Item
1.
|
Financial
Statements
|
IMAGE
CHAIN GROUP LIMITED, INC.
Unaudited
Consolidated Balance Sheets
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,525
|
|
|
$
|
64,856
|
|
Accounts receivable, net
|
|
|
26,728
|
|
|
|
89,689
|
|
Other receivables and other current assets
|
|
|
-
|
|
|
|
24,629
|
|
Inventories
|
|
|
26,734
|
|
|
|
78,357
|
|
Advances and prepayment to suppliers
|
|
|
65,377
|
|
|
|
10,523
|
|
Prepaid taxes and taxes recoverable
|
|
|
94,614
|
|
|
|
99,863
|
|
Total Current assets
|
|
|
229,978
|
|
|
|
367,917
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
10,490,752
|
|
|
|
11,107,392
|
|
Construction in progress and prepayment for equipment
|
|
|
477,942
|
|
|
|
504,459
|
|
Intangible assets, net
|
|
|
457,604
|
|
|
|
524,547
|
|
Other assets
|
|
|
134,566
|
|
|
|
142,032
|
|
Total Assets
|
|
$
|
11,790,842
|
|
|
$
|
12,646,347
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
$
|
2,164,180
|
|
|
$
|
2,304,222
|
|
Long-term bank loans – current portion
|
|
|
436,620
|
|
|
|
460,844
|
|
Accounts payable
|
|
|
1,021,896
|
|
|
|
837,159
|
|
Accrued liabilities and other payables
|
|
|
1,596,314
|
|
|
|
1,409,572
|
|
Customers advances and deposits
|
|
|
55,829
|
|
|
|
58,926
|
|
Due to related parties
|
|
|
4,923,946
|
|
|
|
4,998,751
|
|
Total Current Liabilities
|
|
|
10,198,785
|
|
|
|
10,069,474
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
|
|
1,678,852
|
|
|
|
1,771,997
|
|
Total Liabilities
|
|
|
11,877,637
|
|
|
|
11,841,471
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value, 50,000 shares authorized, issued and
outstanding
|
|
|
50
|
|
|
|
50
|
|
Common stock, $0.001 par value, 2,000,000,000 shares authorized, 507,270,882 issued and outstanding
|
|
|
507,271
|
|
|
|
507,271
|
|
Additional paid in capital
|
|
|
5,333,834
|
|
|
|
5,333,834
|
|
Accumulated other comprehensive loss
|
|
|
(351,469
|
)
|
|
|
(390,246
|
)
|
Accumulated deficit
|
|
|
(5,576,481
|
)
|
|
|
(4,646,033
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
|
(86,795
|
)
|
|
|
804,876
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
11,790,842
|
|
|
$
|
12,646,347
|
|
See
accompanying notes to Unaudited Consolidated Financial Statements
IMAGE
CHAIN GROUP LIMITED, INC.
Unaudited
Consolidated Statements of Operations and Comprehensive Loss
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
-
|
|
|
$
|
40,981
|
|
|
$
|
253,859
|
|
|
$
|
1,209,107
|
|
Cost of revenues
|
|
|
-
|
|
|
|
45,991
|
|
|
|
438,160
|
|
|
|
1,206,693
|
|
Gross Loss
|
|
|
-
|
|
|
|
(5,010
|
)
|
|
|
(184,301
|
)
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
46,560
|
|
|
|
18,473
|
|
General and administrative expenses
|
|
|
243,664
|
|
|
|
67,962
|
|
|
|
478,587
|
|
|
|
286,819
|
|
Total Operating Expenses
|
|
|
243,664
|
|
|
|
67,962
|
|
|
|
525,147
|
|
|
|
305,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(243,664
|
)
|
|
|
(72,972
|
)
|
|
|
(709,448
|
)
|
|
|
(302,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government subsidy
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
|
|
6,098
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
20,776
|
|
|
|
-
|
|
Interest expense
|
|
|
(89,749
|
)
|
|
|
(56,129
|
)
|
|
|
(241,190
|
)
|
|
|
(182,240
|
)
|
Other expense
|
|
|
-
|
|
|
|
(29,387
|
)
|
|
|
(52
|
)
|
|
|
(29,387
|
)
|
Total Other Expense
|
|
|
(89,749
|
)
|
|
|
(85,455
|
)
|
|
|
(220,466
|
)
|
|
|
(205,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(333,413
|
)
|
|
|
(158,427
|
)
|
|
|
(929,915
|
)
|
|
|
(508,367
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
534
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(333,413
|
)
|
|
$
|
(158,427
|
)
|
|
$
|
(930,448
|
)
|
|
$
|
(508,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
(29,678
|
)
|
|
|
69,909
|
|
|
|
38,777
|
|
|
|
159,889
|
|
Total Comprehensive Loss
|
|
$
|
(363,091
|
)
|
|
$
|
(88,518
|
)
|
|
$
|
(891,671
|
)
|
|
$
|
(348,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Basic and Diluted Weighted Average Common Shares Outstanding
|
|
$
|
507,270,882
|
|
|
$
|
507,270,882
|
|
|
$
|
507,270,882
|
|
|
$
|
507,270,882
|
|
See
accompanying notes to Unaudited Consolidated Financial Statements
IMAGE
CHAIN GROUP LIMITED, INC.
