, and selling, general and administrative expense of $ 527,861 and $ 556,944. Detail was showed on Exhibit A.

Professional Fee

Professional fees are consist of accounting and auditing fee, legal fee, commission and consulting expenses, SEC filing fee, and other professional expenses. The total professional fees were $ 98,645 and $ 73,623 for the fiscal quarter ended June 30, 2016 and 2015 respectively.

Research and Development Expense

The primary function of the research and development center at Flurida Group Inc. is to discover and create new knowledge about scientific and technological topics in order to develop valuable products, processes and services for our customers. The company has continually developed the new product such as electronic controlled icemaker, main wire harnesses for controlling the functions of refrigerator products, and D/C motor technology.

The Company had total research and development expense of $ 16,963 and $ 81,251 for fiscal quarter ended June 30, 2016 and 2015 respectively.

Payroll Expense

Started from June 2014, Flurida Group stayed the salaries amount of officers Jianfeng Ding, Yaru Huang, and Ying Zhong for $350,000, $86,520, $ 86,520.

The Social Security tax and Medicare tax were paid by both employer and employees in USA; employees also withheld portion of Federal and State tax calculate by each individual's status. All of the tax was submitted to Internal Revenue Service and local government at a semiweekly basis.

The total payroll expenses were $ 241,390 and $ 185,777 for the fiscal quarter ended June 30, 2016 and 2015 respectively.

Comprehensive Income

The company's comprehensive income is comprised of net income, unrealized gains and losses on marketable securities classified foreign currency translation adjustments, and unrealized gains and losses on derivative financial instruments related to foreign currency hedging. Due to the significant rate changed in Euro currency hedging, the Company incurred a foreign currency translation income of $ 160,048 for the fiscal quarter ended June 30, 2016.

Income Tax

Income taxes are provided for tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the bases of assets and liabilities for financial statement and income tax purposes. The differences in asset and liability bases relate primarily to organization and start-up costs (use of different methods and periods to calculate deduction). Deferred taxes are also recognized for operating losses and tax credits that are available to offset future income taxes. The deferred tax assets and/or liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The components of the deferred tax asset and liability are classified as current and concurrent based on their characteristics. Valuation allowances are provided for deferred tax assets based on management's projection of the sufficiency of future taxable income to realize the assets.

Recent Accounting Pronouncements

Business Combinations — The new guidance on business combinations retains the underlying concepts of the previously issued standard in that the acquirer of a business is required to account for the business combination at fair value. As with previous guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair values are recorded as goodwill.

The new pronouncement results in some changes to the method of applying the acquisition method of accounting for business combinations in a number of significant aspects. Under the new guidance, all acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset. Prior to the adoption, in-process research and development costs were immediately expensed and acquisition costs were capitalized. Further, the new guidance generally requires restructuring charges associated with a business combination to be expensed subsequent to the acquisition date.

Fair Value Measurements and Disclosures — The pronouncements define fair value, establish guidelines for measuring fair value, and expand disclosures regarding fair value measurements.

Derivative Instruments and Hedging Activities — The pronouncement requires additional disclosures about the objectives of derivative instruments and hedging activities, the method of accounting for such instruments, and a tabular disclosure of the effects of such instruments and related hedged items on Financial Statements. The pronouncement does not change the accounting treatment for derivative instruments.

Variable Interest Entities and Transfers of Financial Assets and Extinguishments of Liabilities — The pronouncement on transfers of financial assets and extinguishments of liabilities removes the concept of a qualifying special-purpose entity and removes the exception from applying variable interest entity accounting to qualifying special-purpose entities. The new guidance on variable interest entities requires an entity to perform an ongoing analysis to determine whether the entity's variable interest or interests give it a controlling financial interest in a variable interest entity. The pronouncements are effective for fiscal years beginning after November 15, 2009.

Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.

FLURIDA GROUP INC 10-Q