Item 1
Financial Statements
COLORSTARS
GROUP
CONSOLIDATED
BALANCE SHEETS
June
30, 2016(Unaudited) and December 31, 2015(Audited)
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
116,264
|
|
|
$
|
24,129
|
|
Accounts receivable,
net of allowance for doubtful accounts of $166,457 at June 30, 2016 and $228,134 at December 31, 2015
|
|
|
3,240
|
|
|
|
21,856
|
|
Prepaid
expenses and other current assets
|
|
|
60,578
|
|
|
|
37,349
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
180,082
|
|
|
|
83,334
|
|
|
|
|
|
|
|
|
|
|
Equipment, net of accumulated depreciation
|
|
|
51,750
|
|
|
|
62,864
|
|
Other assets
|
|
|
12,282
|
|
|
|
15,005
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
244,114
|
|
|
$
|
161,203
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short term loan
|
|
$
|
526,111
|
|
|
$
|
517,600
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
Including due to related party of $7,005 at June 30, 2016
|
|
|
59,510
|
|
|
|
152,142
|
|
Advance from
shareholder
|
|
|
70,000
|
|
|
|
20,000
|
|
Accrued expenses
|
|
|
12,358
|
|
|
|
12,997
|
|
Other current
liabilities
|
|
|
4,399
|
|
|
|
9,060
|
|
Current
portion of long term loan
|
|
|
72,789
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
745,167
|
|
|
|
711,799
|
|
Long term loan
|
|
|
111,536
|
|
|
|
-
|
|
Total
liabilities
|
|
$
|
856,703
|
|
|
$
|
711,799
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Common Stock –Par
Value $0.001 67,448,890 shares issued and outstanding, 450,000,000 shares are authorized at June 30, 2016 and December 31,
2015
|
|
|
67,449
|
|
|
|
67,449
|
|
Additional paid
in capital
|
|
|
3,112,230
|
|
|
|
3,112,230
|
|
Accumulated other
comprehensive income
|
|
|
182,686
|
|
|
|
171,537
|
|
Accumulated
deficit
|
|
|
(3,974,954
|
)
|
|
|
(3,901,812
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
(612,589
|
)
|
|
|
(550,596
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
|
$
|
244,114
|
|
|
$
|
161,203
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Three months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
82,785
|
|
|
$
|
380,874
|
|
Cost
of goods sold
|
|
|
58,385
|
|
|
|
414,467
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
24,400
|
|
|
|
(33,593
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general
and administrative
|
|
|
73,060
|
|
|
|
95,353
|
|
Bad debt Selling
|
|
|
-
|
|
|
|
5,091
|
|
Rent
|
|
|
11,138
|
|
|
|
17,148
|
|
Depreciation
& Amortization
|
|
|
7,330
|
|
|
|
6,802
|
|
Research
and development
|
|
|
-
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
91,528
|
|
|
|
125,109
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(67,128
|
)
|
|
|
(158,702
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest expense
(net)
|
|
|
(2,283
|
)
|
|
|
(2,636
|
)
|
Loss
on foreign exchange, net
|
|
|
(2,192
|
)
|
|
|
(6,424
|
)
|
|
|
|
|
|
|
|
|
|
Loss before
income tax
|
|
|
(71,603
|
)
|
|
|
(167,762
|
)
|
Income
tax provision
|
|
|
-
|
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(71,603
|
)
|
|
|
(167,085
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Foreign currency
translation gain
|
|
|
2,274
|
|
|
|
84,351
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(69,329
|
)
|
|
$
|
(82,734
|
)
|
Earnings per share
attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
and diluted per share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
67,448,890
|
|
|
|
67,448,890
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Six months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
205,322
|
|
|
$
|
570,489
|
|
Cost
of goods sold
|
|
|
140,754
|
|
|
|
498,177
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
64,568
|
|
|
|
72,312
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general
and administrative
|
|
|
146,125
|
|
|
|
204,371
|
|
Bad debt Selling
|
|
|
-
|
|
|
|
2,520
|
|
Rent
|
|
|
21,977
|
|
|
|
37,072
|
|
Depreciation
& Amortization
|
|
|
15,826
|
|
|
|
13,274
|
|
Research
and development
|
|
|
-
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
183,928
|
|
|
|
257,942
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(119,360
|
)
|
|
|
(185,630
|
)
|
|
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
|
|
|
|
|
|
Interest expense
(net)
|
|
|
(4,554
|
)
|
|
|
(5,892
|
)
|
Loss on foreign
exchange
|
|
|
(13,384
|
)
|
|
|
(18,782
|
)
|
Bad debt recovery
|
|
|
64,156
|
|
|
|
-
|
|
Other,
net
|
|
|
-
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
Loss before
income tax
|
|
|
(73,142
|
)
|
|
|
(209,771
|
)
|
Income
tax provision
|
|
|
-
|
|
|
|
9,087
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(73,142
|
)
|
|
|
(200,684
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive
loss:
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
11,149
|
|
|
|
54,951
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(61,993
|
)
|
|
$
|
(145,733
|
)
|