Unaudited
Consolidated Statements of Cash Flows
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(930,448
|
)
|
|
$
|
(508,367
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
41,574
|
|
|
|
5,305
|
|
Depreciation of fixed assets
|
|
|
177,416
|
|
|
|
491,480
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
61,506
|
|
|
|
(1,251,991
|
)
|
Other receivables
|
|
|
24,641
|
|
|
|
(400,601
|
)
|
Inventories
|
|
|
50,162
|
|
|
|
(183,076
|
)
|
Advances and prepayments to suppliers
|
|
|
(58,508
|
)
|
|
|
(464,464
|
)
|
Prepaid expenses
|
|
|
-
|
|
|
|
444
|
|
Prepaid taxes and taxes recoverable
|
|
|
-
|
|
|
|
(4,289
|
)
|
Other assets
|
|
|
-
|
|
|
|
(4,128
|
)
|
Accounts payables
|
|
|
241,157
|
|
|
|
174,884
|
|
Accrued liabilities and other payables
|
|
|
275,801
|
|
|
|
741,393
|
|
Customers advances and deposits
|
|
|
-
|
|
|
|
13,823
|
|
Tax payable
|
|
|
-
|
|
|
|
42,904
|
|
Net cash used in operating activities
|
|
|
(116,699
|
)
|
|
|
(1,346,683
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of plant and equipment
|
|
|
(149,139
|
)
|
|
|
(475,906
|
)
|
Payments for building construction
|
|
|
-
|
|
|
|
(72,589
|
)
|
Addition of intangible assets
|
|
|
-
|
|
|
|
(24,274
|
)
|
Net cash used in investing activities
|
|
|
(149,139
|
)
|
|
|
(572,769
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Repayment of bank borrowings
|
|
|
(19,979
|
)
|
|
|
-
|
|
Borrowing of bank loan
|
|
|
-
|
|
|
|
1,216,980
|
|
Proceeds from related parties
|
|
|
231,230
|
|
|
|
702,440
|
|
Net cash provided by financing activities
|
|
|
211,251
|
|
|
|
1,919,420
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash and cash equivalents
|
|
|
6,256
|
|
|
|
159,889
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase of cash and cash equivalents
|
|
|
(48,331
|
)
|
|
|
159,857
|
|
Cash and cash equivalents–beginning of period
|
|
|
64,856
|
|
|
|
1,667
|
|
Cash and cash equivalents–end of period
|
|
$
|
16,525
|
|
|
$
|
161,524
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
241,190
|
|
|
$
|
182,200
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to Unaudited Consolidated Financial Statements
IMAGE
CHAIN GROUP LIMITED, INC.
Notes
to Unaudited Consolidated Financial Statements
1.
THE COMPANY AND PRINCIPAL BUSINESS ACTIVITIES
Business
Image
Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) (“ICGL” or the “Company”)
was incorporated under the laws of Nevada on December 18, 2013. From inception through the date of the Share Exchange as defined
below, the Company was an emerging forward-thinking full-service television pre-production company dedicated to the creation of
original concepts and programming with a bold and innovative edge in the reality television space for sale, option and licensure
to independent producers, cable television networks, syndication companies, and other entities. On June 11, 2015, the Company
amended its Articles of Incorporation with the State of Nevada in order to change its name to Image Chain Group Limited, Inc.
and to increase the authorized shares of common stock from 70,000,000 to 400,000,000 (the “Amendments”). The name
change was undertaken in order to more closely align with the operations of the Company’s wholly-owned subsidiary, Fortune
Delight Holdings Group Ltd (“FDHG”). The increase in authorized shares was undertaken to allow the Company to utilize
the newly available shares to raise capital. The board of directors and the stockholders of the Company approved the Amendments
on May 8, 2015.
On
February 13, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Correction (the “Certificate
of Correction”) to correct a mistake made in the Company’s original Articles of Incorporation with regard to the preferred
stock issued in connection with the FDHG Exchange Agreement. As a result, ICGL had 395,000,000 shares of common stock and 5,000,000
shares of preferred stock issued and outstanding. The Company subsequently entered into an agreement pursuant to which the holder
of the preferred stock agreed to retire the preferred stock in exchange for receiving an equal number of shares of common stock
of the Company
.
As of the date of this Report, that exchange of preferred stock for common stock has not yet occurred.
Effective
May 1, 2017, the Company increased the authorized shares of Common Stock from 3,950,000 to 2,000,000,000 shares with a par value
of $0.001 per share, and to decrease the authorized shares of Preferred Stock from 50,000 to zero (0). As of the date of this
Report, the decrease in shares of Preferred Stock is still in process.
FDHG,
previously, through its wholly-owned operating subsidiaries, was in the business of promoting and distributing its own branded
teas that are grown, harvested, cured, and packaged in the People’s Republic of China (“PRC”). The Company’s
headquarters was previously located in Guangzhou, Guangdong Province, PRC.
Share
Exchange and Reorganization
On
November 14, 2017, the Company entered into a share exchange agreement (the “SEA”) with Image P2P Trading Group Limited
(“Image P2P”) and Image P2P’s shareholders whereby the Company issued 500,000,000 new common shares in exchange
for all of the issued and outstanding ordinary shares of Image P2P, which totaled 50,000. Image P2P is an investment holding company
incorporated and domiciled in the British Virgin Islands.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of
Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2018. Notes to the unaudited interim condensed consolidated financial statements
that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year
2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes
thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K as filed with the Securities and
Exchange Commission on April 17, 2018.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts
and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income
or loss of those wholly-owned subsidiaries.
The
Company’s subsidiaries are listed as follows:
Name of Company
|
|
Place of
incorporation
|
|
Attributable
equity interest %
|
|
|
Authorized capital
|
Image P2P Trading Group Limited (“BVI”)
|
|
British Virgin Islands
|
|
|
100
|
|
|
USD 50,000
|
Asia Grand Will Limited (“AGWL”)
|
|
Hong Kong
|
|
|
100
|
|
|
HKD 1
|
Fuzhi Yuan (Shenzhen) Holdings Limited (“FZHL”)
|
|
PRC
|
|
|
100
|
|
|
RMB 500,000
|
Jiangxi Fu Zhi Yuan Biotechnology Co., Limited (“FZY”)
|
|
PRC
|
|
|
100
|
|
|
RMB 50,000,000
|
Use
of estimates
The
preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could differ materially from those estimates.
Foreign
currency translation
The
accompanying financial statements are presented in United States dollars (“USD”). The functional currency of the Company
is the USD. The functional currency of AGW is the Hong Kong dollar (“HKD”). The functional currency of SZFY and JXFZYBL
is the Renminbi (“RMB”). The financial statements of the Companies subsidiaries have been translated into United States
dollars from RMB and HKD at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and
expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
Exchange Rates
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
9/30/2017
|
|
Spot rate RMB : US$ exchange rate
|
|
|
0.1455
|
|
|
|
0.1536
|
|
|
|
0.1451
|
|
Average year RMB : US$ exchange rate
|
|
|
0.1537
|
|
|
|
0.1480
|
|
|
|
0.1452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year end HKD : US$ exchange rate
|
|
|
0.129
|
|
|
|
0.129
|
|
|
|
0.129
|
|
Average year HKD : US$ exchange rate
|
|
|
0.129
|
|
|
|
0.129
|
|
|
|
0.129
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US Dollars at the rates used in translation.