Earnings per share
attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
and diluted per share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
67,448,890
|
|
|
|
67,448,890
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP
CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
For
six months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(73,142
|
)
|
|
$
|
(200,684
|
)
|
Depreciation
|
|
|
15,826
|
|
|
|
13,274
|
|
Provision
for doubtful accounts
|
|
|
-
|
|
|
|
2,520
|
|
Bad
debt recovery
|
|
|
(64,156
|
)
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
82,772
|
|
|
|
294,182
|
|
Inventories
|
|
|
-
|
|
|
|
44,807
|
|
Prepaid expenses
and other current assets
|
|
|
(24,351
|
)
|
|
|
(7,366
|
)
|
Accounts payable
|
|
|
(92,632
|
)
|
|
|
(210,234
|
)
|
Accrued expenses
|
|
|
(639
|
)
|
|
|
(5,236
|
)
|
Receipts in advance
and other current liabilities
|
|
|
(4,661
|
)
|
|
|
63,651
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided
by (used for) operating activities
|
|
|
(160,983
|
)
|
|
|
(5,086
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
Addition to fixed
assets
|
|
|
-
|
|
|
|
(10,175
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used
for investing activities
|
|
|
-
|
|
|
|
(10,175
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
Advance from shareholder
|
|
|
50,000
|
|
|
|
20,000
|
|
Increase (decrease)
in long-term loans
|
|
|
184,325
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided
by financing activities
|
|
|
234,325
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents
|
|
|
18,793
|
|
|
|
27,864
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
92,135
|
|
|
|
32,603
|
|
Beginning cash and cash equivalents
|
|
|
24,129
|
|
|
|
75,397
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
116,264
|
|
|
$
|
108,000
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
4,573
|
|
|
$
|
5,921
|
|
Tax paid
|
|
$
|
-
|
|
|
$
|
(3
|
)
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Nature of Business and Basis of Presentation
Nature
of Business
– Circletronics Inc., now ColorStars Group (“the Company”), was incorporated in Canada on January
21, 2005. Circletronics Inc.- was redomiciled to Nevada and its name changed to ColorStars Group on November 3, 2005. ColorStars
Group owns 100% of the shares of ColorStars Inc.
Color
Stars Inc. (“Color Stars TW”, “the Subsidiary”) was incorporated as a limited liability company in Taiwan,
Republic of China in April 2003 and commenced its operations in May 2003. The Company through its wholly owned Subsidiary was
primarily engaged in manufacturing, designing and selling light-emitting diode and lighting equipment until 2018.
The
Company intends to change its business model into a holding company due to environmental changes at 2018 adversely affecting the
LED lighting market. The Company’s business model commencing in 2018 is to acquire various operating companies. There is
no assurance that the Company will be able to acquire any operating companies.
Basis of Presentation -
The accompanying
unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally
accepted in the United States for a complete presentation of the financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair statement of the financial position, results of operations
and cash flows for the three and six months ended June 30, 2016 and 2015 have been included. Operating results for the three and
six months ended June 30, 2016 are not necessarily indicative of the results to be expected for any subsequent interim period
or for the year ending December 31, 2016. The balance sheet at December 31, 2015 included herein was derived from the consolidated
financial statements included in the Company’s Annual Report on Form 10-K as of that date. Accordingly, the consolidated
financial statements included herein should be reviewed in conjunction with the consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the Securities
and Exchange Commission (“SEC”) on April 14, 2016. Some reported amounts have been reclassified to conform
to current-period presentation, although no net effect on the previously-reported financial information
Basis
of Consolidation
- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Note
2 - Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The Company has negative working capital of $565,085 and an accumulated deficit of $3,974,954 as of June 30, 2016, and it reported
net losses for past two years. These factors, among others, raise substantial doubt about the Company’s ability to continue
as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company needs to raise additional capital from external sources or from shareholder loans to
support it operation. There is no assurance that the Company will be able to obtain any additional or obtain additional funding
with acceptable terms.
COLORSTARS
GROUP AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 - Concentration of Risk
For
the six months ended June 30, 2016, products sold to largest customers accounted for approximately 59% of total revenue. Products
purchased from three suppliers accounted for approximately 56%, 18% and 17% of the total purchases during the six months ended
June 30, 2016.
For
the six months ended June 30, 2015, products sold to two customers accounted for approximately 58% and 15% of total revenue. Products
purchased from three suppliers accounted for approximately 30%, 17% and 15% of the total purchases during the six months ended
June 30, 2015.
Note
4 - Long Term Investments
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Cost-method investment – Anteya
Technology Corp
|
|
|
|
|
|
|
|
|
Carrying value of investment
at the beginning
|
|
$
|
-
|
|
|
$
|
137,767
|
|
Exchange difference
|
|
|
-
|
|
|
|
(24,590
|
)
|
Loss on impairment
of investments
|
|
|
|
|
|
|
(113,177
|
)
|
|
|
|
|
|
|
|
|
|
Carrying value
at the end
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net value
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company adopted the provisions of ASC 820, which require us to determine the fair value of financial assets and liabilities using
a specified fair-value hierarchy. The objective of the fair-value measurement of our financial instruments is to reflect the hypothetical
amounts at which we could sell an asset or transfer a liability in an orderly transaction between market participants at the measurement
date (exit price). ASC 820 describes three levels of inputs that may be used to measure fair value, as follows:
Level
1 value is based on observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 value is based on inputs other than quoted market prices included in Level 1 that are observable for the asset or liability
either directly or indirectly.
Level
3 values are driven by models with one or more significant inputs or significant value drivers that are unobservable.
Anteya
Technology Corp (Anteya) is a private company incorporated in Taiwan. The equity interest held by the Company is 13.68% on June
30, 2016.
The
unaudited financial information of Anteya Technology Corp. as of June 30, 2016 and December 31, 2015 and for the six months ended
June 30, 2016 and 2015 (in US dollars) are as follows:
COLORSTARS
GROUP AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
4 - Long Term Investments (continued)
Anteya
Technology ceased operations in April 2017 and, as a result, no future economic benefit was considered realizable by the Company
and, as a result, the investment was fully impaired in the year ended December 31, 2015.
Fin-Core
(holding roughly 57,000 shares) had no actual operating behavior and had deducted by full impairment.
Balance sheet
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
4,553,165
|
|
|
$
|
3,849,571
|
|
Non-current assets
|
|
|
840,079
|
|
|
|
723,833
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
5,393,244
|
|
|
|
4,573,404
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,490,398
|
|
|
|
1,361,178
|
|
Non-current liabilities
|
|
|
1,579,745
|
|
|
|
1,590,979
|
|
Stockholders’
equity
|
|
|
1,323,101
|
|
|
|
1,621,247
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’
equity and liabilities
|
|
|
5,393,244
|
|
|
$
|
4,573,404
|
|
|
|
Six months ended June
30,
|
|
Statement of operation
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net sale
|
|
$
|
1,249,974
|
|
|
$
|
1,451,200
|
|
Cost of goods
sold
|
|
|
(1,107,439
|
)
|
|
|
(1,301,373
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
142,535
|
|
|
|
149,827
|
|
Operating and
non-operating expenses
|
|
|
(510,730
|
)
|
|
|
(572,061
|
)
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
(368,195
|
)
|
|
$
|
(422,234
|
)
|
Note
5- Inventory
Inventories
stated at the lower of cost or market value are as follows:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
745,891
|
|
|
$
|
742,003
|
|
Allowance for
Inventory Valuation and Obsolescence Losses
|
|
|
(745,891
|
)
|
|
|
(742,003
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
COLORSTARS
GROUP AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
5- Inventory (continued)
The
Company decided to shift in operational focus and that it was determined remaining inventory had little-to-no value, thus fully
impaired at December 31, 2015.
Note
6 - Income Taxes
The
Company is subject to U.S. federal income tax as well as income tax in states and foreign jurisdictions(Taiwan). For the major
taxing jurisdictions, the tax years 2013 through 2015 remain open for state and federal examination. The Company believes assessments,
if any, would be immaterial to its consolidated financial statements. With respect to the foreign jurisdiction, the Company is
no longer subject to income tax audits for the year 2015 (inclusive).