Earnings
per share
The
Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic
EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding
for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share
or decrease loss per share) are excluded from the calculation of diluted EPS. As of for the nine months ended September 30, 2018
and 2017, the Company did not have any potentially dilutive securities outstanding.
Financial
Instruments
The
Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued liabilities and due to stockholders. The carrying amounts of such financial
instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest
rates of these instruments.
Revenue
Recognition
Our
revenue recognition policies are in compliance with SEC Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the
date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed,
no other significant obligations of exist on our part and collectability is reasonably assured. Payments received before all of
the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. Our revenue consists of invoiced
value of goods, net of a value-added tax (VAT).
Effective
January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers.” The Company has evaluated the
new guidance and its adoption did not have a significant impact on the Company’s financial statements and a cumulative effect
adjustment under the modified retrospective method of adoption will not be necessary. The will be no change to the Company’s
accounting policies.
Cost
of revenue
Cost
of revenue includes the following expenses; inventory and various expenses related to make the products.
Reclassifications
Certain
prior period amounts have been reclassified to conform with the current period presentation.
Recent
Accounting Pronouncements
The
Company is currently assessing the above the accounting pronouncements and their potential impact from their adoption on the financial
statements.
3.
GOING CONCERN
These
financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As
of September 30, 2018, the Company had accumulated deficits of $5,576,481 and incurred losses to maintain its listing as an U.S.
public company. There was substantial doubt regarding the Company’s ability to continue as going concern at September 30,
2018. Management continues to employ its previous plan to support the Company’s operations and maintain its business strategy
by raising additional funds through public and private offerings, or loans from related parties, or to rely on officers and directors
to perform essential functions with minimal compensation was unsuccessful.
If
the Company does not raise additional money via public or private offerings or related party loans, the Company may be unable
to continue as going concern. Additional financing may not become available on acceptable terms and there can be no assurance
that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term.
The
accompanying financial statements have been adjusted to the expected recoverable amounts. Management believes no further adjustments
for recoverability and classification of assets or liabilities are necessary.
4.
ACCOUNTS RECEIVABLE
Accounts
receivable at September 30, 2018 and December 31, 2017, consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Accounts receivable
|
|
$
|
26,728
|
|
|
$
|
1,387,241
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
(1,297,552
|
)
|
|
|
$
|
26,728
|
|
|
$
|
89,689
|
|
5.
INVENTORIES
Inventories
at September 30, 2018 and December 31, 2017 consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Raw materials
|
|
$
|
37,227
|
|
|
$
|
72,516
|
|
Finished goods (includes write down)
|
|
|
60,736
|
|
|
|
5,841
|
|
Inventory allowance
|
|
|
(71,229
|
)
|
|
|
(75,181
|
)
|
|
|
$
|
26,734
|
|
|
$
|
78,357
|
|
6.
PLANT AND EQUIPMENT
Plant
and equipment at September 30, 2018 and December 31, 2017 consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
At Cost:
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
5,949,292
|
|
|
$
|
6,279,367
|
|
Equipment
|
|
|
6,373,633
|
|
|
|
6,281,133
|
|
Motor vehicles
|
|
|
48,985
|
|
|
|
51,702
|
|
Furniture and fixtures
|
|
|
21,624
|
|
|
|
22,824
|
|
|
|
$
|
12,393,534
|
|
|
$
|
12,635,026
|
|
Less: Accumulated depreciation
|
|
|
(1,902,781
|
)
|
|
|
(1,527,634
|
)
|
|
|
$
|
10,490,752
|
|
|
$
|
11,107,392
|
|
Depreciation
expenses translated at the average exchange rates for the nine months ended September 30, 2018 and 2017 were $177,416 and $491,480,
respectively.
7.
INTANGIBLE ASSETS
Intangible
assets at September 30, 2018 and December 31, 2017 consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Land use rights, at cost
|
|
$
|
509,148
|
|
|
$
|
557,821
|
|
Less: Accumulated amortization
|
|
|
(51,544
|
)
|
|
|
(33,274
|
)
|
|
|
$
|
457,604
|
|
|
$
|
524,547
|
|
Amortization
expenses translated at the average exchange rates for the nine months ended September 30, 2018 and 2017 were $41,574 and $5,305,
respectively.
8.
LOANS AND INTEREST
Bank
loans at September 30, 2018 and December 31, 2017 consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Short-term bank loan
|
|
$
|
2,164,180
|
|
|
$
|
2,304,222
|
|
Long-term bank loans – current portion
|
|
|
436,620
|
|
|
|
563,766
|
|
Long-term bank loans
|
|
|
1,678,852
|
|
|
|
1,669,075
|
|
|
|
$
|
4,279,651
|
|
|
$
|
4,537,063
|
|
Interest
expenses translated at the average exchange rates for the nine months ended September 30, 2018 and 2017 were $241,190 and $182,200,
respectively.
Short
term loans
On
March 30, 2017, FZY entered into a short-term loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on March 28,
2018. The loan was for general working capital purposes in the amount $1,536,148 (RMB 10,000,000). The loan carried an interest
rate of 6.30% and was secured by personal guarantee of Mr. Peng Qiu, the authorized representative of FZY and Director of the
Company and Mr. Ming Guang Li, a friend of Mr. Peng Qiu. During the three months ended March 31, 2018, the Company repaid $334,109.
The Company is negotiating an extension for the short-term loan with Jiangxi Rural Credit Union & Rural Commercial Bank.
Long
term loans
On
October 30, 2015, the Company entered into a loan agreement with Industrial and Commercial Bank of China – Wan An County
Branch for an interest only construction loan in the amount of approximately $2,403,808 (RMB 15,000,000). The loan bares an adjustable
interest rate, at the time origination was 4.75%. The interest rates are adjustable every twelve months. The interest-only construction
loan was collateralized by the lands and buildings off the Company with variable maturity dates of up to 5 years.