The
income tax provision information is provided as follows:
|
|
Three months ended June
30,
|
|
|
Six months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Component of income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
(32,838
|
)
|
|
$
|
(210,663
|
)
|
|
$
|
(46,887
|
)
|
|
$
|
(236,276
|
)
|
Foreign
|
|
|
(38,765
|
)
|
|
|
43,578
|
|
|
|
(26,255
|
)
|
|
|
35,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(71,603
|
)
|
|
$
|
(167,085
|
)
|
|
$
|
(73,142
|
)
|
|
$
|
(200,684
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State and local
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
$
|
677
|
|
|
|
-
|
|
|
$
|
9,087
|
|
Income
tax benefit(loss)
|
|
$
|
-
|
|
|
$
|
677
|
|
|
$
|
-
|
|
|
$
|
9,087
|
|
Note
7 - Bank Short Term Debt
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Short term loan
|
|
$
|
526,111
|
|
|
$
|
517,600
|
|
The
Company signed revolving credit agreements with a lending institution. The interest rate on short-term borrowings outstanding
as of June 30, 2016 is 1.80% per annum, as of December 31, 2015, interest rate is 1.94% per annum. The short term debt is secured
by:
|
1.
|
personal
guarantee from directors
|
|
2.
|
the
realty property of spouse of directors
|
Note
8 - Long Term Loan
The Company signed sales with buyback agreement
of 5 million New Taiwan Dollars (US$154,750.85) with Chailease Finance Co., Ltd. in July 2016. The loan is amortized to 36 months
and the monthly repayment amount is based on the remaining principal at the beginning of each 12 months. The interest rate is fixed
at 6.37% per annum over the term of the agreement. For the first 12 months of the term the monthly repayment was $196,000 NTD
(US$6,066.23) beginning in July 2016, and fixed for the next 12 months until June 2017. The monthly repayment was reduced to $168,000
NTD (US$5,199.63) beginning in July 2017, and fixed for the next 12 months until June 2018. However the company made an overall
repayment of the remaining amounts due of $2,283,954 NTD (US$70,688.77) on Feb. 13, 2018 and terminated this loan agreement.
COLORSTARS
GROUP AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
9 - Geographic Information
Product
revenues for the six months ended June 30, 2016 and 2015 are as follows:
|
|
Three months ended June
30,
|
|
|
Six months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers based in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
28,998
|
|
|
$
|
110,361
|
|
|
$
|
69,864
|
|
|
$
|
108,879
|
|
Asia
|
|
|
5,980
|
|
|
|
10,885
|
|
|
|
7,847
|
|
|
|
198,147
|
|
United States
|
|
|
44,731
|
|
|
|
259,628
|
|
|
|
123,835
|
|
|
|
263,463
|
|
Others
|
|
|
3,076
|
|
|
|
-
|
|
|
|
3,776
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,785
|
|
|
$
|
380,874
|
|
|
$
|
205,322
|
|
|
$
|
570,489
|
|
Note
10 - Related Party Transactions
The
Company has recorded expenses for the following related party transactions for six months ended June 30, 2016 and 2015:
|
|
Six months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Purchase from Anteya Technology
Corp
|
|
$
|
68,706
|
|
|
$
|
56,661
|
|
Rent paid to Mr. Wei-Rur Chen
|
|
|
21,976
|
|
|
|
23,074
|
|
As
of the balance sheet date indicated, the Company had the following receivable and liabilities recorded with respect to related
party transactions:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Anteya Technology Corp
|
|
|
|
|
|
|
|
|
Due
(to) from affiliate
|
|
$
|
(7,005
|
)
|
|
$
|
712
|
|
Mr. Wei-Rur Chen
|
|
|
|
|
|
|
|
|
Payable to Shareholder
|
|
$
|
(70,000
|
)
|
|
$
|
(20,000
|
)
|
The
Company leases office space from Mr. Wei-Rur Chen which the term for the agreement is from November 2015 to November 2020 with
amount rent of $45,000. Rent payments were $21,976 and $23,074 for the six months ended June 30, 2016 and 2015 respectively.
The
Company conducted business with a related party company Anteya Technology Corp. The Company owns 13.68% of the outstanding common
stock of Anteya Technology Corp as of June 30, 2016. All transactions were at market-based prices.
Mr.
Wei-Rur Chen made various advances to the Company. The balance of advance was $70,000 as of June 30, 2016. The advances are non-interest
bearing and due on demand.
COLORSTARS
GROUP AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
10 - Commitments
The
company leases offices in Taiwan under operating leases. Minimum future rental payments due under non-cancelable operating leases
with remaining terms at June 30, 2016 are as follows:
|
|
|
For
the year ended
December
31,
|
|
2016
|
|
$
|
22,282
|
|
2017
|
|
|
44,565
|
|
2018
|
|
|
44,565
|
|
|
|
$
|
111,412
|
|
|
|
Six months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
Rent expenses
|
|
$
|
21,976
|
|
|
$
|
37,072
|
|
Note
11 - Subsequent Events
The
Company evaluated all events subsequent to June 30, 2016 through the date of the issuance of the financial statements, there are
no other significant or material transactions to be reported except as follows:
On
June 14, 2016, the Public Company Accounting Oversight Board (“PCAOB”) issued an order, which among other things,
revoked the PCAOB registration of
Michael F. Albanese, CPA
(“Albanese”),
who had been the independent registered public accounting firm of the Company since December 29, 2005. As a result of that revocation,
the Company could longer include the audit report and consent of Albanese in its filings and other reports with the Securities
and Exchange Commission. In light of the foregoing actions by the PCAOB, the Company deemed that Albanese would no longer be engaged
as the Company’s independent registered public accounting firm. On July 11, 2016, the Company engaged Partiz & Company,
P.A. (“Paritz”) as the Company’s independent registered public accounting firm.
Effective
as of June 15, 2017, the Board of Directors of the Company determined to dismiss Partiz as the Company’s independent registered
public accounting firm. On June 15, 2017, the Company engaged Anton & Chia, LLP (“Anton & Chia”) as the Company’s
independent registered public accounting firm.
On
October 5, 2017, the Company completed the sale of a total of 12,825,625 shares of Company common stock to 13 investors at a price
per share of US $0.0264 for a total of US $337,961.13 in proceeds to the Company.
On
November 13, 2017, the Company completed the sale of a total of 10,000,000 shares of Company common stock to 11 investors at a
price per share of US $0.033 for a total of US $330,000 in proceeds to the Company.
Effective
as of January 2, 2018, the Company dismissed Anton & Chia, LLP (“Anton & Chia”) as the Company’s independent
registered public accounting firm. Anton & Chia did not issue any reports on the audited financial statements of the Company.
On January 2, 2018, the Company engaged Fruci & Associates II, PLLC (“Fruci”) as the Company’s independent
registered public accounting firm.
On
February 5, 2018, the Company completed the sale of a total of 12,000,000 shares of Company common stock to 23 investors at a
price per share of US $0.034188 for a total of US $410,256.38 in proceeds to the Company.
On
February 14, 2018, Ms. Chiu Mei-Ying resigned as a Director and the Secretary of the Company. Her resignations were not the result
of any disagreements with the Company. Effective February 21, 2018, the remaining two directors on the Board of Directors of the
Company appointed Mr. Wilson Chen to the Board of Directors to fill the vacancy created by the resignation of Ms. Chiu Mei-Ying.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Forward
Looking Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the
words “believes”, “project”, “expects”, “anticipates”, “estimates”,
“intends”, “strategy”, “plan”, “may”, “will”, “would”,
“will be”, “will continue”, “will likely result”, and similar expressions. We intend such
forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with those safe-harbor
provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our
operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Further information concerning our business, including additional factors that could materially affect
our financial results, is included herein and in our other filings with the SEC.
Overview
(a)
Business Overview
.
ColorStars
Group (“we”, “us”, “our”, the “Company”) was initially incorporated in the Province
of Ontario, Canada on January 21, 2005. On November 3, 2005, we converted to a Nevada corporation. We are a vertically integrated
lighting company that develops light emitting diodes (“LED”) based lighting products for general consumer applications
as well as LED lighting products for professional lighting installations. Our LED lighting application development activity ranges
from LED packaging to optical lens and heat management, from retrofit LED lamps and bulbs to lighting fixtures designed for general
and special lighting applications. The Company intends to change its business model into a holding company due to environmental
changes in 2018 adversely affecting the LED lighting market. The Company’s business model commencing in 2018 is to acquire
various operating companies. There is no assurance that the Company will be able to acquire any operating companies.
(b)
Significant Business Transactions Overview
.
On
July 24, 2005, we entered into an acquisition agreement with ColorStars, Inc., a Taiwanese corporation (“ColorStars Taiwan”),
pursuant to which, on February 14, 2006, the shareholders of ColorStars Taiwan were issued shares of our Company in exchange for
their shares of ColorStars Taiwan. This resulted in ColorStars Taiwan becoming a wholly owned subsidiary of the Company. Specifically,
for each share of common stock outstanding of ColorStars Taiwan (1,500,000 shares of ColorStars Taiwan were issued and outstanding
at such time), 20 shares of our common stock were issued in exchange for each such share (the aggregate of 30,000,000 shares of
our common stock).