On
April 28, 2017, FZY entered into a bank loan with Bank of Beijing due on April 25, 2021. The loan was for construction of a new
Polyphenols production line in the amount of $307,230 (RMB 2,000,000). The loan carried an interest rate of 4.35% and was secured
by personal guarantee of Mr. Peng Qiu, the authorized representative of FZY and Ms. Huang Min, spouse of Mr. Qiu Peng.
On
April 28, 2017, FZY entered into a bank loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on April 25, 2020.
The loan was for general working capital purposes in the amount of $768,074 (RMB 5,000,000). The loan carried an interest rate
of 4.35% and was secured by personal guarantee of Mr Peng Qiu, the authorized representative of FZY and Director of the Company
and Mr. Ming Guang Li, a friend of Mr. Peng Qiu.
Loan
maturity schedule as of December 31, 2017:
Loan Maturity schedule
|
|
|
|
Due in 2018
|
|
$
|
2,867,988
|
|
Due in 2019
|
|
|
717,381
|
|
Due in 2020
|
|
|
644,464
|
|
Due in 2021
|
|
|
307,230
|
|
Due in 2022
|
|
|
-
|
|
Due in greater than five years
|
|
|
-
|
|
|
|
$
|
4,537,063
|
|
9.
RELATED PARTY TRANSACTIONS
Related
parties’ relationships are as follows:
David
Po
|
Director,
CEO and Majority Shareholder of the Company
|
Peng
Qiu
|
Shareholder
of the Company
|
Min
Huang
|
Mr.
Peng Qiu’s spouse
|
Yi
Sheng Qiu
|
Mr.
Peng Qiu’s father
|
Wan
An Fu Zhi Yuan Cha Ye Ltd. Co.
|
Mr.
Peng Qiu, CEO of the Company as shareholder and officer.
|
Wu
Junrui
|
Former
management of the Company
|
Amounts
due to related parties at September 30, 2018 and December 31, 2017 consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Peng Qiu
|
|
$
|
3,762,755
|
|
|
$
|
4,031,991
|
|
David Po
|
|
|
644,079
|
|
|
|
412,647
|
|
Yi Sheng Qiu
|
|
|
517,112
|
|
|
|
554,113
|
|
|
|
$
|
4,923,946
|
|
|
$
|
4,998,751
|
|
The
owing to related parties consist of working capital advances and borrowings. These amounts are due on demand and are non-interest
bearing.
10.
Stockholders’ Deficit
Preferred
Stock
The
Company is authorized to issue 50,000 shares, with a stated par value of $0.001 per share with such powers, preferences, rights
and restrictions which shall be determined by the Corporation’s Board of Directors in its sole discretion, and which designations
and issuances shall not require the approval of the shareholders of the Corporation.
During
the nine months ended September 30, 2018, there were no issuances of Preferred Stock.
As
of September 30, 2018 and December 31, 2017, 50,000 shares of preferred stock were issued and outstanding.
Common
Stock
The
Company is authorized to issue 2,000,000,000 shares of common stock at a par value of $0.001.
During
the nine months ended September 30, 2018, there were no issuances of common stock.
As
of September 30, 2018 and December 31, 2017, 507,270,882 shares of common stock were issued and outstanding.
11.
RISKS
A.
|
Credit
risk
|
|
|
|
The
Company is subject to risk borne from credit extended to customers.
|
|
|
|
FZY’s
bank deposits are with banks located in the PRC. These banks do not carry federal deposit insurance.
|
|
|
B.
|
Interest
risk
|
|
|
|
The
Company is subject to interest rate risk when its loans become due and require refinancing.
|
|
|
C.
|
Economic
and political risks
|
|
|
|
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by changes in the political, economic, and legal environments in the PRC.
|
D.
|
Inflation
risk
|
|
|
|
Management
monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements;
however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers
could adversely impact the Company’s results of operations.
|
|
|
F.
|
Concentrations
risks
|
|
|
|
The
Company had a concentration of risk in demand for its products. During the nine months ended September 30, 2018, three customers
representing 20.8%, 24.8% and 27.4% of the Company’s sales.
|
|
|
|
During
the nine months ended September 30, 2018, the Company had a concentration of risk in supply for raw materials, one vendor
that supplied tea comprised 100% of the Company’s purchases. Additionally, as single vendor that supplied ethyl acetate
to the Company comprised 5% of the Company’s purchases.
|
12.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent
events requiring recognition as of September 30, 2018 have been incorporated into these financial statements and there are no
subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition or Plan of Operation
|
Cautionary
Statements
This
Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements, including, without limitation,
in the sections captioned “Management’s Discussion and Analysis of Financial Condition or Plan of Operation,”
and elsewhere. Any and all statements contained in this Quarterly Report that are not statements of historical fact may be deemed
forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,”
“project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,”
“anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,”
“continue,” “intend,” “expect,” “future” and terms of similar import (including
the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking
statements may contain one or more of these identifying terms.
Forward-looking
statements in this Quarterly Report may include, without limitation, statements regarding (i) the plans and objectives of management
for future operations, including plans or objectives relating to the growth of tea polyphenol sales and development of our tea
polyphenol-based products, (ii) the plans or objectives relating to our future business acquisitions, if any, (iii) a projection
of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure
or other financial items, (iv) our future financial performance, including any such statement contained in a discussion and analysis
of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities
and Exchange Commission, or the SEC, and (v) the assumptions underlying or relating to any statement described in points (i),
(ii), (iii) or (iv) above.