On
March 20, 2009, ColorStars Taiwan acquired 50.4% of the outstanding common shares of Fin-Core Corporation, a Taiwanese corporation
(“Fin-Core”) for a cash consideration of US $468,262. This resulted in Fin-Core becoming a subsidiary of ours. The
purchase price for the common shares of Fin-Core was determined through private negotiations between the parties and was not based
upon any specific criteria of value. Fin-Core is principally engaged in the design and manufacturing of thermal management devices,
the design and manufacturing of electrical and lighting devices and trade, and the import and export of electrical and lighting
devices.
On
July 7, 2010, ColorStars Taiwan sold 30.4% of its common shares of Fin-Core to Meiloon Industrial Co., Ltd., a publicly traded
company on the Taiwan Stock Exchange, for a cash offering of US $429,000. As a result of this transaction, ColorStars Taiwan owned
only 20% of the outstanding common shares of Fin-Core.
On
August 5, 2009, ColorStars Taiwan acquired a 51% equity interest in Jun Yee Industrial Co., Ltd., a Taiwanese corporation (“Jun
Yee”) for a cash consideration of US $536,000. The purchase price for the equity interest in Jun Yee was determined through
private negotiations between the parties and was not based upon any specific criteria of value. Upon acquiring the equity interest,
Jun Yee became a subsidiary of ours. The principal activity of Jun Yee is the manufacturing of LED light.
On
November 26, 2010, ColorStars Taiwan entered into two related stock purchase agreements whereby ColorStars Taiwan sold all of
its shares of Jun Yee common stock to Mr. Ming-Chun Tung and Ms. Ming-Fong Tung. Pursuant to the stock purchase agreement entered
into with Mr. Ming-Chun Tung, ColorStars Taiwan sold 265,000 shares of its Jun Yee common stock to Mr. Ming-Chun Tung at a price
per share of NTD $23 (USD $0.76) for a total purchase price of NTD $6,095,000 (USD $200,427). Furthermore, pursuant to the stock
purchase agreement entered into with Ms. Ming-Fong Tung, ColorStars Taiwan sold 500,000 shares of its Jun Yee common stock to
Ms. Ming-Fong Tung at a price per share of NTD $23 (USD $0.76) for a total purchase price of NTD $11,500,000 (USD $378,165). As
a result of the transactions consummated above, Jun Yee is no longer our subsidiary.
In
October 2011, Fin-Core decided to increase its capital by issuing 3,000,000 new shares at par value of NTD10 per share. The Company
was entitled to subscribe for up to 600,000 shares for NTD 6,000,000. However, the Company chose not to participate in the subscription
of any newly issued shares of Fin-Core. As a result, on November 4, 2011, the Company’s equity interest in Fin-Core decreased
to 11.43% from 20% after issuance of 3,000,000 new shares.
On
Dec. 20, 2012, Fin-Core Corporation decreased its total shares from 7,000,000 to 500,000. The Company’s invested cost and
percentage of shareholding were unchanged after the share consolidation. The Company held 57,143 shares in Fin-Core after the
consolidation.
On
December 28, 2012, Fin-Core increased its total shares to 1,100,000 shares with a new capital injection. The Company decided to
not participate in the new share subscription and kept its total shares at 57,143. As a result, on December 31, 2012, the Company’s
equity interest in Fin-Core decreased to 5.19%. As a result of the consolidation and subsequent increase in outstanding shares,
Fin-Core is no longer deemed our subsidiary.
In
2004, ColorStars, Inc. based in Taiwan acquired 20% of the outstanding common shares of Anteya Technology Corporation. Anteya
provides the OEM service to us for the TRISTAR, EZSTAR, R4, LUXMAN, and HB series of product lines. On August 16, 2012, Anteya
increased its share capital from 5,000,000 shares to 6,500,000 shares, and we subscribed for 300,000 additional shares at par
value. The Company now holds a total of 1,300,000 shares in Anteya representing a total investment of NTD $27,304,000 (USD $910,492).
The Company did not subscribe additional shares in Anteya when Anteya increased its outstanding shares from 6,500,000 shares to
9,500,000 shares. As a result, the Company’s equity position in Anteya decreased from 20% to 13.68% as of June 30, 2016.
On
October 13, 2008 we acquired 2,800 shares in a German company, Phocos AG. On May 27, 2013, the Company sold its 2,800 shares of
Phocos AG to MUUS Horizen Fund 1, LP for $30 EU per share ($84,000 EU in total). The Company has no remaining stake in Phocos
AG.
(c)
Material Transactions During the Reporting Period
.
None.
Results
of Operations
Comparison
of Three Months Ended June 30, 2016 to Three Months Ended June 30, 2015
Net
Sales.
Net sales decreased to $82,785 for the three months ended June 30, 2016, from $380,874 for the three months ended June
30, 2015. The decrease in sales was due to global competition and lack of new products launching this period.
Cost
of Goods Sold.
Cost of goods sold decreased to $58,385 for the three months ended June 30, 2016 from $414,467 for the three
months ended June 30, 2015. The decrease in cost of goods sold was primarily due to the decrease in overall sales.
Gross
Profit.
Gross profit increased to $24,400 for the three months ended June 30, 2016 from ($33,593) for the three months ended
June 30, 2015. The increase in gross profit was primarily due to normal profit margin recovered from the inventory sold off in
our US office in the same period of 2015.
Gross
Profit Percentage.
Gross profit percentage increased to 29.47% for the three months ended June 30, 2016 from -8.81% for the
three months ended June 30, 2015. The increase in gross profit percentage was primarily due to high profit items movement during
the period.
Selling,
General and Administrative Expenses.
Selling, general and administrative expenses decreased to $73,060 for the three months
ended June 30, 2016 from $95,353 for the three months ended June 30, 2015. The decrease in selling, general and administrative
expenses is primarily related to closing the California sales office.
Research
and Development Expenses
. Research and development (R&D) expenses decreased to $0 for the three months ended June 30,
2016 as compared to $715 for the three months ended June 30, 2015. The lack of research and development expenditure was due to
overall lack of profitability.
Depreciation
and Amortization.
Depreciation and amortization increased to $7,330 for the three months ended June 30, 2016 from $6,802 for
the three months ended June 30, 2015. The increase in depreciation and amortization was mainly due to new installation of air
conditioning system in our Taipei office.
Interest
Expense
. Interest expense decreased to ($2,283) for the three months ended June 30, 2016 from ($2,636) for the three months
ended June 30, 2015. The decrease in interest expense was due to foreign exchange fluctuation for the period.
Net
Income (loss)
. For the three months ended June 30, 2016, we incurred a net loss of $(71,603) as compared to a net loss
of $(167,085) for the three months ended June 30, 2015. The decrease in net loss was primarily a result of decrease of total sales
and reduction of overall operational expenses.
Comparison
of Six Months Ended June 30, 2016 to Six Months Ended June 30, 2015
Net
Sales.
Net sales decreased to $205,322 for the six months ended June 30, 2016, from $570,489 for the six months ended June
30, 2015. The decrease in sales was due to global competition and lack of new products launching this period.
Cost
of Goods Sold.
Cost of goods sold decreased to $140,754 for the six months ended June 30, 2016 from $498,177 for the six months
ended June 30, 2015. The decrease in cost of goods sold was primarily due to the decrease in overall sales.
Gross
Profit.
Gross profit decreased to $64,568 for the six months ended June 30, 2016 from 72,312 for the six months ended June
30, 2015. The decrease in gross profit was primarily due to the decrease in overall sales.
Gross
Profit Percentage.
Gross profit percentage increased to 31.45% for the six months ended June 30, 2016 from 12.68% for the
six months ended June 30, 2015. The increase in gross profit percentage was primarily due to high profit items movement during
the period.
Selling,
General and Administrative Expenses.
Selling, general and administrative expenses decreased to $146,125 for the six months
ended June 30, 2016 from $204,371 for the six months ended June 30, 2015. The decrease in selling, general and administrative
expenses is primarily related to closing the California sales office.
Research
and Development Expenses
. Research and development (R&D) expenses decreased to $0 for the six months ended June 30, 2016
as compared to $705 for the six months ended June 30, 2015. The lack of research and development expenditure was due to overall
lack of profitability.
Depreciation
and Amortization.
Depreciation and amortization increased to $15,826 for the six months ended June 30, 2016 from $13,274 for
the six months ended June 30, 2015. The increase in depreciation and amortization was mainly due to new installation of air conditioning
system in our Taipei office.
Interest
Expense
. Interest expense increased to ($4,554) for the six months ended June 30, 2016 from ($5,892) for the six months ended
June 30, 2015. The increase in interest expense was due to increase in short-term loan and foreign exchange fluctuation for the
period.