The
forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may
not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions
and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results
and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements
as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking
statements or cause actual results to differ materially from expected or desired results may include, without limitation:
|
●
|
market
acceptance of our tea polyphenol products;
|
|
●
|
our
ability to successfully sell and market tea polyphenol products in our existing and expanded geographies;
|
|
●
|
competition
from existing producers or products or new products and technologies that may emerge in the markets for our tea polyphenol
products;
|
|
●
|
the
implementation of our business model and strategic plans for our tea polyphenol products and proposed tea polyphenol-based
product businesses, and other businesses which we may develop or acquire;
|
|
●
|
our
ability to obtain regulatory approval in targeted markets for our tea polyphenol products and proposed tea polyphenol-based
products;
|
|
●
|
volatility
or decline of our stock price;
|
|
●
|
potential
fluctuation of quarterly results;
|
|
●
|
continued
failure to earn revenues or profits;
|
|
●
|
inadequate
capital to continue or expand our business, and inability to raise additional capital or financing to implement our business
plans;
|
|
●
|
decline
in demand for our products and services;
|
|
●
|
rapid
adverse changes in markets;
|
|
●
|
litigation
with or legal claims and allegations by outside parties against us;
|
|
●
|
insufficient
revenues to cover operating costs;
|
|
●
|
estimates
of our future revenue, expenses, capital requirements and our need for additional financing; and
|
|
●
|
developments
relating to our competitors and the tea polyphenol, tea polyphenol-based products and wider health products industry.
|
Because
the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by
the forward-looking statements. ICGL cautions you not to place undue reliance on the statements, which speak only as of the date
of this Quarterly Report. The cautionary statements contained or referred to in this section should be considered in connection
with any subsequent written or oral forward-looking statements that ICGL or persons acting on its behalf may issue. ICGL does
not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions
to any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report, or to reflect the
occurrence of unanticipated events, except as required by law.
Overview
Image
Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) was incorporated under the laws of Nevada on December
18, 2013, and initially sought to create reality television programming. References in this Quarterly Report to “ICGL”,
“Image Chain”, the “Company”, the “Registrant”, “we”, “our” or “us”
are to Image Chain Group Limited, Inc.
On
May 5, 2015, ICGL entered into a share exchange agreement (the “FDHG Exchange Agreement”) with Fortune Delight Holdings
Group Ltd (“FDHG”) and Wu Jun Rui, on behalf of himself and certain other individuals who were to receive shares of
ICGL pursuant to the FDHG Exchange Agreement (the “FDGH Shareholders”). On the terms and subject to the conditions
set forth in the FDHG Exchange Agreement, on May 5, 2015, Wu Jun Rui transferred all 50,000 shares of FDHG common stock, consisting
of all of the issued and outstanding shares of FDHG, to ICGL in exchange for the issuance to the stockholders of FDHG of 59,620,000
shares of the Company’s common stock, par value $.001 per share (“Common Stock”) and 5,000,000 shares of the
Company’s preferred stock, par value $.001 per share (“Preferred Stock”).
As
a result of the closing of the FDHG Exchange Agreement, FDHG became the Company’s wholly owned subsidiary. FDHG, through
its subsidiaries, manufactured and sold “Image Tea”-branded tea products from its tea garden in Yunnan Province.
On
June 11, 2015, the Company amended its Articles of Incorporation in order to change its name to Image Chain Group Limited, Inc.
and to increase the authorized shares of Common Stock from 70,000,000 to 400,000,000. The name change was undertaken in order
to more closely align with the operations of the Company’s wholly-owned subsidiary, The increase in authorized Common Stock
was undertaken to allow the Company to utilize the newly available shares to raise capital.
On
or about November 15, 2016, FDHG disposed of its ownership of all operating assets, and as a result ICGL became a shell company,
as defined by Rule 12b-2 under the Exchange Act (the “Disposition Event”). The Disposition Event is evidenced by a
bought and sold note stamped by the Inland Revenue Department of Hong Kong, which we believe is a legally binding document.
On
February 13, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Correction (the “Certificate
of Correction”) to correct a mistake made in the Company’s original Articles of Incorporation with regard to the Preferred
Stock issued in connection with the FDHG Exchange Agreement. As a result, ICGL had 395,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock issued and outstanding. The Company subsequently entered into an agreement pursuant to which the holder
of the Preferred Stock agreed to retire the Preferred Stock in exchange for receiving an equal number of shares of Common Stock
of the Company
.
As of the date of this Quarterly Report, that exchange of Preferred Stock for Common Stock has not yet
occurred.
On
May 1, 2017, upon recommendation of the Board of Directors, a majority of Image Chain’s common stockholders consented in
writing to amendment of Image Chain’s Articles of Incorporation to (i) effect a reverse stock split on a 1 for 100 stock
split basis from 400,000,000 authorized shares with a par value of $0.001 per share to 4,000,000 authorized shares with a par
value of $0.001, and (ii) after the reverse stock split, to increase the authorized shares of Common Stock from 3,950,000 to 2,000,000,000
shares with a par value of $0.001 per share, and to decrease the authorized shares of Preferred Stock from 50,000 to zero (0).
As of the date of this Quarterly Report, the reverse stock split and increase in authorized shares have been completed, and the
decrease in shares of Preferred Stock is still in process, as a result 50,000 shares of Preferred Stock are authorized and outstanding.
Image
P2P Trading Group Limited
Image
P2P Trading Group Limited (“Image P2P”), a company organized under the laws of the British Virgin Islands, was incorporated
on April 21, 2015. Asia Grand Will (“AGW”) was incorporated on March 18, 2017 in the Hong Kong SAR. AGW wholly owns
Fuzhi Yuan (Shenzhen) Holdings Limited (“FYSZ”) which was established on June 20, 2017 in the PRC. FYSZ is a wholly
owned foreign entity under PRC law. FYSZ wholly owns Jiangxi Fuzhiyuan Biotechnology Limited (“Fuzhiyuan Biotechnology”),
which was established on January 5, 2013 in the PRC. FYSZ acquired Fuzhiyuan Biotechnology on July 14, 2017. AGW and FYSZ are
intermediary holding companies. Image P2P conducts its operations through Fuzhiyuan Biotechnology. Image P2P acquired AGW on July
28, 2017.
The
reorganization of Image P2P and its subsidiaries via the acquisitions detailed above, by and amongst Image P2P and AGW, FYSZ,
and Fuzhiyuan Biotechnology, have been accounted for under US GAAP as business combinations under common control.
The
Share Exchange
On
November 14, 2017, Image Chain entered into a share exchange agreement (the “Exchange Agreement”) with Image P2P and
the shareholders of Image P2P (the “Sellers”). Pursuant to the Exchange Agreement, the Sellers transferred all 50,000
shares of Image P2P outstanding common stock to the Company in exchange for 500,000,000 shares of Common Stock (the “Share
Exchange”). As a result of the Share Exchange, Image P2P became the Company’s wholly-owned subsidiary. Image P2P,
through its subsidiaries, is engaged in producing, marketing and selling tea polyphenol products, and is developing for production
tea polyphenol-based products. Image P2P is located in the PRC.
The
Share Exchange has been accounted for as a reverse- merger and recapitalization of Image Chain where Image Chain (the legal acquirer)
is considered the accounting acquiree and Image P2P (the acquiree) is considered the accounting acquirer. As a result of this
transaction, the Company is deemed to be a continuation of the business of Image P2P.
Accordingly,
the accompanying consolidated financial statements are those of the accounting acquirer, Image P2P. The historical stockholders’
equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the Share Exchange occurred
as of the beginning of the first period presented.
As
used in this Quarterly Report, unless otherwise stated or the context clearly indicates otherwise, the terms “ICGL”,
“Image Chain”, the “Company,” the “Registrant,” “we,” “us” and “our”
refer to Image Chain after having given effect to the acquisition of Image P2P.
Our
authorized capital stock currently consists of 2,000,000,000 shares of Common Stock and 50,000 shares of Preferred Stock. Our
Common Stock is quoted on the OTC Markets under the symbol “ICGL”.
Our
principal executive offices are located at Room 503, 5/F, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong, S.A.R.
Our telephone number is (852) 3188-2700. Our periodic and current reports with the SEC can be obtained from the SEC website, www.sec.gov.
Company
Overview
We
extract tea polyphenol from tea leaves for use in a wide variety of health and beauty products, beverages, filters and purifiers,
and other products. We produce tea polyphenol to the specific requirements of end-users, utilizing different types of tea leaves
harvested at different points in the growth cycle. We are also developing proprietary tea polyphenol-based products for sale.
Our newly-installed tea polyphenol extraction assembly completed ramp up in 2017. Given sufficient access to raw materials and
working capital, we expect the annual manufacturing capacity of our currently installed extraction assembly to reach 600 metric
tons of tea polyphenol. We operate our business from our newly constructed facilities in Wan’An City, Jiangxi Province,
PRC. Our facilities consist of our first extraction assembly, polyphenol drying and processing clean room, warehouse, showroom,
research facility and offices.
Since
its founding in 2013, Fuzhiyuan Biotechnology focused on acquiring the technical processes, land, equipment and capital for the
construction of the largest tea polyphenol extraction and processing facility in the PRC. In 2013 and 2014 we developed working
relationships with experts in the field of tea polyphenols and extraction processes, located a suitable site for our facility,
negotiated with and applied to relevant government authorities for approval of our project, applied to lenders for financing the
acquisition of our land use rights and equipment, applied for construction loans, and negotiated with equipment suppliers and
construction firms. Construction of our facility began in 2015 and was substantially completed by the third quarter of 2016, with
initial commercial production achieved in the fourth quarter of 2016. The ramp-up of our facility concluded in 2017.
Results
of Operations
Three
months ended September 30, 2018 compared to three months ended September 30, 2017.
|
|
Three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
-
|
|
|
|
40,981
|
|
Cost of revenues
|
|
|
-
|
|
|
|
45,991
|
|
Gross Profit (Loss)
|
|
|
-
|
|
|
|
(5,010
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
243,664
|
|
|
|
67,962
|
|
Total operating expenses
|
|
|
243,664
|
|
|
|
67,962
|
|
Operating loss
|
|
|
(243,664
|
)
|
|
|
(72,972
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Government subsidy
|
|
|
-
|
|
|
|
61
|
|
Interest expense
|
|
|
(89,749
|
)
|
|
|
(56,129
|
)
|
Other expense
|
|
|
|
|
|
|
(29,387
|
)
|
Total other income (expense)
|
|
|
(89,749
|
)
|
|
|
(85,455
|
)
|
Loss Before Income Taxes
|
|
|
(333,413
|
)
|
|
|
(158,427
|
)
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(333,413
|
)
|
|
|
(158,427
|
)
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(29,678
|
)
|
|
|
69,909
|
|
Total Comprehensive loss
|
|
|
(363,091
|
)
|
|
|
(88,518
|
)
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
Basic and Diluted Weighted Average Common Shares Outstanding
|
|
|
507,270,882
|
|
|
|
507,270,882
|
|
Net
Revenues
Net
revenues decreased from $40,981 for the three months ended September 30, 2017 to $0 for the three months ended September 30, 2018
as our customers have not ordered our tea products from us in this period.
Cost
of Revenues
Cost
of revenues decreased from $45,991 for the three months ended September 30, 2017 to $0 for the three months ended September 30,
2018, in line with our decrease in revenue.
Operating
Expenses
Our
general and administrative expenses increased from $67,962 for the three months ended September 30, 2017 to $243,664 for the three
months ended September 30, 2018. The increase is due primarily to increase in legal and consulting fees.
Other
Income/Expense
Our
interest expense increased from $56,129 for the three months ended September 30, 2017 to $89,749 for the three months ended September
30, 2018 as a result of our increased level of borrowings to finance the acquisition of our extraction assembly, purchase raw
materials and otherwise fund our initial operations.
Other
Comprehensive Income/Loss
For
the three months ended September 30, 2017 we had a foreign currency gain of $69,909, compared to a foreign currency loss of $29,678
for the three months ended September 30, 2018. The variation in foreign currency gain or loss was tied directly to the fluctuation
in value of the Renminbi and Hong Kong dollar, our functional currencies, to the US dollar, the currency used for reporting our
US GAAP operating results.