Net
Income (loss)
. For the six months ended June 30, 2016, we incurred a net loss of $(73,142) as compared to a net loss of $(200,684)
for the six months ended June 30, 2015.
Financial
Condition, Liquidity and Capital Resources
Our
revenues during the period ended June 30, 2016 were primarily derived from the sale of LED devices and systems. Although our financial
results for the period ended June 30, 2016 were mainly dependent on sales, general and administrative, compensation and other
operating expenses, our financial results as of such date were also dependent on the level of market adoption of LED technology
as well as general economic conditions.
Lighting
products remained relatively static for 50 years until recently, when lighting became one of the last major markets to be transformed
substantially by new technology. Because LED technology remains an emerging and expensive technology that has only recently become
more economically viable, market adoption has been slow. Given the recent economic downturn, liquidity has been constrained forcing
institutions and individuals to substantially reduce capital spending to focus only on critical path expenditures. LED lighting
products have been a discretionary rather than mandatory investment, and as a result, sales of our devices and systems have been
negatively impacted. We believe that as the global economy grows and provides institutions and individuals with greater liquidity,
sales of our devices and systems will increase.
Increased
market awareness of the benefits of LED lighting, increasing energy prices and the social movement influencing individuals and
institutions towards greater investment in energy-efficient products and services will have, we believe, an increasingly positive
impact on our sales in the future. Additionally, as of June 30, 2016, we intended to utilize our strategic partnerships to help
us reduce the component and production costs of our devices and systems in order to offer them at competitive prices. Further,
we believed our ability to provide attractive financing options to our clients with respect to the purchase of our devices and
systems will positively affect our sales.
Net
cash provided by (used in) operating activities.
During the six months ended June 30, 2016, net cash used for operating activities
was ($160,983) compared with ($5,086) used in operating activities for the six months ended June 30, 2015. The cash flow provided
in operating activities in the six months ended June 30, 2016 was primarily the result of decrease in bad debt recovery and prepaid
expenses and other current asset. The cash flow used in operating activities in the six months ended June 30, 2015 was primarily
the result of net loss in operations.
Net
cash provided by (used in) investing activities
. During the six months ended June 30, 2016, net cash used in investing activities
was $-0- compared with $(10,175) used in investing activities for the six months ended June 30, 2015.
Net
cash provided by (used in) financing activities.
During the six months ended June 30, 2016, net cash provided in financing
activities was $234,325 compared with $20,000 provided in investing activities for the six months ended June 30, 2015.
As
of the quarter ending June 30, 2016, we anticipated that our available cash and cash resources from expected revenues will be
sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months.
As
of the quarter ending June 30, 2016, we had an outstanding short-term loan with Bank SinoPac of Taiwan. We entered into one written,
short-term loan agreements with this bank on February 24, 2016. The loan is secured by real property of Tsui-Ling Lee, spouse
of Wei-Rur Chen, our president and CEO. The terms of the loan agreement is described in further detail in the chart below:
Lender
|
|
Borrower
|
|
Loan
Amount
|
|
Term
|
|
Interest
Rate
|
Bank
SinoPac of Taiwan
|
|
ColorStars,
Inc.
|
|
Seventeen
Million New Taiwan Dollars (NTD $17,000,000)(1)
|
|
February
24, 2016 to August 23, 2016
|
|
Fixed
at 1.80% per annum
|
(1)
NTD $17,000,000 is approximately USD $526,211.
Our
continued existence is dependent upon several factors, including increased sales volumes, collection of existing receivables and
the ability to achieve profitability from the sale of our products. In order to increase our cash flow, we are continuing our
efforts to stimulate sales.
Recent
Developments
There
are no recent developments to report.
Inflation
At
this time, we do not believe that inflation and changes in price will have a material effect on operations.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Related
Party Transactions
The
Company leases office space from Mr. Wei-Rur Chen. The Company leases office space from Mr. Wei-Rur Chen which the term for the
agreement is from November 2015 to November 2020 with amount rent of $45,000. Rent payments were $21,976 and $23,074 for the six
months ended June 30, 2016 and 2015 respectively. Mr. Wei-Rur Chen owns one hundred percent (100%) interest in the lease agreement.
Mr. Wei-Rur Chen is the President, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of the Company,
as well as beneficial owner of more than five percent (5%) of the Company’s common stock.
The
Company also conducted business with a related party company Anteya Technology Corp. The Company owns 13.68% of the outstanding
common stock of Anteya Technology Corp as of June 30, 2016. All transactions were at market-based prices.