Nine
months ended September 30, 2018 compared to nine months ended September 30, 2017.
|
|
Nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
253,859
|
|
|
|
1,209,107
|
|
Cost of revenues
|
|
|
438,160
|
|
|
|
1,206,693
|
|
Gross Profit (Loss)
|
|
|
(184,301
|
)
|
|
|
2,414
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
46,560
|
|
|
|
18,473
|
|
General and administrative expenses
|
|
|
478,587
|
|
|
|
286,819
|
|
Total operating expenses
|
|
|
525,147
|
|
|
|
305,292
|
|
Operating loss
|
|
|
(709,448
|
)
|
|
|
(302,878
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Government subsidy
|
|
|
-
|
|
|
|
6,098
|
|
Interest income
|
|
|
-
|
|
|
|
40
|
|
Other income
|
|
|
20,776
|
|
|
|
-
|
|
Interest expense
|
|
|
(241,190
|
)
|
|
|
(182,240
|
)
|
Other expense
|
|
|
(52
|
)
|
|
|
(29,387
|
)
|
Total other income (expense)
|
|
|
(220,466
|
)
|
|
|
(205,489
|
)
|
Loss Before Income Taxes
|
|
|
(929,915
|
)
|
|
|
(508,367
|
)
|
Provision for Income Taxes
|
|
|
534
|
|
|
|
-
|
|
Net loss
|
|
|
(930,448
|
)
|
|
|
(508,367
|
)
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
38,777
|
|
|
|
159,889
|
|
Total Comprehensive loss
|
|
|
(891,671
|
)
|
|
|
(348,478
|
)
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
Basic and Diluted Weighted Average Common Shares Outstanding
|
|
|
507,270,882
|
|
|
|
507,270,882
|
|
Net
Revenues
Net
revenues decreased from $1,209,107 for the nine months ended September 30, 2017 to $253,859 for the nine months ended September
30, 2018 as our tea polyphenol extraction operations continued at a slow pace as demand from our distributors’ customers
continued to be low, and our lack of capital meant we were unable to obtain sufficient supply of our primary production input,
tea leaves.
Cost
of Revenues
Cost
of revenues decreased from $1,206,693 for the nine months ended September 30, 2017 to $438,160 for the nine months ended September
30, 2018, in line with our significant drop in revenue. Our cost of revenues was greater than our revenues for the nine months
ended September 30, 2018 due to our fixed personnel and depreciation costs remaining constant, while our variable input costs,
primarily tea leaves, increased significantly in price due to seasonal fluctuations in price and our inability to buy in bulk.
Operating
Expenses
Our
selling and marketing expenses increased from $18,473 for the nine months ended September 30, 2017 to $46,560 for the nine months
ended September 30, 2018, as we increased efforts to market the products from our new extraction assembly, as well as our planned
tea polyphenol-based products. Our general and administrative expenses increased from $286,819 for the nine months ended September
30, 2017 to $478,587 for the nine months ended September 30, 2018. Efforts undertaken to secure government approvals, financing
and equipment for our enterprise were completed in 2016, reducing general and administrative expenses. However, general and administrative
expenses were significantly increased from the same period in 2017 by (i) research and development expenses for tea polyphenol-based
products, (ii) construction expenses for a waste water treatment facility and (iii) legal and accounting professional service
fees.
Other
Income/Expense
Our
interest expense increased from $182,240 for the nine months ended September 30, 2017 to $241,190 for the nine months ended September
30, 2018 as a result of our increased level of borrowings to finance the acquisition of our extraction assembly, purchase raw
materials and otherwise fund our initial operations.
Other
Comprehensive Income/Loss
For
the nine months ended September 30, 2017 we had a foreign currency gain of $159,889, compared to a foreign currency gain of $38,777
for the nine months ended September 30, 2018. The variation in foreign currency gain or loss was tied directly to the fluctuation
in value of the Renminbi and Hong Kong dollar, our functional currencies, to the US dollar, the currency used for reporting our
US GAAP operating results.
Liquidity
and Capital Resources
Since
the inception of our operating subsidiary Fuzhiyuan Biotechnology in 2013, we have incurred significant net losses and negative
cash flows from operations. During the nine months ended September 30, 2017 and the nine months ended September 30, 2018, we had
net losses of $508,367 and $930,448, respectively. At September 30, 2018, we had an accumulated deficit of $5,576,481, short-term
bank loans of $2,164,180, long-term bank loans of $2,115,472 and amounts due to related parties of $4,923,946. As discussed in
our financial statements for the nine months ended September 30, 2018, these factors raise substantial doubt about our ability
to continue as a going concern.
As
at September 30, 2018, we had cash and cash equivalents of $16,525. To date, we have financed our operations principally through
borrowings from banks and from our related parties. Depending on our future operational results, we may need to conduct one or
more equity or debt financings within the next 12 months.
We
could potentially need our available financial resources sooner than we currently expect, and we may incur additional indebtedness
to meet future financing needs. Adequate additional funding may not be available to us on acceptable terms or at all. In addition,
although we anticipate being able to obtain additional financing through non-dilutive means, we may be unable to do so. Our failure
to raise capital as and when needed could have significant negative consequences for our business, financial condition and results
of operations. Our future capital requirements and the adequacy of available funds will depend on many factors, many of which
are beyond our control.
Related
Party Loans
See
“Related Party Transactions” in Note 9 of Notes to the Financial Statements. for a discussion of our operating capital,
equipment purchase and fixture purchase loans from our related parties. These unsecured loans do not bear interest or fixed dates
for repayment.
Bank
Loans
Short-term
and long-term bank loans consisted of the following as of September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Short-term bank loan
|
|
$
|
2,164,180
|
|
|
$
|
2,304,222
|
|
Long-term bank loans - current portion
|
|
$
|
436,620
|
|
|
$
|
460,844
|
|
Long-term bank loans – long-term portion
|
|
|
1,678,852
|
|
|
|
1,771,997
|
|
On
March 30, 2017, Fuzhiyuan Biotechnology entered into a short-term loan agreement with Jiangxi Rural Credit Union & Rural Commercial
Bank due on March 28, 2018 (the “short-term loan”). The short-term loan was for general working capital purposes in
the amount of $1,536,148 (RMB10,000,000). The short-term loan carried an interest rate of 6.30% and was secured by the personal
guarantee of Mr. QIU Peng, the authorized representative of Fuzhiyuan Biotechnology, Director of Image P2P and a shareholder of
the Company, and Mr. LI Ming Guang, a shareholder of the Company. The Company is negotiating an extension of the short-term loan
with Jiangxi Rural Credit Union & Rural Commercial Bank.
The
above short-term loan may be accelerated, and penalty interest at the rate of 50% of the then-current interest rate imposed, upon
standard events of default, including failure to pay principal or interest, fraud, loss of guarantee, cross-default, discontinuation
of business, inability to perform under the loan, change in credit worthiness, undisclosed related party transactions, violation
of law in connection with the loan, government investigation of Fuzhiyuan Biotechnology or its principals, or other material adverse
development in the business of Fuzhiyuan Biotechnology.
On
October 30, 2015, Fuzhiyuan Biotechnology entered into a loan agreement with Industrial and Commercial Bank of China –
Wan An County Branch for an interest-only construction loan in the amount of approximately $2,403,808 (RMB15,000,000) (the
“long-term loan”). The long-term loan bears an adjustable interest rate; at the time of origination the interest
rate was 4.75%. The interest rate is adjustable every twelve months. The interest only construction loan was collateralized
by the lands and buildings of Fuzhiyuan Biotechnology with variable maturity dates of up to five years.
On
April 28, 2017, Fuzhiyuan Biotechnology entered into a bank loan agreement with Bank of Beijing due on April 25, 2021. The loan
was for construction of a new polyphenols production line in the amount of $307,230 (RMB2,000,000). The loan carried an interest
rate of 4.35% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of Fuzhiyuan Biotechnology,
Director of Image P2P and shareholder of the Company, and Ms. MIN Huang, the spouse of Mr. QIU Peng and a shareholder of the Company.
On
April 28, 2017, Fuzhiyuan Biotechnology entered into a bank loan agreement with Jiangxi Rural Credit Union & Rural Commercial
Bank due on April 25, 2020. The loan was for general working capital purposes in the amount of $768,074(RMB5,000,000). The loan
carried an interest rate of 4.35% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of
Fuzhiyuan Biotechnology, Director of Image P2P and shareholder of the Company, and Mr. LI Ming Guang, a shareholder of the Company.
Loan
maturity schedule as of December 31, 2017:
|
|
December 31, 2017
|
|
|
|
|
|
Due in 2018
|
|
$
|
2,867,988
|
|
Due in 2019
|
|
|
717,381
|
|
Due in 2020
|
|
|
644,464
|
|
Due in 2021
|
|
|
307,230
|
|
Due in 2022
|
|
|
-
|
|
Due in greater than five years
|
|
$
|
-
|
|
|
|
|
4,537,063
|
|
The
long-term loans are subject to financial covenants and are collateralized by substantially all our assets (other than our intellectual
property) and limits our ability with respect to additional indebtedness, investments or dividends, among other things, subject
to customary exceptions. The long-term loans may be accelerated upon standard events of default, including failure to pay principal
or interest, fraud, loss of collateral, cross-default, discontinuation of business, inability to perform under the loan, change
in credit worthiness, undisclosed related party transactions, violation of law in connection with the loans, government investigation
of Fuzhiyuan Biotechnology or its principals, failure to construct the Fuzhiyuan Biotechology manufacturing facility (or polyphenol
production line, as applicable) or to commence operation of the manufacturing facility, significant violations of environmental
or worker protection laws at the manufacturing facility, or other material adverse development in the business of Fuzhiyuan Biotechnology.
The
foregoing description of the long-term loan agreements does not purport to be complete. The description of the October 30, 2015
loan agreement is qualified in its entirety by the terms and conditions of the long-term loan agreement, as amended, which is
attached as Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed April 17, 2018, and incorporated herein by reference.
The
following table summarizes our cash flows for the periods presented:
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
$
|
(116,699
|
)
|
|
$
|
(1,346,683
|
)
|
Cash flows from investing activities
|
|
$
|
(149,139
|
)
|
|
$
|
(572,769
|
)
|
Cash flows from financing activities
|
|
$
|
211,251
|
|
|
$
|
1,919,420
|
|
Operating
Activities
Prior
to 2017, we experienced negative cash outflows as our new business obtained approvals for, and negotiated, the acquisition of
land, buildings, equipment and loan facilities to begin our tea polyphenol extraction operations, and we extended credit to our
purchasers of our tea polyphenol products. Our net cash provided by operating activities primarily consists of our net loss from
continuing operations and increase in accounts receivables, offset by depreciation of fixed assets and increase in accrued liabilities
and other payables. Our operations to date have not generated significant cash receipts due to extension of credit to purchasers
of our tea polyphenol products. Our primary use of cash from operating activities is for the inputs of our tea polyphenol extraction
process. Cash from operating activities also goes to personnel costs, legal, audit and accounting services cost, travel, lodging
and meal expenses for our executive staff when traveling on Company business, sales and marketing costs and research and development.
During
the nine months ended September 30, 2018, operating activities used $116,699 in cash, compared with $1,346,683 cash used in operating
activities for the nine months ended September 30, 2017. The decrease in cash used was due primarily to a significant decrease
in accounts receivables and other receivables, offset in part by an increase in net loss.
Investing
Activities
Net
cash used in investing activities for the nine months ended September 30, 2018 was $149,139, and consisted entirely of purchase
of equipment. Net cash used in investing activities for the nine months ended September 30, 2017 was $572,769 and consisted of
larger amount of purchase of equipment, payments for building construction and addition of intangible assets.
Financing
Activities
Net
cash provided by financing activities for the nine months ended September 30, 2018 of $211,251 consisted entirely of repayment
of bank borrowings and proceeds from related parties. Net cash provided by financing activities for the nine months ended September
30, 2017 was $1,919,420 and consisted mainly of borrowing of bank loan and proceeds from related parties. The decrease in the
cash flow in this period is mainly due to decreased borrowing of bank loan and proceeds from related parties.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, and capital expenditures or
capital resources that are material to stockholders.
GOING
CONCERN
These
financial statements have been prepared assuming that Company will continue as a going concern. As of September 30, 2018 and December
31, 2017, the Company had accumulated deficits of $5,576,481 and $4,646,033 due to substantial losses. There was substantial doubt
regarding the Company’s ability to continue as going concern at September 30, 2018 and December 31, 2017. Refer to Note
3. GOING CONCERN UNCERTAINES of the accompanying notes to the consolidated condensed financial statements.
Recent
Accounting Pronouncements
See
“Recent Accounting Pronouncements” in Note 2 of Notes to the Financial Statements.
Critical
Accounting Policies
We
prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions
and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management
believes to be important at the time the financial statements are prepared and actual results could differ from our estimates
and such differences could be material. We have identified below the critical accounting policies which are assumptions made by
management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position,
results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain,
materially different amounts could be reported under different conditions or using different assumptions. On a regular basis,
we review our critical accounting policies and how they are applied in the preparation our financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.